All Forum Posts by: Luis Silva

Quote from @Zachary Himes:

I am 22, fresh out of college, just landed a full-time tech job. I have a lender who will prequalify me for a mortgage of 450,000 or so (3.5% down or about $16,000). I can afford the monthly payments on the mortgage, but the problem is I have no way of saving the down payment in the next couple of months. (Hoping to buy by mid-July). 

I'm trying to find a house that I can live in for a year or two, then eventually use it as a rental. I want to do this instead of paying rent; that way, I can do a cash-out refinance at the end of living here and get into another house. 

What are your thoughts on this? I've looked into downpayment assistance programs, but they seem fairly complex, and the majority of them are income-based, which I would not be able to qualify for. For further context, I am getting married in August, so paying for that getting my student loans paid off is why I am strapped to save for the next couple of months. I don't want to pay rent next year, but should I bite the bullet and rent to save up, or are there some viable alternatives?

 HI Zach, hope all is well! here are some of my thoughts/ideas (for what its worth). 

Regarding down payment

- Is a gift from a family member possible? 

- you will need to account for 3.5% down plus roughly 2% in closing costs for a total of 5.5%. With that said, there are ways to have the seller cover fees (if you can get them to agree) or you could even look at taking a higher interest rate which will provide a lender credit and cover the closing costs that way. 

Regarding buying vs renting:

- not sure which market you are in but I would do some form of a cost/benefit analysis. for instance, you may look at RV ratios to determine if it is cheaper to buy or cheaper to rent. RV ratio = rent to value ratio. Example, a home rents for $2,000 per month and you could purchase the same home for $400k (2k/400k = .5%). That would be a .5% RV ratio which is not ideal as an investment... it basically means that it is cheaper to rent then to purchase. A decent RV ratio today might be somewhere between .7-1% (some people may argue this, but if you are in an expensive market this might be the reality). 

- if you are only going to live in the property for 1-2 years.. I would really dig into those numbers to make sure that you can, at minimum, break even on the property (as a rental) after all expenses so that you don't get stuck with a negative carry. 

- lastly, renting can give you really nice flexibility when you are just starting out. I was in a similar spot not too long ago and my wife and I rented for a few years before purchasing. Our initial focus was not incurring any debt for the wedding, paying off any credit we had, saving, and then eventually investing. Unless you are concerned about drastically higher rents in the near future, might not hurt to hold out a bit, save for a down payment and have a little extra financial runway before buying. 

Regarding cash out to buy another property:

this can be done, however, this would require a couple things... 

1. values would have to increase. If properties do not increase in price, there will not be enough equity for cash out. Cash out is generally capped at 80% of the homes value. 

2. Rates would need to stay roughly the same or go down. In other words, if rates go up from here, then refinancing to take out a bigger loan and restructuring the existing debt will end up costing you a lot more which may eat up any cash flow. 

Anyway, this is a valid strategy but it will take the markets to work in your favor. I wouldn't count on it, but if it happens, absolutely take what the market is giving you :)

Regarding down payment assistance

This is a viable option. There are income caps on some, but there are not on others. The challenge in this competitive market, is getting a seller to accept your offer. They understand there are a lot of moving parts and one slip up can unplug a deal. 

hope this helps... sorry for such a long winded answer

Taxes can be rather nuanced, so I would recommend running all these questions by your accountant/CPA. But couple notes.. 

- generally speaking, start up expenses that are required to run your business are typically tax deductible. With that said, since you live in the home, perhaps, you can only deduct a portion? (ie. if you occupy 25% of the home, maybe you can only deduct 75% of the cost). Would be interested in what an accountant says about this. 

- Regarding utilities, it may work similar to a home office deduction for a small business (similar to what I described above - basically you determine the sq ft of the home being used for business, and that portion is tax deductible. Again, I would check with a CPA

- Regarding LLC... you do not need to refinance to deed the property into an LLC. Just work with a deed service and they can handle this for you for a couple hundred bucks. Side note, since this is your personal loan, mortgage notes generally have a "due on sale clause". In short, this basically means that if you transfer/sell/assign the property, the lender has the ability to call the note due. This is extremely rare, but definitely something to be aware of.

Quote from @Andre Le:

Hello everyone,

My parents have about 200k left on their mortgage and I think around 150k in a HELOC. The house has appreciated to around 2mil so there's about 1.6mil in equity. I feel like the equity sitting there is just wasting away doing nothing. I was wondering if I can take over the mortgage and refinance it to buy investment properties out of state. Are there any requirements needed to do so or do they have to do it? Also, the house's title/deed is under my Uncle's name so I'm not sure if that affects anything. Is it better to contact a loan officer for these answers? Any help would be appreciated, thanks!

If you want to refi the balance in your name, it would require that you are added to the title of the property. Adding yourself to title will likely trigger a re-assessment of property taxes and based on the numbers you mentioned my guess is that the taxes would go up. This is just something to keep in mind... 

regarding cash out, if you are only doing the loan in your name, you will need to be on title for 6 months before a lender will allow a cash out refi. 

Lastly, you may even want to consider a home equity line of credit (HELOC). A heloc will give you the flexibility to pay cash for rentals, and once you acquire the rental you can work to secure a mortgage on that property and pay the HELOC off. That way you are keeping the debt on the rentals as opposed to the primary home. 

Quote from @Brian Angeron:

I am working out of town for months at a time and would like to buy a property back home with an FHA for the low down payment. While I am away I would like to rent the property as a STR, having family help with the management.

Is there owner occupancy requirements that would prevent me from doing this?

The property would remain my primary residence on paper while I am working these contract positions out of town for 3+ months at a time, I just would not be physically present for the entire 12 months.  

