All Forum Posts by: Christopher Brainard

Hi @Stefanie Jensen

There are pros and cons to financing or holding cash. Financing allows you to purchase more properties at an accelerated pace as opposed to cash. It takes a long time to save up $250,000 to buy a house. It doesn't take nearly as long to save up $50k for a down payment. If you're buying houses at the right price and managing them well, leverage allows you to amplify your gains 5x. The down side is that it also makes you vulnerable to being completely wiped out, if you're poorly running your real estate investments.

As with most areas of real estate investing - this needs to be part of your business plan and must reflect your personal comfort with investing and risk tolerance. You're unlikely to go broke investing with just cash, but you're also unlikely to get rich either!

-Christopher

Hi @Daniel Fogg and welcome to BP!

What you're describing isn't realistic, but is very similar to taking a house subject to the existing financing. In your scenario, there is no benefit for the owner to sign over 'management' of the property to you, as you aren't paying the back payments owed to the mortgage company, they lose any future rent profit, and they lose future appreciation. All around terrible deal for them.

If you research subject to financing, basically, the owner signs over ownership of the house to you. You would need to bring the mortgage current, which tends to cost a relatively small amount of money compared to the ARV of the house. You would then need to remove the existing non-paying tenant, repair/update the property, and then find a new tenant. The challenges for a new investor with this method are three fold.

1. This does require money. You will need to catch the mortgage up, pay for repairs, and marketing the property to a new tenant. Personally, we love this method as it generally comes with a very low interest rate and you don't need to obtain a mortgage.
2. You need to have sufficient experience that the homeowner trusts you with their house. The homeowner's credit is still on the hook for the loan and they need to be confident that you won't screw them. Typically, homeowners feel comfortable if you can show them that you've done this before and have sufficient financial reserves to maintain their property no matter the circumstances.
   
3. The bank could call the due on sale clause and you would be on the hook to immediately pay off the loan or face foreclosure. I've never seen or had this happen, however, these clauses are written into every loan out there so if the bank wishes, they can do it.
   

Hope that gives you some info on what you're thinking. If you're looking for ways to acquire property with $0 down, the best way is to find a smoking hot deal and find an money partner. There are also a bunch of other ways (you can get @Brandon Turner's book on Low and No Money Down), but real estate usually requires someone's money to make things work.

-Christopher

@Roman S.

What does the lease say about the situation? We specifically forbid any business being conducted at our rental properties for reasons like this. If the tenant isn't in violation of their lease, you're going to have a hard time doing anything about the property until the lease is up. 

On a side note, did you ask for proof that electrical modifications were done by a licensed electrician? Allowing uneducated renters to make electrical changes is very risky - I've seen all sorts of crazy stuff that may 'work' but is clearly not code or safe.  

-Christopher

It really depends on what you want to do and what your investment strategy is. 

If you're doing conventional or FHA financing, just about any lender will do it. Make sure you read reviews and identify someone who is good to work with - I don't have any particular suggestions for you. As far as buying a SFR and renting out a room, that is a personal life decision, not an investment one. Your primary home should satisfy your needs first, any investment needs second. Many people buy a home with this same mindset, but find out they much prefer living alone than with a stranger.

If you do buy something that is a duplex or fourplex, then its more important to look at the investment side of things, since you will be buying your own home eventually. From an investment standpoint, this will cash flow more and will also introduce you to managing property, so you can determine if you really enjoy doing it or not. Down side is that is limits the number of properties you can check out, as there are far more SFR than small multifamily in DFW.

-Christopher  

Hi @Elliott Wolf and welcome to BP!

Based on your post, I'm thinking you should look for a lender first. A lender will be able to determine if you can qualify for a loan and how much you would qualify for. Once you have that information, it is going to narrow down the price point you can afford and refine your MLS search.

As far as DFW is concerned, single and multifamily are currently very competitive, however, I think the market has been cooling off and winter is always a great time to buy. I wouldn't work on Zillow, the information is often old and outdated and would instead get a MLS feed from an agent. There are also pay access options, but if this is your first property, you're probably going to need an agent to guide you through the process.

Also, don't worry too much about making mistakes. You can get advice here, from your agent, or your loan officer to explain things you don't understand. The most important part is knowing what you don't know and not being afraid to ask.

-Christopher

@Adam Matlock

Have you asked them why they won't extend insurance to you? 

Unless they're breaking the law or violating a city ordinance, there isn't anything you can (or should) do. If your community has a HOA, you can report them for any violations of the HOA rules, but its up to the board to enforce them. You can always talk to the owner and attempt to buy the home from them - then you would be able to control the appearance of the property or select the tenants yourself.

-Christopher

No - hard money is far too expensive to keep long term and most hard money lenders only offer their loans for short periods of time (ie: six months or a year). If you can't get financing through a bank for a long term hold, you can always look into private investors. The rates will be higher than a bank, but nowhere near hard money rates. 

-Christopher

The amount of leverage you maintain on your portfolio should depend on your risk tolerance and should be part of the plan you develop. Although there are obvious wrong answers (There were many investors who believed that 100% financing all properties and negative cash flow were acceptable last recession), you're the only person who can really set your investing parameters and these parameters are likely to change with your age and financial position. 

If you're looking at it from a cash flow perspective, you need to make sure you take all expenses into account. Many new investors only look at the PITI, but there are a host of other costs with running a rental: Capex, Repairs, PM Costs, Utilities, Vacancy, Etc. It almost always turns out to be more expensive than you expect.

-Christopher

Hi @Paul Anglin and Welcome to BP!

Scenario 1 is unlikely, but it probably won't happen exactly like 2 either. Although it will be harder to find quality tenants, it is unlikely that rental rates and occupancy will drop significantly, unless you're in a secondary market. Rental rates will take a small hit if the recession persists a while, simply because people won't be able to afford quite as much. Lots of people will lose their homes, making short sale and foreclosure opportunities abundant. As long as you can hold long term, rentals are a pretty safe bet. If you need to liquidate and we're in the middle of a recession, you would be in trouble. Far too many people were overleveraged in the last recession and ran into this issue, which amplified the problem. 

-Christopher