All Forum Posts by: Kristina Heimstaedt

@Katie Deskins I have several questions that will hopefully help determine the best course of action for you. 

1. What is your target property/investment? 

2. Are you ok with living in part of a multi unit? 

3. Do you want to upgrade into a new home and rent your current residence? 

I think if you're ok with living in a multi, you could sell your home and swing for the fences and go for the biggest multi, that produces, as you can. 

If you want to upgrade your residence and move into another home, opt for the HELOC to unlock your equity. I would just make sure that the return on the investment on the current residence covers both the interest on the HELOC and all of your loans. For instance, you have a current interest rate of 3.25% on your home, and you get a HELOC at 4.5%, I'd make sure that the ROI on the property that is being rented is north of 7.75% to cover the interest on those loans. I say this because you need to pay a mortgage and your down payment on your next residence with the rental income. Hopefully this makes sense.

Best of Luck!! 

@Caitlin Bigelow @Tyler Work @James Carlson We had a meeting on this recently. It appears that the specific regulations can vary even between cities. For instance, Newport Beach has regulations on the size of the lot for qualifying for an ADU, square footage of the ADU against the size of the home, to what extent does the owner need to be on site, lease length (no short term rentals in either side of us), etc. There will more than likely be a number of hiccups along the way that clear up an awful lot of these answers.

@Brandon Lewis it’ll vary between you as a borrower, your state that you borrow in, deals that they’re offering, etc. By in large, it is my understanding, that locally in California the minimum requirement is 30% for traditional financing in income property. 

Things to also consider are comparing a 30 year fixed versus a 7/1 arm, etc. that’s really where you’ll see the impact of rates. 

@Kenley Law yes the California marketplace is challenging and the numbers are vastly different from what you see throughout the majority of the country and it can be exceptionally intimidating and frustrating because of it. 

If I'm working with a seller and I have multiple offers to look at, looking at offers with 90% financing can be unsettling especially if you don't have the extra cash to bridge the gap between the purchase price and appraisal. The likelihood that the seller would need to cancel escrow if the appraisal doesn't come in and you don't have the extra cash, is very high. It makes your offer significantly weaker than someone else whois coming in all cash or someone with a lower LTV ratio or has the extra cash in the bank.

I don't see any problems with you removing the appraisal contingency because there's a strong likelihood that escrow would fall apart if you need to bridge the gap anyways. The alternative is that you could always cancel due to some concerns with the inspection. I'd also be hard pressed to say that your entry level price point is pretty close to what you're looking to spend (California is a whole other animal). The reason I mention that is to provide some security on your value and quality of product in contrast to an appraisal. Sometimes it can be difficult for appraisers to keep up with a "hot" market and they are more likely to be conservative especially post recession. Hope this helps and that your hunting goes well!!!

@Brandon Lewis You'll likely get a different response from everyone you ask. It also sounds like you ought to sit down and talk to a lender. If you already have a property in mind, you ought to know what it generates and get a loan with an interest rate that is low enough such that your property will properly cash flow. I'd sit down with a lender, ask how much they could lend based on you as a borrower and what the monthly payment would be and look at the potential rental income in your prospective purchases.

@Justin C Huggins I would also make sure that your target area of renters/buyers are accepting of sharing a wall/outdoor space with a neighbor. If that limits your marketability of the property, the additional money isn't worth it. To answer this question and your concerns about costs, I would talk to a local real estate agent or another local investor and a general contractor. Hopefully between the two, you have a better idea of what you're getting yourself into and some guidance.

@Adam Matlock if you're just trying to start the conversation, I don't thin there's any particularly wrong way to go about it. Although I would say that flattery is typically a good start. I'm a fan of flattery, self deprecation then the question. As long as you can follow along and demonstrate that you aren't wasting the other person's time, it should prove fruitful.

I'm with @John Underwood if you can find prior photos. In all honesty, unless the tenants stuff is amazing, I'd rather show photos of a vacant apartment. Most people want to think of a place as theirs and not the prior tenants. It's oftentimes difficult for tenants to get the image of someone else's stuff out of their head and is likely a negative rather than a positive. 

Either way, I wouldn't wait to market the property. I have a nearly zero vacancy record because I rent a property prior to the end of the lease. Photos or not, you can still market a product as available for lease. Yes you might get fewer responses, but people will still call. If people need a place, they will be sure to call. 

@Max Taylor's comments were great!! @Justin C Huggins I would add that if you don't plan on adding square footage either by adding space above or next to it, I would look for a property with extra bathrooms. Most people think it's easy to just add a bathroom somewhere without considering the work to move plumbing and draining. It's a whole heck of a lot easier to convert a bathroom into a kitchen rather than adding a bathroom in some random corner because it'll make the property function better. 

Final note is be aware of meters and the cost to add one if you would like to add a unit. The alternative is to be aware of the fact that you, or a buyer, will not be able to charge a tenant for utilities. 

@Nicholas Rice I understand how my post could have been bothersome. Glad we have more facts now and we understand that it isn't sentimental value. I struggle wrapping my head around a non-cash flowing investment. What I'm hearing is that we're aiming for appreciation exclusively and I always hesitate to put all my eggs in that basket.

Let's talk about this in a business sense. You obtain the property and can't flip it because that's not what mother in law wants and deal will be denied if that's the end game. I understand that difficulty. However, you say that you have equity once you take title because she would sell you the property below market value. Great. However, given the calculator, the cash flow on the property is poor. This tells me that there isn't opportunity to refinance or take out a second loan without needing to "feed" the property aka negative cash flow. If you cannot benefit from the immediate equity, does it really mean much? Would you be better off trying to find something that would both cash flow and appreciate or at least cash flow and ownership? Don't get me wrong, appreciation is great. However, push comes to shove, I choose cash flow over appreciation especially at that price point. 

It's a question a lot of investors struggle with when identifying a property: cash flow versus appreciation. Your caveat is at what point can you gain access to your equity either via sale or an increase in rent enough such that you can take out a second or refinance on the first and not be cash flow negative. I'm sorry my first message didn't come across well. In my opinion, when someone is faced with a difficult scenario, the simpler and more black and white you can structure things, the clearer the picture and easier the decision. I hope that makes sense and that you can appreciate why my message may have seemed cold.