All Forum Posts by: Kristina Heimstaedt

@Remone R. I agree with @James E. and getting rid of your PMI. PMI really doesn't benefit you in any way. It's really to serve as insurance for your lender and it's money that you don't see coming back to you.

If I were in your shoes, I would first get rid of the PMI by refinancing on the initial loan. I would follow it up with at least applying for a HELOC. You may not be able to utilize it right away. However, if you find an opportunity that generates a return higher than the interest rate on your HELOC, I would tap into that HELOC to scoop up that property.

Fingers crossed and best of luck!!!

@Pinaki M. you're right in that my post isn't terribly relevant for commercial in contrast to what you can get for residential income for less than 5 units. That being said, you should definitely be able to amortize over 30 years or go with a different type of loan entirely such as an adjustable rate mortgage instead. 

I understand how you might think my comment might be a bit off topic, but if your target is to achieve cash flow, structuring your loan for the greatest success will make or break your cap rate. Correct me if I'm wrong, but your mortgage payment will be your largest expense and it is on-going until you pay it off. Outside of taxes, it will likely be one of your most predictable number when calculating your ROI or Cap rate. It's why I emphasize getting that right before considering the other elements of the equation.

The latter part of my post are the elements that I feel like most people forget to calculate when calculating their cap rate or ROI and it's the direct result of many investors end up not succeeding and not making any money.

If you are looking to get in touch with a commercial lender in California I can definitely help. Unfortunately for you, I can't say that I know anyone licensed to do commercial loans in Arkansas. If you can't find someone on the site, I recommend running numbers on trulia and seeing what pops up there.

@Pinaki M. Unfortunately it's not so simple. First of all, your financing structure of paying off a loan in 15 years at a 5% interest rate is pretty brutal. I would recommend looking into either a longer term loan such as 30 years or an adjustable rate mortgage (ARM). Changing that will definitely help. The other side of that equation is the 5% interest. Hopefully you can get that down to below 5% and closer to floating around low 4's if not in the 3's.

If your concern is positive cash flow, you are typically less concerned about when you pay off your debt because the goal is the positive cash flow. Unless you have an interest only loan, you will inevitably begin to pay off your debt. 

Not trying to twist the knife once it's already in here, but you also aren't accounting for other expenditures such as taxes, insurance, vacancy and any other ongoing maintenance. There is some amount of positive that you need to have in order to be prepared for some bigger expenses such as replacing a roof, water heater or a re-pipe or just new toilets in general. When your margins are so thin, it's easy to become the slumlord who doesn't want to do anything because you don't have the extra capital to do anything. Then your property becomes neglected and a pain and you end up selling to someone who knows how to run a tighter ship and knows how to get your asset to perform properly. When it comes to this side of the equation, there is no right or wrong way to run your numbers or to prepare for a rainy day. When it comes to property management though, I'd pay the business first before paying yourself or what have you. Tough to look at your super cool wave runner that you can't sell for half of what you paid for it when your tenants are calling saying that their water heater busted and you don't have any cash in the bank. 

Long winded, but hopefully it helps and makes sense.

@Drew LaVallee It's important to remember that some people learn that it doesn't hurt to ask. I think it's important to not be offended or feel like you need to cater to your tenant. In the future, I recommend slowing down the conversation and asking why. That will serve two functions. 

One, it will put the burden on the tenant to explain or try to sell you on changing your original expectations. For instance, if you had stopped and asked why your tenant wanted to pay on the first Friday of the month you might find that it works better for when your tenant gets paid. Or you might find that they just pay all of their bills on the first Friday of the month. Either way, you get to learn a little bit about the intent of the request. 

Second, it will slow things down. More often than not, time is valuable for the sake of a negotiating process no matter what is being negotiated. I like to be cognizant of this and typically recommend to my clients that they sleep on it in order to think through all the hypothetical scenarios that they can think of. 

All of this can be tough to remember when it's your first rental. When you only have the one rental, it's probably a little easier to be flexible because you aren't trying to remember who is on what schedule. I have one client in particular who says that you don't want to need to remember anything. Not only do you not want to waste resources on attempting to remember, but it is also more conducive to scaling your portfolio. Can you imagine trying to keep track of 25 different pay schedules and amounts? Whether it's your goal or not, I'd recommend looking at potential changes that way. It will help you to make decisions and to be confident telling tenants that your decision is based on how you operate in contrast to flexing to your tenants concerns. 

