All Forum Posts by: Matt T.

@Mike M

This is very poorly thought out. 

1) You can "buy the market" with things like mutual funds or etfs for as little as $1,000 dollars. This will give you a share of ownership of "all the stocks in the market" depending on what fund you are buying. 

2) You gave one example of money you made from a real estate investment. It seems like you did a really good job and made a lot of money. However, I would be skeptical if this deal was the "Average" of all your real estate deals. 

3) You are comparing buying real estate on leverage with buying stocks NOT on leverage. You can also buy stocks on margin - which is a lot riskier, but the payoff can be huge is well. 

There is good things about both investing in real estate and the stock market. Fortunes have been made in both. It is silly to say one is superior then the other and only stick to one strategy. Your argument is equivalent to me saying " I bought Bitcoin at X and made XXXX%, this is the best strategy". I am not an expert, but I think the smartest people do both imo. 

@Account Closedundefined

Thanks for the reply @Vinay H. What you said about my numbers not being accurate are right, I was just making them up haha. I have done some searching on Zillow and it does seem to be in the ballpark. As I mentioned, my price range is probably around the 350k range for a duplex and some triplexes in Lynn/Lowell MA. After using a mortgage calculator, and putting down 10k as a deposit it looks like my mortgage is coming out to around 2.2k (including PMI). I think I was not clear when I said the "1k" mortgage, that is what I would pay after renting out the other unit(s). So if I bought a duplex, and lived in one unit and rented the other for 1.2k, I would pay 1k a month in mortgage expense assuming my mortgage is 2.2k (I know this does not include vacancy rates, repairs, insurance, etc). The average rent for a apartment in Lynn is 1.5k according to Zillow. Now I know that is probably high for the units I would be renting, but after doing the calculations it seems like I would be paying less with this house hacking method than by renting to someone else. The majority of my friends pay around 900 in rent, from my calculations it seems from a house hacking strategy in Lynn/Lowell would be less than renting to someone else. However, I have not done any real calculations, and it is accurate criticism that I need to do this first.

I think you are definitely right too with the cash return idea. There is an opportunity cost by putting money in a down payment and not putting into equities or another investment. I already participate a generous amount of my paycheck in a 401k program, so I am partly looking to diversify. Thank you for your response and insights. 

That's interesting that FHA loan rates are lower, I didn't realize that. If anything I thought they would be higher since it seems like more of a risk. Although if I refinance into another FHA loan (I guess you can only have 1 at a time) I don't think it would make a different which house I had the FHA status on (I am planning on buying more than 1 property over time). The only difference would be I could put down a smaller down payment. I think whats affecting my cash flow is the fact that I am putting down such a small down payment (5% in an FHA vs 25% most people do). I was also planning on trying to pay off the mortgage must faster than what I sign up for. I work in sales, so if I get a larger than usual income, I will put it towards the mortgage which I figured might help cash flow potential by lowering my interest payments. Thank you for the bit of encouragement at the end, I have a lot to learn and thank you for your input.

 Oh haha, no I meant the interest rate payments not the specific interest rates. That's a great point about where I move to next, hopefully I will be more experienced after my first house hack and can find a cash flowing property. I also think I would try not to move out until I made the place cash flow. What are cash flow expenses? Are those just regular expenses? And your right, I know a lot of this is speculation, and particularly with asset prices so high, it would be hard to bank of significant more appreciation of the property. But to combat that notion, and to ease my worries about properties dropping in value, I said to myself I will be buying more than 1 property over my lifetime (my goal would be to have around 15 doors) so my buying period is probably 30 years. I will probably see some swings in property values during that 30 year period, so I can't just wait around banking of property prices to fall. Thanks for the input!

 Thank you @Patrick Fraire, that is a good point about the quality of tenant, and honestly due to my price point I'm looking at what would probably be classified as Class C. Your reasoning is similar to mine, I do not mind taking a $50 hit in profitability in order to compensate for other good things. However, I am getting a lot of feedback that is very against negative cash flow. Your right about the mortgage payment being the same, I didn't think of that when I first posted. I think one detail I left out was I would be trying to pay more than the mortgage required at times (I work in sales, so if I ever got a large paycheck I might toss more of it at the mortgage). Hopefully this would improve my cash flow opportunity along with raise rents, appreciation of the property and attempting to mitigate cost (although I bet a lot of people with experience might laugh at me there). Thanks for your help, I found your comments very helpful! 

