All Forum Posts by: Austin Fowler

 See my thing is I'd expect interest rates to continue to increase at smaller percentages...this is what powell basically said they were going to do. The thing is, we still have persistent high inflation, so maybe lower rate hikes over a longer period of time. Layoffs are just starting to tick up, but there will be more to come...all this takes time to play out. 

The "waiting for rates" thing makes no sense. Rates will go up then they will come back down slightly and stay there, they're not going to be back at sub 3% - we already saw what that did and rates this low have never happened in history either. So could it happen again...yes, but probably not. Rates have literally been decreasing since the 80s...makes you wonder if some of the appreciation the housing market saw over the last 40 years was due to that. 

I mean, all else equal, it's always better to buy at a higher rate & lower price vs higher price and lower rate. 

See thing kicker here is supply and demand - supply takes a long time to change and has remained relatively constant. Demand on the other hand can change rapidly (supply cannot keep up with demand) - when the govt drops rates demand ramps up quickly (and supply cannot keep up so we see an increase in prices). The interest rate is driving the demand...that's why now we are seeing the opposite a major drop in mortgage applications, asking prices etc due to interest rate hikes. The thing is...this takes time as well. Comps are driven from houses sold 6 months ago (but guess what interest rates have gone up significantly) so people are comparing their houses to those sold 6 months ago and wondering why they are not selling...priced too high! There will be many people in many areas that see a decrease in their home values. I mean something isn't going to go up 40-50% in a year and not come back down...

Quote from @Jeremy H.:

Quote from @Austin Fowler:

Quote from @V.G Jason:

Quote from @Jeremy H.:

 Well, let's look at the actual numbers.

9509 Briarcreek Drive, Oklahoma City, OK 73162

$225,000.00 purchase price

$225,000.00 appraisal at time of purchase

$58,936.60 total investor cash required to close (borrowed at 8%)

$1,765.00 monthly rent

8% management, another 8% total vacancy and maintenance, and with 15 properties this is a real vacancy and maintenance cost

$369.12 monthly taxes and insurance

$1,113.48 net operating income

5.94% cap rate

2.875% 30-year fixed mortgage

$395.68 monthly interest

$304.45 monthly principal

$413.35 net monthly cashflow

8.07% return on investor capital only counting cashflow

14.02% return on investor capital also including debt paydown

25.01% return on investor capital also including just 3% annual price growth.

I am clearly making far more that I pay investors in terms of the growth of my net worth, and with capital raised as savings accounts the interest capitalizes and is not a drain on my cashflow. When withdrawals occur, I raise more capital to replace it. I have no particular need to ever refinance this property, just keep acquiring more deals.

Still missing the part where it cashflows...

The principle is cool of using private capital to fund the downpayment and yes the investor payments will decrease over time. This is savvy I'll give you that. 

The strategy now is to wait until interest rates come back down from what you said. We have never in history seen sub 3% rates, my bet is that won't happen for a very long time if ever...so what will happen and what is happening right now is that prices are coming down because demand is down due to interest rates. So MOST places are not going to appreciate for awhile, lots of places are going to be underwater by 10%, this is happening right now. Like I said, I think it's a cool strategy to get ownership using private capital, but these places will not cashflow nor appreciate for a very long time in my opinion.

 The interest rate theory is a really interesting one, no pun intended. We're sitting at what 7-7.5% for conventional? Fed funds at 4? Before interest rates stop raising, but before they start dropping there will be a holding period. No one knows how long, and once it decreases, does anybody believe it'll drop as fast as it raised? 

So let's say peaking ends at 5% fed funds, which the market expectation(that's 9% for mortgages). Let's say that stops end of Q1 2023, how long are we going to hold that for before we take it down? Do people not realize we'll literally be sitting at a 5% fed funds rates for months(that could be 2,4, or 6, or more). That's pretty drastic. Now when it drops, it's not going down from 5% to 2.5% overnight(or 9% to 5% mortgage rates overnight).

