All Forum Posts by: Lindsay Davis

@Tibor T.,

Building a team, steering the project, staying on budget, and holding people accountable is going to be an uphill battle for sure—especially since you’re doing it all the way from Switzerland.

Is it possible? Like @Chris Seveney said, it can be—but it’s probably not the best strategy for someone new to U.S. real estate.

If you still want exposure to real estate here but can’t do fix-and-flips, options like turnkey real estate (where you buy a professionally-managed property with a tenant in-place) may be a better option for you.

There are some groups that even do turnkey specifically for foreign investors like myself—happy to connect you if you’re interested.

Beyond that, investing in deals via a syndicate, private real estate fund, or publicly-traded REITs could also be options, though you’ll be a minority owner and have little operating discretion under these arrangements.

@Hailey Peterson,

I’d like to offer a slightly different perspective here: analyzing "appreciation and demand” from a statewide level probably isn’t granular enough. If you zoom in, you’ll find markets in both WA and TN that are growing rapidly—in Tennessee, for example, Clarksville and Murfreesboro come to mind.

And even markets themselves aren’t homogenous. In some cities, it’s the submarket that matters. In Chattanooga, as I’m sure you’re aware, the Red Bank area is very different from Avondale, even though they’re only a few miles apart.

There’s also an underrated advantage to investing in your own backyard: you’re more familiar with the geography and you know the submarkets off the top of your head. It’s also easier to build a team, check out properties, and speak to tenants.

An out-of-state deal is definitely possible, but you’ll have to leave the heavy lifting to a property manager or opt for a turnkey arrangement. Just my two cents!

@Eric Blair,

I second what @Seth McGathey is saying here. You're taking out a $50,000 HELOC for the down payment (and repairs, I assume), and borrowing the rest. So effectively, you're at 0% down and financing 100% of the purchase.

The $200 in "cash flow" that you forecast is assuming no principal paydown on the HELOC and mandatory amortization on the mortgage only—this, in my opinion, is a pretty risky proposition, and I'm willing to say that you're levering up to a pretty uncomfortable extent.

Consider what happens if rents decline by 5%, or if you need a month or two to get the property leased up, or repairs run over budget…you get the idea. If any of these things happen, you'd immediately be cash flow negative, even if you make interest-only payments on your HELOC.

If I were you, I'd find a way to pony up equity for the deal—not a HELOC!—or skip out on the deal altogether.

@Kyle Vogeler,

Like many things, it depends. If your townhome is in a neighborhood where a large percentage of folks are homeowners (meaning that most of your offers will be made by prospective owner-occupants as well), then a rental with a tenant in-place could sell at a discount, or take a little longer to offload.

However, if you’re mostly fielding offers from investors, then selling a fully-leased rental could actually be beneficial, since the investor closing on the property will get cash flow from day one. Plus, you can even share your bank statements and P&L to show that your tenant always paid on time. I’m pretty sure you’d have investors who would be very interested in that.

@Patrick Michael,

@William Whitley's offered some great, nuanced information. Another rule of thumb would be 1% to 3% of the property’s value per year, with a floor of at least $3,000.

Keep in mind that this would be for routine maintenance only. If you’re budgeting for capex reserves like a new roof or siding, that’d be additional. I’d say $100 to $200 per unit per month would be a good ballpark estimate for capex needs.

@Eric Blair,

Just a clarifying question: are you struggling with getting enough capital to afford a down payment for a second deal, or are you having trouble finding a deal that cash flows once you acquire it?

If you're struggling with the former, perhaps you can see if banks are willing to let you tap (some of the) remaining equity in your former house hack turned investment property via a DSCR loan. That could potentially be an option, even if a HELOC's off the table. However, you may have to speak to a large number of lenders before you get a bite.

If you’re facing the latter, have you considered looking slightly beyond Montgomery proper? I’ve personally been able to find deals that pencil out in suburbs like Prattville, Elmore, and Deatsville, which are about 15 to 20 miles northeast of downtown Montgomery.

@Sas Sel,

You’ll have to do some digging, but there are markets with (some) deals that meet the 1% rule, even in this interest rate environment.

@Ko Kashiwagi mentioned Birmingham as an option—there are definitely pockets of the city with deals that pass this litmus test, especially in suburbs west of the city’s downtown.

Other markets in Alabama, which I haven’t seen mentioned yet, could fit the bill as well. Montgomery, the state’s capital, and Tuscaloosa, home to the University of Alabama, come in mind here.

@Dustin Rabon,

Congrats on getting started with your first deal—that’s really exciting stuff!

I see that you’ve listed Birmingham as your location. I’ve had a good amount of success doing buy-and-holds in the Magic City for about 15 years. Happy to share what I know if you have any specific questions!

@Ethan Koyle,

You’ve got pretty interesting sources of financing at your disposal. On the home equity front, Rafael Gonzalez is right—you can take a second-position mortgage, like a home equity loan or a home equity line of credit, without having to refinance your first mortgage.

That said, any second-position loan you take out will still be priced at prevailing interest rates, so just a heads up.

The 401(k) loan could be an interesting option, since you’re ultimately borrowing from yourself. One thing to note here is opportunity cost: by borrowing against your 401(k), you’re forfeiting investment opportunities in the market that could potentially yield returns in excess of the interest you’re paying yourself.

In my opinion, however, the biggest risk of borrowing from your 401(k) is the risk of defaulting, either because your deal went wrong—or simply because of clerical error. If you default, the entire unpaid balance of the loan will be considered a distribution, and you’ll pay income taxes plus an early withdrawal penalty.

As for which is better…I think you’d have more luck asking your CFP or CPA. This is just some food for thought!

@Priscilla C.,

I saw @Terra Padgett pitch Birmingham and Huntsville as potential out-of-state markets. I wanted to piggyback off that and mention Tuscaloosa, since most investors outside of Alabama aren’t familiar with it.

This college town (population: 113,000) is home to the University of Alabama’s flagship campus, and is situated about 50 miles southwest of downtown Birmingham.

It’s a pretty interesting market. The city had a track record of long-term growth going on thanks to rising student enrollment at UA, and that means rising demand for medium- and long-term rentals around campus for students and staff. Happy to answer more specific questions if you have any!