All Forum Posts by: David Fern

Quote from @Chris Seveney:

Quote from @V.G Jason:

If I am renting it out, it doesn't matter what it's worth?

Did I read that right?

 OMFG. Yep you read that correctly. This broker is going to learn the hard way. They really need more education for licensed real estate professionals. 

@Keegan Darby

I would be interested in buying this home if you are not looking to hold it. Feel free to PM me.

Read this thread before you move forward.  You both posted the same day. You might be successful with this investment, but it’s good to look at both sides of the coin.
https://www.biggerpockets.com/forums/52/topics/1150633-the-b...

Quote from @Keegan Darby:

Quote from @Jonathan R McLaughlin:

With the BIG caveat that I am trusting your numbers to be accurate I’d definitely consider the deal walking in to that level of equity. Assuming you are talking no cash flow with financing. Not sure how u are financing but if you are funding loans at 10% you are cash flush? Pay cash then decide on the finance structure later. I’d be very surprised if you went able to structure something that’s ultimately profitable.

If it’s B or above depending on the tax and utility structure you may practically be at 1%. 

Thank you @Jonathan R McLaughlin- 

Yes, I lend cash at a 10% return, so would be reallocating that cash to buy this house. 

Likely something I'm missing but I'm viewing this as being a 7.2% ROI given that buying the home and being all in at $230k and an estimated annual rental income of $16,500 after accounting for insurance + taxes.

So 7.2% ROI vs the 10%. Can you explain the benefits of the $40k equity? To me that just seems "dead money" as I can't touch it + with the purchase of the home assuming the risk of bad tenants, etc.

Likely something I’m missing in my analysis 

The benefits of $40k equity that I’m aware of are:
1) it’s your “margin of safety” to where if/when you sell you don’t lose money (the #1 and #2 rules of investing are don’t lose your nest egg)
2) if you refi down the road to pull cash out, that’s more money you can pull out
3) that’s more $ to your bottom line when you sell if you profit 
4) some people say “you make your money when you buy”. In this case, one way to look at it is you would have made a $70k down payment to make $40k equity. Yes it’s inaccessible, but it’s still there.

For me, the biggest of these reasons is #1 the margin of safety. My first 3 houses turned into great investments, then I bought #4 with no margin of safety and lost a LOT of money, where I considered just walking away from REI. Glad I didn’t though, but I did learn that buying below market value is A MUST for me. Losing $ stinks.

I've been in a similar situation, so I sympathize. I had to learn some hard lessons about REI, and that needed to be part of my story.

It sounds like you assumed this would make money, be simple, and stress-free. Obviously, you have learned otherwise.

I recommend filling the vacancies right away, and consider boosting your income through getting another job or side hustle. Not a bad idea to find a mentor or friend (unpaid) who is experienced with this and ask them to hold your hand and walk you through this. 

All the hours that you are sitting around stressing and losing sleep could be spent making money. Can one of you pick up a job and make $10k extra this winter? It’s not a long-term solution, but it can get you through this short term money-tight situation.

Before selling, I recommend you consider trying to get through this. If you focus on taking actions that put money in your pocket, then I suppose you’ll be better off than not doing so.

I recommend going to College where the tuition is low, and you are debt free when you get out. I also recommend working part time or full time when you are in college, whether it’s in real estate, or your future career path.  

Taking this path will teach you 1) time management, 2) hard work, 3) how to manage your finances, and 4) you get your degree! IMO, those 4 things will be necessary if you want to be a successful  Real estate investor. 

Chris- Based on having just 10k deployable cash, I too am going to recommend something you might not be considering, and that is mostly focusing on increasing your income.

I am self employed as well, and I decided to take on a 2nd job (part of the reason for this 2nd job was to increase income to buy real estate). I juggle 2 jobs and am buying 1 property per year. It’s taught me to work hard and manage my time well.. and I’ve been able to buy real estate with the savings. 

People who know way more about REI than I do seem to think that things are quite different than just a few years ago, and that having a good job and excess cash is very prudent right now, and a safeguard for when you do buy your first property.

If my advice is misaligned, forgive me, this is just the route I’ve gone the last few years and am glad I have…Good luck, PM me if you’d like to chat, glad to help how I can.

Quote from @John McKee:

@David

@David Fern

David,

So what is your strategy with the property?  Are you flipping it because you got a discount or are you just holding for 30 years to let your tenant pay down/earn your equity.  Personally I'm a cash flow investor so if I was in your shoes I would flip it.

@ John McKee

I’m hoping to hold for 30 years and have the renter pay down the mortgage.

I learned something new on this deal. For a cash out refi (after buying cash), by getting a 60% LTV mortgage, I got 6.375 rate, where instead a 75% LTV would have been low 7s. Nice bonus since I was gonna have to put more down in order to CF $0 anyways.

Quote from @Russell Brazil:

I put 35% down on my last 2 properties.

I'm with Russell Brazil. I just put 35% down and cash flow $0 after all expenses on a SFH. I bought it from a wholesaler, and wouldn't be buying the house unless I am buying at a discount that I am OK with.

Mortgage rates make CF tough, so I’m focusing on my 2 day jobs to earn more money for downpayments. I like my jobs though, so I might be different than many on BP. Some investors might scoff at that big of a downpayment, but it’s what I gotta do to break even.

This BP podcast was very helpful for me in answering that exact question.

https://www.biggerpockets.com/...