All Forum Posts by: Jim S.

Depends on your risk tolerance - personally I want to maximize my leverage. I currently have 2 properties (+1 more under contract as of yesterday). My plan for property #4 is to finance it by taking out a HELOC then using that as a down payment on another multi-family property.

Here's how I look at it - for each $30k I spend I can get a 3 unit MFR in the markets I'm investing in (using 75 LTV). If after all expenses that gives me $800/mo in cashflow then I am getting a return north of 30%+/yr.

With $120k I could buy 4 properties, generating $3200/mo in cashflow.

If I did the same thing with all cash ($120k) maybe my cashflow for that property is now $1400/mo instead of $800. It's basically guaranteed to always cashflow but now I'm fully tied to just 1 property (not diversified), only have 1 property gaining appreciation, and my cashflow is less than half of what I'd get using leverage.

OPM is a wonderful thing, at these interest rates if you can find good deals I'd say leverage up to the level you are comfortable with/can qualify for.

Use your $300k to buy multi-family homes in cash flowing areas like the Midwest, upstate NY, etc. Done properly you should be able to create 50K/yr+ in cashflow using this strategy after all expenses/professional property management. Or buy in SF and probably end up putting money in rather than getting money out each month.

House hacking involves getting a low down payment owner-occupied loan. In this case since it's a duplex you'll need to use an FHA loan. In the case of an FHA or conventional loan (low downpayment or otherwise) you will need it to be in your name, banks will not allow an LLC. A co-worker of mine did the following for his quadplex - basically you need to start with it in your name and then down the road you can try to switch it into the LLC's name. The bank will then: allow it, force you to get commercial insurance, or call the loan due. My understanding is that he ended up getting a commercial insurance policy and it was fine.

It's a great idea to invest in apartments while you have a full-time job. That's how I plan to replace my current job - by continuing to buy cash flowing MFRs. Would recommend doing a house hack on your first to reduce your cash outlay and get hands-on experience with your property. Once you've done this start buying more properties (possibly mix in SFRs) using owner occupancy whenever possible. Each time you move out have a property manager take over so you can make it into more of a passive investment that doesn't cut into your work. Sounds like you're already on the right path so good luck!

As a buyer I would 100% use a realtor - the seller pays for this. As a first time buyer I would 200% use a realtor. There are many potential issues that you might not be able to see for yourself that a good realtor will point out. Is there low income housing just around the block? Is there some in development? Is the foundation cracked? Are those spots on the ceiling indicative of mold from a roof leak? Are there radon or other environmental issues in that area? Is there an area a couple blocks away that would actually appreciate much better for some reason? Is there a chance that area gets rezoned and now you're in the 8th best elementary school instead of #1? Just some random examples but the point is free advice from an expert is not something I'd pass up as a buyer. Sell side is a separate matter (would still use a realtor but negotiate down the commission).

Sounds like you need a new bank :)

Originally posted by @Account Closed:

@Jim S. @Ray Lai Thanks for your responses!

You both have some fantastic points and I understand that the overlap between tech hubs and cashflow markets is quite minimal (as tech markets tend to be appreciation markets).

Here's a harder follow up question that I'm now struggling with: Is it worth forgoing salary/job opportunities to live in a cashflow market (like KC, Indy, etc.)?

Any information would be appreciated, thanks.

I would always recommend starting in SF or Seattle and getting a job at a good "brand name" company. A stint at Amazon, Google, FB, Apple, etc. will permanently increase your value elsewhere.

Moving to Denver with a "big name" on my resume allowed me to become a director at age 28 at a fairly large tech company. Now if I went to an even smaller tech city (I.e Kansas City or something) I'd be able to retain a $100k+ job while being able to invest in real estate.

Tl;dr: work at a major company in SF or Seattle for a few years. Save up and buy property out of state. Then you can do anything after.

I feel like the people saying they won't invest until there is a recession will be the least inclined to buy properties even then. If you can't find a deal in today's market you aren't looking hard enough or in the right places.

There's a huge number of cities listed that I wouldn't consider tech cities. Look at studies from Glassdoor, etc. on cities with the most software engineering jobs and you'll find your tech cities. The commonly cited ones are: San Francisco San Jose/South Bay Area Seattle Austin Denver I'm sorry but nobody from the mainstream tech world will consider Columbus, etc. as a tech hub currently even if there are some tech companies/jobs. Most cities will have a few tech jobs so you can probably make it work but at a less competitive salary elsewhere. One thing in common with most tech hubs - large numbers of people moving in, not enough housing, better to be a renter than an owner. If I were still in SF I'd be looking to invest in multifamilies out of state rather than in the Bay Area.

Completely agree that it depends on the type of property you are looking to purchase. If you have a lower middle class property in a good location I see no reason to fear in any market. Rents are typically more resistant to the economy than home values. Flippers get stuck holding the bag in a downturn. Buy & hold with solid properties should hope for a recession so they can buy more - I certainly wouldn't mind one.