All Forum Posts by: Jase Machado

That's some good info right there! I like the idea of getting the 30 year with an option to pay it down like a 30 year and recast. Definitely taking a note with your contact. Thanks again David, have an awesome day.

Thank you Evan for the reply. It sounds like doing the 30 year refi (cash out or not) is the smartest thing to get my current primary payment the lowest so that I'll have the most cash flow and better DTI ration. I DO not have any other debts at all, I used the Covid CARES act to pretty much drain my retirement to pay off ALL debts (CCs, cars, etc). The struggle I'm having is thinking about the fact that I could possibly swing this existing mortgage, which only has 10 years left, and the rent that would come in (3500/mo) could cover the (3200/mo) mortgage and then I'd own the house clear by 50 and by getting 4k/month of this thing. But that would mean sacrificing the short term cash flow that could enable me to start to get multiple properties. I guess if I always plan on doing 30 year loans and I get 4 properties that each earn 1k+ a month it would almost be a wash. Its hard to look past the the total cost of a 30 year and just focus on cash flow and scaling out. Thanks for the advice. I guess I'm going to go the 30 year route to get the most cash flow so I can try to get quite a few of these properties going such that there will be so much cash flow that offsets all the fees. Tough to swallow that pill but guess I have to look at the bigger picture of what it takes to be successful with multiple properties.

Appreciate the considerations and advice!

Thank you Evan for the reply. It sounds like doing the 30 year refi (cash out or not) is the smartest thing to get my current primary payment the lowest so that I'll have the most cash flow and better DTI ration. I DO not have any other debts at all, I used the Covid CARES act to pretty much drain my retirement to pay off ALL debts (CCs, cars, etc). The struggle I'm having is thinking about the fact that I could possibly swing this existing mortgage, which only has 10 years left, and the rent that would come in (3500/mo) could cover the (3200/mo) mortgage and then I'd own the house clear by 50 and by getting 4k/month of this thing. But that would mean sacrificing the short term cash flow that could enable me to start to get multiple properties. I guess if I always plan on doing 30 year loans and I get 4 properties that each earn 1k+ a month it would almost be a wash. Its hard to look past the the total cost of a 30 year and just focus on cash flow and scaling out. Thanks for the advice. I guess I'm going to go the 30 year route to get the most cash flow so I can try to get quite a few of these properties going such that there will be so much cash flow that offsets all the fees. Tough to swallow that pill but guess I have to look at the bigger picture of what it takes to be successful with multiple properties.

Hi David,

Thanks for the detailed response! Couple questions:

Why do you think the rental income is not as viable? My research shows that I can definitely get $3500 for this house based on a really central locations, 6 bed/3 bath, pool, and similar homes are renting for much more and there are not a lot available in my area. I do have to admit I am going to be learning about renting out this house that I've put A LOT of upgrades into. Its going to be a lot of work to remove all my wired cameras, expansive smart home etc. 

Regarding DTI and available income, I'm NOT planning to include my fiancé on either mortgage. Her income is sub 100k and beside I had a nasty divorce in the past, working on a prenup and I really prefer to just roll this all on my own. Maybe a future property. I only mention the "life changing" event to qualify for the owner occupied early escape option.

Appreciate the advice!

My goal is to move out of my existing primary (my first and only home) and into a nice home and rent my old house.

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Here are the details:

-I'm in Northern California, both my primary and new primary will be in Northern California, Sacramento area.

-I currently owe 300k on my house valued at 700k. The current mortgage is at year 4 of a 15yr at 2.75%

-I want to move into a new house valued at 800-850k but don't have the down payment at the moment

-On the primary, My current mortgage (w/impound) is $3200 and I know the house will rent for $3500+

-The current primary still needs to finish a bathroom renovation and backyard fixing, so will take at least 3 months to be rent ready

-My income is over 300k for last years and my credit score is 800.

-Getting married in next few months, she is eligible for first time home buyer, might be expanding family.

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Current options I'm considering:

1.) Refi into an 'investment property" 30 year w/cash out to get my 10-20% down for the future primary. 

2.) Refi into an owner occupied w/cash out to get my 10-20%, stay 6 months, and due to life-changing event (getting married, baby), apply to get new owner occupied for new primary.

3.) Refi into a 15 year with cash out to get the 10-20%.

4.) Keep the existing loan and tap retirement etc to try to come up with the most 10% for the new primary

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My goal:

1.) Get into a bigger/nicer home in the next 3-6 months, get a renter with a 2-year lease.

2.) Live in the new home for at least 3-5 years, turn into a rental, move to new primary in Florida :)

3.) Possibly start to build a portfolio of high value rentals (each at 650k+).

4.) Understand if it would be best to go for low rates to minimize long term fees or shoot for maximum cash flow, considering goals above, timing on rates, and the potential shift of housing prices through an election year and uncertain economy.

