All Forum Posts by: Albert Bui

Just remember that on investment purchase (conventional) you wont be able to receive gifts to close the purchase so if you're going to buy and you want to bring in friends/family into the deal as a giftor, you'll need to be buying as primary most likely (allows gifts).

Also primary residences allow higher LTV's or lower down payments (same difference) 3-5% down versus 20-25% with non owner / investment occupancies.

This is to tackle the down payment issue you're experience above. However the next aspect is your income issue potential so in order to tackle this one we'd have to know what your approximatel income figures are to see if you have enough to qualify for the full 175,000 price ( or loan amount after taking into account down payment).

Some of that 2600 gross rental income might be able to be used to help you qualify for the property but only if this "property," has legal separate units (not one big SFR or house 1 unit, rather its 2-4 unit like duplex/triplex/fourplex). If its only a 1 unit property then you'll most likely need to qualify for this purchase with your own personal income.

Make sure you review all of your options (credit/income/assets) with a lender so you can determine this before you find deals that way you're not having FOMO looking at deals and not knowing how you can actually acquire them.

@Matthew Kwan

@Carlos Valencia

 Definitely dont sink all your money / capital into one deal as many others have said and if you did you'd still want to keep aside a large amount of capital for unforseen repairs, rehabs, and capital expenses.

Id start with your mail goal in mind. The west coast is expensive and usually speculative market with low to no cashflows especially at the rates we're experiencing right now even if you bought the property at a great price.

The mid west states have higher cashflow and lower rates (higher rent to value ratios) but also returns on paper are deceiving with what you receive in real life because tenant turnover is high and tougher tenants also are rougher with your units so your turnover costs are a lot higher as well. These items will eat into your actual returns versus proforma. Its fine balance, this is why I prefer hybrid markets that have elements of both cashflow and semi appreciation as well. Typically you can find these out side the main appreciation market in secondary areas (IE not los angeles but markets surrounding or IE inland empire etc).

Hopefully that helps

@Matthew Kwan

@Carlos Valencia

 Seeking out and having experience as an agent who specializes with, learns, and knows investing in and out will help. If you can bridge the gap in terms of knowing the lingo and terminoglogy that will help as well with the normal finding great deals that most investors will ask for.

As you work with one investor you can build up your book of contacts and knowledge. In harris county there is plenty of activity going on so im sure you're bound to find some RE investor focused clients or activity that you can jump start your network with.

We're investor centric in our firm as well and have been since day 1. You always gotta start from somewhere.

For myself it was buying apartment units and investing myself.

@Matthew Kwan

@Carlos Valencia

 HI Kalp,

The strategy or buying something that negatively cashflows in hopes of a better or more lucrative future outcome can work for those who can weather the storm (IE reserves/cash/ other assets/rentals/apartments that offset this deal or you have long time horizon).

With that said, I would generally not recommend buying anything that is negatively cashflow upon day 1 however there are obviously clear lines of delineation one must explore. Sometimes a deal can be slightly negative because you're living there as a house hack now that is a different story because you might "know," that when you move out it will be positive or positive after you raise rents and move out (lets say its a fourplex 4 flat for Chicago folks, and 4plex for us west coasters).

In this case, it might be lucrative because in this example you control the "move/out," and conversion from negative cashflow to a positive cashflow scenario so the future potential is definitive versus some hope and prayer that you will someday cashflow (smoking hopeium so to speak).

I've also seen some buy negatively cashflow properties here in Seattle PNW (pacific northwest) areas even after they move out (its still negatively cashflowing), but the aim was to build ADU or accessory dewelling units in the back and that eventual exit strategy would yield positive cashflow eventually. This eventuality however is 2-3+ years down the road. So for this person you'll want to have lots of cash reserves, perhaps a high paying self employment gig or Job to weather the storm and fund this investment till the time in which you can fulfill or execute your game plan. This one is more speculative in nature and not recommended for all however if you know what you're doing and can balance cashflows, have that high income gig to offset the costs along the way, and have a good team it might still be a lucrative play.

Those are some thoughts and examples, hope that helps.

@Matthew Kwan

@Carlos Valencia

If your "DTI is going to scare away any bank," then you follow it by saying both properties are cash flowing then what I surmise is the properties might cashflow in real life however on paper/tax returns you're probably not cashflowing otherwise these rentals would be improve your DTI (going down % wise) if they're actually cash flowing.

So the above doesnt add up, did you get an adverse response from your current lender contact?

