All Forum Posts by: Mike H.

So I've been looking at this LIHTC stuff for a few years on and off. It always seemed like a huge headache and probably not meant for a little fish investor like myself.  That being said, I think there might be an opportunity for this program to be expanded as the the politicians seem to finally be understanding that they need to do something to fix the lack of supply of new construction homes and I'm thinking this program may end up being a part of their solution.

I've tried finding some real meat/details on the program but all I can seem to find is the broad strokes at a really high level. 

Here are some of my questions.
1) Does anyone know a good training program or information source that could actually answer some of the detailed questions? Private firm? or maybe some govt entity?
2) Am I right in understanding that you can qualify a project by setting aside 20% of the units to be rented to people earning less than 50% of the AMI? 
2b) If so, does that mean you can do anything you want with the other 80% of the units? Even sell them? Can you rent them out as STRs? Or do all the units somehow have to be rented to low income families in some way?

My thinking would be to create a project to build 20 sfh's.  And then rent out the 4 unites to people earning less than 50% of the ami (as opposed to the 40/60 scenario). And then rent out the remaining 16 units at market rent. Or, if possible, sell them (but I'm guessing that selling the units to owner occupants is probably not allowed and that they must remain rentals for the 30 year period). 

Looking at tennessee. And was wondering if anybody has ever tried to get a project done there. And, if so, what the project costs for creation of the documents needed to do the project might be.   And can you do it without having the land under contract and/or already acquired? I wouldnt' want to buy a 750k piece of land and then have no way to use it with this project. 

Quote from @Mohit Khanna:

Quote from @Mike H.:

Quote from @Mohit Khanna:

As a 40-year-old Australian investor, I've built a strong real estate portfolio focused on the local market. My strategy has always been to buy in the right market cycle, renovate for value-add, rent, and refinance to release equity. This approach has worked well for us so far. All our properties currently yield over 6.5% gross return, with a borrowing rate at 6.5% and 20% deposits. Most of them have appreciated by over 35% in the last four years, providing us with solid equity gains. Plus, the rental income is covering the mortgage payments on most of them, which helps keep the cash flow balanced.

Now, I'm looking to expand into the US residential real estate market. My focus is on properties that are slightly positive in cash flow, while also offering capital appreciation potential, and ideally being self-sustaining in the long run.

During a recent visit to LA, I didn’t quite feel confident about the current state of things there. San Jose and the Southern Bay Area were appealing but may be outside our current budget. My gut tells me that Texas, particularly Austin and Houston, could be where the next wave of growth and expansion occurs, mainly driven by strong business and job creation trends.

Here’s what I’m looking for in my US investments:

1. Free-standing houses with a good land component, at least 3 bedrooms and 2 bathrooms, and in well-maintained condition.
2. Budget : Will have to keep a factor of safety for the current exchange rates of AUD.USD = 0.68 so will cap our budget at 250K- 300K.
3. Yielding over 6%, with a slight cash flow positive outcome, while also offering medium-term capital appreciation potential.
4. Holding for at least 5 years or more, with a view towards steady growth.
5. The long-term goal is financial independence, reducing reliance on salary-based income, and building assets during this accumulation phase.
6. Debt reduction is on the horizon—looking to consolidate and start winding down debt within the next 7 years.

If anyone has experience investing in the Texas real estate market or any tips on navigating US property investments, feel free to share your thoughts!

Have you considered doing new construction in an STR area? I'm an investor (just before covid, I had built a portfolio of 83 houses here in Illionis) but also have starting building to sell and building to rent in Tennessee - specifically Sevierville/Gatlinburg area. Its one of the top 3 most visited areas in the country actually and has a very robust STR market.

As a licensed builder, I am building to hold and building to sell.  And we have a little bit of bandwidth to build for other people now but right now kind of limiting that to investor friends or family.  I came up with a number that makes sense for us as a builder and them as an investor where we presell the build to them and they get the construction loan or use cash and we both agree not to use a realtor (that saves us 30k that we can pass on to the buyer).

We're trying our first one for a former coworker and new investor. He's doing a 1 bed, 1bath 1,000 sq ft cabin that appraises out for 525k and that we agreed to build for 400k all in (including lot, utilities, appliances) provided they get the construction loan or pay cash (they can refi out later) so we don't have any interest expense either. 

