All Forum Posts by: Jon Khalil

@Eric Roenker you just made my day! Thanks for chiming in. I completely agree with you, and that’s our goal is to make it work during this lean time. It’s my first deal and certainly won’t be my last, I’m sure I’ll only get better with time, and I appreciate you saying that. Tough love is good sometimes and I appreciate all opinions. In the end, I took action, I’m learning every day, and whether I make money or not in the short term, I know if I hold on long enough it will pay dividends. Thanks for the Reassurement Eric, I look forward to the day I can come back this thread and laugh about it :)

@Tim G. Completely agree that speculating is not a viable strategy, and in a year from now if I can’t cash flow, and values are down, that I will be in a worse spot. I agree with that, and that I possibly could have gotten a better price.

Part of my thought process is speculation based on Data. SD is getting younger and richer. The military is growing and migrating west bringing more jobs, New Bio Tech hub is being built in Downtown, Apple buying in Rancho Bernardo, the Chula Vista bay front Development, Amazon HQ, etc. I think these are practical data points that excite me and keep my confidence that SD’s economy will continue to thrive despite the market correction.

I’ll try to do my best in the meantime to stay afloat, and I hope once we are out on the other side of this that things start to stabilize/improve.

I appreciate you saying that about my enthusiasm/attitude, truly. I will definitely take your veteran advice and apply my attitude to better deals from now on and being stricter on my numbers. Thanks a lot Tim. You didn’t have to take time out of your day to chat with me, and I learned a lot from you in this exchange.

@Tim G. Thank you for this reply! I appreciate the criticism and feedback honestly and maybe I haven’t explained myself well enough.

We do plan to live here for a year and rent out the extra room we have to roommates. That is not mortgage fraud. We plan to execute our true strategy after 1 year has passed assuming things get better. Although, I admit I definitely should have mentioned this earlier. We are essentially house hacking now and plan to BRRR, or HELOC after 1 year to purchase a duplex where we will move into one of the units and rent the other out.

I appreciate you alerting me because I am not a seasoned investor like yourself and I just truly wanted to understand the depth of what you were saying.

I agree with your data and logic and it makes total sense in the short-term that flippers are struggling to Sell, but I am a buyer in this market and am thinking long term. Ultimately, even if I lose money and time in the short term, as long as I can hold on and keep this property 5+ years, I think we will make out okay. Let me know if you agree and why/why not.

Again, your concern, numbers and data is truly appreciated and is helping me learn a lot! Thanks for taking the time to explain, sincerely.

Quote from @Khari F.:

Hi @Jon Khalil is that ARV based on a single property? What will be LTV if you do HELOC?

 1) Yes, that is the only property with the exact same property that has been sold recently. 2) I do not know. 

Quote from @Nicholas L.:

@Jon Khalil

I don't know anything about the SD market, but I share some of the other concerns raised here.

IF you can break even each month, and hold it for 10 or 30 years, then yes, you'll be OK.  But even if that's the case, don't you have a huge loan sitting on your personal balance sheet?  This can make it harder to borrow for other deals.

And, I didn't see a clear break-out of actual expenses.  "Covering the mortgage" is not the goal with a rental.

I'm not trying to discourage you, was just surprised to see this called a "BRRRR" when it's not. And not being a BRRRR is OK!

Hey Nicholas, 

Regarding the loan on my balance sheet- yes. However, there are plenty of ways to still buy a 2nd, 3rd, or 4th home. From my understanding, and asking other RE professionals, it actually gets easier after securing your first home to borrow and buy more. 

You are also correct that "Covering expenses is not the goal with a rental" and thats not my goal, I was speaking in worst case scenario terms, id like to at least break even every month. My goal is to cashflow positive. 

It may still be a BRRRR if I can refinance and pull money out if/when rates drop below my current rate of 6.25%. If I cannot do that, then we will explore other exit strategies. 

Thanks for chiming in. 

Quote from @Dan H.:

Quote from @Jon Khalil:

@Cody L. To give specifics, our Mortgage came out to $3339 and our HOA fee is $450. Giving us a total of $3789. We are hoping to turn this into a medium term rental where we can get anywhere from $4-5K per month in revenue.

Is mortgage $3339 or is PITI $3339. The numbers are right between what I expect. P&I $3017, piti $3570. I hope for your sake it is PITI, $3789 + $190 (vacancy) + $125 (maintenance/cap ex) + 300 (PM) = $4.4K. Add $550 additional if number is only P&I.