Have you read the Covid CARES act rules? Go google it. Right now, through the end of the year, you can take a withdrawal (IRA) or loan (IRA, 401k) with zero fees. You just have to "self certify" that you had covid or were financially impacted by Covid. You then have the next 3 tax years to claim it as income or pay it back, you can spread it over the three years or do all in one year. Definitely look it up to confirm. I just pulled 60k out of my IRA with zero fees to pay down all my CC debt etc. I plan to claim 20k as income in each of the next 3 years. The max you can take out (all IRAs and 401ks combined) is 100k. This is the only time this early retirement withdrawal option has ever been available in US history, one bright spot in the Covid dilemma. Rules for 401k are a little different so look it up. I know I already have a 401k loan so best I think I can do is pause payments, but I'm looking into options there too. One option could be to leave your job so the 401k gets rolled into an IRA and then boom you can use it up. Your mileage may vary but look it up.

@Mike D'Arrigo

Mike, Agreed! Thanks for that comment.

At this point I'm def trying to decide between a HELOC or a 2nd mortgage to fund this endeavor. 2nd seems more financially smart but since I'm a newby and likely to try to do 2 staggered investments spaced out, the HELOC seems more flexible and appropriate. Besides I could always convert the HELOC to a 2nd down the road.

@Simcha Davidman Thanks for that info! I had not considered that 3rd option of taking out a 2nd mortgage.

Its amazing how many options there are in terms of how to get my initial money down and where I might want to invest and how (flipping vs rental income). The more I'm reading into bigger pockets and following podcasts I'm getting quite educated but I'm also realizing that I need to do some soul searching to understand what my ideal end state goal is. Previously my end goal was to get rich but now I see there are lots of paths to get there with varying degrees of risk. Do I favor cash flow or appreciation over time, it seems hard to achieve all these at the same time. If where I live had cheap houses in the 50k range then it would be a no brainer for me, but I live in CA where scaling wide to start is impossible because properties are so expense (1-2% rule aint happening here) so I have to make some hard decisions about what my goals are for getting started.

I wish there were some general guidelines that work for all newcomers, such as invest local with a single family home and learn about fixing it up and being a property manager (conservative approach), which seems to be the only choice for some people. It feels like since I've got a bit of capital to start that I have sooooo many options (local or remote) (cash flow or appreciation) that it is a bit confusing where is appropriate to start. One thing that I think I have learned that seems to hold true is that because my day job is moderate six figures and I plan to keep my regular job for a long time, that I should plan to get more of turnkey rentals and use property managers. To that end, if my goal is cash flow and to have turn key properties with property managers that going to the midwest or south is the right thing to do. 

Maybe I do a HELOC so I can use a portion of my equity and start with something local to cut my teeth on the process over the next 6 months and then plan to use more equity later to get a property in a remote location. That might be a sort of hybrid approach? It seems all these Podcast people that are accumulating millions in properties over just 3-5 years with very little down all seem to be in these secondary markets like west Texas and Wisconsin and Michigan where they can get lots of little houses. I wonder what the recipe is for us California newbies to get rich without relocating to those states.
 

My California primary is worth $650-700k and I owe 335k meaning I've got a sizable amount to equity that I want to leverage to buy a 4plex somewhere in the US and start down this path of building up lots of cash flow and rental properties. Most people seem to indicate that if my plan is to hold onto these properties (which I am) that I'd be better served to do a cash out refi on my primary. However, I currently am 4 years into a 15 yr loan at 2.75% so thinking about doing a cash out refi and ending up in a 30-year loan for 500k just does not feel good. I'm very emotionally attached to my primary and put in lots of custom upgrades (think lots of hardwired tech and smart home) and my 3 young kids live in it and my long term is definitely to hold onto it. So with that considered should I do the HELOC route or would that cash out refi make more sense to better suite a cash flow rental income strategy?

And if I do a HELOC for my first rental, would that mean I'd end up with 3 loans\LOC? 1 for my primary, 1 for HELOC on my primary, and 1 for the investment property? Conversely if I do a cash-out refi, I'd just have 2 loans? 1 for the primary and 1 for the investment property?

@Gordon Cuffe

Thanks for your comment. It seems it’s very difficult to get close to 1% in CA. Your example in Citrus Heights for 350k is a little hard to find and at $3k income still below 1%. It’s becoming very clear Texas, Ohio, Midwest etc are much better cash flow oops but for a first time investor feels a little risky being so far away here in Sacramento. Is it smart to get a local duplex or fourplex, even is not the ideal cash flow to cut my teeth in something local and then branch out to Midwest? Considering how much equity I could pull, I could almost get a fourplex in each location (CA and TX) starting local then learn for 6 months and go out to Texas and start scaling. So many options ugh! Good problems to have though! 🙏🏻