All Forum Posts by: Brian Volland

@Arianne L., it sounds like what I'm seeing, as far as the MLS is concerned, is typical then. A couple of units near the train tracks way over-priced and cheaply rented.

@William Allen I know you are putting together a meet up for investors in the area. I hope it goes well and becomes a regular occurrence as I'll clearly need to work on developing a good network of contacts if I intend to start investing in the area w/ MFRs. I don't move down for a couple months but it'll be good to know who is active in area beforehand regardless.  

Thank y'all for the help thus far!

Active Pensacola/Fort Walton Beach/Destin Area investors,

I'm looking to invest in your area/areas in small MFRs (2-4 units) and have begun researching currently available units to get a feel for the market. At asking price, I've seen only a couple of properties breaking $100/unit mark. Clearly i intend to negotiate but is $100/unit fairly standard for the area or is $200-$250/unit a reasonable and attainable mark to strive for? 

@Michael Kennedy, the short answer is that, yes, you can house hack a MFR with 4 units or less using your VA loan. There are limits to how much the VA loan will guarantee (usually $417k) and the restrictions for what is and is not acceptable during the VA appraisal are much tighter than most loans.

@David Dachtera, the kind of safety net I'm talking about is not about the numbers not working (as you mentioned, the numbers work or they don't). I'm talking about getting into the unit, "house hacking", and 1 month in a major expense occurs which could not have been predicted by me and will not be covered by insurance (such as expensive eviction). I'd rather go in with a pool of money to act as a buffer to help float the venture than assume nothing will happen and hoping for the best. 

While the plan you suggested is absolutely the kind of thing I will want to do in the future, I just don't feel comfortable having too many "firsts" all at the same time (first non-bank loan, first REI purchase, first rehab, first refi). I'd rather spread them out until I can be confident that my decisions are based on knowledge and experience and not risk the failure of any one causing a domino effect which ultimately causes me to become the distressed owner.

Will this safety (lack of risk) cost me money due to lost potential equity? Almost definitely; but I'd rather start by being a typical success than a grand failure.

@Troy Meyer, I went with $250,000 purchase price because that is about average when I'm looking. That being said, a $14k down payment won't get me where I'm trying to go; that's what makes the VA loan so attractive. It is entirely possible to get in with nothing invested up-front which will allow for that $14k to be the start of my safety net. If only for piece of mind, this is big for me.

As far as the multi, I'm married and my wife is currently digging in to the landlord books. The is simple and I'm sure common: I'm the money guy who finds the properties, runs the numbers, and makes the purchases. She will handle the property management including bookkeeping. That should enable us to continue even if I deploy. 

@David Dachtera, if I'm understanding you correctly, you're suggesting I use an alternate form of funds (private lender, owner financing) to buy a distressed property, rehab it to bring up the appraisal value, THEN get the VA loan for the appraised value to recoup the difference. I'd be a bit worried with this approach if only because this will be the first purchase, "the leap", and by combining alternate lending, rehab, and refi into the plan, none of which I have experience in, I feel as though it would be foolhardy to take this route with no safety net to fall back on.

You're also saying that a HELOC is a much better way to go about get money out of existing equity. That part I understand; I'm not seeing how you could use a HELOC to pay down the mortgage against which the HELOC was opened.

@Chris Mason

It sounds like I was just misunderstanding what you were trying to convey. You're saying to take what I could have used to pay down the mortgage and pool it into something that, ideally, generates a greater than 3.75% interest rate and, more importantly, doesn't have transaction or withdrawal charges. That makes sense.

@Chris MasonI can understand not wanting to refi out every time due to having to pay closing costs but why would you not want to pay down the mortgage "JUST SO you can do a cash out"? I thought that was the great benefit of equity. Where I'm losing you is where you said "you pay down the mortgage", then you said " If there's somewhere you can put the money to work for better than 3.75%, especially if it's cheaper to liquidate it from that other alternative vehicle, you do that." Which is it?

Assuming your safety nets are still in place and growing to cover future expenses, is it better to pay down the mortgage or set it aside (ideally at an interest rate greater than your mortgage APR) and pool it until you have enough property producing income to start looking at projects that will need more than light rehab?

Originally posted by @Chris Mason

To start, I'm assuming a 4plex purchase price of $250,000, cash flow of $1k/month, an additional $1k/mo from personal income, and ~$14k starting funds. This would be the first purchase and bought using a VA loan @ 3.75%.

My quandary comes after I've bolstered my repair/maint and cap ex funds using the cashflow and personal income (2k/mo) and I start looking towards a second property. VA loans appear to be a great way to get started with no money down, but they are terrible for equity and, thus, the "refi and pull equity for next purchase" plan. Based on the assumptions above, I can feed the $2k/mo into the principle, but, in 18 months I would just be hitting 80% LTV based on amortization tables I've run. So I'd have to keep funneling money into the principle until I could pull out a reasonable amount in, say, another year. That's 2 1/2 years of waiting to be able to get after a second property which, with a conventional loan, could not exceed $150k. (a $36k down payment). The plus side is that once the second property is purchased, both are already at 80% LTV and start making usable equity. That means I could start paying down the principle with, potentially, an additional $1000 to speed along equity growth and towards a third MFR.

Alternately, I could just throw the $2k/mo into a savings account and wait the same amount of time but be able to purchase a $300k property. The downside to this is that I feel like my money wouldn't be working for me, or at least working very slowly, during that 2 1/2 year time. Without paying in to the principle, the mortgage on the first property would not hit 80% LTV for 9 years. But with two income generating properties I could potentially THEN start paying down principle on the first.

So, what is y'alls opinion: Pay down the mortgage so the usable equity can passively grow? Or set aside the $2k/mo elsewhere and grow them into the down payment for a second property? (Would you use the $2k/mo instead of letting it sit in a savings account? How would you use it?) And most importantly, why did you chose your choice?

**NOTE** I do not want to jump from residential to commercial until I am more established so any second property would still be a 4plex or smaller.

Thank you for any opinions/help given.

The short answer is reduced ROI. Due to a number of factors for which there are also a number of calculations, at some point your rate of return starts to decrease. When that happens will depend on factors such as interest rate, down payment, cost of rehab, etc.

I'd recommend picking up a real estate investment book that focuses on the math behind the deals as they tend to go into great detail on this subject. "Investing in Duplexes, Triplexes, and Quadraplexes" by Larry B. Loftis is a good example of the type of book I'm referring to.