All Forum Posts by: Albert Bui

The "real life," cashflow for me has been a decade + journey especially when you're referring to consistent predictable cashflow spanning an accumulation of purchases of apartment units. 

I never really made any money in excess of capital contributed such that I would deem it any decent rate of return ( IE I have min criteria of 8% cash on cash and I was making less than this) till about year 2-3 or after on each real estate property. These were mostly 2-12 unit properties so smaller MFR's. The initial year of each purchase was always a series of capital contributions to get it up to speed or get it going. Of course there were properties which cashflowed day one albeit a lot less than my proforma but I would still have to do lots of work.

I would preface I was buying class C to B- type of real estate 1900-1980's product. The older the product the more the capX generally required to get it up to speed from studs out renovations to basic cosmetic upgrades.

The OP posts that getting into real estate for cashflow is "wrong." To which Id say it depends on when you bought, how you bought, what you did to the properties CapX wise, and how you managed. Depending on where you purchased the properties a different strategy or approach might be needed to buy for cashflow. 

I would also agree a business is much better for cashflow (stabilized, operating well, for on going CF).

Real estate does cashflow well but it wasnt overnight and requires many units stabilized and maintained to keep cashflowing regularly. However "regularly," is not regular either because it can waver up and down quite a bit too depending on how many move out/unit turns you have per month too. I've experienced swings where its 50% less cashflow than the prior month due to a month of multiple apartment turns all hitting at once versus a stabilized month. 

In Summary, I would say cashflow works its not easy and may take a lot more capital contributions than you think. However, is cashflow wrong and dangerous for most ? Perhaps, but nothing of value was ever obtained easily otherwise it would simply not be such, valuable.

 The question is mostly a personal financial planning question and it depends on your preference and what balance of risk and access you'd like and would be comfortable with. Some people only want 10-20% of their outstanding lines/debt balances available while the other 80-90% to be in fixed rate notes. Some who are more entreprenuring folks might say 60-40 or 50/50 it all depends doesnt it?

It depends on what rates these lines are, what are the margins + index rates at today ? What index are your heloc's based on ... ? (probably prime but who knows might be TCM) and how much availability do you have right now? is it enough to carry you into your next projects while maintaining enough access to keep your current real estate operating smoothly?

Where are your fixed rate notes at and their respective monthly PITIA payments ? Where are your scheduled gross rents and effective rents so far in the last T12 months so we can figure out offense and defensive strategies.

These would be the questions we'd go through in planning your steps ahead.

having a HELOC to have an emergency line is smart since if you really need it in a crunch you could draw funds within 1-2 days or less in most cases. If you were limited in cash reserves atleast you'll have the HELOC as a 2nd or 3rd back up source of funds to weather storms. In real estate its messy and there are always repairs and capX projects that seemingly pop up from time to time. Its always nice to be prepared.

 To Sum it up, its a good idea if you can exceed the cost of capital (higher rate than your cost of debt) with what you earn on your heloc/debt you pull out and invest.

The question is how much gains above is enough to substantiate the risk of your variable interest rate, well thats up to your personal investing criteria. Some people need 2% above the borrowing cost (8% cost of hELOC you gotta then make 10% + etc) and others will want to double their cost of capital or 200% so it depends.

Everyone's going to give you their anecdotal experience or what their preferences are so its good to hear it all and determine your own.

 You can still qualify so long as you have verifiable income. You're still considered US citizen for qualification purposes not a foreign national. Most of the FN moniker is for folks with no nexus or residency/citizenship to the US. Since you're a citizen but you live and work abroad you'd still qualify mostly for second homes occupancy or investor non owner occupancy (primary is hard to claim if your job requires you to be physically next to the office as an example so an underwriter isnt going to readily believe you unless you can get HR to write you a letter to state you're remotely capable of earning this income/job duties anywhere).

Hopefully that helps let me know if you have further questions into mortgage planning.

 What do you file for this "income overseas," do you file SChedule C self employed on your personal 1040 tax returns ?

If so you may have some full doc options which have the best rates typically and terms.

Like others have mentioned you have DSCR loans too but this only allows you to purchase non owner occupied properties (not primary residence or second home occupancy type properties). Great if you want to add rentals or non owner occupied properties to your portfolio but not so great if you wanted that winter log home in big bear CA or Mammoth lakes, CA.

The good news is you're from TN so you have no earned income tax from the state on wages only interest and dividends in certain cases so thats a pro right? (in terms of pros and cons).

You can also use rentals to provide additional borrowing power if your rental currently cashflows from a tax perspective.

Hopefully that helps your scenario advance forward in terms of what to ask and think about.

 It sounds like your question is what is the conventional guideline on using these rents to qualify ? As soon as you get the leases signed and proof of security deposit and first months rent deposited into your account your can use it.

The question should be, do I even need to get the units leased out to qualify ? That question depends on if you have enough other income to qualify. If you do have enough other income then you dont even need to lease out this property to start your refinance.

However if you dont have enough income to qualify with no rental income offset then yes you will need to obtain your lease(s) and security deposit + 1st months rents deposited before you can utilize 75% of this gross income - your monthly PITIA payment (in terms of qualification on this property refinance.

So all in all Id make sure what your current debt to income position is first of all (DTI) and then strategize to see if you even need the leases at all. Some people will, some wont. If you dont need the leases it can be nice because as soon as you get near completion on your rehabbing you can get your disclosures out, esigned, start your appraisal asap, and get the process moving quickly versus waiting around for tenants, lease ups, and all units to be rented.

Best of Luck ~

 They're good to have open access to capital/cash/equity to a property ahead of time so you can execute a deal or purchase when the time comes on a split second decision (versus having to apply to a loan at that time which might take 20-45 days to get approved/closed/etc plus by that time you dont know what your future income/credit/assets will be like in order to qualify anyway).

The second use is sleep at night factor and having a reserve of capital in the event an emergency event occurs in life.

For these two reasons is why I use lines of credit.

 Luckily the math part isnt too high level just addition, subtraction, some mulitplication and division but we as a community can all help you through it.

Leave the complicated math for the wall street quantative analysts and derivative traders. Everyday RE investors achieve success with just basic math skills. I think the most important part is a willingness to learn and succeed plus just knowing your goals and pushing forward towards them.

Each market has its challenges and PDX area is no different. 

near 0% and 0% options with DPA's exist (down payment assistance) programs. There are pros and cons to using DPA with your average conv/fha loans ( yes this is how you arrive at 0% down or 100% CLTV or combined loan to value financing).

Conv and FHA lend up to 95-97% so that remaining 3-5% down is covered or partly covered by the remaining local DPA programs. Texas State has some of their own as well.

The down side to this seemingly free (not free but free or is it?) is that it typically comes with higher rates on the first mortgage, if you're low income enough you might qualify for near free DPA but most DPA's open to all income brackets are typically at higher than market interest rates. The first mortgage rate when using the DPA is typically higher too by .50-1.00% on average.

For these reasons I recommend our clients save their own 3-5% down to avoid these programs when available. Sure if you dont have your own 3-5% down payment then yes use DPA if you really want to buy.

After going over the pros and cons typically our FTHB'ers or first time home buyers end up getting a gift or bring in their own 1-2% down + 1-3% gift and end up with 3-5% down payment and borrow at regular FHA/conventional rates (avoid the DPA program rates).

This is actual experience. In the off cases of 10-15% of our FTHB'ers they'll end up proceeding with the DPA low to no down programs.

Hope that helps.