All Forum Posts by: Jason Renda

hello all,  

This may be the wrong forum but I thought i'd take a chance and ask for your insight.  Apologizing in advance for long-winded post.

A couple years ago I started a home renovation/flip company.  In the last few months we were able to secure a couple houses at off-market deals and lucked into a situation where the demand in the area is at a rapid growth not locally seen before.  We suspect much of it has to do with Covid and the exodus of people out of cramped cities into smaller towns that offer more space and more house for less money.  The challenge is that until Covid, this area was not appreciating at the same rate as other areas.  Something has clearly created a shift - almost overnight.  And to be diligent investors we want to be sure that we examine how quickly things may revert to the time pre-Covid when house prices had a very modest yearly incline.  Of course we may find out that people continue to stay in this area even after Covid, but we have to plan that they won't or that at least some of the incredible growth will subside.

So now my question: this area is a good distance from where I live.  And we cannot financially play in the areas near my current home.  Even if we could, the margins are very low and competition is incredibly high.  We have to overbid to get above cash buyers and use hard money which obviously reduces our ability to meet basic margins to keep us afloat.  So I can move the business to this new area and take one of the flip houses for myself.

What I am struggling with is the following scenario:

I am 47, my current home is valued at about $385k and I owe $270k.  Assuming a 4% commission etc I could pocket roughly $75k if I sold it. Then move into the flip property and live mortgage free.

If we sell the flip property I would net almost $150k since we paid for it all cash.    But i'd still have my $270k mortgage for my current house.  Certainly extra money is good but that does not change that we still cannot play in the local markets - and truthfully we prefer the smaller areas for our business.

I could move into the flip house that is in the area we will be focusing on, and have no mortgage.  I'd also have not much in terms of cash flow as I have to pay my partner out.  Leaves me roughly $50-100k.  But again no monthly housing debt besides insurance and utilities.  We can still focus on running 2 properties concurrently as that is our strategy.

I am truly torn as I love the flip house and the area, and it is where our business will be centered.  It's also an hour from my kids but i can make that work as my schedule is my own.  What I cannot decide is what is a better long term option: I know the house I am in currently will always have a strong resale value as it is not far from Boston. The flip house has an immediate boon happening but i cannot imagine that being sustainable.  That said, I would immediately own a property in a fantastic Class A neighborhood, fully remodeled and full of character, period details etc free and clear allowing me to use my cash funds to keep the business going.  I cannot refi my current loan as we do not have enough business history for me to qualify.  I have no problem moving - i just don't know what makes more sense financially.

sorry for long winded post.  I am usually good with numbers but i truly am lost from a long and short term financial prudency decision.

thank you for any advice. 

-jason

ok well I'm sure SOMEONE would gladly take it.  I just started my own freelance web design business and now have no W2 so conventional loans are out.  Hard money eats up all the profit.  HELP!

I finally have cash (and 2 other investors with cash) but I just cannot find anything around the Northern Mass/Southern NH area that returns any decent. Looking at everything from condos, to SFH to multis, and commercial. Unless I want to be a slumlord, the best I can get on CoC analysis is about 10% and even that is rare. By the time I can make an offer, it's under agreement. I have access to good workers for flips/buy reha rent/etc. Cash avail is up to 400k.

any suggestions?

sd

Thank you Ryan - I do have that as a contingency and we will be looking over the financials and records this week.  Thank you for the reminder!!

Thank you Kevin!!  and I just read all of your posts - great stuff! 

Honestly I haven't factored vacancy etc in at this time because the move is first and foremost a personal one needed due to changing circumstances.  If this was an investment-purpose only I'd most likely not consider the condo at the price point with such a low investment - just leaves me way too thin on returns and not enough to cover any challenges.  And as you stated - 1 month of vacancy negates the year's profit.  The nice thing is the unit is in a well maintained professional building and there is an ever-expanding business growth in all o the surrounding areas.  The town the condo is in is very centrally located to a major city, hospitals, universities etc and as the rent increases in the major city, businesses are setting up in neighboring areas.  All of this of course is driving the condo sale prices up and I imagine at some point they will level off though to be honest I have no idea when.  

