All Forum Posts by: Brian Hughes

Level of risk tolerance is a factor here.   @Todd Rasmussen 's proposal while absolutely valid,   is essentially investing on margin.   As such things go it is fairly low risk,   but nonetheless.    So if you are very conservative,  the 15 year might make more sense,   If more aggressive, or depending on what other asset type(s) you are interested in, someplace between that and what myself or Todd recommended.

(Of course,  buying property with a mortgage is itself investing on margin)

also,  if you are strapped for cash  (job loss,  etc)  you will find that you may not be able to refinance.  Lenders won't loan unless you have income.   So if you already have the 30 year and were just paying extra monthly,   you would not need to do anything except just start paying the minimum.

Also the loan rates you have quoted above seem quite high given current average rates,   but of course they vary based on type of property,  owner occupied status,  credit score,  and a zillion other factors.

@Jim Ying    Yes,  you can get lower rates with a 15 or 20 year - though how much lower does fluctuate.    My point with the 30 is you can get much of hte same benefit of the 15 or 20 (faster payoff) by just paying additional principal every month.   If you pay double the required principal amount on a new 30 year mortgage,   you increase your payment by only maybe 10-15% but for those early years you are essentially paying it off at the same rate as a 15 year.

Unlike a 15 or 20 year loan though,   if you do need the extra flexibility in a lower payment,  you can do it by just paying the minimum instead of being locked into the faster repayment schedule.

And with loan rates so ridiculously low right now,   you are still paying historically low rates even for the 30 year.

It totally depends on your plans.  If I were not planning/scheming to buy more property I may well have stayed with the 15 year repayment period loans.    But if you do want to buy additional property while retaining the condoo, then remember that when qualifying you for additional loans they don't look so much at the balance as they do at the monthly cost.   So having a payment obligation a few hundred dollars less for a 30 vs. a 15 directly translates into more buying power on another property.

But to be sure,  there is nothing irresponsible about getting a 15 year loan with an even lower rate, and paying it off faster.

The average 30 year fixed rate right now is under 3.5%.     The nice thing about 30 year fixed is you can always pay faster,  but you have the flexibility if you don't want to.   I had 15 year loan on my triplex for a while,   but the most recent refi I did (which still lowered the rate substantially) I went back to a 30,   in part so that I increased my loan qualification ability for future purchases.   That ultimately helped my ability to buy my 4-plex.    Another example is due to this whole COVID thing I am seeing reduced rents due to a tenancy having trouble,  and I am seeing and my own employment compensation having been reduced as my employer supplies the hospitality industry.  So I have reduced my extra principal payments to retain similar monthly cash flow.

You should be able to save at least $4000/year (1+% rate difference on $200+K principal) even if you only refi the main loan at the same balance down to 3.5%,   that would pay off any refi costs within a year most likely.    

I'd close the HELOC if I were you and if you want more cash, do a cash out refi instead maybe to 300K total but keep lots of equity for best rates and so the rent can pay for it all. Otherwise I would assume having it might impact your ability to refi. You could always open another one later.

Since the place is non owner occupied you might not get the best rates but I am sure you can do way better than you are.

Last option:   Sell.   Its in Seattle,  which is very anti landlord and only getting worse.   That would also give you some capital sufficient to put a down on a 2-4 unit property someplace else in the region,  though the condo is probably much lower maintenance and probably rents to a more affluent demographic than who might live in a duplex in lynnwood or burien, etc.

If you want PM me and I will send you the contact info for the mortgage broker I use,  who has never failed to give me the most competitive rates and no drama.

Ha-   you must be along rainier avenue or in the seward area.   I'm nearby in URB.  

If you are WITHIN seattle city limits, almost any home can have one or two ADU/DADU per recent changes in "single family" zoning. Whether both accessory units can be in the main structure depends on the size of the house and lot and the relative size of the units among many other factors. Being lake front probably complicates things due to proximity to water (drainage, environment critical area, etc. I would imagine that mostly impacts things if adding a DADU or changing the exterior of the property.

That said,   if the home is currently built-as single family you would still need to pull all the permits, and go through all the rigomoral (sp?) to get permission to add these units.   Probably step one is talk to an architect who works on these sorts of jobs.   They are probably less busy now that even a couple months ago so it might be a good time. 