 I am still a bit confused, Joe and as you pointed out, I want to make sure I am not trying to rationalize a bad decision. But if I had two scenarios, A) paying $1000 dollars in rent a month to a landlord or B) Paying $1000 dollars into a home (covering my part of the mortgage and covering the negative cash flow from the other units) is scenario B not superior to scenario A? I do pay a lot in interest in the early payments, but wouldn't I be building equity into the multifamily property? Maybe the costs won't add up exactly to those made up numbers, and it is also probably more likely renting is cheaper, but it is not by much around my area. 

Another question I have, is isn't cash flow impacted by the down-payment. If you put 20-30% down on a property, your mortgage payments are less than if you put 3-5% down. I guess my point is isn't one of the difficulties of my situation that I am putting down such a small down-payment? Is that a reason to shy away from buying? Would my cash flow potential improve after I paid off more of the loan? Thanks again for your insight.

 Thank you for the advice @Rachel H. I have been trying to find a mentor, but it is difficult. I do not have any family connections, or friends who are experienced real estate investors. Any suggestions on where to look? 

Thank you for your reply @Joe Villeneuve. If you don't mind could you elaborate a little bit or help me correct my thought process here. Is this still the case even if cash flow is slightly negative (maybe 50 or 100 a month)?

I figured the advantages of this strategy are as follows:

- Obtaining a negative cash flow of a $100 or so a month would be superior return wise than paying about 1000 in rent because I would be able to build equity. Instead of having a $1000 expense, I would be building equity that is mine.

- This strategy allows me to utilize leverage from the bank to increase my net worth. My 30k down payment on a house would allow me to receive an appreciation return on a 300k asset. Granted prices could drop, but I think appreciation over a 30 period year period would be more likely.

- Some tax advantages 

My other question is, wouldn't my cash flow potential increase overtime as I paid off the loan and the interest rates decreased, rents rates increase (potentially) as well as refinance my FHA status to avoid PMI insurance after a year?

I guess I am still a bit confused on how paying rent is a better alternative than negative cash flow. Rent is still a loss for me correct? If I had a smaller loss from negative cash flow than from rent is it still a bad idea? 

I appreciate any feedback, I am a novice and have a lot more to learn. Thank you.

@Patrick Fraire Thank you for your response Patrick. I read a joke on here from a real estate agent who when asked "are there any properties around that cash flow" he would respond "if they were, I would have bought them". To me that makes sense in a competitive environment, that someone as inexperienced as myself would have a tough time finding a cash flowing gem.

I like the point you made about how you make sure negative cash flow is less or equal too what I would pay in rent. By my calculations after taxes, repairs, PMI, vacancy rate calculations, mortgage, etc. I would only be around -100 a year or so. However, the advantage is that I can use leverage from the bank and get a high return.

I guess my other question is wouldn't cash flow potential increase over time as your mortgage cost (the interest payments) decrease and you can increase rent. 

My reasoning was that I would rather pay 1k a month into equity in my house than pay 900 a month in rent to someone else. Please let me know your thoughts, thank you. 

@Dan K. Thank you for the reply Dan. That is an interesting fact about the FHA status, does that mean you cannot use an FHA for houses over those costs? Because I would be hoping to look at a house in the 350k price range so I think I would be okay.

Currently I am not renting in Boston, I live at home for free, most of my colleagues pay 800-900 for rent with a few roommates, I was rounding up a tad. Also, I am nearing 25 so I would probably not want roommates for too much longer if I could afford it.

As for your 4th point, I figured that paying money into a house to build equity would be better than renting. The negative cash flow would not be huge by my calculations (although I have not done something very specific). I figured after I moved out and rented out the place it might be around -100 a month. Another question I have, is wouldn't the cash flow of the property be able to increase over time? Because I can scale rents appropriately and as I pay off the mortgage the cost of it goes down. And refinancing the FHA loan would allow me to get rid of PMI insurance which would help cash flow. Am I thinking correctly here? Appreciate your feedback.