I am surprised if fully renovated property same floor plan sold for $530k that your property even appraised at $490k.  1) San Diego RE values are down >10% since May and down 2.5% in the last month. 10% alone on $530k is $53k and you purchased at $40k less than $530k.  This can be explained because $530k rose for ~6 months before stabilizing and then declining in value. 2) the comp property is renovated and yours needs renovation.  $40k difference on a condo for renovated versus Not renovated seems reasonable.  3) you indicated you had to beat multiple offers.  These bidding scenarios seldom result in a sale below appraised value.  Under such conditions, I question the appraisal. 

Examine exit strategies:

Who provided your MTR rent estimate? It is grossly off. The MTR strategy will be huge cash flow negative. I have some of the longest STRs on this site and they are in San Diego.  Your numbers are too aggressive. 

Selling: prices have fallen >10%.  Fed has announced further rate hikes are likely (virtually for sure).  Rates are likely to increase. RE is likely to fall further.  The selling costs will likely be in the 6% to 8% range. Selling in near term is not likely to be a good option  

Rent by room is only non negative cash flow option that you mentioned.  It requires a lot of work but at least you will not bleed cash. Be prepared for student tenants and how poor they take care of things.  Be prepared for regular turn over. 

You will learn from this   If you are able to hold 10+ years you will do fine  

Good luck

 Dan, 

This is great stuff. Thank you sincerely for providing me with numbers, logic, and data behind your concerns and helping me actually learn something. 

To answer your question: 
My ALL in cost (PITI) is $3789.25. + $190 (Vacancy) + $125 (Maintenance/CapEx) + $0 (PM) We will be self managing = $4104.25

Exit Strategies: 

By MTR, I mean that I would MTR per room because that is much more profitable and from looking at other listings on Furnished Finder I have come across similar properties doing anywhere from $3200-$5000 depending on location and how nice the property has been renovated. Our property is a 5 minute walk to Alvarado Hospital in SD, making it an ideal location for Traveling nurses. Id much rather rent to them than to college students. 

Selling: We do not plan to sell in the short-term at all. We want to ride the wave of appreciation in San Diego. Data shows that prices will increase tremendously over the next 5-10 years. Short-term? Yes rates will rise and RE will continue to drop- no question. However, the average recession lasts about 17 months historically. Source: https://www.forbes.com/advisor... after 17 months things should stabilize and steadily rise again once the Fed is done raising rates, we definitely plan to hold onto this for at minimum 5 years. 

Rent by Room: This is our plan. You are right about student tenants, but ultimately we get to decide who our tenants are. We are targeting Military Personnel and Traveling nurses to rent our extra rooms out. 

I appreciate your sentiments and taking the time to teach me something, I really appreciate this discussion! 

@Collin Wallace yes, but there are more than 1 ways to get paid from real estate. Debt pay down, appreciation, raising rents, and Tax benefits will pay me a lot more than a net positive cash flow of $100-500.

@Tim G. By the way, by things “getting ugly” do you mean the market correcting? If so, I just hold and keep paying my mortgage and nothing happens. I’m really trying to understand your POV but with no context to your answer it’s hard to wrap my head around it.

@Tim G. Tim, I think you see failure from your POV. Let’s look at the facts:

1) I have a property that I got at under market value ($490K worth $530K)- instant equity

2) I can now take advantage of Real Estate benefits such as tax benefits, appreciation, rent increases, and potential * cash flow

3) I bought in a great location- 3 minutes from San Diego State University

4) Multiple exit strategies- Sell, HELOC, Refi, or Rental

5) I’m only 25 years old. I’m 10 years, this conversation won’t matter.

Negatives?

- higher than normal interest rate- 6.25%

- high HOA fee- $450 per month

- having to fix up everything ourselves- lots of work, time and money up front.

Overall- you tell me how is this a failure at all? Maybe in your terms it’s a failure because you wholesale and buy at deep discounts to flip, which I understand, but that’s not my goal here. Short term profits are your game, long term wealth is mine.

@Jon Khalil didn't know about 3 and 4, if that's true and I cant Refi I can still take out a HELOC or sell. I also get the benefits of tax savings, appreciation, and rent increases over time whether I refi or not. I appreciate all the knowledge you provided because it's good to know, but I'm any worse case scenario, for my first deal, there is an Avenue I can take to come out on top.