Assuming the rental is in seattle as OP is,   Seattle has an (annoying but its the law)  ordinance https://www.seattle.gov/civilrights/civil-rights/fair-housing/first-in-time dictating how rental applications must be processed -  This is the first-in-time ordinance.   It specifically disallows processing multiple applications in parallel and comparing applicants against each other.    There are a lot of complications of course but it boils down to you must specify ALL your rental qualification criteria up front and ensure the applicants have the information,  then you must process all completed applications in the order you receive them,  and give each approved applicant time to accept (or decline) before moving on to the next one.   You cannot consider ANY criteria you did not specify in your written qualifications.

Again,  assuming the rental is in seattle,  I strongly recommend reviewing the ordinance and adusting your process accordingly.   (and if not a member already,  consider joining RHA or other landlord groups in the area that, among other things, are working to combat or at least moderate rules like these)

Hi @Account Closed   thanks for the thoughts.   I'm sure this is one place where it is very beneficial to be a broker yourself.   I would absolutely retain a RE attorney as I mentioned ;  would be the same one I worked with on my duplex sale if at all possible.

I'm not trying to find a screaming, below market deal.   I know those for decent buildings at in-demand locations are unicorns.   I plan to make a defensible offer based on recent nearby comps and what the property's actual current income is;  this would save everybody at least some overhead.   The property I am targeting appears to be basically well maintained though it does have some visible deferred maintenance, but nothing out of the range I have dealt with on everything else I have ever bought,   but it is long term ownership and I have good reason to believe (sneaky spying via google street view) the ownership is quite elderly at this point.   So it isn't out of the realm of possibility that selling has crossed their minds.   Its worth writing a letter at least.   the worst they can do is say no.  If it turns out the paperwork/title on the property is a mess I can just walk.

BH

All people regardless of income need an affordable place to live -  That's fine.   However,  laws like requiring installment payments are one example of many policy proposals either implemented in some jurisdictions, or being pushed that put that responsibility and additional risk to provide the housing onto a small group of people - landlords like us.   If housing is a 'right' as you are implying then its a societal responsibility to pay for it - not just one subset of people's responsibility.

Farmers and grocers aren't required to take installment payments if someone is having trouble paying,  Neither are doctors and nurses required to provide their services under such terms.   In both cases there are programs like SNAP and Medicaid that pay actual or (generally) reasonable costs for those services.   

In our domain there is programs like section 8 - which we all know is grossly underfunded relative to the need,  and has other problems that make it a much less appealing program to cooperate with than it could be.   Some reforms and a little more budget there could do a lot more for the people at the bottom of the economic ladder I suspect.

That said,   I should also ask this question:   If somebody can't come up with say 2 months rent worth of move in costs (the first month and an equal deposit lets say) up front, but can pay it over 3 equal installments,   why could they not save those funds ahead of time?   If they could save at even half that rate for a year,  they would have double the needed funds.  That would put an emergency fund in place that could be used for a variety of purposes,  including but not limited to move in costs for replacement housing.   

I'm thinking of making an unsolicited offer on a 5+ unit multifamily property in Burien,  WA.   Its about the right size / type / condition for the property I would like to find to upgrade from the duplex I sold in 2019,   and from my research,  it is likely that the ownership are getting to the point in their tenure where selling might be on their minds.

Given the building's likely income/expense numbers  (I own a nearby, similar style/quality property I can extrapolate from) I can make an educated guess to its value and given that value range I can afford it without excess leverage.   I'm already working on the commercial loan pre-approval,   and I have an attorney identified I would work with to prepare / review contracts.   And,  I've purchased RE several times (with an agent) so I know the general process;  I just haven't gone it alone on buying.     (I did sell the Duplex off-market - but there the buyers did most of the work and I basically just had the attorney review everything)

Before I approach the ownership,  I'd like the chance though to talk with somebody who has gone through this process for small commercial scale multifamily properties (5-12 units) on their own.   What worked well,  what professionals helped you,  what were pitfalls,  what did you miss, what would you do differently,  etc.  

Thanks for any thoughts.   Dinner is on me if we meet in person.

My friends jokingly call me a slumlord too.

Slumlord is an attitude.   If you actually fix things, are transparent, fair and up front with tenants,  even if needing to raise rents to something that covers expenses, or while digging out the maintenance backlog of a badly undermaintained property,   you are not a slumlord.   Most halfway decent tenants will see that you give a dang and will respect that.