All Forum Posts by: Mircea Gogoncea

Cheated? I genuinely don't know where that's coming from. Like I was saying to all the other commenters in this thread, I very much appreciate you commenting on my post.

The fact that I haven't yet heard any convincing arguments about why this is a bad idea has nothing to do with the gratitude I feel towards everyone for taking time out of their day to post here.

Again, let's separate the personal from the finances. I want holes, and more of them please! That's what I've wanted the whole time. To your point: 

you would continue living with a debt-to-income ratio that is "currently maxed out" for two more years (one year in your current home, one in a MTR), then you'll down-size to something cheaper and start saving up cash for a year.  That's two years of living paycheck-to-paycheck, assuming nothing goes wrong during that time, and then you'll start to be smart with your money?

My current budgeting is so effective and strict that the lender's definition of "debt to income maxed out" does not mean I have no surplus of money. I do. I just already live on less than 60% of my income (and will continue to do so.)

From the point of view of savings, how is this plan I'm proposing different from just continuing to live in my house and not doing anything? I genuinely do not understand how it would be worse, from a cashflow perspective. It's not like if I stay in my current home I could somehow magically stop having to pay my mortgage!

During the next 3 years, my DTI would be the same in the lender's eyes, no matter whether I enact my plan or not. I have the option of either doing something (e.g. my plan) or nothing (e.g. wait for my income to naturally increase.) I don't think I have other viable options in the next ~5 years - things like houshacking via an FHA loan or applying for a DSCR loan come with requirements I won't fulfill until ~2028.

By doing something, I gain experience as a landlord and the higher yearly income that comes with renting out my home, and I can always go back to my current life.

By not doing anything, I gain.. I'm not actually sure what I gain. That's my point.

Quote from @Nicholas L.:

@Mircea Gogoncea

in your last post you said something new - "a single convincing argument about why this would be more risky than a standard house hacking play. Literally not a single one."

But that wasn't your original question.  So if we're citing fallacies - this one is:

https://en.wikipedia.org/wiki/...

I never said one strategy was riskIER than another - just that your proposed plan carried some risk.  That's all.

Nicholas, I feel like we are dangerously close to taking things personally, which is the last thing I want.

Please keep in mind that while I'm being extremely direct here, I do appreciate you taking the time to answer and I'm not trying to take you down or anything like that! I'm just trying to be extremely rational. I am aware that can be perceived as inconsiderate, but that's not my purpose here.

My original question was "what do you think?", and it doesn't get more open-ended than that.

You said there's some risk, and I said I see less risk than in typical househack. That's not a strawman, that's conversation taking its natural course.

I still stand by my humble original request: please poke holes in my plan, as many as possible. I have yet to see a convincing one.

Quote from @Nicholas L.:

@Mircea Gogoncea

I'm certainly not advocating making no moves for 5 or 8 years - I just always try to encourage new investors to get into the strongest financial position they can rather than getting in solely because BP has made them feel like they're going to miss out.  I and the other posters in this thread are just reacting to statements like "get rental income as soon as possible" and, in your latest post, "miss out on appreciation."  There aren't any specifics there.  

Instead, I have to think that if you keep learning, keep working hard, network, go to REIAs, watch for an opportunity to refinance your existing house, etc., there will be other RE opportunities for you in the next several years.  You proposed a very specific plan... and you got 2 BP heavyweights with 47,000 votes between them (and then also me!) who didn't like it.

Thank you for those suggestions! I will absolutely continue to keep learning, working hard, watching for opportunities, etc.

I actually come from the world of early-stage startups, rather than REI, and that's where I get my "start doing something ASAP" mentality - not from BP. I only discovered BP a few weeks ago.

When it comes to the experts, that's great to know, but I do a lot of conscious work in my life to NEVER believe arguments from authority unless the underlying logic makes sense to me. 

Experts are amazing at pointing out things that you haven't thought of, but they have their "entrenchment blinders" on (the old "it can't be done because this is not how it's done".)

So unless they point out something I haven't thought of, I will consider their opinion as much as I would the opinion of anyone else.

So far, I have not received a single convincing argument about why this would be more risky than a standard house hacking play. Literally not a single one.

Vacancy messing with my MTR income? Move back into my home ANYTIME.
No good property to purchase after 2 years? Don't buy anything, either move back into my house and abandon the idea or continue looking.
Find a different REI opportunity or better strategy later? Move back into my home anytime and pursue that.

