All Forum Posts by: Michael Hyun

@Keith Chang - sure anytime, shoot me a message and we can connect!

Oh wow thats great - South Lake Tahoe is amazing for STR. Thats great for you! Self managing is def the way to go if you have the mental capacity to deal with issues as they come up - if you have a large cabin, I imagine something would come up at least every other guest when youre hosting like 10+ guests.. I only ever had small 2b1ba's because I didnt want parties.

Also not to mention property management charges, and also I try to stay away from slippery snow - there are plenty of liability issues when it comes to slippery snow. I think its still a good area - but there are definitely better areas in my opinion. 

@Jimmy Woodard - isnt South Lake Tahoe killing off airbnb completely? From what I heard, they were completely shutting down Airbnb. Not renewing any permits starting this year? Am I wrong?

I bought two homes in Joshua Tree area and Airbnb'd them. I looked into Big Bear, and I think one of the main reasons I didn't choose Big Bear was because of the community response to Airbnb. From what I read and hear, the community of people who actually live there - hate Airbnb. Its very similar to South Lake Tahoe - but I'm not sure if there are big hotels in Big Bear that will lobby out vacation home owners like South Lake Tahoe did. 

Either way, I decided it wasn't an ideal place for me to scale a portfolio for the mid-long term. During the pandemic, there have been SO many cities implementing new laws to restrict Airbnb's. For example, Yucca Valley (permit moratorium), the entire county of Truckee area (STR permit moratorium), Twentynine Palms (next to Joshua Tree - str moratorium coming soon), San Francisco (killed mid-term stays - landlords have to rent 1 year or longer), Las Vegas (only owner occupied airbnbs).

All of those examples happened within the past 3 years - imagine if Big Bear did the same. Yeah you would make good money for 3 years, heck maybe even 5, but your business is reliant on being able to do it legally. One regulation passing can wreck your portfolio. It's a short-term game in my opinion - not a retirement plan.

@Eddy Ogbekhilu yeah I'm hesitant to move to non-conventional lending. I want to squeeze out all of the benefits of conventional lending as long as possible before I get to that point where I have to consider other forms of financing. I guess my main assumption is that conventional financing seems to offer the best rates - you can correct me if I'm wrong about that. 

@Deanna O. yeah that makes sense about why the banks only take into consideration the 75%. Also, I totally forgot about depreciation! If I calculate that into my equation above, it should give me a good boost on the income side of the ratio. But still, the DTI will eventually "catch up" to me.
Also, is principal paydown taxable? That seems a bit odd since you'd be using already-taxed dollars to pay off the principal? Maybe you meant something else?

I'm a big believer in STR and mid-term rentals, but I didn't have the confidence that I could find a good one within 45 days - I guess I was being a bit lazy and didn't have a good plan before selling my old home and starting the 1031 process. Lesson learned - choose your next market before you do a 1031. I was looking at 10 different places at one time - if I had a narrow search criteria before doing the 1031, I might've been able to find something better.

The home I bought is in Livermore CA, its not a great area for Airbnb or mid-term rentals I think. Not enough space for an ADU and I don't want to do a garage conversion - I might sell it in the future and do a 1031 again and re-invest where I can do another Airbnb or mid term stay.

@Andrew Postell thanks the reply - I guess the exact numbers are probably off, but the principle behind what I'm saying stays true. My DTI will continually increase until I'm at that 45% mark. At that point, how does one continue to scale?? They won't be able to get any conventional financing, right?

PITI*

Hello everyone!

I’ve been trying to figure this out lately, but I recently purchased a negatively cash flowing property. Yes, I know - you should never buy a negatively cash flowing property, but I truly believe in the Bay Area appreciation, so I’m willing to take a negative and pay the remainder.

My question is: how do I buy my next three homes? The problem is with DTI. I recently learned that banks will only consider 75% of your rental income as income. So if I break it down with hypothetical numbers:

W2 Job income(example): 15,000 gross monthly

Rental income from property 1: 3500 monthly

Actual income from rental property 1(according to the bank): 3500x0.75 = 2625 monthly

PITU for property 1: $4200

That means my DTI would be (4200)/(15000+2625) or 23.8%. Is that right?

This is assuming I live with my parents, but if I were to rent a place - add another 1500 for rent.

(4200+1500)/(15000 +2625)= 32.3% DTI.

Now, being in this position, how could I afford another home??

hey Keith, if I was just starting out, what I would do is:
1. Go to Redfin and make a "Saved Search" with filters on what type of home you think you might want to buy. 
2. Every day, just look through this search and start looking at the listings - familiarize yourself with the market. How much are homes - what features make a home more popular than others? How long are homes on the market? What's the difference between homes that sell in one week vs the homes that sell in one month? 

Eventually, you'll develop an idea of what a home is worth in your area. When you see a home that looks pretty nice - not a perfect home (you'll be stuck forever if youre looking for perfect) - then tell your agent to write an offer. Based on what you've seen, you should be able to write an offer.

That's what I did in Joshua Tree CA in October 2020. I bought a home there for 225k a 2b/1ba. I noticed it had a super nice backyard with a Joshua Tree right smack in the middle and it had amazing views of the mountains. I put an offer immediately and got into contract. I went down there, worked during the day at my job (remote) and did renovations after work for about a month. 

I furnished it, then rented it on Airbnb. A year later, I sold the home for more than double and used that money to buy a home in the Bay Area.

I'm a huge believer in STR - there are always pros and cons though. As a young, unmarried, remote working individual, I have the time and energy to put more effort into STRs. I went down to Joshua Tree for two months to do renovations with my dad - most people aren't willing to do that. If you want to connect, I'll try my best to convince you why you should switch to the STR side :)