$800k isn't a particularly large amount of capital in my market. So, I'll address the spirit of your question - If you got a large windfall, how would you invest it?
As @Mike Dymski alluded to, there are a plethora of ways to make money in real estate. There's no right strategy, just the strategy that works best for you. Personally, I would continue buying rundown/distressed small multi fams and stabilizing them, just perhaps at a higher price point.
Hi all,
I know this situation may seem a bit odd I'll try to piece it together as best as possible.
Last year I purchased a fixer upper home seller financed on an 18 month balloon, due to be paid back Jan 2024 through my LLC. My intentions were to rehab the home while I lived there, sell the home and repeat the process with the next home. After renovations were finished we have made the decision to refi and stay in the home, however, with our DTI being too high to use a primary home refi product our only current refi option is to use a DSCR loan. We would then rent the property from the LLC(lessor) to me and my wife personally(the tenants) each month. Fair market rent would bring the debt ratio to roughly 1.5. With more than a 100k in equity tied into the property I'm not in a position to leave the equity tied into the property.
My tax accountant has already told me that there is not a tax issue with us personally renting the home from the business but before I approach my commercial lender I've worked with I'm curious on what feedback this group may have. Renting this property to myself seems to obviously blur the lines of what a commercial loan is intended for, however, if the business is being compensated for the home it also seems to be serving its intended purpose?
Any feedback is appreciated
You should sell the house. If your DTI is too high to refinance out, take your profit and put it toward another house. I would use FHA and house hack a property that has units like this one. https://www.realtor.com/reales...Live in one and let the other two units pay the rent.
This sounds a bit extreme. Why not just rent the house out and find somewhere else to live? He can rent for a year if necessary, and doing so would allow him to rent advantage of owner financing in the future.
Not sure i agree w the general sentiment on this thread. No one knows where rates are going over the next 24 months. Which means you may be catching a falling knife.
Additionally, prices have not come down in any meaningful way to offset the increase in rates. Rates have doubled, while home prices have barely decreased in most markets.
I see posts from people itching to make their first purchase. But prices, cap rates have barely budged since rates doubled. So, unless rates go down over the next 12 months, it seems inevitable that prices and cap rates will have to. And that any property purchased today will be worth less.
One of the big issues w condos imo is that the Board members are unpaid. The kind of people you'd want managing your money/investment are not doing it for free, and the kind of people willing to manage the association for free, are not the kind of people you'd want managing your investment.
Hey y’all, I’ve decided to begin studying the same material someone going for their RE license would and I’ll probably take the real estate agent exam as well.
Primary reason I chose to do this was to get a more theoretical and foundational knowledge of real estate as I am just starting out.
But I am wondering, are there any benefits to being licensed as a real estate agent if you’re planning on becoming an investor?
The license isn't a huge advantage but it is helpful in some cases. The main thing is it that allows you to list your own properties on the MLS and save on commission.
There are folks here who will tell you that you also get commission, and thus savings, when buying. But most of the deals I look at, the agent is not willing to co-broke. If the agent thinks you're going to claim a commission, he/she will avoid your calls and do everything to not sell you the property. Since I'm more interested in the property than a 2% commission, I leave it alone.
Lastly, I wouldn't walk into the course material thinking you'll learn a lot of useful info about REI. Most agents are clueless when it comes to that stuff.. You'll learn much more just reading the forums here and listening to the podcast..
Hello, all!
I am new to REI and have loved learning more about the process through Bigger Pockets. I do not yet have any properties, but am spending as much time a I can learning until I feel confident enough to purchase my first property. However, I find myself questioning whether or not I can be successful whenever I consider the fact that I will have to act as a landlord. I am hoping that someone may have some advice in regards to overcoming the fear of being a landlord with no experience. Any personal experience/advice, helpful books, etc. would be greatly appreciated! Thanks in advance to anyone who is willing to share.
It's not that hard, at least at first. If you read these forums, you'll see a lot of idiotic comments by people who've built significant portfolios. I read them and think, Wow if this isn't proof that you don't have to be intelligent to be successful in real estate.
Being a landlord becomes more complicated as you move into the commercial asset classes. But assuming that you're starting w small residential properties, you'll be fine.
How are you guys able to make deals cash flow with new rates (assuming traditional bank financing)?
For example, a retaltively cheap house in the Houston market is listed at $250K. Assuming 6.73% rate, 20% down, 30 year note, and taxes and insurance, we're looking at a monthly note of $1,900 per month. If HOA fees are included, then its nearing $2,000 per month minimum.
The three most recent rent comps in the neighborhood are in the $1,500 to $1,800 per month range. So how are you guys making long-term hold deals work? I know this is just one example, but this is a relatively cheap house so it should cash flow under normal market conditions.
