All Forum Posts by: Brit F.

@Elliot B., you may have trouble getting a meaningful answer to your question about the average recurring cash flow on SFR. There are just too many variables. Just evaluate one property at a time and decide if it makes sense given your market, risk tolerance, future plans, etc.

One point you might be overlooking (not sure if it was covered in the podcast) is that for those us of using Fannie's delayed financing exception rule, the CO-refi amount is limited to whatever the initial investment was, which should be well below 75% of the appraised value presuming low acquisition cost and successful rehab. Maybe the final LTV is between 50-70%, for example.

The alternatives to using the delayed financing exception are:

• CO-refi again later to pull the remainder out
• Forego the exception and wait the 6 mo's seasoning and do a CO-refi for the full 75% LTV
• Go with a lender who writes non-conforming or commercial loans that have fewer restrictions with more expensive terms.

So, while it's possible to get 75% LTV, there is always a trade-off.

Also consider the impact of consistent 75% LTV on your debt-to-income (DTI) ratio. Unless rents are outpacing sales pretty dramatically, consistent 75% LTV may accelerate you into a DTI wall.

There's not really a 'correct' answer for how much leverage is adequate...it depends on many factors specific to each individual/business.

Just to clear up some terminology confusion...It's known as the "delayed financing exception".  If the situation meets the exception requirements, any lender who originates conforming loans should allow you to do the CO-refi.  You can read up on the exception requirements on Fannie Mae's site: 

https://www.fanniemae.com/content/guide/selling/b2...

A few months ago, I used a random .com lender on a CO-refi that met the exception requirements, and it was fine.  If your lender won't do it, it's likely because the situation doesn't meet Fannie's requirements.  On the other hand, if the lender simply isn't aware of the exception, find another lender.

@Shane H., avoiding Medicaid is simply a financial goal.  If @Jason Dalka can find a way make it happen, MIL's finances will be in a good position.

In terms of the quality of care, we agree on the need for due diligence of the chosen provider - be it a new doctor, elder care facility, pharmacy, or other, and regardless of whether or not they accept Medicaid.  Perhaps I should have phrased my previous comment differently...Of the facilities that accept Medicaid we visited in our area, none met our requirements.

We chose a nearby non-Medicaid facility that's about $5.5k/mo for 2 ppl in a 2-room suite including elevated level of care.  I'm there almost every other day.  My mom & dad are happy; the staff is great w/very low turnover.  I have no financial interest in this facility or any other AL facility.

@Jason, Sherman is a little north of me, but I'll reach out to you privately to see how I can help.

@Jason Dalka, just went through this last year.  I don't know your market, but seeing your 10-12 property number sounds like a fair bit of overhead unless you're including PM costs to manage it.  Taking care of elder dependents can be exhausting and time consuming - don't underestimate it.

Can you find fewer properties that will cashflow the same or better, or were you hoping to have that 10-12 to spread the risk?

Going the private lending route could also work well as suggested above, just be aware of UBIT when sourcing from a retirement account. It's not a deal-breaker, you just don't want to be surprised by UBIT. Related, can she offer seller financing on her current/former primary residence?

Absolutely agree that you or your SO needs to have Durable Power of Attorney to do all of this - mostly b/c it makes it so much easier for you. e.g. If you need to combine all her retirement accounts into one SDIRA, you can set all that up with a POA. Without it, you'll need her signature on everything. It's also time to do a budget review, like phone, internet, newspaper, Medicaire supplement, prescription premiums, and other subscriptions/auto-renew payments that will show up in her bank account. Having POA will make that infinitely easier for you/SO to investigate.

Also, see if you can a copy of her retirement account statements.  Find out how much the Financial Advisor has been charging in fees.  If the fees are outrageous vs the return, see if they can immediately move it to a non-FA account, which might save a little $ and will buy you time until you figure out what future retirement account custodian to use (if that's your plan, obviously).

Regarding Medicaid, your goal should be to avoid Medicaid at all costs.  If you find an elder care facility that accepts Medicaid and if your MIL intends to go there, investigate it thoroughly on-site.

@Weston Couch, converting to Roth 401k might be a good option for someone who 1) expects to taxed higher at retirement and 2) is comfortable investing in traditional securities.  I'm out on #2.  The other option I might consider is, after leaving my W2, roll the company 401k into a new Solo 401k, but let's not derail the thread with my quirks.  