The numbers are ok for us but not obviously not as good if we were to just get the loan and use a realtor to sell when its done. But they're good enough given its a presale and we have the bandwidth just sitting there. The former coworker can then refi after completion and get most of their money back out so he can do something close to a BRRR on these deals which was even more fun for him.

When he refi's to say 375k, he'll be out of pocket a total of 25k on the deal. And it should cash flow about 3k to 7k a year including PM fees built in (he's out of state too).  Although that cash flow number might not be there until year 2 as usually that first year of a new STR tends to be lower rent.  So that first year may be a 2 to 3k loss or break even unless he gets lucky. 

I'm just thinking if we can do something like this as a builder to where we can make our numbers work and the investor can basically BRRR his way to growth and cash flow, there has to be more builders out there that can do the same thing.  

Now if you were to find a deal like this with another builder and put down 25% or 100k and your loan would be 300k, your 100k would get you 225k equity in the property and it would probably cash flow between 10k to 15k a year by year 2 with the smaller loan payment. Or you could refi and only be into the property for 25k and have 150k in equity with a lighter cash flow. 

Again, I'm not saying it would be easy to find builders and areas that can do the same numbers, but I think its worth looking at.  The other benefit to new construction is that you shouldn't have any major expenses for several years.  AND with STRs you have no risk of evictions (which can get to be real expensive depending on the area)  and most damages that guests do are covered by insurance (either through the rental platform it was booked through or sometimes the property management firm has added insurance too).

As someone that build a large long term rental portfolio here in Illinois (I still have 40+ houses here) and somebody now building a portfolio in tennessee, I would definitely recommend looking at new construction in some of these str areas.  You'd be surprised what builders might actually be willing to do if they have a presale and don't have to use a realtor to sell it or get their own financing. 

Thanks for a detailed reply mate however construction is very high risk proposition especially from overseas and has potential to go wrong on a lot of fronts together. I am not ready to commit to this, however appreciate your inputs.
Good on you to use this to grow your portfolio..

You definitely have to get lucky to find a good builder out of the gate and may end up kissing a few frogs.  But once you find one, it presents a unique opportunity because it will allow you to gain a sizable chunk of equity on the buy side which will also help cash flow because you'll have less money into the property.

The other thing you could do in terms of new construction is commit to purchasing the property upon completion BUT requiring the builder to get the loan.  That way you have little to no risk because you aren't on the hook for anything until the build is complete and you've done your final walk through.  If the builder takes 18 months then he's paying theinterest and you aren't But I think if you sign the contract to buy before construction starts, you can still get a sizable discount from the right builder - in certain markets anyway.  Obviously not as good if you were to put up the financing and take all the risk.  But still.....  

I think you could do 85% LTV and end up with a new construction build with some built in equity and a little bit lower loan amount to get it to cash flow positive. Should be a lot less maintenance for the first 5 to 7 years for sure too. And with STR's you avoid the risk of eviction and you avoid the risk of tenant damages as most str's come with guest insurance that ensures even if you don't collect from the guest, then the insurance still covers damages.

Quote from @John Clark:

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its got to be a place with no income taxes and low property taxes for older people on fixed incomes - yet warm weather.

 That may be what people want, but that's not what they're going to get. Face it, it costs money to run a government and provide services, and have reserve capacities on standby to do things. I'm just waiting for all of the people who bought Florida land in the past 30 years -- when global warming became widely known in society -- want the federal government to bail them out for declining property values even though they knew they were buying in vulnerable areas. Where is that money going to come from?

All these people on fixed incomes who moved to Florida for the weather and disregarded the consequences and risks can do the same thing as the people on fixed incomes who stayed up North: Rent a cheap apartment or buy a cheap condo. Oh, and accept the fact that they disregarded the risks and therefore shouldn't be bailed out.

 I agree. I don't want to bail any of these people out.  We're already getting hammered with huge insurance increases because of the damages in these coastal areas.  Illinois isn't seeing any wildfires or floods or hurricanes.  Why are we seeng increases of 100%? 

These people had no problem when the values of their homes doubled and tripled.  Some bought at the peak and they need to accept the hit. 

As for an area that fits that criteria, I would point to tennessee.  Property taxes are next to nothing. No state income taxes. Cheap gas. Home prices are a little inflated but nowhere near as bad as florida or texas.  However, you don't get the super warm weather that you get in florida either or say texas either.   Tennessee can get a little chilly in the winter months.

But like you said. You aren't going to find perfect. If its perfect, then the price of homes is triple what people want to pay (i.e. san diego type areas).