I have come across this issue with nearly every listing I analyze. Am I missing something? Are there methods around this issue?
In general there's a bit of a stand off right now between buyers and sellers. At least in my market. Not a lot of deals are getting done, and the agents, lenders, etc. are feeling the pain.
Some folks seem to be getting deals done by using ARM products. Some deals are getting done via seller financing. It seems there are some buyers who are gambling that rates will be lower in a year, so that when it comes time to refi, they'll be ok; I don't know but am guessing those are people using OPM and charging fees along the way.
The thing that stands out to me about your post, however, is that you seem to want to purchase a turnkey property and CF. Even if that was possible, and I'm sure it is in some markets, I wouldn't recommend it. You have no equity buffer. A deal is only a good deal imo if you have a way to add value, unless you are worth $20 million and purely in wealth maintenance mode.
If you have to force equity into a deal to make the house acceptable, I question the location.
Quality locations still have bidding wars. A deal is good, not only good, but good, if there's always demand for the product. Just alone a good location will always reap that. It's what makes class A neighborhoods impossible to buy and cash flow after the fact. Try to get very good properties before they are recognized. Not intrinsic deals when there's investors hungry. It's telling you something. It may rent, but nobody wants to buy it. Buy in areas people are fighting for but the barrier of entry is low(relative to you).
I'm not sure why you would suggest that it only makes sense to add value or force appreciation in questioning locations. Adding value or forcing equity is how you create real wealth in real estate. Cashflowing turnkey properties might provide you with income eventually, when you've finally acquired 20 or 30 doors, but it won't create substantial amounts of wealth in a short period of time. The areas that provide good immediate CF without you having to do work or add value are probably the areas that you want to avoid.
How are you guys able to make deals cash flow with new rates (assuming traditional bank financing)?
For example, a retaltively cheap house in the Houston market is listed at $250K. Assuming 6.73% rate, 20% down, 30 year note, and taxes and insurance, we're looking at a monthly note of $1,900 per month. If HOA fees are included, then its nearing $2,000 per month minimum.
The three most recent rent comps in the neighborhood are in the $1,500 to $1,800 per month range. So how are you guys making long-term hold deals work? I know this is just one example, but this is a relatively cheap house so it should cash flow under normal market conditions.
I have come across this issue with nearly every listing I analyze. Am I missing something? Are there methods around this issue?
In general there's a bit of a stand off right now between buyers and sellers. At least in my market. Not a lot of deals are getting done, and the agents, lenders, etc. are feeling the pain.
Some folks seem to be getting deals done by using ARM products. Some deals are getting done via seller financing. It seems there are some buyers who are gambling that rates will be lower in a year, so that when it comes time to refi, they'll be ok; I don't know but am guessing those are people using OPM and charging fees along the way.
The thing that stands out to me about your post, however, is that you seem to want to purchase a turnkey property and CF. Even if that was possible, and I'm sure it is in some markets, I wouldn't recommend it. You have no equity buffer. A deal is only a good deal imo if you have a way to add value, unless you are worth $20 million and purely in wealth maintenance mode.
>Every region needs low wage workers. If all the low wage workers moved to more affordable places, who would do the low wage jobs?
@Jon A. Seriously? What do you think would happen in a free market? When it gets hard to fill positions, wages rise to the point that people are willing to work the job. Prices for services rise. Free market at work.
Places with lower cost of housing often have lower labor costs and lower price of services. Conversely, places with higher housing costs often have higher labor costs and higher prices of services.
You speak as if we live in a free market economy. We do not. The government regulates every aspect of the economy. The banking debacle of the past week, and the government's response to it, is a reminder of this.
As mentioned, we as landlords benefit from a whole host of government intervention in the market. Think government support in the MBS market and the tax advantages we enjoy.
"We're a free market economy!" is, like "socialism!", just rhetoric that politicians use to drum up support for opposing specific regulations that their largest donors dislike.
The situation you described - wages rising as demand for employees heats up - is exactly what's occurring now. It has contributed to record inflation and has been deemed so problematic for our economy that the government - Jerome Powell specifically - broke aspects of our banking system and is going to keep on increasing interest rates anyways. (The very existence is the Fed is, of course, more evidence that we do not live in a truly free market economy.)
I agree that there is something fundamentally wrong with our economic system when increased wages for the poorest in our society is seen as so problematic that the government must step in and break things. But that's where we are.
Anyways, the idea that low wage workers can solve their problems by simply moving to w cheaper place is flawed. As I mentioned, there are working homeless in every metropolis, whether a high cost of living one like NYC or relatively low cost of living ones like those in the south. Lower cost of living places pay lower wages. So, these low wage workers will just be poor in a different place.
