All Forum Posts by: Kevin Siedlecki

@David Yates - Yes - with the info you've provided, I see huge impediments to buying a house at all, never mind with no money down. No bank is going to touch with with a bankruptcy just 3 years ago, and that loan is a huge weight to drag with such low income. On an income-based payment plan, your DTI is always going to suffer, because it's going to stay at the same proportion of your DTI as you earn more. You can try HML, but with no track record, I don't see that working out for you, either.

Bottom line, I don't see you buying a house with no money down by yourself. You're going to have to either pay cash or partner with someone to get your first deal off the ground. What skills or value can you offer a partner to go on a deal with you? 

@Andy Ferguson - I should add, you should definitely get your own lawyer to look over the contract and  inspector to look over the property. That should take care of any potential conflict of interest using the seller's agent for the offer could create. 

@Russell Brazil - I'm curious: what are the benefits of using your own agent? I use my own, but that is because I know and trust him, and we've done a lot of deals together. I would not just pick one at random to go to work for me. What makes that the better route to you?

@Bryan Thomas. Hopefully a CPA will chime in here for you, and you should definitely be paying someone to make sure you do this tax stuff right. 

My CPA uses a specific price point (I think it's 20k) that a project has to hit before it is depreciated instead of expensed. It is also depreciated over a shorter schedule than the building itself - again I'm not sure what that time is, that's why I pay someone to do it for me. Hope that helps, but definitely don't just take my word (or anyone's word) on this. Have a CPA look over your books to make sure everything is being done right for you taxes.

@Andy Ferguson - You'd have to really know and trust your agent to be able to say whether your deal has a better chance with your own agent. If you're picking a random agent, then I'd say you're better off just going through the seller's agent and doing your own negotiating.

@Diane G. - I don't know the going rent, but the listing suggests that you could get $7,700/mo in gross rent. Assuming you can do that, there is still very little chance you make money on this place.

Th $1.3 million dollar asking price demands a lot more rental income. If you finance it conventionally with 25% down, your principal and interest payments are $5200/month. Taxes and insurance take another thousand a month at least (maybe a lot more - not sure what insurance will be on such an expensive building), so you're left with $1500/month in cash flow. In my market, there are properties in the $200-300k range that will cash-flow that much. 

But anyway, if it stops there, meaning this is a perfect investment with no vacancy, no management, no maintenance, and no CapEx, then you are making 5.5% COC ROI. However, if you take out 10% for management and 5% each for vacancy and CapEx (low estimates for both, but the price and area might support it), you are losing money (it adds up to -$40/mo).

@Jim Issa - Short answer: do not make extra payments. 

I see some misunderstanding of how mortgages work here. First, I have never seen a primary-residence mortgage with a limit on extra payments, so double check your terms. You should always be able make an extra payment of any amount, but, and this brings us to the second apparent misunderstanding, any extra payment is principal-only, so it will save you interest in the long-run, but will not affect your taxes in the year you pay. It will actually increase your taxes slightly, because the lower principal will mean lower interest payments, which means less to deduct. 

@Louie Salazar - it just depends on the deal. Buying from a wholesaler is not inherently good or bad; you just have to make sure the deal works for you. A good, honest wholesaler is going to find a win-win for the seller and the buyer. An honest, trustworthy wholesaler can take a lot of work off your plate. He/She should be compensated a few thousand dollars for that work as long as you can still make money on the deal. Just verify all the information, including proper licensing, ARV and estimates, the same way you would with any other purchase.

@Frank Vent - I am generally pro-higher-ed, but in your particular case, I don't know how necessary it is. You've got some real estate experience, you know you can succeed with it. What are you hoping to get out of the degree? If you wanted or needed a higher-paying W2 job in order to invest, then it might be a good investment, but you don't seem to want that. You can learn a lot about finance and account management by investing that $30,000. 

@Jim Thorton - Not counting on my teacher's pension is why I am in real estate, too. Here's what I would do:

Year 1: Sell your house and move into the rent-free unit. Use the proceeds from the sale to do those improvements, and buy one income-producing investment property. 

Year 2: Saving money from your jobs and your rental, look into another FHA on a single-family or multi-family property. Your kid does;t need to be in school yet, so this could be in a neighborhood outside of your eventual long-term area.

Year 3: Rent out the house you bought in year 2, and get another owner-occupied loan on an SFR that will become your home.

Year 5: Having saved money from your 2 rentals and your jobs, buy another performing asset, maybe a multi-family property in a neighborhood not quite as nice as yours, but decent (C+/B-) that will cash flow nicely for you.

Repeat once a year or every other year in years 6-10, and, if you've bought well, you should have a portfolio of 5-8 properties, which should kick off enough cash flow to cover your daughter's college education, which continuing to build wealth for your retirement.

Another option. This is not what I would do, but if getting her to college is your only goal, it might be safer.

Year 1: Sell your house and move into the rent-free unit. Save money.

Year 2 or 3: Using the money you've saved, but an income-generating multifamily property worth between $400,000-500,000 with a 15-year loan. Use any cashflow to pay down the loan early. Save money from your W2 income for a downpayment on another residence for yourself.

Year 4 or 5: Buy a residence for yourself. Continue to use extra cash to pay down the loan on your investment property.

Years 6-14: Use all the cash flow from the investment property to pay down the loan.

Year 15: Sell or cash-out refi your investment property, so you have $400k to send your daughter to college.

You could also do something in between the two options I've presented. Buy just the one more expensive property, contribute the cash flow in a tax-protected fund for her college education, and then cash-out refi in 15 years for whatever else you'll need to cover her college costs. 

@Aundrea Newbern - That's something that had to be taken care of before closing. You must have noticed the destroyed shed when you walked through. I would have made the removal of the shed or a credit for that purpose a contingency for the purchase. If you didn't do that, then you signaled to the tenant, the seller, and anyone you ask for advice (indirectly, me), that the shed is not a major concern.