All Forum Posts by: Ian Verzoni

Hoping someone can shed some light for me.  I've been paying escrow+mortgage on rentals since 2015 and never had this happen to me.

Details:

Mortgage company does an escrow analysis and finds the following:

2023 

Taxes $1648 + Insurance $1634 = Total: $3282

New Escrow for 2024

Taxes $2331 + Insurance $1918 = NEW TOTAL: $4250

- With increased tax and insurance I owe $968 more on escrow.

- $968 difference paid out over 12 months would be $80.60 per month MORE.

The mortgage company is claiming that I owe $3,000 MORE in escrow and is charging me an additional $250 per month.

I checked with them and I've NEVER missed a payment and have been up to date this whole time.

They say its not a mistake but couldn't explain why I owed $3000 more instead of $968 more for the year.

Am I missing something?  I appreciate anyone who can make more sense of this, thanks!

Quote from @Kevin Koone:

ok first off, Oklahoma is tough all around.  Wind/Hail has hit them hard over and over to the point that a lot of companies have pulled out.  I agree with Ken, get some costs and see if it's worth it but depending on how old the roofs are on your dwellings if you have a claim and replace the roof your rating might not really change.  I believe with most carrier sin OK you're looking at minimal 1% deductible for wind/hail with some going up to 5% of the dwelling amount.

I have people ask me all the time if they can just remove the wind/hail coverage and I have to remind them that covers more than just their roof.  If a tornado came through and destroyed the home no matter what your deductible was you'd be glad for the coverage. Or if it blew a tree over on the house/fence/AC unit it adds up pretty quickly.

Thanks! I appreciate the thoughts.

Quote from @Account Closed:

Quote from @Ian Verzoni:

Wondering what the best strategy is.  Do I put a low deductible on my wind/hail and then use insurance to pay for a new roof once it fails?  I'm worried about how much penalty I'll have for using my insurance.

Or, do I save on monthly premium and hold a high deductible, and pay for a new roof out of pocket once it fails?  That way I don't get penalized for using the insurance.  I hold enough to cover a roof out of pocket if needed.

I appreciate what thoughts/insight/experience folks have had, thanks.

The age of the roof may make the difference. Most roofs have a life span of about 20 years. Get a quote from a local roofer or two on what they would charge to replace the roof and run the difference between replacement costs and insurance costs. That will give you an idea of your potential liability. And yes, if you use your insurance they will raise the rates.

Thanks! I appreciate the thoughts.

Wondering what the best strategy is.  Do I put a low deductible on my wind/hail and then use insurance to pay for a new roof once it fails?  I'm worried about how much penalty I'll have for using my insurance.

Or, do I save on monthly premium and hold a high deductible, and pay for a new roof out of pocket once it fails?  That way I don't get penalized for using the insurance.  I hold enough to cover a roof out of pocket if needed.

I appreciate what thoughts/insight/experience folks have had, thanks.

Thanks Ko I appreciate the insight! 

Quote from @Ko Kashiwagi:

Hi Ian,

What would be the goal of delaying the mortgage? And what kind of mortgage would you use on the next property? If you are looking to scale your portfolio, it would make sense to use leverage and increase your return on equity. Given the property you would move out of will cash flow, doing a refinance would allow you to obtain cash in hand while generating cash on the rental.

Ko, I appreciate your response thank you.

I guess any delay would be in the hope that a year or two from now maybe we'd see more like 5% mortgage rates, could be too optimistic but at 7% currently there isn't much cashflow to be had.  From the ROE equation I get 11% to get a mortgage and 8% ROE to continue without a mortgage.

Here are some further thoughts below, I'd appreciate your thoughts or any holes you can poke in the logic:
1. Keeping the house WITHOUT a mortgage is $10K more in income per year (compared to a mortgage)
2. That money is still "sort of liquid" and I can still cash our refi if needed
3. I would need to buy 3.5 more single family rentals (of the same CoCR performance) in order to match the income forgoing a mortgage. This is doable however my time to find, procure, and renovate rentals is very restricted due to my life on active duty.

When looking strictly at the numbers a mortgage provides a better CoCR and a better ROE, but stepping back and looking at more plain facts it seems like leaving the house paid off is the best bet, thoughts?

Quote from @Greg Scott:

Thank you for your service.

I recommend using different math.  Do the calculation for return on equity. 

When you first make an investment, cash-on-cash makes sense because that is your equity in the deal.  Afterward, return on equity makes more sense.

Greg, I appreciate your response thank you.

From the ROE equation I get 11% to get a mortgage and 8% ROE to continue without a mortgage.

Here are some further thoughts below, I'd appreciate your thoughts or any holes you can poke in the logic:
1. Keeping the house WITHOUT a mortgage is $10K more in income per year.
2. That money is still "sort of liquid" and I can still cash our refi if needed
3. I would need to buy 3.5 more single family rentals (of the same CoCR performance) in order to match the income forgoing a mortgage.  This is doable however my time to find, procure, and renovate rentals is very restricted due to my life on active duty.

When looking strictly at the numbers a mortgage provides a better CoCR and a better ROE, but stepping back and looking at more plain facts it seems like leaving the house paid off is the best bet, thoughts?

A year and a half ago I bought a house in cash to avoid a +7% interest rate on my mortgage.  I'm moving and am going to rent it out when I leave this summer.

I'm wondering do I cash out refinance and go get another SFR/invest elsewhere? Or do I just delay getting a mortgage longer?

The CoCR math shows that getting a mortgage is about .5% BETTER CoCR.  However, my big question is how do I account for the money I'm saving by not paying any interest?  My interest payment on a mortgage is over $1000 a month, how do I include these savings in my CoCR or overall investing strategy?

Investment Info:

Single-family residence buy & hold investment in Moore.

Purchase price: $170,000
Cash invested: $49,000

Contributors:
Lara White

Second rental property but my first reno! Single family rental purchased in OKC from Las Vegas while on Active Duty. Used lessons learned from David Greene's Long-Distance Real Estate Investing, and used Bigger Pocket's Networking to get matched with the best realtor I've ever use, Lara White.

What made you interested in investing in this type of deal?

I've owned a Single Family Rental for about 5 years. Been saving up and sold my primary residence to purchase more rentals. Wanted to diversify the locations of my rentals, I have one in GA and one in OK now.

How did you find this deal and how did you negotiate it?

Found on Zillow, worked with insight from Lara White to make a great offer without needing to bring any extra money to the table. In 2021 that was miraculous.

How did you finance this deal?

20% Conventional loan.

How did you add value to the deal?

Put about $9K into the renovation, full cosmetic job, new flooring, new kitchen, new bathrooms.

What was the outcome?

about 8.5% CoCR in the first year (not including appreciate, and mortgage pay down. Not what I was exactly going for but its better than sitting and never buying anything!

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Lara White, best realtor I've ever worked with!

@Basit Siddiqi thanks for the response!