We'll likely be sitting in this exact same spot again(7.5% mortgage/4% fed funds) sooner than we'll see 2.5% fed funds/5% mortgage rates. Now if that's wrong, and it drops as fast as it came up, we'll encounter hyperinflation and actually buying now or when rates are peaking makes the most absolute sense from an absolute value standpoint. So I don't get the logic of "waiting" for rates. I'm also contemplating just getting conventional loans/DSCR loans at these high rates with zero intention of re-fi. When I refi, the differential in the new appraisal vs old appraisal will give me a load of cash but it'll X out once I have to re-apply it. It's almost futile. We'll see the math then.

So if you're waiting for sub 4% to re-fi, you're going to get a massive appraisal on your house. That's good and bad if you're still heavily levered.

Quote from @Austin Fowler:

Quote from @V.G Jason:

Quote from @Jeremy H.:

 Well, let's look at the actual numbers.

9509 Briarcreek Drive, Oklahoma City, OK 73162

$225,000.00 purchase price

$225,000.00 appraisal at time of purchase

$58,936.60 total investor cash required to close (borrowed at 8%)

$1,765.00 monthly rent

8% management, another 8% total vacancy and maintenance, and with 15 properties this is a real vacancy and maintenance cost

$369.12 monthly taxes and insurance

$1,113.48 net operating income

5.94% cap rate

2.875% 30-year fixed mortgage

$395.68 monthly interest

$304.45 monthly principal

$413.35 net monthly cashflow

8.07% return on investor capital only counting cashflow

14.02% return on investor capital also including debt paydown

25.01% return on investor capital also including just 3% annual price growth.

I am clearly making far more that I pay investors in terms of the growth of my net worth, and with capital raised as savings accounts the interest capitalizes and is not a drain on my cashflow. When withdrawals occur, I raise more capital to replace it. I have no particular need to ever refinance this property, just keep acquiring more deals.

Still missing the part where it cashflows...

The principle is cool of using private capital to fund the downpayment and yes the investor payments will decrease over time. This is savvy I'll give you that. 

The strategy now is to wait until interest rates come back down from what you said. We have never in history seen sub 3% rates, my bet is that won't happen for a very long time if ever...so what will happen and what is happening right now is that prices are coming down because demand is down due to interest rates. So MOST places are not going to appreciate for awhile, lots of places are going to be underwater by 10%, this is happening right now. Like I said, I think it's a cool strategy to get ownership using private capital, but these places will not cashflow nor appreciate for a very long time in my opinion.

Quote from @Austin Fowler:

Quote from @V.G Jason:

Quote from @Jeremy H.:

Hmmmmm 

Congrats pretty cool deal structuring you have going...

I'd be interested in seeing how much these turnkey places cashflow and what the ROI is (being a turnkey it already has lower margins and very laxed estimates on vacancy/repairs/CapEx) after paying investors 8%, purchasing at market rate and at 100% financed. I have seen RE Nation spreadsheets and while that may be their real world experience I personally find many of their expense estimates very low - while only a "rule of thumb" their properties don't come close to touching the 1% rule.

Interesting angle that you plan to refinance at "reasonable" rates. What's a reasonable rate to you? The sub 3% rates are the lowest in history, I could see a 5-6% rate being the norm, but I would be careful planning to refinance at rates equal or lower to 4%. In order to get your monthly payment down you would have to refinance at a lower rate or a much lower mortgage balance (which means you are holding the property for a very very long time). On top of this, you would be using a DSCR loan with an adjustable rate for the majority of the properties? What's the plan when you have to refinance or pay off the property and the rate goes up?

What are the terms on the investors savings accounts? 8%/year for 30 years for a conventional loan? Seems like a no brainer for them. I give you 10k as a downpayment and you send me an $800 check per year for 30 years?

I think appreciation may be your main friend here and this seems to be a very long term 20+ year strategy, but it's a very neat idea at the same time.  

Agreed, I am not sure the math really adds up here curious to the actual numbers. If your original interest rate was 2.75% that's great, the rental rate I assume has gone up in almost two years but its likely you're only capitalizing on that once a year which is negated by taxes.