Back to the OP's question :)

@Stacey Agustin, good on you for asking the question.  To decide how much, if any, to contribute to a company sponsored 401k plan, you have to ask yourself a few q's:

• The premise of a 401k is that, in retirement, the account owner will be taxed at a lower rate than they are now.  Are you planning to be in a lower tax bracket after retirement?
  • If so, then contributing to 401k probably makes sense.
  • If not, then 401k may not make much sense for you (unless it's a Roth 401k, but you didn't mention it, so I'll assume we're talking about a traditional 401k)
  • Sidebar: Assume that all of your retirement income will be fully taxable.  Don't plan on including Soc Sec Income and its preferential tax treatment.
• If you contribute to 401k, could you put in enough to get your company's matching amount?  Everyone loves Other People's Money (OPM), and getting a company match certainly counts.
• Are you happy with the investment choices available to you?  
  • If you like control, does your company offer a self-directed 401k (expands your options beyond the typical mutual funds)?
  • Considering realistic returns of the available investments, can you beat the returns outside of a traditional 401k with REI? (hint: the answer should be 'yes')
• Are you comfortable with 401k volatility?
  • You could contribute enough to get the match, let's say 4% from you and your employer (8% total contributions), but your 401k loses 6% one year, resulting in growth of only 2%.
  • During a good year, maybe it grows by 16% (=8% investment gain on your 4% contribution and 4% match).
  • Alternatively, you could keep the entire 401k account in cash (not invested in any securities) and let it grow at the matching rate, guaranteed like a CD.
• If you forecast out to retirement, based on what you plan to contribute, do you anticipate that your 401k will be your primary source of retirement income?  Or, will your 401k be only a small portion of your retirement income?  
  • If it's a small portion in your retirement, are you happy with that?

--

Personally, I find company-sponsored 401k's too restrictive, and returns don't justify the risk.  Looking back, I feel like 20-something me was dupped into it.

Stepping on my soapbox, I abhor the stock market and want nothing to do with it...started out as a good idea, but it jumped the shark some time ago.  (I like Solo 401k's and SDIRA's, but that's not what we're talking about here).  Deep regret is what I feel about listening to the gurus telling me to max out 401k contributions early in career.  Now, I expect to continually grow my income over time, even in retirement, and will be taxed higher than I am today, which ironically, creates a desire to leave my W2 so I can access the 401k balance sooner rather than later.  If I left my W2 today, I would take a lump sum 401k distribution, tax penalty and all.

@Jared Baker, don't unnecessarily constrain yourself based on the property type. Objectively and holistically evaluate each property and make a fact-based decision. I would generally discount the notion that 'duplexes are better than SFH' unless you wanted to house hack or the agent justified her opinion with some data for your market.

@Vivek Shah

Back in 2017, Fannie Mae quietly announced a change that allows transfers to LLCs under certain conditions:

• "The mortgage loan was purchased or securitized by Fannie Mae on or after June 1, 2016, and the LLC is controlled by the original borrower or the original borrower owns a majority interest in the LLC, and if the transfer results in a permitted change of occupancy type to an investment property, such change does not violate the security instrument (for example, the 12 month occupancy requirement for a principal residence)."
• The loan needs to be owned by Fannie Mae for their rules to apply.  Use their loan lookup website to enter your loan information, and it'll tell you if Fannie Mae owns it or not.  (If the loan isn't owned by Fannie Mae, you're at the mercy of the servicer/owner of the loan on whether or not they'll allow the transfer)

Contact your current loan servicer to request a transition and have your LLC docs ready to submit. I haven't found a standardized fee structure for the transfer. Theoretically, if the servicer handles both the loan transfer and deed transfer, there would certainly be a legal fee and recording free to change the deed/title with the county.

Pleasantly surprising, when I asked my servicers about LLC transfers, they all knew what I was talking about. I expect to officially start the process this week or next.

@Alan Faitel, there are numerous way to use your retirement account and be a private lender.  Be mindful of the IRS rules as @Dmitriy Fomichenko and @Brian Eastman mentioned, and make sure you research any State and/or Federal regulations on the type of lending you want to do.  

Maybe there are no barriers to entry to automotive lending, or maybe you need several hours of education, pass an exam, and obtain sponsorship before you start conducting business? (hope you're not planning on doing short-term/unsavory title loans)

@Lawrence Paul, congrats on your first rental!

If you determine that your earnings to rent threshold is 3:1 and if you accepted this applicant, you would need a legally justifiable reason why you waived that requirement for this applicant.  Hypothetically, if you felt sorry for her b/c of the 11mo old baby and wanted to give her a break b/c of that situation, that could be interpreted as discrimination based on familial status - even though it may *feel* like you're trying to do the right thing.

Step 1: determine your criteria

Step 2: screen applicants

Could the Mom be a co-signer on the lease?  Maybe she has a pension, social security, or other income that would bump them to 3:1.