All Forum Posts by: Joel Gabelman

@Jeremy Schreiber

I want to second the comment that managing a property out of state on your own would be a royal pain.  I lived in San Francisco for a few years, Chicago prior to that and left to go to my hometown, Cleveland, Ohio due to the cost of living.  I can relate with the property prices in San Jose.  Northern California is insane - although I do miss the weather!

Finding a good agent can be helpful, but before you blindly trust an agent, I would check out real estate websites (Trulia, Zillow, etc...) to know an IDEA what you're getting.

When I first got back to Cleveland, I hired an agent to show me some houses.  The first house he showed me was 2500 sf and beautiful with an asking price of $400k.  I thought: "Wow this is cheap!".  6 houses later, I realized the $400k house was WAY overpriced relative to the market I was in.  I asked the realtor: "Who would buy this house for $400k?!?!"  He looked at me and smiled: "An out of town investor who thinks this is cheap!"

Best of luck!

-Joel

Out of curiosity, is there a gap between cost and value?  In other words, are you getting this at a discount to value?

@Patrick Fleckenstein

Lots of good information already given.  House hacking is a great intro into investments (especially if you have no wife & kids), because it can give you the flexibility to life in a place and move to another place after getting favorable financing.

I'm not a CPA, but you might want to consider getting a 3-4 unit, and rather than living there 1 year, refi/cashing out and buying another place, staying 2-years as you would be able to avoid paying taxes on any capital gains up to $250k (or $500k depending on your filing status)!  You can do this every 2-years.  Buy, fix, stay, sell, buy then rinse & repeat.  While you're doing this on the personal side, you're collecting rents, and can explore other options with other investment properties.

Turnkey investments can be a good option down the road if you are looking for access to other markets where you have no "boots on the ground".  While you are the owner and get the depreciation and interest write-off benefit, it's worthwhile to do research on markets as well as companies to find the best options.  That said, for your first investment, house hacking your own place would be my first choice.

Best of luck, and feel free to reach out with any other questions.

Welcome Olivia!

Lots of information, and it helps to narrow down, after getting a high level overview of the different area of real estate, what you're interested in: sales, flipping, renting, wholesaling, etc...

Personally, I'm a numbers guy, and put a lot of weight into understanding not only ROI, but IRR. Also, if/when you get more involved and look at figures, don't forget the "cushion figures" (adding in vacancy, reserves, management fees, TI/LC = Tenant Improvements and Leasing Commissions). These are costs that can SERIOUSLY impact your cash flow return, and lots of people either miss these, or don't alert a naive investor to show HUGE returns, only for the investor to be disappointed.

Best of luck, and feel to ask me any questions!

-Joel

I'm also considering this program.  They're offering their FastTrack for $297.  The sales guy did try to get me to do the mentoring program (starting around $10k), and I flat out said no way.  I told him if the $297 program works, it will show proof of concept.  Additionally, if you DO wholesale first with the program and make $10k, you can leverage that into a full mentoring, essentially using money earned from the $297.

On one hand, there IS a cost for education, and $297 is cheap if it's good.

With a 30-day money back, this is why it's compelling.  Now it's off to do some more research with some of the other companies mentioned.  Additionally, Cody and some of the other "workers" out there have videos posted on youtube and other sites.  There might be enough material for FREE already out there, it might just take more time to filter through everything.  

Final note, there will be additional costs (mailers, posts, other marketing) to the business.  These are NORMAL BUSINESS COSTS.  Do not think $297 is all you need to get going if you're doing wholesaling.

To be continued...

Cash-on-Cash is 13% ($65*12 = $780 / $6,000)

That said - if the property is worth $90, you could pick up ~$60k +/- (commissions, etc...), and assuming a nice area, and assuming you CAN raise rents, and assuming there are no other properties worthwhile around (lots of assumptions), it seems plausible.

It's the equity piece I like a lot, gaining $60k.  

Questions:

1) What are market comps?

2) Even though it's not a lot, you might want to set aside some funds for CapEx.

Best of luck, and let me know what you do.

There are some interesting ideas, but there are some faults in thinking too:

1) While your ROE is low, this is due to the large equity, NOT the low return. As an example, if you cash-out refi or take out a LOC on the property and use those funds for ANOTHER purchase, your ROE will be considerably higher.

