All Forum Posts by: James Nosack

@Brandon Turner

Hi Brandon,

Recently pulled out of a deal with my zoning contingency on a similar scenario.

The property was zoned SF, somehow had been converted to a 4plex.

After speaking to zoning, code enforcement, and land use for the county having jurisdiction, I learned the following:

-If a complaint was issued by neighbors, tenants, passed-bus, ect it could trigger a visit to the property by the county. The issue is that there was a lot of work done on the property without permits which had not been inspected. Should the county have determined the property was not operating as intended (not difficult to prove with 6 cars in the driveway) it would trigger a Certificate of Non Compliance that will show on the title report until cleared. The county can put a hold on the property to demand that it stops operating as a 4plex. Should the inspector also deem that there are safety concerns with the work that was not inspected, it is his discretion on whether you will need to expose MEPF systems. Even if the work had been approved after opening up walls, I would still be on the hook to legally convert back to SF.

-To resolve the first point, there were two options. 1) One was to go down the road of getting an exception to the current zoning. Depending on census tract and surrounding land use, it can be an uphill battle. Especially getting an exception for a 4plex in a SF zoning... 2) Convert the property back to a legal SF use and operate as a rental. Not as Juicy as the cash cow I wanted to buy. Either direction taken here costs a good chunk of change.

-The more obvious risk is with insurance. I am not a lawyer not do I claim to be an insurance expert. But as it has been explained to me, should something happen on the property, because of all the un inspected modifications, I would be on the hook.

In my eyes, the biggest risk is the safety factor. If you are able to get the work inspected in the second dwelling AND then put up partitions, install your second kitchen, ect - at least you can set yourself up knowing that your addition was signed off. Maybe you can even get a second kitchen signed off with the SF use? If this happens you can add your dividing partition between units and sleep easier.

I definitely think the above example are the extreme, but wanted to touch on the dark side potential for perspective. I have plenty of contacts who build out a separate unit in the basement. They did however build the basement out originally pulling permits and went back afterward to add casework for the kitchen, ect. Great potential way to maximize utility in a SF.

@Sam Tecun

Hi Sam,

Happy to share my experiences, feel free to reach out. My first purchase was out of college at age 22 2-1/2 years ago. Like many others I started by house hacking a duplex (live in one side, rent out the other).

Personally, I found local Meetups to be the most valuable use of my time while I was in the learning stage. I met a lot of very savvy investors as well as other real estate professionals at multiple bi-weekly and monthly events. At these events I asked questions derived from books I was reading, podcasts, ect and was able to expand on the knowledge in ways applicable to my own situation. 2 years later I have done three deals with one of the lenders I met at one of the weekly meetups. I also text frequently with 1-2 others that I met through my local meetups.

For people looking to invest young, down payments can prove to be a barrier of entry. Look into the many creative ways to finance a deal that can help you (seller financing, lease options, partnership deals, government programs like FHA). My first deal was purchased using an FHA at 3.5% down. After working for a few months out of college and saving much of my income this was attainable.

Good luck with you first deal! Keep active on BP, engage others in the community, read, and ask questions!

@Christopher B.

Thanks for sharing - what are you planning to invest in should the market recover before the end of the withdrawal period?

I’m going through a couple of refis right now. Hoping I just get good news from the appraisals to avoid using the withdrawal to pay the loan down.

@Karen Mills

Hi Karen,

Do you have goals set for what you would like to get in return of your withdrawal? Would be interested in other folks strategies that are looking at doing the same.

@Dave Spooner

I have not looked into the directed route yet - since graduating I’ve just participated in one of the funds provided by my employer. I would be interested in learning more about these for future use knowledge though!

Also am not accelerating the mortgage, sticking with 30 year fixed in this scenario.

@Aaron K.

Now I understand - see below for the $700 in reduced expenses that come with this refi.

Outstanding balance roughly 32k lower than when loan was originated. Was bought with FHA 3.5% down and .85 PMI. Refinancing to 75% LTV Fannie assuming 3.5% interest.

Drop PMI of $280, reduced outstanding loan roughly $195, reduced interest $245. Roughly $720 with this example. Don't have my actual tables in front of me but will update thread with actual numbers during the week.

@Aaron K.

Hi Aaron,

I'm following most of your response, why would the increased cash flow not be applicable to the ROI with the 20k? If I do not buy down the loan, I do not receive the increased cashflow of $700/mo from reducing the mortgage expenses over the lifetime of the loan

I’ll go pull some of the numbers to show my decreased interest over the three year span and follow up.

Appreciate the input I will run the numbers this way once I hear back! Certainly doesn’t sound like this method makes the decision as clear-cut, so I want to understand ‘why’ I would be analyzing the return in this manner before factoring it in to the decision.

@Cj Powderhorn @Karen Mills

Hi CJ and Karen,

My thoughts- I see the withdrawal being the better avenue especially if your fund is waiving the 10% fee.

Drawing the money as a loan means you are taking on additional liabilities. If you are buying real estate with the loan, you are increasing your leverage.

However if you are transferring the money from retirement account to real estate, it’s just moving your funds from one I’ll-liquid account to another, in the form of equity. The cash does not go away, remains in the asset column and allows you to earn higher return than if the funds were still in your retirement fund. (For instance if you are reducing expenses MTM by buying down a mortgage or purchasing new property that creates additional cashflow.)

Also, this way you can choose to repay your retirement account within three years to avoid being taxed, instead of needing to in order to repay the loan. During this time you can continue your normal contribution levels.

@Jeff Hubert

Thanks for your input, Jeff. As you said based off my numbers it’s the move. Like anything else I’m interested to hear people’s input who disagree or have other strategies.