I realize that to the experts, this seems like I'm an arrogant snotty know-it-all.  But here's the thing: I teach a lot, and if I don't know how to explain something (in this case, why this is a bad idea), I do not consider it intellectually honest for me to adopt that viewpoint just because an expert claimed it. Yes, I'm aware of Dunning-Kruger.

Quote from @Nicholas L.:

@Mircea Gogoncea

Yes, I understand the plan - I'm just pointing out that you're going back to paying rent to someone.  I'm not saying it wouldn't "work" - just that there is risk involved.  

Of course there will be risk, but couldn't I just move back into my own place if anything goes wrong? Especially during the first year or so, when I'd just be living in an MTR. No lease or other obligations!

To my (admittedly untrained) eyes, that sounds like much less risk than any other major RE investing move I could make.

The alternative is to just not do anything until I can either afford a DSCR loan (probably 5+ years of growing my savings) or my income grows by ~100k/year (probably 8+ years). I'd be missing out on the appreciation during a significant portion of my working life. Isn't NOT taking maximum advantage of my current possibilities the riskiest choice of all?

(To be clear, I'm not waxing poetically - I'm genuinely curious what you and others think!)

Quote from @Nicholas L.:

@Mircea Gogoncea you're saying you'll rent your own house out as an MTR, and then rent your own MTR, and try to pocket the difference, and then move again?  That seems like a huge hassle, and potentially risky if the MTR market slows down and your own MTR rent exceeds the LTR rent from your house.

Getting rental income as soon as possible shouldn't be a goal by itself.

No special credential is needed for a DSCR loan although in my experience they want to know that you have reserves for the rental.

Almost: I rent out my house as an MTR, which will stay an MTR for at least the next 2 years. Based on my analysis, that MTR would pay quite a bit more than my current mortgage. That's the difference I pocket.

Now for where to live: During these 2 years, I'll start out by living in an MTR of my own, graduating into an LTR as soon as I can afford all the new furniture needed.

After those two years, I'll be able to show a lender ~50k/year from the rental property, in addition to my own income.

Since the place I'm living during those two years is NOT debt (because I'm just renting!), I should be able to use the increased income to qualify for a new loan.

This, plus the projected increase of my own income, should allow me to qualify for a ~$500k property on a primary residence loan, which should be enough to get me into a house hack. Not in LA, but still.

Do you see where I'm going with this?

During this time, I would not be moving more than once a year, which I hear is pretty standard for house hackers? I don't know, that's just what I read ¯\_(ツ)_/¯

Quote from @Nicholas L.:

@Mircea Gogoncea

As some others in this thread have said, I don't like moving out of a place you own to start renting again. 

I get that that's common knowledge, but why?

I'm just trying to think from first principles here. If it starts the clock on rental income, does not increase my expenses, and it allows me to be in a better position in 2 years' time, then why not?

I have no other debts than my first home, so I can't reduce debts. My family lives on an extremely tight and controlled budget, so I can't cut expenses. I budget every dollar, which is why I could afford a first home on my relatively low income in the first place. None of these options sound doable. It really seems like unless my income increases significantly, my options are either to do what I'm planning or just do nothing. 

A DSCR loan is a loan based on the rental income a property will generate. They generally require 20-25% down and have higher interest rates than conventional loans. I have one on a rental with a rate of 6.5% and I'm currently being quoted rates in the 8s and 9s. They allow you to buy a rental with a DSCR loan without worrying about your DTI ratio, as long as you have the down payment. 

Yeah! That's why I mentioned those in my opening post: that's my plan B. In case I can increase my current income enough to save up enough money for a >20% down payment, then this is what I would do.

I don't see it as super likely within the next 1-3 years, but if any one of my current projects pans out and becomes highly profitable, this is probably what I would do. It's just kind of unlikely.

(Btw, quick question on DSCR, since you brought them up: do you need any kind of special credential or experience to apply for one? Just wondering since I've only started researching those recently.)

______

Thank you for taking the time to respond! Although I still don't see a better solution being proposed by anyone in the thread, I'd appreciate everyone continuing to poke holes. Much appreciated!

Quote from @Joe Villeneuve:

3 - There is not PRO to this plan.  Especially when you are willing to buy properties that don't cash flow.  You mention getting loans just because you have higher paying jobs after graduation.  Well, nobody is going to lend you money for an income property if your track record so far shows your current income properties don't generate income.  Would you?