This would be my first investment property so please excuse the Newbie question!

Thank you!

-Brian

If your intent is to occupy as a primary residence, and your work requires you to travel and be away from home for extended periods of time, I would imagine it would be fine. I think a lender or underwriter may take issue when you mention that you want to use it as a short term rental when you are away, but I doubt they will have an issue with you traveling for work. I would run it by a mortgage professional and get their opinion. 

Quote from @Muhammed Mbye:

(What’s a mortgage broker

 Mortgage broker is someone who is generally approved with several lenders and has the ability to shop around to secure the best rates, pricing, and loan terms on your behalf.

Quote from @Blake Wood:

Hello BiggerPockets,

Would love to hear some opinions/feedback on what course to choose as I try to tackle my first rental property.  I am an agent in San Diego and work with some of the top flippers in the area (If you are looking to buy a fixer or have a fixer to sell - give me a call 410-507-9854).  I have saved some cash and have another chunk in the stock market (enough to be comfortable with a $50k down payment).  Currently I am renting at very discounted price for being a few blocks from the ocean.  I know the first step is usually to buy your own house but I love where I live and only pay $750 a month - Don't tell my landlord they could charge $1,400 haha. So with all that being said, here are the options I am considering:

1. Try to house hack.  I have seen a few properties in coastal areas that have house hacking potential.  Like I said, I sell fixer properties to flippers so I definitely come across a few a year that I would love to take on.  That being said, I would need to raise funds and cosign with someone (probably family) to take on the down payment and mortgage since the property is going to be in the $900k-$1.5m range.  Also, even with renters helping to pay the mortgage, I would most likely be increasing my living expense substantially from what I am paying now.  This is my favorite option because if I figure out how to afford it, I know I'll have an appreciating property that is partially being paid for by renters.

2. Buy in a cheaper market.  I have researched a ton of other markets and like a few (Fort Myers Florida, Baltimore Maryland, Nashville Tenn, etc).  I like this since I could afford to make a move today by myself, but I am not sure I want to take on the risk of investing out of state to maybe cash flow a few hundred every month.

3. Hunker down and save cash. If I put my head down and save over the next few years, I could (hopefully) get to a point where I could purchase a multi-family property to BRRRR in San Diego.

Would love to hear opinions, feedback and/or your experience buying your first rental when living in an expensive market.  Thank you!  
  

Hi there! 

I believe the conforming loan limit on a single family home in San Diego county is $879,750 now. If you can find a home for around $900-925K then you can put 5% down on a conventional loan and purchase the home by yourself. With that said, the numbers may not be great as you already alluded to, so I would dig into the math and and consider the following:

1. How much can you reasonably rent each room for? 
2. Are you comfortable with roommates for the next few years as you continue to build your business and grow your income?
3. After purchasing, do you have a decent financial runway that can carry you for 6-12 months if income changes drastically?
4. What is your time horizon? 
5. What would be your new housing expense? If current is $750 and it goes to $2,500... would that be affordable for you? 

I agree with many of the others in this thread stating that you may get a better return/numbers out of state, however, if you have an "edge" in CA and you feel comfortable purchasing and holding for the long run, then CA might work well for your situation. 
Good luck! 

Originally posted by @Patrick Brooks:

Hi All,

I own 1 home in Yuma,AZ we rent and I have a commercial property here in Vallejo, CA that I'm renovating for my business. I'm looking to buy something else in Vallejo other than my primary to start creating more passive income. Do you believe that it's smart to invest in a city like Vallejo for rentals when there is Rent Control..over a city out of state? 

I like to look here because I know this market very well (I'm a real estate broker) but sometimes I get concerned as I do like to over think and I'm fairly new to this game of residential rental investments in California.

Any input would be greatly appreciated

 Is the entire city rent controlled? Sometimes, its only specific types of property in specific circumstances (ie. owned by an LP or 2 units+). I would highly recommend chatting with a property manager about this and picking their brain.. they will most likely be able to provide you with a wealth of information on the subject. Also, something to consider, might be the housing voucher program (formerly section 8). There is a huge need for affordable housing and in certain areas, the housing authorities are really trying to incentivize landlords. Might be worth a look. Good luck! 

@Red Peterson one other item I would pay close attention to is the owner paid utilities (ie. Water, garage, sewer, electricity,etc). I had an older building similar to what you are describing and the electric from the common area, gas, water, and lawn care, quickly ate up a significant portion of my cash flow. It was my first rental and I definitely under estimated the cost. During your due diligence period you should be able to request that the seller provide a trailing 12 month breakdown of the expenses

Also, 30yr fixed is a great product as many mentioned... my thought is, take the lower payment, then if you want to pay it off faster you have the option.

Let us know how it pans out, good luck! 😊

@Julie Asmussen the purchase price and down payment is not as relevant today since you purchased it so long ago. The main items ypu want to focus on now when running your calculator is the debt service (mortgage), taxes, insurance, maintenance, Capex (if property is in excellent shape and doesnt need any major improvements then this figure does not need to be quite 10%), vacancy (talk to PM), landlord required utilities (if any), lawn care snow removal (if applicable).

Sounds like you have a great rental property with those numbers. Here is a couple more things to consider..

1. 4k per month in rent is most likely not a starter home. Ask your PM how long it takes to rent and how often this type of home turnover

2. Consider what your tax liability would be if you sold and what you would do with the capital. As an example, if you can earn 10% cash on cash return today or better from your cash flow, how would you deploy the equity if you sold to earn the same or more? (It's harder and harder to do right now)

Hope that helps

One other thing.. are there any utilities that you will be required to pay as a landlord or can you pass all utilities on to your tenant?