All Forum Posts by: Mike U.

Quote from @Ray Hage:

I'd advise to stay in the rat race for about 2 years just to have that steady W-2 income. It will make getting loans far easier and with lower rates. Also, just make sure your credit score is high. At you age, I don't imagine you have a big credit history so you'll need to have some. You could of course get your first rental with a co-signer on the loan pretty easily. However, CA has some crazy pricing. You will definitely need to be looking out of state. Based on some research i have done and speaking to people on BP, the midwest seems to be a good place to start.

 I would also agree with this. You do have to show 2 years of good income and also have good credit if you plan to use conventional financing. You can also have a co-signer or partner with someone. Another aspect is some creative financing like a hard money lender or seller financing. I also don’t know what your financials look like but you should have some reserves saved in the bank on top of whatever you plan to use as your down payment. With real estate there is risk involved and you have to plan for the worst. I had a property that performed very well for years with a really good positive cash flow. Things happened with the tenants and sadly I had to evict. The whole process cost me nearly 40k with eviction costs, lost rents and repairs. You’ve got to be prepared for that sort of thing. 

Quote from @Friday Delorio:

Quote from @Mike U.:

Sounds like you're already on the right track which is great! I'm getting back into the game myself again. I'm curious to hear what areas you're looking into if you don't mind. 

That's something I'm currently investigating. I have no idea. I am in the SF Bay Area, but I homes out here are not within my price range, so I am looking all over the US. What about you?

 I'm in the same situation here. I'm currently trying to shop some markets and do research. I'll connect with you and PM you. If I find an area that looks appealing I'll let you know and you can let me know what you think if you don't mind doing the same. 

Sounds like you're already on the right track which is great! I'm getting back into the game myself again. I'm curious to hear what areas you're looking into if you don't mind. 

Quote from @Jordan Budke:

Quote from @Mark Frattini:

My thoughts...Keep the condo for now and work on increasing your income and time at current job. Continue to save as much as you can. In the meantime reach out to your lender and discuss your situation. They should be able to provide guidance on your next steps to get ready for the next purchase. Your condo will continue to build equity. Fast forward and you can either keep the condo and move into a better primary or sell the condo and find a home that has rental potential (ADU, duplex etc). Either way you still have 1 door used for rental income.

 I don't want to lose the equity. Will the market be able to sustain such high values?

That's hard to say or predict. If your condo is in a decent area and the area remains decent then I think you'll be ok. History has shown real estate is cyclical but with the trend moving upward. So you may experience loss in value but it'll get back to that point and probably surpass it eventually. Again barring your area isn't the slums and the property is maintained and taken care of etc. 

If you have a low interest rate and an affordable payment, definitely keep those terms in my opinion. You could take out a 2nd if you can afford it and put it down on something more affordable which is probably going to be out of state (I'm in CA as well so I feel your pain there). Tough part again as mentioned is qualifying. Showing good DTI, credit etc unless you can find something that is seller or privately financed. Not as favorable terms but easier to qualify.

What I wouldn't want to see happen to you though is you over extending yourself and find yourself in a worse position than you are now. Definitely find ways to increase your income, lower your debt and expenses and make sure you have enough in reserves because you never know what might happen and real estate has its risks. I had a wonderfully performing property that cash flowed for years and recently had to evict the tenants. After all was said and done between lost rents, eviction costs, repairs etc I think I was out about 40k and that hurts but I managed finances and planned for it just in case.  

I think the best investment you can make is in yourself. Definitely use resources here on BP to learn and make those connections for when the time comes, but maybe instead of jumping into real estate right off the bat look into investing into a business or taking a class or school to get better income. If you want to bounce ideas around or talk at all, feel free to reach out. 

Quote from @Anthony Ives:

I am just looking for some clarification on a few things. I live in Colorado and have several LLCs formed in Wyoming for other businesses I have; it's very simple, safe, and cost effective to use LLCs and registered agents formed in WY. Currently I am looking to invest in Alabama, but the traditional lender I was speaking with about DSCR loans said I must use an LLC formed in Alabama as LLCs can only operate in the state they are formed. This doesn't seem right. Can somebody clarify if this is normal in real estate?

Also, I have been looking at creative ways to fund income properties with as little of my money as possible. I found a private lender to fund the 20% down payment, but the traditional lender said I am not allowed to use hard money lending. I was told to go to a private lender instead, and let the money season for 60 days. Can I get some clarification on this topic as well? I was getting ready to pull the trigger on some properties until this news from the traditional lender. Thank you everyone.

I can't speak to the legality, but as Greg mentioned it may be a state requirement. I also think it depends on the context. Example: I have an out of state LLC for an online business I run. I don't have a physical presence, no store front or warehouse etc and no expenses that tie me to a particular location. I can get away with doing business in other states no problem. I was looking into this a few years back and from what I recall with real estate though, since you have a physical presence, you would have to register as a foreign entity or something like that in the state you're buying in. Again it might depend on the state and their rules around it, I'm not 100% sure.

For your other question, I think you were going about it right. Getting the private money loan and "seasoning" it. I just probably wouldn't have told the lender that because then they'll look at those funds differently if they want to be sticklers about it. You have to think about it from their end. If they know that your down payment is borrowed money then that is more of a risk for them because you have to pay that lender and the new mtg. If they think it's your own money that you've saved they see that as less risk. They only ask for 2 months bank statements and so that is where the seasoning for 60 days comes in but I would just make sure you have 2 months of statements showing the funds in your balance and not showing the deposit transaction. That might take a bit more than 60 days.  I have a really good mortgage broker that is amazing at finding creative ways to get qualified. I don't know if he is licensed in AL but I can ask if you'd like. Or if he might be able to refer someone who is licensed. 