>The banking debacle of the past week, and the government's response to it, is a reminder of this.
Interesting as you are implying the government response are part of the banking problem yet seemed to advocate for more government intervention when it comes to housing. Why would you think they can do a good job intervening in the housing market but blame them for the banking situation?
>The situation you described - wages rising as demand for employees heats up - is exactly what's occurring now.
No it is not. Increasing wages or lowering housing cost in one location because low wage earners are moving away is a local impact. The current inflation issue is a national level inflation. localized inflation has never been a fed issue. The feds have not done anything to address the higher prices in CA and I claim they should not.
In a free market, the market will balance itself with some time. In the case of lower earners in markets that are high cost, if the workers move away because the costs are too high then the market will need to react. Housing costs may go down due to declining population. Wages may go up to keep employees. Low income earners may move into higher occupancy living situations. Likely a combination of each of these. If wages go up, prices have to go up but it is localized to the areas that people are leaving due to housing costs.
I am a big advocate of a free market. I have seen a lot more issues when the regulations impact free market than I have with free markets. I will use an example rent control. Virtually every economist points out the various flaws in rent control. There are a lot more tenants than LL. The tenants often do not have a good understanding of housing, inflation, etc. They often want rent control even though economists recognize that it is a detriment to tenants in a broader view. The politicians do what their constituents desire (and probably should because they do not have lifetime positions). Rent control gets passed. Areas get less maintenance. Builders need bigger margins to build raising the initial cost of housing. higher cost of development necessitates higher rents for those needing new rental unit. The list is long of the negative impacts of rent control.
I recognize not everyone is a fan of free market.
I wasn't criticizing government regulation of financial institutions or the government's response to recent back failures. I think regulation of the financial sector is necessary; we all remember 2008, right? And I think that the government guaranteeing all deposits post SVB collapse was a necessary move. My understanding of the SVB collapse is that it was at least partly the result of Dodd Frank regulations being relaxed on regional banks.
We're not discussing "more" government intervention here. The government is already in the business of trying to create affordable housing. It sounds extremely large sums of money on an annual basis trying to spur the construction of affordable housing. And the government is already has zoning laws. What we're really discussing is how the government could improve what it is really doing.
RE rising wages, everything is local until is becomes national. All A and B cities are expensive. They also have the most jobs. If low wage earners all left the cities for cheaper places, we would have a national inflation issue, just like we do now. And, again, these cheaper places also have low wage workers who can't make ends meet despite working. So, the migration theory would not actually solve people's problems.
Not everyone can be rich. Because there would be no such thing as rich. Not everyone wants to be rich. Same goes for making ends meet. Not everyone cares or wants to do what is necessary to make ends meet. With all the current government programs and interventions, it only proves that it will not work, no matter what else they try. Populations will always settle with disparities like what we currently have. This is irregardless of control concepts.
Democracies with capitalism have this. Communists have this. Socialism have this. Sovereignties have this. In all of history, regardless of its structure, every country will have poor and rich. There may be slight differences in ratios, but those who are willing to go above and beyond, with some education, will eventually get out of poverty. Those that do not care to will always not. Stupid Lotto winners are prime examples.
Back the the OP, those 11 points are just distractions to societal norms. Perhaps focus on financial education and financial intelligence starting in grade school may be an answer. But I bet the powers that be would not be supportive. That is because it will take away from the finite wealth to be distributed. At the same time, it would crumble a portion of our financial economy.
Think about it... if everyone was financially intelligent, banks and credit sectors would struggle. Businesses would struggle due to lack of start up funds. Car industries would fall. Landlords would dissapear. Because everyone would be smart enough and financially responsible enough to get to financial freedom. People would no longer need to rent, need to borrow, need to anything because in time they future generations would escalate. The ultra rich and powerful would lose their wealth as it get redistributed.
I say let it be. Do you what makes sense to you and what makes you and your family happy. Keep pursuing greater wealth, or settle with what you have. At the end of the day, your family is really all that matters. When you begin to take away from it and take a loss to give to others, at your expense, it can lead to other negative things.
Many will not agree. But many have not seen the world as I have seen in. That's the beauty of this life and of capitalism. Let the market determine itself. Some government intervention is OK, but keep it limited.
As for the argument of roads built by government, I think you are missing the point of the discussion and are just trying to a point that is irrelevant to the topic.
Nothing personal. Just trying to keep the thread on track.
Just my 0.02
I don't think anything I said suggested everyone should be rich. The thread is about how the government can improve it's preexisting efforts to create more affordable housing.
A number of comments on the thread ask, "What's affordable?" as if it is an unanswerable question. When it comes to housing , affordability is defined as spending 30% or less of your gross income on housing. I personally question whether someone can pay 30% of gross income on housing and still save. But that's the definition that's used.