I'm just wondering what florida is going to do if their coastal areas lose 2i to 30% of their homes.  If I had a million dollars, I'm not buying someting on the ocean down there. The insurance, if you can get, would be crazy and its only a matter of time of when a storm is going to take that house out in the next 10 years.  Its not a matter of if. Its going to get hit. 

Quote from @Jay Hurst:

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With rising property values and high demand across the state, do you think Texas is still an affordable option for first-time homebuyers? What trends or areas are you seeing , but emerge as the new buyer hotspots?

 Make sure you understand property taxes and insurance costs in Texas if you are not local. The prices, on the surface, but have to understand the total carrying costs are higher then most other states.

 Try comparing texas to illinois.  Its not even close.  The taxes in the towns i'm here in illinois are 3.1 to 3.4% of the assessed value.  And our assessed values are very close to actual values.  So a 300k home owner is paying close to 10k a year in proprty taxes.  Some towns are a little better than 3's.  But still. I know in tennesse there are 300k houses paying like 600 bucks a year in property taxes.  

How bad can texas really be?  Compared to tennessee, maybe they are bad.  But nobody compares to illinois. :-)

 Yeah, it is not THE highest (but there are areas around Houston that have 3.6% property taxes.  That is rare as most rates are around 2.3-2.8%.)  But, that is still much higher then MOST states. This site list Texas as the 7th highest property net taxeshttps://taxfoundation.org/data/all/state/property-taxes-by-s...

But, I talk to folks often looking to invest in Texas thinking it is a low tax state and are shocked by the property taxes. So, it is just a matter of understanding all the costs. Plus, insurance rates are high in Texas as well. NAR says it has the 4th highest rate: https://www.nar.realtor/magazine/real-estate-news/states-whe...

Sure, not nearly as high as FLA but still more expensive then the average state and is the only state on the top ten on both the property tax and insurance list. 

 Wow. I knew texas was bad but I didn't know they were in the 2.3 to 2.8.  Still way better than us here in illinois  But I could definitely see how its bad compared to most other areas like tennessee, indiana (1% for homeowners and 2% for investors max). 

Quote from @James Hamling:

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Quote from @James Hamling:

Quote from @Mike H.:

Quote from @James Hamling:

@Emily Poerio you're doing it wrong. 

You're new to STR, never done it before, so that means everything is an unknown. Maybe you love it, maybe it's like dental work, who knows.

And your gambling a LOT of $ on trying something out, via purchasing a property to try the waters.     That's kind of like buying a plan to try out sky diving isn't it. 

So bisect the venture. 

Start with what matters most, the actual operation of being a STR host. meaning DONT buy to try, RENT to try.

Start by trying to lease a property, with sublet rights to run it as STR. Yes, that's a very real thing.

There is a LOT of properties out there that would do awesome as a STR, but are only leased on standard lease, because the owner is clueless on doing STR and has no interest doing the hosting duties and activities.

The most common response I get from these landlords is "yeah, I thought about doing something like that, but ugh, then there is all those move-in/out every week or few days, and checking things constantly, then what if this or that happens, and all that, it's just too much for me, I don't have the time for that". Yeah, well great-fit for a person who IS keen on being a host. 

Now, your capital risk is on the lease, not purchase. 

I see it WAY too often person who got a property, analysis based on STR revenues, found out they suck at hosting, revenues are never what expected, feels like work, and than when try to shift to standard rental there deep in the red because standard rents are a fraction of that hopeium STR revenue, but there "stuck" with a property, a mortgage bill, and are than searching to break even or paying $ to get rid of property......

START by leasing a property and testing your hosting biz. 

Than, when you get good at hosting, like it, your going to know what property is a best fit AND will have that revenue position to better buy the asset. 

Or, who knows, maybe just scale up. 

It can be a great win-win, simply by bisecting the property and hosting operation. It's an OPM model for scalability. 

This eastern tenn area is a different beast. You aren't going to be able to rent a cabin and do arbitrage on it.  Thats just not an option.....

Care to put some $ on that bet? 

Beware, I will be in TN again soon, and I WILL prove you wrong if you feel like tempting fate. 

Look, just because you can't, which in truth is you don't or won't, has zero bearings on other persons ability to put in the work and make things happen. 