But if you're paying a 8% note and you're 100% leveraged, don't see how this cash flows unless it's an interest only deal then you're totally back end exposed and not gaining any equity when you do re-fi. Also, waiting to refinance to another 30 year term when rates come down is a time game, who says they ever come down what if this is considered "low"? And secondly doesn't refi usually require an appraisal. So if/when rates comes down, and your property gets re-evaluated higher, won't your new loan be bigger albeit at a lower rate?

 Well, let's look at the actual numbers.

9509 Briarcreek Drive, Oklahoma City, OK 73162

$225,000.00 purchase price

$225,000.00 appraisal at time of purchase

$58,936.60 total investor cash required to close (borrowed at 8%)

$1,765.00 monthly rent

8% management, another 8% total vacancy and maintenance, and with 15 properties this is a real vacancy and maintenance cost

$369.12 monthly taxes and insurance

$1,113.48 net operating income

5.94% cap rate

2.875% 30-year fixed mortgage

$395.68 monthly interest

$304.45 monthly principal

$413.35 net monthly cashflow

8.07% return on investor capital only counting cashflow

14.02% return on investor capital also including debt paydown

25.01% return on investor capital also including just 3% annual price growth.

I am clearly making far more that I pay investors in terms of the growth of my net worth, and with capital raised as savings accounts the interest capitalizes and is not a drain on my cashflow. When withdrawals occur, I raise more capital to replace it. I have no particular need to ever refinance this property, just keep acquiring more deals.

Appreciate the insight, but color me confused. I'm assuming you're paying investor over 30 years?

Purchase price: $225,000
Investor loan @ 8%: $59,000
Mortgage Loan @ 2.875%: $166,000
Investor Principal & Interest over 30 years: $734/mo
Mortgage Principle & Interest over 30 years: $689/mo
Taxes & Insurance: $369/mo
Total: $1,792
Rent: $1,765
Negative $27 of cash flow, without adding 8% vacancy and 8% property mgmt fees.

Quote from @Austin Fowler:

Quote from @Will Fraser:

Stellar to hear, Austin! 

That 8% savings account concept is an interesting angle!

I can't wait to see a "low rate pop" again!  

What makes a market a "win" for you?  There are a lot of nuances between OKC and Little Rock, Branson and Chicago, and I'm curious what your "deal" drivers are?

For me, it's all about conserving my time so I can scale. I therefore focus on turnkey properties. My favorite turnkey provider is REI Nation. A win for me in the past was a property that is 100% financed, cap rate 2 points above its 30-year fixed rate, rest of the capital from investors enjoying 8% savings accounts, and therefore cashflows after paying for itself including management.

Moving forward, a win will be a 6% cap rate from REI Nation, 100% financed with savings accounts. I'll start buying these when the Fed stops raising the rates then hold them until they can be refinanced at reasonable 30-year fixed rates.

What exactly does REI Nation do?

Refinancing into another 30 year conventional you can do with a few properties - this depends on your DTI (which if you have a high income there's not a big reason to reduce cashflow and pay someone else 8%) and the # of mortgages in your name. After you get a few the credit requirements go up tremendously, having this many loans and inquiries would lower your credit score to where you could not qualify for a conventional loan. So you're left with a variable rate commercial type loan with higher rates, adjustable rates after either 3/5/7/10 years, and a balloon payment (so you're forced to refi into higher rates at already incredibly thin margins). 

Secondly these properties were bought in 2021 and 2022 - at the peak of high prices. They are very likely worth less today than what they were bought for. Catching up this equity takes years because you're essentially slightly underwater on everything. You can't sell because it will cost you 6% plus and you'll likely have some fixing up to do after tenants. 

In this case these loans were taken as historically low rates - any refinance is going to result in a rate increase from the present rates. You have to hold the property for a long time (in order to decrease the mortgage balance enough) to get a lower monthly payment at higher rates. 

These turnkey places hardly cashflow with 20% down - financed at 100%, bought at market price, and paying 8% of the downpayment amount to investors would guarantee negative cashflow. 

So I looked one of these places up - the monthly rent was like .065% of the purchase price. There's no cashflow here. There's no ROI either because (1) there's no cashflow and (2) there's no built in equity (ie buying and rehabbing for 80% of the value of the house). 

