All Forum Posts by: Bryan Montross

One other thing to keep in mind and consider is taxes. You might consider turning the house into a rental for up to 3 years and then selling the property and buying a new rental. This will allow you to take advantage of the Section 121 exclusion and you could do a 1031 exchange into the new property. This will minimize the tax burden of the gain you currently have and defers any other gain through the 1031 giving you more buying power going into the future.

It really just sounds like what people typically call a house hack. Buy a property to live in, fix it up, then sell it later for a profit. If you’re really going to just live in it long-term, I’m not really sure about the benefit up front. You’re now paying a higher mortgage on a property that is not making money. I’m all for value-add and if you need to pull cash out to get another deal that makes a higher return then how much you pay for it, sure, but I think you would be better off selling it and starting over. I guess I would really want to run numbers to see where the benefit is.

@Gisele Sood this is where you really need to start looking for your team in the area you want to invest. You can do a lot of this research yourself, or you can leverage the expertise of others that already know it. Talk to real estate agents, property managers, contractors, lenders, title agents, etc. to find out what is going one.

Also, you do need to think about what your goal is. If you are looking for cash flow, storage might be great in one area, but one county over they get 0 cash flow. I don't want you to get stuck analyzing everything, so narrow down some ideas of what you want to do, then go find where that works best.

This is where you need to just start thinking outside the box. I don't know if any of these ideas will work, but maybe worth pursuing.

1. See if the Seller will finance with a minimal downpayment.
2. Check with some local banks in the area and tell them your plan. They might give you a portfolio loan on the property.
3. Rent out all units temporarily so you can qualify for a DSCR loan. Once you have income hitting your taxes you can refinance and move there.
4. Look for a private money lender that will finance some or all of the deal.
5. Partner with someone that has the cash. Give them a portion of the profits from the STRs and have a buy-out clause when you have the funds to refinance.

I am sure there are many other potential options for you to look into, but just off the top of my head these 5 came to mind. Best of luck.

Generally using a loan to make a down payment on another loan is not a good idea. Here are some strategies I have used. I have done a cashout refinance on an investment to get money for more investing. This made sense when I could lower my interest rate and still cashflow on the investment property I refinanced. Do not refinance a primary residence for this because you will be increasing your payments, but not getting anything for it unless the investment you purchase is giving you such a great return that it doesn't make sense not to do it.

I have used HELOCs on both my primary and investment properties (when I could get them) as short-term debt. I might use it to buy a property that I fix up and refinance out of to pay off the HELOC. I might use the HELOC as an emergency fund knowing if I tap into it I now have to aggressively pay it down.

Then main thing is you don't want to overleverage any property and if you use a second mortgage to buy a property, you are essentially 100% leveraged on that property.

You should request a copy of the CLUE (Comprehensive Loss Underwriting Exchange) Report. This is one report insurance companies use when underwriting policies. However, it is voluntary for insurance companies to report the information, so depending on the company insuring the property they may or may not report any claims. Ask your insurance agent to pull a CLUE report for the property. There might also be a way for you to pull one, but I would just ask your agent.

Additionally, I would just ask the seller. They may decide not to tell you, but it doesn't hurt to ask.

Shayan, just make sure you do your due diligence looking at the HOA documents. You need to understand exactly what they will and will not allow you to do. Most likely you will need to get everything approved by the HOA. If most everything is internal it usually doesn't make too much difference. External is usually where they want to approve the color of the house, types of materials, roofing, landscaping, driveway condition, etc. Even with all the approvals, many HOAs are will want the work done. If it really is a good fix and flip, then the HOA should be glad to get someone in to take care of it and make it better for their community. If they are a good deal, I would take them. Just follow the rules or the HOA will make it very difficult on you.

Personally, I don't think you should be dropping your minimum credit score to under 600. Dropping rent price is generally a better way to go. Getting less every month is still generally more cost effective than dealing with a tenant that stops paying or causes damages to the property.

However, if you do decide to change your selection criteria and you are worried about fair housing, the main thing is documentation. Keep your emails to all applicants showing that you communicated the same criteria to everyone up to a certain date and then changed it after a specific date. Create a note for yourself (even sign and date it) stating that you are changing the criteria, what you are changing it from/to, and the date you are changing it. As long as you are consistent and have documentation of changes you shouldn't have anything to worry about.

@Axel Scaggs I think you are in a great place right now and continuing to invest, even in this market, is a great idea. Just make sure you understand the market you are investing in and know what a good deal is. Do not chase a deal just because you are trying to hit your 4-6 properties, rather be strict and only pursue deals that will work.

Regarding where to start, since you said you currently live in an apartment, I would think house hacking might be a great option. You can get into a home with a lower down payment and a lower interest rate. If you rent out part of the house it should lower your monthly housing payment from what you are paying for the apartment. I don't know your area, but let's saying you are renting for $1000/mo right now. You buy a 3 bed house and rent 2 rooms for $600 each. Let's also say your mortgage and all expenses add up to $1600/mo. The would mean you are now spending $400/mo on your housing cutting your monthly expenses by $600 or adding $600 to your income each month not to mention tax benefits and appreciation.

I think once you have a house hack, you look into buying a value-add property and BRRRRing it. That would get you two more properties pretty quickly with using little capital and bringing in cash-flow. Those would be my next two steps in your situation. Hope that helps.

Quote from @Sergio P Ramos:

@Bryan Montross thank you for this. I do tend to shoot for the higher ARVs. A simple adjustment. Question: have you ever accepted a loss to offset gains late in the year?

When I look at my exit strategies I am always looking at it from a portfolio view instead of just a single property. If taking the loss makes me more by saving taxes than holding to rent, then yes I would. I also look to see if I need the cash to get a better deal I might take the loss now to get cash, save on taxes, and move to the next deal that may make me twice as much.