There is cabins out there people personally own for personal use, fact. I know because I've been "boots-on" in TN. And for some of these, they use them a lot less then they once did, some I have spoken with as little as 3/4 times a year. But they can't come to part with it and don't really trust handing it off to some PM to run it for STR that doesn't have "skin in the game".

THAT is the ready target market. A person can lower there cost of ownership, help protect and defend the asset, help with maintaining it AND your not just some PM, you've got skin in it, you suffer if they suffer, you win when and only if they win, your interests are aligned. 

Will everyone do it? Heck no, but ya don't need everyone, ya just need those right few. 

Or how about those who are burnt out on there existing PM how's charging them a mint? yeah, can convert those over because again, your interests as a person arbitraging are MORE aligned with there's, not just a fee-machine like some PM's are. 

So yeah, you couldn't be more wrong Mike but I hope that's obvious to everyone because it was yet another statement of "it's IMPOSSIBLE, there is NO deals out there" type argument. 

You buy the ticket, cover my expenses and I will go out to ANY market in the US and i guarantee in 7 days or less I will have found deals, GUARENTEED.    Because there is deal literally EVERYWHERE, all that changes is how they are constructed and how you find em, that's it. And to do that is via effort, putting in the work, connecting with people, interacting, talking, asking around, putting self out there. 

There is always the possibility. But here's the thing. If people own a cabin that is zoned to allow STRs, then they are going to rent them via an STR program. You won't find any cabins up for rent as long term rentals. The numbers don't make sense for owners. So why would an owner rent a property long term and take a haircut from the rent they're currently getting?

Again, this is a different area than most. Most areas have long term rentals that can in fact be converted to short term rentals.  But go check the long term rentals on zillow for the entire county. You won't find a single cabin for rent. Not one.  You'll find houses - but houses that are in areas that don't allow STRs.

So how are you going to talk an owner thats renting their cabin via STR already into taking a long term rental amount so that there is room for you to make money?

i.e. a one bedroom cabin,1000 sq ft is probably grossing 45 to 55k a year. The landlord is paying property management (20%) plus all utilities out of that though. You'd have to get that for say 2k a month to have enough room to then STR the thing and make it worth your time.   Good luck with that...

Can you find one needle in the haystack? I guess its possible.  But I wouldn't put money on it.  And again. You could obviously find someone that would rent it for 4k a month long term.  But you're going to lose money on that when you go to rent it back out on STR program.  

this area is completely different than most and I don't believe you can find a deal for arbitrate AND make a reasonable profit doing so. 

Your making 2 very big, and I assure very wrong, assumptions here. 

(A) That everyone currently doing STR in the market is great at it. That they are listing, marketing, presenting, pricing, managing in a way that's maximizing revenue potential.

(B) That everyone currently doing STR in the market loves it, enjoys what there doing, is having a great time, has the free time to do it, is loving life and not stressed out, time crunched, anxiety ridden and generally stress wracked.

In my PM portfolio, at least 65% of all our clients are more then capable, intelligent enough, tough enough, tech capable to list, lease and manage there own property and, THEY DON'T, they hire us, why?     Because they have found it a time suck, a brain drain, stress factory that takes away from everything else in there life including scaling and to time leverage is worth it's weight in gold. 

You're argument Mike is the typical one I hear that everyone should self-manage. No, actually most SHOULDN'T. 

So will some suck at it, where I/my team could do better and produce more/better revenue; YUP. 

Are some just burnt out and happy to take a little less $ to let someone else run everything and convert there life into "mailbox $"; YUP. 

See, you already decided it's impossible before ever even trying, or looking with open eyes. So all you ever see is Confirmation Bias. 

I have literally thousands of clients who refute your argument. They choose to use our service, which means less $ for them vs going it alone, and they love it! Because it's the trade, a trade they deem well worth it. 

So that is why, because it's a Good Trade. 

And MOST are NOT great at this business. The reality is, it's often a rather easy low-stress pitch. Our opening "hook" is "so how's it going?".    The majority have some kind of stress, headache, unhappiness they air.     

So yeah, a person COULD call those active ones and say "how's it going" and pull deals right there. 

But you decided it's always a "no" so why try. The defeatist attitude is self fulfilling. 

Wait a second. Nowhere did or would I suggest that you self manage an STR.  I'm a firm believer in the opposite - especially for long distance investors. But I don't see what what having or not having property management for an STR has to do with arbitrage of an STR.