@Luke Turner couple things to consider.

1. Stability

2. Where we are in the market

3. Your time

If I were in your shoes, I would look at a couple things. Yes, flipping is attractive and can get you a big check quickly. However, it is a significant time investment as well as capital investment to make that work. If you have saved enough money from your job to purchase, fund the flip and live, maybe it's worth it. 

On the flip side, B&H, as you put it, is very attractive and I think you'd find that most investors wish they had never sold x, y, z, properties with 20/20 hindsight even if the wealth that you build there feels painfully slow. That being said, rent growth has been very stable and is much more impervious to the cyclical sales market. 

Everyone's answers to this question are different because we are all at different stages of our lives and have different personalities. The bonus of being young is that ideally you are more resilient, but you need to make that call for yourself.

@Adam Martin that's actually a structure that a lot of commercial landlords use because most of their tenants stay for many years. 

For my portfolio, we always do an increase of 2-5% to keep up with the increase in property taxes (2% on average year over year) and the market increase (somewhere between 5-10% in my area). We typically do one year leases with the option to renew at the end of the lease. Most of our tenants now know that a fractional increase is coming and because we stay just below market, our tenants are typically motivated to stay. It works out to be a nice win win for us. More often than not, tenants are begging for new leases before theirs has ended because they enjoy their home and they like working with us.

When we do have turnover, we bring the property up to market value and start the trend all over again.

@Ryan Wilson definitely talk to a lender. However, it is my understanding that you can only use a HELOC on a personal residence. Even so, a HELOC functions more like a credit card rather than an actual loan. What I mean when I say that is that a bank will not automatically give you the total of your HELOC. It's more like a credit card in that it is a line that you can use for other items. For instance, I have a client who uses their HELOC on their personal residence to purchase income property with ROI's higher than the interest rate on their HELOC, which keeps them in the green.

I would suppose that you would technically pay off a HELOC once you've sold off the asset that you used the HELOC for in the first place. In all reality though, a HELOC is a line of credit as opposed to a loan.

Hopefully this makes sense. Best of luck!!

@Ryan Wilson The thing that I wish more people would talk about is the cost to move your money and the tax basis associated with it. Are there still deals out there? Of course. However, if you are busy with your own business, you likely don't have the time to dedicate in order to weed out these great deals.

That being said, the other challenge you will face is that if you are to purchase anything right now, your property tax base will be based on that. For investors in your predicament, I generally recommend that you have a minimum requirement in an ROI for a purchase. If you can identify a property that supports that math, you ought to have the flexibility to cash out and refinance to have equity for that down payment. Or option B is to list your property at a price that ought to generate multiple offers that way you can move your your existing property quickly and lock in your up leg property with minimized risk.

Something to think about. I'm also recommending that all my clients invest in multi units as opposed to SFR's to minimize the impact of vacancy, if that were to happen, given how low most cap rates are these days.

@Trevor Baker I would definitely double check your build costs. Most developers I know are building closer to $400/square foot. 

Rent: You're going to get $2500/month off of 1200 square feet? Don't get me wrong, I'm not familiar with that market so maybe it's doable. I can definitely get those numbers on the coast here, but it would definitely be a push to get that in a non-coastal city.

Cash out financing: I would talk to a lender about how easy it is to do a cash out refinance. It's my experience that those still aren't that easy. 

All of this being said, I agree with @Gordon French that if your end is $1000/month off of your $90k investment with an appraisal total of $790,000, that doesn't seem terribly great. Based on the kind of math I do, I would calculate that at a 1.11% ROI. Don't get me wrong, it gets you in the game, but this would be a lot of money tied up until you refinance and even so, it's not a very good ROI.

Be patient and keep evaluating deals. It's the way to get to the punch first when you can recognize the deal before others.

@Katie Deskins run the cost benefit analysis, how valuable is it to you to get your family into a more comfortable, less starter home. You're going to be forced to put a price on that to really answer your question.