So, if someone has a job that pays $30k/yr., the question is whether there is an apartment they can rent for $750/month. In most cities, there is no such apartment. In NYC, I don't believe you can find an apartment for less than $1,500/month. Therefore, NYC has an affordable housing shortage.
We're not talking about government handouts, as some people suggest. (Though, as already discussed, landlords get plenty of government handouts.) We're not talking about people who are financially illiterate and make enough money to afford a $1,500/month apartment but simply mismanage their money.
We're talking about supply and demand; what can the government do to incentivize the creation of housing that is built for working people. Supply and demand is, I believe, a free market concept.
>Every region needs low wage workers. If all the low wage workers moved to more affordable places, who would do the low wage jobs?
@Jon A. Seriously? What do you think would happen in a free market? When it gets hard to fill positions, wages rise to the point that people are willing to work the job. Prices for services rise. Free market at work.
Places with lower cost of housing often have lower labor costs and lower price of services. Conversely, places with higher housing costs often have higher labor costs and higher prices of services.
You speak as if we live in a free market economy. We do not. The government regulates every aspect of the economy. The banking debacle of the past week, and the government's response to it, is a reminder of this.
As mentioned, we as landlords benefit from a whole host of government intervention in the market. Think government support in the MBS market and the tax advantages we enjoy.
"We're a free market economy!" is, like "socialism!", just rhetoric that politicians use to drum up support for opposing specific regulations that their largest donors dislike.
The situation you described - wages rising as demand for employees heats up - is exactly what's occurring now. It has contributed to record inflation and has been deemed so problematic for our economy that the government - Jerome Powell specifically - broke aspects of our banking system and is going to keep on increasing interest rates anyways. (The very existence is the Fed is, of course, more evidence that we do not live in a truly free market economy.)
I agree that there is something fundamentally wrong with our economic system when increased wages for the poorest in our society is seen as so problematic that the government must step in and break things. But that's where we are.
Anyways, the idea that low wage workers can solve their problems by simply moving to w cheaper place is flawed. As I mentioned, there are working homeless in every metropolis, whether a high cost of living one like NYC or relatively low cost of living ones like those in the south. Lower cost of living places pay lower wages. So, these low wage workers will just be poor in a different place.
>The banking debacle of the past week, and the government's response to it, is a reminder of this.
Interesting as you are implying the government response are part of the banking problem yet seemed to advocate for more government intervention when it comes to housing. Why would you think they can do a good job intervening in the housing market but blame them for the banking situation?
>The situation you described - wages rising as demand for employees heats up - is exactly what's occurring now.
No it is not. Increasing wages or lowering housing cost in one location because low wage earners are moving away is a local impact. The current inflation issue is a national level inflation. localized inflation has never been a fed issue. The feds have not done anything to address the higher prices in CA and I claim they should not.
In a free market, the market will balance itself with some time. In the case of lower earners in markets that are high cost, if the workers move away because the costs are too high then the market will need to react. Housing costs may go down due to declining population. Wages may go up to keep employees. Low income earners may move into higher occupancy living situations. Likely a combination of each of these. If wages go up, prices have to go up but it is localized to the areas that people are leaving due to housing costs.
I am a big advocate of a free market. I have seen a lot more issues when the regulations impact free market than I have with free markets. I will use an example rent control. Virtually every economist points out the various flaws in rent control. There are a lot more tenants than LL. The tenants often do not have a good understanding of housing, inflation, etc. They often want rent control even though economists recognize that it is a detriment to tenants in a broader view. The politicians do what their constituents desire (and probably should because they do not have lifetime positions). Rent control gets passed. Areas get less maintenance. Builders need bigger margins to build raising the initial cost of housing. higher cost of development necessitates higher rents for those needing new rental unit. The list is long of the negative impacts of rent control.
I recognize not everyone is a fan of free market.
I wasn't criticizing government regulation of financial institutions or the government's response to recent back failures. I think regulation of the financial sector is necessary; we all remember 2008, right? And I think that the government guaranteeing all deposits post SVB collapse was a necessary move. My understanding of the SVB collapse is that it was at least partly the result of Dodd Frank regulations being relaxed on regional banks.
We're not discussing "more" government intervention here. The government is already in the business of trying to create affordable housing. It sounds extremely large sums of money on an annual basis trying to spur the construction of affordable housing. And the government is already has zoning laws. What we're really discussing is how the government could improve what it is really doing.
RE rising wages, everything is local until is becomes national. All A and B cities are expensive. They also have the most jobs. If low wage earners all left the cities for cheaper places, we would have a national inflation issue, just like we do now. And, again, these cheaper places also have low wage workers who can't make ends meet despite working. So, the migration theory would not actually solve people's problems.