To me, my definition of arbitrage on an STR would be to rent a property from an owner as a long term rental and then turn around and do STR on it. I'm not talking about a property management firm finding an STR to manage.  Thats not arbitrage.  Thats property management and completely different animal. 

What I'm saying is that the people with cabins that are zoned to be rented via STR programs are already doing it - whether they're doing it themselves or using a property management company out there.  But if they own a cabin in a str area, I'm saying they absolutely aren't renting it out as a long term rental.  The numbers don't make sense. 

So if thats the case, how do you think there's an opportunity to arbitrage here? 

If your goal is to grow your portfolio now then you need to find a way to hit that goal.  When I started back in 08/09 and did my first one, I set a goal of adding 3 houses a year.  I hit that goal - which was incredbily tricky given my lack of funds and the overall lack of lenders lending on sfh investment properties back then - six years straight exactly.  There were times when I was closing on a refi to free up a lender spot and the next week I was closing on the purchase.  There were a couple of times when I lost the deal because I couldn't get a refi done in time.

Pick a reasonable goal and find a way to go after it.  Money is not an absolute obstacle.  You just need to find better deals. Direct mail to people in tough spots (90 day notices, unpaid taxes etc).  If you can find a deal where you're all in at 75 or 70% or better, you can get a hard money loan to buy the house and fix it up with 10% of the project down, sometimes even less. 

Find a way to hit your goal and in 5 years or 10 years when you look back, you'll be sitting on a really nice portfolio.  Maybe flip a house or two in there to raise more capital so you can add more holds.   

If you're actually correct and the village has a 59k assessement on the land but the reality is the land is worth 20k, then I'd consider getting an appraiser even.  If you pay them diret and hint to them the comps you suggest because you're trying to come in lower, then they are more likely to do that.

To me, I would just use a couple of low end sold comps and call it a day.  At the end of the day what are really talking about anyway? If this was a million dollar piece of land, thats an issue.  But if you have two comps at 10k and 20k and put down 15k, they're not going to say anything.

I think you're missing the most important piece of investing - and thats the assumption that you need to buy right. Its the age old adage that you make money when you buy.  

I see too many people above suggesting you need to put 20 to 30% down to cash flow.  But they appear to be suggesting that you're paying retail.  And therein lies the problem.  If you're paying retail, you are not investing right.

You need to be able to find deals. They're out there. They require more effort. But they can be had. Find markets where if you're all in at 75% or better, you'll cash flow and then go find deals to where you can be all in at that LTV (i.e. purchase plus rehab)

Direct mail works.  Mail people that appear to be in a tight spot - i.e. 90 day notices, unpaid taxes, ect.  And find the houses that you can be all in around 70 to 75% purchase plus rehab.  And then hold.

To me, I'd suggest you look at smaller towns that have good schools and are close to cities so that you can get houses closer to that 200k or less mark yet still have a shot at decent appreciation and decent rental increases over time. Be sure to take property taxes into account too - there's a huge difference across the country. 

Here's the other thing I'd add.  If you can find the deals, you can do the 2 for 1 thing too. Lets say the market is 200k houses. And you flip one and make 30k and then you hold the second one and throw that 30k into a deal that you picked up for 150k.  Now you're at 120k on a 200k house and your cash flow should be pretty solid. More work to have to do two deals to keep one.  

 

Seems like a silly question though.  What else would an invvestor "consider" to use to finance their properties other than a "long term rental loan"?  Do I have another option? IF so, what is it? Again, I'm sure they were trying to dum up business but maybe didn't think that post through enough. 

So this was a new build. Did you pay 100k for the lot and 100k for the build? Or 100k for the lot and the build.  Either way, you owned it for 20 years and the value seemingly tripled (I'll assume you were all in with lot and build at 200k).  And if so, thats amazing. 

Long term capital gain isn't bad.  But then again, given the fact that its such an amazing rental, why not just refi it and pull cash out.  You'll get the cash entirely free.  And you'll get a ton more principal paydown going forward with having a loan and you'll continue to get appreciation but at a much higher base.  

The house tripled in value in 20 years.  What if it does that again in the next 20 years.  It'd be worth 1.8 million dollars.  What if it goes up 5% a year.  In 10 years, it'll be worth 900k.  Even if you borrowed 400k against it now, you'd have well over 500k in equity in 10 years (500k plus the principal paydown).

To me, I think you refi it and pull the money out entirely tax free. Why give up such an amazing rental.  Its going to continue to go up in value and rents should continue going oup the next few years too.