@Matthew Kwan

@Carlos Valencia

 This is good Alecia it shows an actual time based accounting on cost of time it takes to manage X units. I think thats important. One can also or should also take into account the emotional/mental and life style factors that may come into play too since everyone has different preferences on what they'd like to do with their free mind / time space.

I think for some the 14 hours is more than acceptable however if a person was willing to trade that 14 hours and perhaps reduce it  down to 20-30 minutes of calls/emails per month by hirining a professional manager it may make sense as well depending on the cost. If that cost were to reduce cash flows to lets say 23k a month it might make sense for some too.

When you leave your full time work/job, will the 14 hours per week vary or will you take up real estate brokerage/investing full time along with the mgmt of 14hrs per week?

Like some Guru's say you dont need hundreds of units in some expensive markets like ours in the PNW you only need a few free and clear SFR's (build multiple ADU's) or MFR's (or low leverage/free clear close to) in order to reach your financial freedom metrics.

There are local lenders who can give you options even past 10+ fannie/freddie products not just relying on private capital from DSCR or non QM products (these are an option too) however there are pros and cons.

Id say the benefits of the DSCR product line is that some of them can go up to 25+ financed properties while some DSCR lenders can only go 4-10 or 15 tops. You'll notice that the more conservative the DSCR paper/product the better the pricing is typically so each DSCR product line serves a certain niche of investor (whether they do airbnb/STR, LTR rents, portfolio size, and where ever you are in your journey through REI). Knowing where you're at in the journey allows you to switch products at different stages (IE at 4 properties, or when you get to 5, or 10, or 15+ and 20+ because pricing/terms change as you progress).

I think the local banks and credit unions service another gap as their rates typically tend to be better but there are cons as well such as balloon loan features that require a refi/exit/sale at the end of 5-15 years.

Depending on your strategy and outlook weaving different products can help solve your gaps in your strategy going forward.

For instance, for me I didnt want a fixed term cash out commercial note so I just did a blanket commercial line across multiple APN# parcels because, we never know when a deal will come up and sometimes having interest charges with no deal doesnt make sense as the funds burn a hole in the pocket so to speak.

As soon as I find a property suitable for a project I may use the lines to fund the project with an eventual commercial refinance out when it hits completion in order to pay back down the lines (reload for the next project).

@Matthew Kwan

@Carlos Valencia

You're already in a cashflowing market, find that 3-4 unit and house hack it with 5% down conventional (borrow the other 95% LTV loan to value) and make sure the numbers work before you get into it.

Even if they dont work while you're living in unit #4, you can hypothesize the proforma cashflows with your unit's income upon your vacating that unit after month 12. Then rinse and repeat till you have 10 fourplexes (easier said than done right?), 40 units.

Its much easier to do the 4 unit house hack strategy in Houston market than the west coast where our fourplexes are any where from 800,000 (in rougher areas and secondary markets in west coast) - 2,500,000 (LA metro core fourplex). The numbers rarely work in the west coast even if all 4 units were rented or even if you rehabbed everything and increased rents its still probably negative over here.

In Houston however a fourplex 350-450k might work. 

@Matthew Kwan @Carlos Valencia

Plenty of course depends on what kind and level since you're not going to pay to pay a pro 3-6k a year to do what would be valuable to someone with 6-12 APN/properties or units when you're just starting out so a good balance and possibly working your way up would be the best route.

Now if you have plenty of assets and need to dissect strategies at a higher level then we can go straight to higher level CPA's to plan out the timing, the implementation, and net value for the cost, etc.

You say investment but doing this long enough that is sometimes parlance for this deal might be looking like an investment but are you going to live there (owner occupied)? If so conventional will be better because FHA/Conv guidelines are the wheel house typically of mortgage broker and some times banker (synonymous names but they all do and sell the same product).

Credit unions can sometimes do Fannie Freddie/conventional FHA too but generally aren’t that great at them. They are however good at 20-25% down commercial portfolio loans if you need a creative solution so it depends on what your intended use is, your preference is, are you trying to get maximum leverage aka lowest down payment or is rate or cost your main preference? 

Or is qualification your main preference 1-4 unit fha conventional loans will qualify off DEBT to INCOME or DTI while commercial portfolio loans will qualify off DSCR or debt coverage service ratio (this assume you're not going to live there if you're going to a credit union).

So you asked a loaded questioned but I gave you some questions/answers to think about if you could provide more information perhaps more commentary can be added further.

@Matthew Kwan

@Carlos Valencia