All Forum Posts by: Greg Kasmer

Kyle - Looks like you have two distinction questions, 1) Whether to refinance, and 2) Whether you should move out of the duplex. For the first question, it seems as though your calculation should investigate how much cash flow it will cost you to pull out the $21,000 in equity. For example, if you're cash-flowing $200 now (with you living in the property) and after refinancing the property you'll cash flow only $50 per month, it's costing you about $150 per month to access the $21,000 in cash. Or, about $1,800 per year, which is 8.5%. Therefore, the question then becomes with that $21,000 can you go and find a property that gives you better than a 8.5% return on your money. The question on #2 may depend on your lender if you decide to refinance - i.e. whether you need to live in the property for a certain amount a time. However, trying to answer both at the same time may be confusing. I would figure out how you want to handle the refinance first, and then think through the moving out question. 

Donny - Not sure of your exact situation, but seems like you can 1) Open up a business checking account in your LLC name, 2) Take out HELOC, 3) Transfer funds from your HELOC to your personal checking, 4) Transfer funds from personal checking to business checking account, 5) Purchase property under your LLC using the funds now in your business checking account. Do you think that scenario is possible?

Nate - If this is for your primary residence that you will eventually turn into a rental, I would suggest you consider either the 10% down or 0% option as I think having more money available for future purchases is preferred. However, I would make sure in either scenario you cash flow (rent - all expenses) about 6-10% Cash on Cash because in each of the lower down payment options your mortgage payment will be naturally higher.  In either of these options you don't mention the amortization length of the loan, which also impacts payment - I would suggest either a 25 or 30 year amortization if trying to limit your payments and grow your portfolio.  Good Luck!

Yola - I'm not completely familiar with your area, so I'll assume that you verify the rents, purchase price, and taxes relative to the local dynamics. Some additional thoughts on the analysis are: 1) Vacancy - I would assume 5% instead of 3% as I see most banks desire that assumption, 2) Interest Rate - Seems a bit low to me, perhaps 3.5% instead of 3.0% - However, if you already verified with a potential lender I would go with that assumption, 3) Management - Are you managing this yourself? If not, I would add in a 7% management fee if you're going to use a company, 4) Water/Sewer - Most often I see that expense going to the owner, so perhaps include some expense to that in your analysis. However, if that is not correct in your local area, then ignore my comment. Good Luck! 

Joe - Let's talk! I'm in the Philly suburbs and targeting properties in the 10-40 unit in size. Thus far I'm looking in the suburbs to align with my existing portfolio, so I'd be interested to see where you're targeting as well as how you're networking in the area!

Sasang - Congratulations on selling your house! I'll assume by your question that you've already take into consideration any financial needs you have on your next primary residence, SO if $550k is available to invest I think the biggest question is whether in the future you want to be an "active investor" or "passive investor" in real estate. As a passive investor there are opportunities to have ownership but not get involved in the daily/monthly operations of the opportunity. Conversely, as an active investor you are overseeing the acquisition, asset management, and disposition/exit strategy of the investment. Once you know that personal goal/aspiration I would target opportunities accordingly. Personally, I'm investing in small/mid sized multi-family properties now under assumption that over the next few years inflation will increase incomes/rents and provide some support for increasing income. I'd like to use my capital sooner and "get it working" sooner given my own personal assumptions/biases. Just my two cents! Good Luck! 

Joel - I'm not familiar with the area you are targeting, so if we assume that your sales price is accurate (which I would verify with a realtor), other items that come to mind in your analysis are: 1) Renovation Budget - Did you get a contractor or a more experience person to confirm $100k is a good estimate based on the work? 2) Holding Costs - Seem a bit high to me at $15,000 per month. I know there is utilities, insurance, and taxes during the hold, not including your hard money points, interest, etc... but I would take another attempt at estimating that based off of the total capital needed ($507 + $100k + Closing costs). 3) Total Profit - Not sure $36,000 would be large enough given that the outlay of capital is $600k+. Personally, I would aim for a profit of 10-15% of the total capital invested for profit - So, in this example it would be $60-$90k in total profit. However, that is just me... others have their own metrics, targets, etc... I would check your renovation estimate and holding cost estimate and perhaps recalculate the profit amount. Once you make some adjustments you can also share with some flippers at a local real estate meeting and see what they think! Good Luck!

Juwan - One item I've found helpful is to utilize loopnet and/or crexi to identify properties that are being sold in the markets you're targeting. While you're looking into those properties you'll naturally see the broker/agency that is selling each property. I would then call each broker and introduce yourself and let them know what types of properties you are targeting. Brokers are key in multi-family investing and you can quickly build a list of broker contacts by utilizing information on loopnet/crexi. Good Luck!

Beckie - You can ask your CPA for his/her suggestion, but I think the biggest item is to track your payments (from LLC to personal) on an excel file and make note at the end of the year of the interest versus principle paid on the HELOC (which the bank should give you during year end statements) - in that way, you may be able to write off some of the interest. However, in this case the deductions may be more limited because of taking a HELOC in your personal name instead of the LLC. Good Luck!

Ricardo - If you want to post an example of one of your specific analysis the group might be able to provide some specific feedback. However, I can tell you that some areas will be difficult to cash flow no matter how you run the analysis - based on their overall price point and relative rental income sometimes certain areas just don't work. Those areas are more "owner occupant" and harder to cash flow. At a high level this is where he 1% rule can come in handy in order to eliminate areas that are going to be much difficult to cash flow. For example, if you have a house that is $500,000 in value you'll likely need $5,000 in rent (or around that amount) to have a good chance of cash flow. If the area rents are $3,000 it will be hard to cash flow. This is not an absolute ratio, but high level guidance. If you want to look further into your specific area I would focus on house values relative to rental income and see what that might indicate. Good Luck! (FYI - I'm outside Philly in the burbs)