The idea is ok because you own the property - but the execution is way off, the timing is way off, the numbers are way off. This is simply syndication on a smaller SFH scale. The ROI is so low here, if not negative, the money would best be put elsewhere. 

Quote from @Jeremy H.:

Hmmmmm 

Congrats pretty cool deal structuring you have going...

I'd be interested in seeing how much these turnkey places cashflow and what the ROI is (being a turnkey it already has lower margins and very laxed estimates on vacancy/repairs/CapEx) after paying investors 8%, purchasing at market rate and at 100% financed. I have seen RE Nation spreadsheets and while that may be their real world experience I personally find many of their expense estimates very low - while only a "rule of thumb" their properties don't come close to touching the 1% rule.

Interesting angle that you plan to refinance at "reasonable" rates. What's a reasonable rate to you? The sub 3% rates are the lowest in history, I could see a 5-6% rate being the norm, but I would be careful planning to refinance at rates equal or lower to 4%. In order to get your monthly payment down you would have to refinance at a lower rate or a much lower mortgage balance (which means you are holding the property for a very very long time). On top of this, you would be using a DSCR loan with an adjustable rate for the majority of the properties? What's the plan when you have to refinance or pay off the property and the rate goes up?

What are the terms on the investors savings accounts? 8%/year for 30 years for a conventional loan? Seems like a no brainer for them. I give you 10k as a downpayment and you send me an $800 check per year for 30 years?

I think appreciation may be your main friend here and this seems to be a very long term 20+ year strategy, but it's a very neat idea at the same time.  

Agreed, I am not sure the math really adds up here curious to the actual numbers. If your original interest rate was 2.75% that's great, the rental rate I assume has gone up in almost two years but its likely you're only capitalizing on that once a year which is negated by taxes.

But if you're paying a 8% note and you're 100% leveraged, don't see how this cash flows unless it's an interest only deal then you're totally back end exposed and not gaining any equity when you do re-fi. Also, waiting to refinance to another 30 year term when rates come down is a time game, who says they ever come down what if this is considered "low"? And secondly doesn't refi usually require an appraisal. So if/when rates comes down, and your property gets re-evaluated higher, won't your new loan be bigger albeit at a lower rate?

Hmmmmm 

Congrats pretty cool deal structuring you have going...

I'd be interested in seeing how much these turnkey places cashflow and what the ROI is (being a turnkey it already has lower margins and very laxed estimates on vacancy/repairs/CapEx) after paying investors 8%, purchasing at market rate and at 100% financed. I have seen RE Nation spreadsheets and while that may be their real world experience I personally find many of their expense estimates very low - while only a "rule of thumb" their properties don't come close to touching the 1% rule.

Interesting angle that you plan to refinance at "reasonable" rates. What's a reasonable rate to you? The sub 3% rates are the lowest in history, I could see a 5-6% rate being the norm, but I would be careful planning to refinance at rates equal or lower to 4%. In order to get your monthly payment down you would have to refinance at a lower rate or a much lower mortgage balance (which means you are holding the property for a very very long time). On top of this, you would be using a DSCR loan with an adjustable rate for the majority of the properties? What's the plan when you have to refinance or pay off the property and the rate goes up?

What are the terms on the investors savings accounts? 8%/year for 30 years for a conventional loan? Seems like a no brainer for them. I give you 10k as a downpayment and you send me an $800 check per year for 30 years?

I think appreciation may be your main friend here and this seems to be a very long term 20+ year strategy, but it's a very neat idea at the same time.  

Quote from @Austin Fowler:

Quote from @Derick Bonsu:

Congrats. VA loan?

No, I closed on this one in Jan 2021. 75% LTV 30-year fixed mortgage at 2.875%, my lowest rate out of the 33 SFRs I hold. The rest of the capital was raised by offering savings accounts that pay 8% per annum to investors. Moving forward I'll be waiting till the Fed stops raising rates then buying 6%+ cap rate properties from REI Nation 100% with investor capital. The holding them until rates are more reasonable and they can be refinanced.

Do you have a writeup on the detailsof this?  

Congrats. VA loan?