All Forum Posts by: Edward Dean

By the numbers you are usually better off doing the 20-25% down (or less as long as you are avoiding PMI or similar fees) rather than the 40% and just keeping the extra cash in reserves. Some people have a personal preference to pay their homes off as soon as possible which is fine if that is your goal but you will generally build your wealth faster by allocating that extra down payment towards another investment using leverage. If the goal is a quick payoff and you can swing the monthlies, you can go for a 15 year fixed to pay it off more quickly but again this leaves you with less cash to invest in other income producing assets. If you are anticipating a transitionary period coming up soon where you may have less money coming in each month, like a career shift, and that is why you are wanting a lower monthly payment then again having a bigger reserve in cash you can tap will likely be easier than just plunking more down to reduce costs. And remember, doing something like a refinance is not usually free, you have to pay some amount for the new loan, whereas having that money in your account not only costs you nothing, but you can be gaining interest off of it until you are ready to deploy it.

Best of luck!

Byron, we'd need more info on the numbers you are using to know why you are negative $350 per month but most likely guess is that you are still running the numbers based on a 15 year note, not a 30 year. Switch it and see if you are still negative. Also, do you have to pull all of the equity out? Pulling out less should keep your carrying costs lower. 

Best of luck!

The pros are that you can usually get better terms and use a lower down payment if you are buying a property as your primary residence and using a loan to do it versus a loan for an investment property you do not intend to occupy. Speak to the lender about what requirements there are for occupying the property. Usually there is a requirement that you intend to occupy the home for some period of time which depending on what you intend to do could be your main con for using that product. Every lender is different and there are many different loan programs out there so make sure you are clear with what you intend to do and speak to your lender to see if this loan program will work with your long term goals.

Best of luck with it. 

The timing will depend on what you think your best growth option is. Right now, you are positive $200 a month with the condo but negative whatever your rent is. If you think the condo will appreciate better than say your multi-family options or your house hack options, I might continue to hold even though I am losing money from the rent I have to pay to live. In that case, save up and buy the house hack option in 6-12 months and hold the condo for a HELOC or sale in the future when it's appreciated more.

If, however, I look at the rent amount I am paying and I don't think the condo is really going to go very far with appreciation compared to my other options in the house hack/multi-family space, then I would look into selling the condo now to fast track my purchase. I have a feeling the second option is the way you will want to go since you can probably find a multi-unit or house hack situation that not only cash flows at least as well as your condo ($200 per month positive) but also cuts out your rent expense completely while also itself appreciating, paying down debt, etc.  In other words, if my rent is $1000 per month, then my net with the condo is negative $800 per month plus whatever appreciation and debt paydown you are getting with the condo. If I can find a house hack option that eliminates my rental expense and at least covers my housing expenses, I am about $800 per month better off than with the condo. So unless I think the condo will appreciate $800+ per month better than my house hack options, getting rid of it is probably the better play. The biggest factors to me would be how much is my rent because this is a drain on your finances without providing any growth, is the condo located in an area that I expect to appreciate more than other areas I can invest in right now, and do I think I can find a house hack option that would cover my expenses better than my rent/condo combo I have right now. 

A final consideration is could the equity you have in the condo spring board you into a better producing product in the near future that you couldn't get otherwise. In other words, look at what you can buy with your expected savings after 6-12 months versus if you sold the condo now and bought now versus what you could buy with an extra $50-60K down and those 6-12 months in savings. If one of those options gets me from a small return into something with a much bigger return, say it allows me to buy more units or add on to better force appreciation than just saving or just selling, then I might also hold the condo for now to sell it in 6-12 months while I save.

Best of luck!

Many older homes have at least some asbestos in the property. Depending on the area and age of the homes in the area you are considering, you could be severely limiting your options if you completely nix any home that has asbestos in it. Do your research and find contractors who are knowledgeable in working with asbestos and it should not be an issue. If you are doing the demo yourself, look into the protective gear you need so you don't breathe it in or get it in your eyes (I'm not a contractor but my understanding is that asbestos fibers are very tiny and there are specific items you will need to properly protect yourself). Here in my area of Southern California we had to use an abatement company for one our jobs that had asbestos in the property, so also look into the rules and laws in your area for how you/contractors are supposed to handle the material and make sure they follow them. Other than that, it is just another dollar item to factor into your project so get bids to help educate yourself on the extra cost and factor that into your analysis and negotiations on the purchase. 

Best of luck!