Quote from @Dylan Speer:

Quote from @Jordan Budke:

Quote from @Dylan Speer:

Have you considered doing a 1031 exchange into a DST?

 Hey man, can you explain this to me in english please? haha

A DST is a Delaware Statutory Trust which is a 1031-exchangeable syndication. You'd mentioned that prices in your market are high so you may be interested in selling that property and exchanging into a DST. Usually, the cash distributions, paid monthly, from DSTs are more than what most investors get from rentals. DSTs are available for all property types. Here's an example - Cantor Fitzgerald has a Student Housing DST at UCLA. It's a $100,000,000, class-A multifamily building that they purchase and open equity to investors. The minimum investment may be $100k, and they pay investors 6% annualized cash on cash with a 10-15% appreciation on initial investment when they sell the property in 5-10 years. What makes a DST different from any other syndication is that it's 1031-exchangeable. So, if you sell your home for $400k lets say, and have $200k of debt on it, you'd pay off that debt and if you exchange into something else, you'll need to maintain the same debt to equity ratio of 0.5. So, you'd find a DST that offers 50% LTV and exchange into that. The cool part is, the sponsor (Cantor Fitzgerald) signs on the debt so even though investors benefit from the debt on the property for the purpose of the exchange, the debt is in the sponsor's name and not the investors, and the investor does not take more debt on their personal balance sheet.

I work at a firm that specializes in helping investors exchange into DSTs and am happy to chat. 

The only issue I can see with this is as mentioned, the property in question is a primary residence and don't believe it qualifies for a 1031 Exchange unless he moves out and rents out the property and thus converting it to an investment property. To do that the right way though and avoid any scrutiny it would be best to hold the property as an investment for at least 2 years to show up on your taxes as such. 

Quote from @Richard F.:

Aloha,

Decide if you are running a charity or a business, and operate as such. It just won't work trying to do both, and you are likely to end up with a Fair Housing complaint from someone that you choose NOT to help.I hope your eviction included the adult kids, or you may not be seeing a paying occupant any time soon. If you want to help them, sit down and negotiate a written agreement for repayment once they HAVE vacated, so as not to damage their credit further. And hold them to it. Also, you generally have to get the money judgment in order to go to collections.

Going forward, always get ALL adults of legal age on the Rental Agreement, with a "joint and several" clause so they are ALL responsible for 100% of the rent.

This is always a tough situation but Richard hit the nail on the head with his opening statement on this. I'm all for helping people, however at the end of the day it is still a business and you have to find that balance. AZ from what I have heard also has very strict laws regarding evictions so there is that aspect as well. For the collections piece, as others stated that is kind of up to you and how you want to handle it since you best know the situation. 

Not trying to hijack the thread but share and experience as I just had to do something similar. Tenant lost job due to COVID, I allowed them to stay for a while, they got rental assistance which helped. Then those funds ran out after about 6-7 months and they still didn't pay any rent, not a cent. I allowed them to stay just a bit longer before evicting to give them benefit of the doubt. No rent collected in nearly a year after all the processing time etc to finally get them out of the house. House was just rehabbed in 2019 and in less than 4 years there were a lot of damages to the property costing me nearly 10k to fix on top of lost rents. That situation I felt should be sent to collections and did so. I can't imagine they couldn't find some sort of job, unemployment, applied for assistance/section 8, something that I could have worked with them on. If they had made a plan or made partial payments, some sort of effort then maybe it would have been different....but I digress.

Quote from @Dylan Speer:

Have you considered doing a 1031 exchange into a DST?

If I read his post right he only has the 1 property that is is primary residence. 1031 Exchange wouldn't apply here because the property would have to be either a business or investment property, it can't be personal property. 

I'm also a Veteran and I've done point 1 in Hamp's post, using my VA to purchase a home to move into and rent the previous one out and also point 1 in Steven's post, either taking a 2nd out on your primary or cash out refi to purchase an investment and both have worked out nicely for my and my situation at the time. There are some creative financing solutions out there that I hear of and have read about but haven't done myself. Hard money lenders is one and was mentioned by Ash. I used to know a hard money lender but never used him, those loans typically hold a higher interest rate though. You can try to see if the seller is willing to do seller financing and again those will usually hold a higher interest rate and can be difficult if you're dealing with your average homeowner as most people would opt not to do that.

Quote from @Jordan Budke:

Quote from @Hamp Lee III:

Welcome to BiggerPockets!

You’re doing great! You have a primary residence and it’s already proving to be an awesome start!

Right now, I would tell you to continue to save for a better position and looking for an opportunity to form a JV. A JV with friends will bring a lower cost of entry.

Real estate is a long game and you’ve made a great move. Sometimes the best move is to prepare and be patient.

I'm in your position and instead of messing with my current properties out of anxiousness, I'm forming a JV with three other people. We're putting in a few thousand each to fix and flip a property.

I hope this helps.

I wish you all the best.

Hey man, thanks for the encouragement! What is a JV?

I believe he is referring to a Joint Venture (JV). Partnering up with someone.