All Forum Posts by: Mohit Khanna

Hi Mohit 

I hope the meet up went well over the weekend. I've been flat out with some stuff but I'd love to connect this weekend if you have time.

I'm new to BP but not new to investing in the USA. I'm based in Perth. I currently own properties in Detroit, Miami, Miami Beach and Fort Lauderdale. I self-manage all my doors in Florida but I use a property manager for my Detroit portfolio. I own four of my SFH in Bagley (48221) along with my other ones around Detroit metro. I was wondering how you went with your investing journey in the USA? I'm hoping to connect with others now I've joined BP. I do all my own property searches, inspections, book work etc. It's not easy work but I enjoy finding the 'gems'. Feel free to reach out.

 Through the search function and by researching the forum a bit, you'll probably answer your own questions. 

Austin is an oversupplied market-- can see that via research-- and the entry point is on how you want to decide it. Houston is interesting too, I personally invest in Houston and live in Austin. I am about to invest in Austin, too.

You're going to have to research the criteria of how you want to invest and what fits that mold. You're right that prices peaked in 2022 then have retreated--that's because of rates. They haven't retreated enough to create an intrinsic asset and that's because supply has been an issue.

You want to invest out of country, and I am assuming blindly? Best bet is to come here and see how things are.

Have you considered doing new construction in an STR area? I'm an investor (just before covid, I had built a portfolio of 83 houses here in Illionis) but also have starting building to sell and building to rent in Tennessee - specifically Sevierville/Gatlinburg area. Its one of the top 3 most visited areas in the country actually and has a very robust STR market.

As a licensed builder, I am building to hold and building to sell.  And we have a little bit of bandwidth to build for other people now but right now kind of limiting that to investor friends or family.  I came up with a number that makes sense for us as a builder and them as an investor where we presell the build to them and they get the construction loan or use cash and we both agree not to use a realtor (that saves us 30k that we can pass on to the buyer).

We're trying our first one for a former coworker and new investor. He's doing a 1 bed, 1bath 1,000 sq ft cabin that appraises out for 525k and that we agreed to build for 400k all in (including lot, utilities, appliances) provided they get the construction loan or pay cash (they can refi out later) so we don't have any interest expense either. 

The numbers are ok for us but not obviously not as good if we were to just get the loan and use a realtor to sell when its done. But they're good enough given its a presale and we have the bandwidth just sitting there. The former coworker can then refi after completion and get most of their money back out so he can do something close to a BRRR on these deals which was even more fun for him.

When he refi's to say 375k, he'll be out of pocket a total of 25k on the deal. And it should cash flow about 3k to 7k a year including PM fees built in (he's out of state too).  Although that cash flow number might not be there until year 2 as usually that first year of a new STR tends to be lower rent.  So that first year may be a 2 to 3k loss or break even unless he gets lucky. 

I'm just thinking if we can do something like this as a builder to where we can make our numbers work and the investor can basically BRRR his way to growth and cash flow, there has to be more builders out there that can do the same thing.  

Now if you were to find a deal like this with another builder and put down 25% or 100k and your loan would be 300k, your 100k would get you 225k equity in the property and it would probably cash flow between 10k to 15k a year by year 2 with the smaller loan payment. Or you could refi and only be into the property for 25k and have 150k in equity with a lighter cash flow. 

Again, I'm not saying it would be easy to find builders and areas that can do the same numbers, but I think its worth looking at.  The other benefit to new construction is that you shouldn't have any major expenses for several years.  AND with STRs you have no risk of evictions (which can get to be real expensive depending on the area)  and most damages that guests do are covered by insurance (either through the rental platform it was booked through or sometimes the property management firm has added insurance too).

As someone that build a large long term rental portfolio here in Illinois (I still have 40+ houses here) and somebody now building a portfolio in tennessee, I would definitely recommend looking at new construction in some of these str areas.  You'd be surprised what builders might actually be willing to do if they have a presale and don't have to use a realtor to sell it or get their own financing. 

Hi Mohit! It sounds like you have a solid foundation with your real estate investments in Australia, and your strategy of buying in the right market cycle, renovating, and refinancing is a proven approach. Expanding into the US residential market can be a rewarding opportunity, especially with your focus on cash flow and capital appreciation.

Given your interest in properties that yield positive cash flow while also offering capital appreciation potential, I'd like to introduce you to a financing option specifically designed for foreign investors like yourself: Debt Service Coverage Ratio (DSCR) loans. This approach can help you secure funding more easily without the need for traditional income documentation. Here's how you can navigate this transition while considering DSCR financing:

1. Understanding DSCR Financing

• What is DSCR?: DSCR loans are designed for real estate investors, allowing you to qualify based on the property's cash flow rather than your personal income. Lenders typically look for a DSCR of at least 1.0, meaning the property generates enough income to cover its debt obligations.
• Benefits for Foreign Nationals: This type of financing is particularly beneficial for foreign investors because it often has fewer documentation requirements, allowing you to leverage your property’s income potential rather than focusing on your global income.

2. Research the Market

• Local Trends: Texas, particularly Austin and Houston, has been experiencing significant growth. Look into local economic indicators, such as job growth, population trends, and migration patterns, to gauge potential demand in specific neighborhoods.
• Rental Demand: Investigate rental demand in the areas you're considering. Check vacancy rates, average rents, and tenant demographics to understand the rental landscape.

3. Networking

• Local Real Estate Groups: Join local real estate investment groups or forums, especially those focused on Texas markets. Networking with local investors, real estate agents, and property managers can provide insights and potential opportunities.
• Attend Meetups: Participate in local real estate meetups or workshops to connect with others in the industry and gain valuable firsthand knowledge.

4. Property Selection

• Focus on Neighborhoods: When searching for properties, prioritize neighborhoods with good schools, amenities, and access to public transportation. Areas with ongoing infrastructure projects can also indicate future growth.
• Condition of Properties: Look for properties that are well-maintained and require minimal repairs. This will help you avoid significant renovation costs and keep your cash flow positive from the start.

5. Financing Options

• Leverage DSCR Loans: Consider working with lenders who specialize in DSCR loans for foreign investors. This could streamline your financing process and help you acquire properties more efficiently, enabling you to take advantage of investment opportunities as they arise.
• Understand US Financing: Familiarize yourself with the US mortgage market. Since you’re dealing with a different currency, ensure you understand the implications of exchange rates on your financing options.
• Consider Partnerships: Partnering with local investors or using property management companies can help mitigate risks and streamline the investment process, especially if you're not in the country full-time.

6. Legal Considerations

• Consult a Lawyer: Ensure you understand the legal landscape for foreign investors in the US. Consulting a real estate attorney can help you navigate zoning laws, property taxes, and other legalities that may affect your investment.

7. Long-Term Perspective

• Be Patient: Real estate investing is often a long-term game. Focus on properties that align with your financial independence goals and be prepared for market fluctuations.

Your strategy of balancing cash flow with capital appreciation while aiming for financial independence is sound. If I were forced to pick, I would suggest focusing on Austin due to its tech-driven growth and lifestyle appeal. However, Houston’s diverse economy and affordability also present compelling opportunities.

Feel free to reach out if you have more specific questions or if you need insights about particular neighborhoods in Texas! Good luck with your investments!