Like Stephanie said, check your zoning to make sure it is doable. The separate metering is great if you can do it but there are solutions if you cannot such as using the RUBS (Ratio Utility Billing System) method to split the utility bills among the tenants. You could also include utilities in the rent and charge a higher rent to cover the difference. Either way, installing leak detectors is a good idea, preferably ones that can alert you electronically if there is a leak or a big spike in usage, especially if the tenants are not paying the utilities. 

Ultimately this is a money question. Check the rental amounts in the area to see what you should expect as additional revenue once the basements are finished (you can use services like Rentometer for this) and then get several bids to price out the renovation jobs to do the splits. If after that you feel like you are getting a good return versus just leaving it as it is (and you are legally allowed to do the additional units), then go for it. You can consider both the increase in revenue through the additional rents as well as the forced appreciation since now you will have four units versus two. If the increase in rent is large enough, you may even be able to refi some money back out once you are finished and still cash flow the same or more than you do right now.

Best of luck! 

House hack is likely the better option. You need to live somewhere and right now that is South FL. You say you want to stay there which means you still need to pay for a living situation whether that is rent or a mortgage. If prices are high there, rent is likely high too. So, if you invest out of state is that going to cover your rent in FL and give a return? Doubtful. In other words, getting say $400 a month in positive cash flow out of state while still having to pay say $2000+ a month in rent makes less sense than getting a home where you instead cut your costs down to say $1000 a month or less by renting a portion of the property out.

Better to get your foot in the door in FL with a house hack where you can reduce your living expenses as much as possible by renting rooms or finding a multi-unit property you can make work. Do this while saving for the next one. After a few years the home and rent will have hopefully appreciated (though even if it hasn't you will still have built equity through debt paydown) and then you can decide if you want to keep it as a rental, sell it and go for something better, or invest out of state. 

It also depends on what your long and near term goals are. Like Brandon and Hamp mentioned, if you are using the property as a house hack then location may be more important than the cash flow right now. The goal with the hack is to lower your living expenses and in a few years maybe it cash flows or at least has appreciated enough that you can sell and find something that better fits your goals then. Another thing to consider is do I expect this to appreciate more than something that cash flows right now. I am in CA where rents and prices are high. It can be difficult to make something cash flow initially but because rents are starting so high and your costs are mostly fixed after purchasing, after a few years properties here can start to cash flow pretty well. In some markets, you might cash flow great when comparing the percentage of rent to the purchase price, but over time neither the rent nor the overall property value may increase much, or it might appreciate great as a percentage gain but because you are starting so low the absolute dollar gain is fairly low (think buying something for $100k that appreciates by 50%, versus $500k that appreciates the same 50%; with one you've increased your net worth by $50k, the other by $250k). 

Best of luck with it!

Remember the saying rock stars know rock stars. Find an experienced real estate agent and they should have some good recommendations for hard money lenders in the area too, if the mortgage brokers can't find you a good one. Talk to the mortgage brokers too because not only will they know some contacts as well, you also want to make sure hard money is the best option for you (it is generally a good deal more expensive than traditional financing). Try to find an agent that has good experience working with the type of investment property you are trying to lock down as well. They should be able to not only help you write up the contract, but also double check you numbers to help make sure you are getting the good price you think you have locked in here. 

Best of luck!

Hi Marshall,

If you can, it is usually better for you as the landlord to get the utilities off your books. It is a variable expense that you have no control over and most people are fine paying for what they use if that is common practice in your area. There are a few ways you can go about this. One way is to do RUBS (Ratio Utility Billing System), where you apportion the amounts based on how much of the property they occupy. So if both units are the same size, each tenant pays 50% of the bill and you determine how often and how that is paid. If its a 1 bed on one side a 2 bed on the other, then maybe tenant one pays 1/3, the other 2/3, etc. You can show them the bill and charge them accordingly.

Another option is to come up with a limit and charge an overage. Lets say you live in one side, and tenants rent the ADU on the other. You know how much water on average you use each month and the other side is smaller so you say ok tenant gets x amount of utility usage per month as part of their rent, but if they exceed that amount, ie, you get the water bill and see its way over because they left a toilet running, then there's is an overage amount charged on next month's rent.

How your lease is structured can help protect you from the disgruntled tenant aspect, ie, if it is the tenants fault then the tenants pays. For unintentional leaks, you can also install leak detectors so you are alerted right away if water usage spikes. Try to put them in an area where they cannot be tampered with.

Make sure to check with the local landlord tenant laws to ensure whatever methods you choose are in compliance with the laws and regulations of that specific area. Also, check around your area at other rentals to see what is common practice so you know what renters are likely to expect. If everyone else in your area is including utilities with the rent then that may be the better way to go.

Best of luck with it!