I'm no financial pro by any stretch of the imagination and I tend to be more risky than I prob ought to be but given the current real estate situation AND the fact that the condo meets all personal requirements I look at it this way:

If I were to pay a years rent at the same rate I would charge a tenant ($1800/mo) that is 21k all to someone else.  After a year or so I can reexamine my living situation and buy differently, but no matter what I have spent over 21k to someone else.  For less than the cost to rent for a year I can purchase this place, pay a slightly lower rent, and at least have an option to rent in the future.  If the return isn't very high I can either hold it till the market rates go up enough to make it "worth it" or consider selling if enough appreciation.  I just like options.  Being a tenant has 0 options.  Plus it's an opportunity to get an in-demand 2 bedroom unit at nearly the minimal amount of cost to entry.

Hello All,

I'm not known for being succinct so please bear with me!! 

A person finds a suitable 2 bedroom condo which meets nearly all of his/her PERSONAL occupancy criteria.  It's proximity to kids, close to work, safe neighborhood, clean units with high owner-occupancy and long-term tenants, etc etc.  The initial plan is to reside there for a year or 2, however because the place meets all these criteria a longer stay will work if needed.  There is an unfortunate urgency to needing to find residence.

The person also is considering a future scenario by which the unit can do double-duty and eventually rent out.  After much due diligence the following info is determined:

Condos in the area show a continued even-paced growth in both sales price and rental rate increases.  Currently 2 bedroom properties in the area with heat and hot water included (not including luxury items like pools, gyms, etc) are renting between $1650-$1900 with similar sizes and layouts and with purchase prices between 220-240k and an average of 5-9 days to offer on market.  This place does have a pool and an updated kitchen/etc that should help push it to the higher end of the rental rate scale.  As a backup plan the current Section 8 rental rates cover the mortgage and expenses and there is no shortage of need for a 2 bed unit.

The maximum cash available for a down payment on this place is 5% (adding more just isn't an option). After all predictable monthly expenses are accounted for there would be a net cash flow of around $140/month (LPMI mortgage, HOA, etc etc = roughly $1,660/month) if the unit was rented on Day 1 at the average current rental rate. The total cash outlay to get into the unit would be about $16,500 inc closing costs.

So after all that - i warned you I am very wordy - the question is: 

When buying a property with owner-occupancy in mind FIRST but with an eye on the future to be able to rent, is a return of roughly 10% annually ($1,630 annually) on an investment of $16,500 a wise idea?  Assuming the owner occupancy period lasts 2 years and the average rental rate for the area climbs by $50/month over that time, the % return would climb to 13.5% (or $2,300 annually). Nothing to retire on by any means but does it make sense as a part of an overall portfolio to generate small but consistent growth?  By comparison the person's 401k has grown at 6.94% this year.

Thank you very much for reading my novella and i appreciate any insight.

- jason

hi all,

I have been pouring over this site and the great info regarding this subject that is already on here.  To be blunt I have generally been a financial misfit until the last couple years and now at age 42 I need to consider the long-term goals I hadn't when I was younger and should have. I am looking for help regarding options with my 401 and investment properties.

Using some simple numbers I currently have $50k in my total 401k plans, of which $30k is from a prior employer and that I cannot take a loan on unless I am able to roll it into my current employer's fund (or another fund).  It is a very moderate type of account and does not have a ton of annual growth (or decline).  My current employer matches up to 5% so I am funneling 10% of my salary to this account (a much more aggressive account) and will continue to do so as long as I can. 

I was able to scrounge and purchase a property for $150k (with a loan, not cash) that generates a modest profit annually (greater than 10%).  It is in a great area that is expected to continue to appreciate above the 3% rate, though nothing is guaranteed of course. 

I am looking into whether I should pull my prior employer funds of $30k to invest in another property.  I've read about rolling it into my current 401, taking the hit on a full withdrawal, rolling it to SDIRA and SD 401ks, etc. 

I guess what I am most concerned with is what makes a "better" strategy and the possibility of totally mismanaging what little assets I have now.  I prefer tangible assets.  i despise the idea of letting others' control my money but that was what I was told/taught to do.  I understand the risks of being a landlord and have the aid of friends who are successful landlords of numerous buildings to help advise me of good areas, etc.  My minimum annual return expected is 10% and my assumed appreciation of the property is 2%.  

On one hand I hate to deplete 60% of my 401.  On the other, the $30k is not so much that it can't be made up for in smart real estate choices and it alone isn't going to let me retire.

Hope this makes some sense.  I truly appreciate any feedback you are willing to offer. 

- jason