All Forum Posts by: Dan Guenther

Hey @Carmen Moscarillo - welcome to the community! 

Great work on already getting your start in the RE investing world! It's a big step to expand your portfolio, and considering FHA versus conventional loans (and even alternative investment-specific products) is a very typical situation for investors looking to scale.

Here are some factors to consider when making this choice. If you haven't already, make it a goal to talk to multiple different lenders who have a solid understanding of real estate investing. 

FHA Loan vs. Conventional Loan:

Down Payment: One of the primary advantages of an FHA loan is the lower down payment requirement (usually around 3.5%), while conventional loans on small multifamily will require a higher down payment (15% or more). If you have the personal financing for both options, this might not be a major concern, but it's still worth evaluating how a lower down payment may affect your overall financial situation and investment strategy. There are also investment loan products out there that allow non-owner occupied purchases with as little as 10% down (reach out and I can connect you with my go-to investment lender).

Mortgage Insurance: FHA loans come with both upfront and annual mortgage insurance premiums, which can add to the overall cost of the loan. Conventional loans may require private mortgage insurance (PMI) if you put down less than 20%, but it can be canceled once you reach a certain equity threshold. Consider how these insurance costs impact your monthly expenses.

Credit Requirements: FHA loans are more lenient with credit score requirements compared to conventional loans. If you have excellent credit, this might not be a significant factor for you, but it's something to keep in mind.

Property Type: FHA loans have restrictions on the type of property you can purchase, including requirements for the property's condition. Ensure that the property you're interested in qualifies for an FHA loan. In the Denver market where a lot the SMF homes are 100+ years old, this is an issue that comes up all the time.

Living Requirements: If you choose an FHA loan, you'll be required to live in the property for at least a year. This can be a good way to get started if you plan to be an owner-occupant and want to explore the local real estate market closely.

Interest Rates: Compare the interest rates available for FHA and conventional loans. Sometimes, conventional loans offer more competitive rates, but this can vary based on your financial situation and the lender.

Another strategy that is very popular in Denver and most parts of Colorado that allows for the best of both worlds is converting a single-family home into a non-conforming duplex. A lot of homes here have a side/garage entrance that leads right into the basement. With a simple door addition, you can easily convert a large single family into the same living situation as a duplex while using a low down payment option and much lower price points. 

As for your interest in real estate podcasts and books, there are plenty of valuable resources available:

Podcasts:
“Rental Income Podcast with Dan Lane” - They do a great job of breaking down specific investing case studies.
"The Real Estate Guys Radio Show" - Covers various aspects of real estate investing.

Books:
"The Book on Rental Property Investing" by Brandon Turner - A comprehensive guide for rental property investors.
"The Millionaire Real Estate Investor" by Gary Keller - Insights from interviews with over 100 millionaire real estate investors.

Best of luck with your upcoming investment, and I look forward to hearing more about your experiences and insights in the future!

Hey @Gabriel Borrego - 

Welcome to the BiggerPockets community! No matter where you stand in your real estate investing journey, BiggerPockets is the ultimate resource for all of your investing needs. I’d suggest starting out by networking with as many other investors as possible and being an active participant in the forums.

If you haven’t already subscribed to the BiggerPockets podcasts, do that ASAP. Look for meetups in your area here on BP, Meetup.com, or FB Groups, attend free webinars, start reading as much as possible on any and all topics related to investing and real estate. Use the forums to help you search for the answers to all of your questions. If you can’t find your answers, then create your own post!

Feel free to reach out if you want more specific advice.

Good luck and get educated!

Hey @Ashton Van Wey - welcome to the community! Great work getting your goals aligned. Take full advantage of everything the BP platform has to offer while you educate yourself on the real estate investing process. Search the forums, check out the "learn" tab up top for educational resources, and try to get out to some local meetups in your area (Meetup.com, events tab up top here in the forums). 

I'd be happy to talk through the license process as well if you have any questions on becoming an agent. 

Let me know if there's anything I can do to help! 

Best of luck

Hey @Leo Kane - welcome to the BP community! 

I'm not a financial advisor, but I can offer some general thoughts that might help you make a decision.

Diversification: Diversifying your investments is usually a good strategy. Option A and Option B involve investing in multiple properties, which can spread risk and potentially offer different returns depending on your exit strategy (STR, MTR, Rent by the room, LTR, assisted living etc). If one property's value doesn't increase as expected, the others might make up for it. Option C involves focusing solely on your current property, which might be riskier if the local market takes a downturn.

Risk Tolerance: Consider your risk tolerance. Rental properties come with management responsibilities, market fluctuations, and potential vacancies. You'll need to be prepared for these challenges if you choose to invest in additional properties.

Return on Investment (ROI): Analyze the potential ROI for each option. Option A might offer higher positive cash flow since you won't have a mortgage, but you'll have more properties to manage. Option B might offer slightly lower cash flow due to mortgages, but you'll have more properties to work with over time.

Opportunity Cost: Think about the opportunity cost of paying down your current house vs. investing in new properties. If you use your funds to pay down your mortgage, you're essentially locking that money into your property. If you invest in other properties, you might have a chance to earn higher returns, but it comes with more risk and responsibility. Look up Return on Equity on YouTube and I think you'll learn quickly that one of the best parts of real estate is leveraging equity to continue the process of building that portfolio. If you dump all of your money into the first property, how are you going to continue to grow? 

Local Market: While your current area might not have the highest capitalization rate, it's important to consider the overall health and growth potential of the local real estate market. Nearby developments that you mentioned could indeed make your current property more desirable and profitable in the long term.

I'd take some time to run multiple scenarios. For example, buying 3 $100K properties might sound appealing but what do the numbers really look like on those properties? At those price points, it's pretty typical to expect slower appreciation, potentially less qualified rental candidates, and overall lower cash flow. 

Liquidity: Keep in mind that real estate is less liquid than some other forms of investment. If you tie up your funds in multiple properties, you might have less liquidity available for other opportunities.

If you haven't already I did recommend reaching out to various professionals out there (lenders, agents, financial advisors, tax consultants etc). This should help you narrow down on the overwhelming amount of options you have available for you. You're in a great spot to make some serious moves towards your future!

Reach out if you want to get on a strategy call to talk more about these options and the pros/cons of each. 

Good luck! 
 

 @Eugene Neal - Thanks! I'll reach out and see how we might be able to help each other out! 

 Just sent you a message!

Hey @Kolby Leitch , welcome to the community! You should reach out to my friend @Phillip Austin. He does great work in the PM space including some more creative options like rent by the room. 

Also, if you have any specific questions on how to optimize your ROI in the Denver market let me know.

Good luck to you! 

@Louis Zameryka - this sounds like it could be a good opportunity for a seller finance deal. Depending on how you worked it out, the sellers could get a downpayment from the buyer's end and then essentially collect rent checks for whatever terms each party decides on. This would spread payments (to the seller) out over time and allow the sellers to get more for the property than they would if just selling it the traditional route. Are you familiar with creative finance options? 

Hey @Yakir Aloni - welcome to the community! 

I think you are thinking of rentometer.com

Hey @Andrew Tistadt - welcome to the community! I'd recommend reaching out to @Grant Schroeder - he's one of my go-to lenders who is based out of Oregon. He has some great investment loan products and is also an investor himself. I'm sure he can point you in the right direction. 

Good luck on the investing journey!