That's just the start, but that should be enough.

Not an income property - my idea was to get a primary residence loan and house hack. Also, I do believe my current primary residence can actually generate income (the going rates for MTRs are at least $500 above what I pay for the mortgage.)

Quote from @Joe Villeneuve
1 - "Maybe eventually even generate some cash flow". There's no maybe about it. Either your investments generate positive CF from the start, or don't buy them.

Sounds great! But how would I go about finding an investment that's CF positive while being tied to the LA area and having my debt-to-income maxed out?

I also don't have the kind of savings that would allow me to put 20% down for an investment property, so I pretty much have to go the route of primary residence loan + house hacking (unless you can suggest an alternative route?)

Quote from Joe Villeneuve
2 - Your Plan has steps that are based on years. Don't base steps on years...you'll end up buying garbage just because you feel you'd be behind if you don't.

I mean that goes without saying, obviously you don't buy something that doesn't fit what you're looking for and doesn't check all your boxes. Those years are minimum waiting thresholds, not maximums

Quote from @Nathan Gesner
I would also add that you are going to move into another rental just so you can rent out your house? The only benefit there is that you are starting the clock on rent income, which really isn't any benefit at all.

How is that not a benefit at all, when my debt-to-income is the no. 1 reason why I can't buy any new property at the moment?

Quote from @Joel Case
I could see it making sense if they are renting their 3/2 and moving into something smaller to where they could be net positive.

That was exactly the idea, yes.

(Thank you all for your answers! More holes please. It's helping!)

Hi everyone! I love coming up with plans and asking more experienced people to poke holes in them, so here I am.

My wife and I recently bought our first home, which is awesome! We've been dying to get out of paying rent and start building equity.

That being said, I want to supercharge our real estate efforts and actually make some investments, maybe eventually even generate some cashflow.

So I came up with this plan, which I call "MTR Hacking", though maybe it already has another name. Before we get into that, here are the facts:

1) I have a W-2 job, and I also earn freelance income in the arts. My wife is a freelancer and still in school.

2) Our debt-to-income ratio is currently maxed out. Our current mortgage is about $3.6k, and that's very little space left for more debt.

I initially wanted to house hack, but since we're still tied to LA county (because of my wife's studies), we couldn't find anything in this range that would be close enough and big enough. Therefore:

3) The home we just bought is a 3-bedroom + bonus room townhome, the last & best in a row of houses. It's in a non-fancy gated community around the South Bay area of LA.

Now here is the plan I came up with:

Year 1: We live in this new home for a year (we have to anyway - it's a primary residence loan.) During this time, we fix all the minor things wrong with it - there's nothing major, but details can be improved.

Year 2: A year from now (Nov '23), we rent out this home as a MTR, leaving most of our furniture. During this time, my wife and I move into a separate MTR as renters (and don't have to buy new furniture right away.)

According to my research, 3-bedroom houses in our area easily go for $3.5-4k / month as MTRs. And I can definitely find another place around this price that would work for us to move into, ourselves.

Year 3: A year after that (Nov '24), my wife graduates from school, so we're no longer tied to LA, or at least not to a specific part.

At this point, we can LTR somewhere cheaper in SoCal, and use the extra cash to build savings faster.

Year 4: After another year (Nov '25), our MTR income has been coming in for a steady 2 years, so we should be able to use it to qualify for a new loan.

Based on my math, we can then buy a duplex worth ~$500k somewhere else, where we rent a unit and live out the other. We should have enough savings by this point to afford it on a primary residence loan.

Year 5: After another year (Nov '26), we move out of the duplex and we can finally "house hack once a year", like David Greene says.

Why not earlier? Well, because our debt-to-income is currently maxed out and apparently, it would take about 2 years for self-employment income to qualify us for a higher amount.

And that's it! What do you think?

The great PRO is that by EoY '26, we'll have two fully self-sufficient, perhaps even cashflowing homes building equity while we're free to live wherever we want. The great CON is that the plan seems a bit slow.

Also, this should be achievable without a significant increase in income for either my wife or me (although I do expect our income to go up by about $50k during this time), and only through traditional financing.

Do you have any idea how we could speed up this plan or if I can make it any better? I've heard of fancy mechanisms like DCSR loans, but I have no idea if I would qualify, since I'm not a real estate professional atm (super interested in learning more though!)