All Forum Posts by: Jeff Ronningen

Zac, What would Dave Ramsey say? Asking half serious, half sarcasm. Why do you have $30K credit card debt and $22K auto loan? Is $1270 a month on $180K a good return? Assuming you could net $170K on sale, your return with keeping the land/mobile home is effectively less than 10%, probably more like 7-8%. Could you send invest those funds in other rental property at higher cash-on-cash return? I don’t like the shell game with credit card debt. It works until it doesn’t, and you don’t get to decide when. Getting rid of the car loans gives you a raise each month. The other thing to consider is if you pay the stuff off, will you just run it up again? Make sure you have an airtight plan to not let that happen. It might make sense to sell, pay debts, reinvest in other property at higher return. You would increase what’s coming in each month and reduce what’s going out.

On a 30 yr fixed rate mortgage, the first year the principal balance is only paid down by about 1.7%. That percentage goes up very slowly each year after that. So assuming no appreciation (or depreciation) it would take over 3 years to pay down the mortgage enough to sell, cover a 6% realtor commission, and roughly break even.

In my experience the lender will use the lesser of purchase price plus the amount of improvements you can document or the appraised value. Assuming you qualify based on income and credit you can probably borrow 70%. You didn’t mention the amount you paid for the property and in the absence of additional information I question if the valuation based on the 10% cap rate assumption will hold up. It’s really up to you whether you need to pull out cash now or if you can wait for the one year anniversary. Less leverage is safer but provides a lower return. Only you can decide the right balance between the two.

At your age and at this early stage of your career I’d be aggressive. Buy a MFR of 4 units or less as your primary residence and house hack. This assumes you qualify based on income and credit. If cash is an issue consider FHA loan. Some costs are higher but out of pocket to close may be much less. Once you get in the property you should be able to pay off your student loan quickly.

What makes you think they can make occupants go away between now and Feb. 5? Even if seller can’t produce leases, if the units are occupied the occupants have some legal protection depending on laws in your area. Probably have to go through eviction process. Why not use it as an opportunity to reduce sale price since you have to do the challenging work of getting tenants out? If you don’t have the stomach for that walk away.

You should be able to get some information from sellers but always verify. You have to do the investigative work. Rents - get copies of leases, write it as a contingency of your offer if you can’t get it up front. Always be skeptical of rent roll or pro forma. Get owners schedule C so you can see actual rent income and expenses. Use this to check vacancy rate and maintenance cost assumptions. Too many sellers want to base sale price on what rents could be or should be. Then buyer is stuck with the dirty work of bringing rents up to market which takes months or a year or more and may create turnover. Also sellers may understate income for taxes but want to value based on a higher income number. Don’t let seller have their cake and eat it too. Do your homework and if seller won’t get in touch with reality then move on. Check all the costs. Utilities - call and get billing history for past 12 months. Water - same. Trash - same. Property tax - get actual numbers from county auditor, don’t trust listing agent’s numbers. Check the valuation the property taxes are based on, if you buy for more taxes will probably be adjusted up. Factor this into your numbers. Insurance - get an actual quote. Insurance companies will want general info about the property - age of roof? is electric updated ie breakers or fuse box? Type of heat? Etc. If you want this to be easy you’ll make mistakes. Lessons aren’t cheap. Don’t be the person that learns the hard and expensive way.

In my experience lenders will change terms, such as interest rates, and possibly qualification guidelines at certain thresholds as you move to higher LTV HELOC. For exampleayou may pay a higher interest rate for a 90% HELOC vs 80%.

If you open a HELOC you can have it both ways to some extent. Pay on mortgage while you look for an investment property, use the HELOC if you don’t have liquid funds to close. Use the cash flow from investment property to accelerate payment of loans against primary residence. Always maintain emergency fund for life’s and landlord’s surprises.

My partner and I have been accumulating units, mostly 4 at a time. We want to go bigger but there's nothing available that fits our criteria. I'm meeting with an acquaintance who's a long time top commercial broker. I need to find properties that aren't listed. Networking commercial brokers is a strategy I'm going to pursue. I also hope to gain valuable insight to be successful and avoid pitfalls. Any suggestions as I prepare questions and talking points for this meeting?

Conceptually diversification makes sense. So having investments outside real estate is a good idea. Two things I don't like about IRA. How and when you can get at it and cost (taxes) of getting it out.