2) @Rick Turman suggested your break-even would be 21-22 years. This is a little high level, as it ignores appreciation, rent increases, and other factors such as taping into the equity via a LOC or pure cash-out.

You SHOULD be abel to get around 70% +/- LTV LOC or cash out. I would take this approach and look for another property to invest in. If you need MORE money than 70% for a bigger deal (or other personal reason), sell the property.

Some other thoughts:

Your CURRENT ROE is around 4.6%. What's the property worth? I'm ASSUMING the property is not F/C (Free & Clear). Assuming the house is worth more, this will effect your LTV with a cash-out refi. Additionally, I'm curious the ROA (Return on Asset).

I agree with @Chris Hiatt - this seems like a win/win situation.  

In summary, if you have no better use for the money (vis-a-vis investing in a higher return property), at least get a LOC on it. If you NEED the cash, sell. Finally, I'd check with your CPA as they'd have good info. For all I know the cap gain shelter might be gone next year - your CPA should be able to give you some good advice, and hopefully they own CRE and can put themselves in your shoes.

Best of luck!

-Joel

Unfortunately, $1k isn't going to get you very far...  

I would try to go to REIA (Real Estate Investors Association) meetings, look at www.meetup.com for real estate investor groups, and see if you couldn't intern/shadow a GOOD (successful/smart/etc...) investor during summers or weekends.  Ideally, you could work for free for a little, and then see if you can't turn that into some money, or even a little equity in a deal.  If you even have 2% equity in a deal that's $100k (assuming no debt), there's $2k for you.  

Another idea is to get friends together an pool your money.

You're in a good place and mindset to get going early!

Best of luck.

-Joel

The cost of the loan is $10k for $400k loan amount???

That seems HIGH....

I should add - what are you considering costs???  Does the $10k include appraisal, title work, etc..., or is the lender charging you 250 bps (2.5%) for fees ON TOP OF processing, title, appraisal and other 3rd party fees?

-Joel

I've spend almost 12 years in finance, more than 9 in commercial lending at the big boys: US Bank and JPMorgan Chase. There are A LOT of "bankers" who are clueless and hungry for deals (commission), but they have $0.00 credit authority to approve (usually). You should actually ASK how the credit approval works for this deal. Since is relatively small, MAYBE they (branch) can approve instead of submitting it to credit. Regardless of a big bank or small bank (I've worked at both), 90% of time, it's credit administration that has the ultimate say, not the sales guy (lender/RM, whatever). If this is a small community bank and starving for investor loans in CRE with 86% leverage, you've found a pot o'gold.

Based on your numbers, purchase price is $137,750 and expected value is $160,000.  This is an 86% LTC (Loan-To-Cost).  I don't know of a single bank doing 14% equity down.  On an investment property, we'd look for 25% down, sometimes 20%.  Additionally, like you touched upon, banks will look at the lesser of sales price or appraised value.  So in your scenario, if the builder is really going to give you a "steal" at $137,750, the loan will be based on this figure.  Finally, most all lenders for "A-money" (best pricing at the banks vs. private money), will require a personal guarantee, and tertiary repayment support.  Primary: tenants rent; Secondary: Collateral; Tertiary: personal cash flow.

Other questions/thoughts that jump out to me:

1) Why is the builder giving you such a great deal???  If YOU could get $!60k for a home, would you take $137,750???  For starters, this sounds TOO GOOD TO BE TRUE.

2) Research the builder - what else have they done?  Depending on where you live, they likely will need a C.O.O (Certificate of Occupancy).  I'd make sure to see this that the city says the places are good to go.

3) If comps support value, and all the above rings true, I'd STILL be cautious.  Maybe run it by a local guy for good measure.  

There are other concerns, but the biggest one is why is the builder giving you such good deal? I'd be VERY surprised if the Bank will finance based on appraised value vs purchase price too. I have a HUD home near me needing around $40k-50k of work. Purchase is $40k, and it should appraise based on comps for around $90-$100k. If your lender will go off APPRAISED value, I'd love to talk to them!

Best of luck - be careful.

-Joel