All Forum Posts by: Matthew Carlson

Thanks for jumping in, Nicole.  I genuinely thought I was (and think I am) satisfying the rules to the letter of the law.  

A part that I didn't add above is that this lender (while hardworking and great at getting rock-bottom rates) has seemed a little "old school."  Not sure if that pays into any of this at all.  

Looks like it's time to start shopping around for a new lender.

hey BP folks,

I thought I knew the answer to this question but maybe I'm wrong.

one year after purchasing a home with my hard money lender, I reached out to her to let her know that I wanted to buy a second home.  She was confused as to why, so i told her that I wanted to use the nomad investment strategy - namely, buying properties at 5% down using conventional loans and living in them for 12 months behind turning them into rentals (on Airbnb) - and do this repeatedly for 4-5 years before settling down in a 'forever home.'

she told me that because I was buying homes with the (long term) intent to own them as investment properties (even though I'm living in them for the required 12 months), it could be seen as mortgage fraud.  She went so far as to tell my realtor that I need to be wary of this.  She's now pushing me to put 15% down on properties moving forward so that they are investment properties through and through, even though I plan to live in them for 12 months.

what I want to know is... Is she right?  Is she being overly safe/conservative?  What's to say that I don't just want a new house ever 12 months?  Should I listen to her or move on to another lender?  

i always thought that if you just live in the home that you purchased with a conventional loan, you're in the clear.  Actually, I thought that MANY people fly under the radar doing conventional for pure investment properties (ie not living in them for the required 12 months) - something I don't want to do, just pointing out that what I'm doing is 'less worse' than that.

Anyway, just looking for some wisdom.  Apologies if this has been addressed elsewhere.

@James Wilcox

roger on all points. PMI and cash for repairs are both issues i need to think more about. appreciate the feedback.

thanks @James Wilcox

yeah, i'm familiar with house hacking.  that wasn't the part that i was trying to emphasize as something that wasn't talked about much.  the nomad/move-into-new-personal-residence-yearly aspect was the unique thing that i was looking to find a basis of discussion on.  i think i threw too much info into one first post - should have focused more.

you raise many good points. ive thought about getting loans through bank of america or others that offer no PMI loans (if thats still a thing) OR just prioritizing quickly paying down mortgages to 20% to eliminate that cost.

i stay away from HOAs and furnish via craiglist.  my wife works from home and manages the airbnb turnover.  you are very right that it takes a lot of work (more than i thought) to do airbnb right.  there are some automation pieces that have simplified it, but its far from hands-off.

i have a PM that i plan to use who takes 10%.  i want to be hands on initially (even with a PM) and see if i can get away with managing things myself to increase cashflow, but my job is a 'nights and weekends included' career and i doubt i'll manage anything longterm.

large reserves: a spot yet to be addressed.  need to househack well to generate some cash to pour into these houses.  a good point i haven't quite solved.  i've looked into combining some kind of brrrr strategy to get money back out and put into the next one, though this seems more difficult/less profitable with the 5% DP conventional financing.  

glad to hear you disagree with me about lexington.  just regurgitating what others have told me.  i may be investing there when i get more capital as i have some RE colleagues in that area.

thanks for the comments and advice, everyone

Ah, the "nomad" strategy!  This is the keyword I was searching for.  Found blogs, podcasts, etc with this keyword.  Thanks for making that connection.

And i appreciate the math, jassen. looks like i need to keep buying properties after the 5th one in order to hit my goals.

Thanks for the continued feedback! I hesitated to call it house hacking as we occupy the majority of the spaces we purchase - the rent from Airbnb etc just helps us fix up this here and there.

@Dave Foster

Greats points. Is there a rule of thumb for how much to keep as a contingency fund (eg an air conditioner per every two houses) ? I am cognizant that the low DP will also reduce cash flow, meaning that the "bumps in the road" will hurt more (and longer) than properties that cash flow more (perhaps due to higher DPs).

I appreciate all the feedback thus far. Sounds like this is a few common strategies thrown together - nothing new under the sun.

RE: military. I was an air Force brat growing up and, thus, have never felt an attachment to one area or home. Funny how you went the other way, though different development periods in exposure to constant residential transitions.

RE: kids and house hacking. This is certainly something that we have been concerned about, but haven't had issues with it thus far (but this is year one...). We've talked about going with small MFs to address this, but the difference in purchase price is always tough to justify. May make the transition once our kid is older and we have more cash.

RE: Changes in college rentals that hurt mom/pop ops. Very helpful to hear about. My old stomping grounds (Lexington, KY) has gone through dramatic changes in the market (reportedly) as UK made a big move to take over the student rental market. The amount of money they had to throw at premium student housing did a number to smaller investors in the area with small MF and SFH. Definitely something to think about - will keep on my radar.

Thanks again and apologies for not connecting the dots re: this is a combo of several common strategies. Appreciate the feedback.

Frank,

No worries about bursting the bubble - I'm happy to know I'm not the only one doing it.  I've listened to dozens of BP podcasts and (generally) have heard this as a "this is how I got started," but rarely as a "this is an approach in-and-of itself" (if that makes sense).  I assume that most hxc real estate investors wouldn't want to stay at this slow speed, which would explain why they jump to the next level. 

Thanks for the clarification.

Best,
Matt

Hey BP folks,

I've searched high and low to find an opinion on this buy-and-hold real estate investing strategy that my wife and I are employing and haven't come up with much.  I would love to hear some feedback on this strategy, especially tips on how to make it better (generally speaking).

Here's the basics of what we are doing:

• Buy a slightly beat-up 2-4 BR SFH ($80-150k) in a college town (where we live) that is biking distance from campus with a 5% down conventional loan (owner-occupied) via usual bank financing.
• Move in and live there for 12 months while fixing it up with the minor rehab costs being financed by Airbnb-ing/renting out the BRs we are not using.
• When 12 months is up, buy another house that meets that criteria and start the same strategy over again.
• Rent out the previous house to college kids or Airbnb it.
• Continue this every year for at least 5 years (though being fully bought into this approach for now, I'm sure my wife and I will tap out eventually and want a 'forever home').
• Never touch the cash flow from properties for personal use (which will already be a bit thin compared to other portfolios that use 20-30% DPs) - instead, use cash flow to pay down already owned properties (to free up space for more conventional loans) and/or (once we are in a 'forever home' after 5 years/houses or so) buy more houses at the higher investor down payment % rate (assuming we can afford it).

Some context as to why we use this strategy:

• Even at a low down payment like 5%, most real estate with the above criteria will cash flow a modest amount (rents are roughly 1% of purchase price before value adds).
• We don't have a ton of money to use to buy a big portfolio right away, but we are also not interested in retiring super early.  If we were financially independent in about 15-20 years (i.e., debt-free, $100k yearly investment income), that would meet our personal goals.
• My wife and I have semi-professional careers that we enjoy, and we aren't interested in being real estate investors full time.
• In addition to the money we put into real estate investing, we try to max out IRA/401k contributions to add some truly passive income to the mix. I'm not interested in only relying on real estate for retirement income (though plan for it to be the bulk of it).
• We have a one year old child (and plan to have one or two more) and, consequently, desire to have a 'lower-risk' approach to financing our daily lives (e.g., steady income, benefits, etc) until our children go to college (as opposed to trying to finance our lives mostly/entirely with real estate right away).
• We make roughly $100k combined and can afford a new 5% down payment each year (but not a new 25% DP yearly... unless daycare costs drastically change!).
• We are minimalists (don't have a lot of furniture or stuff to move) and are used to the 'move-out-every-summer' lifestyle (recent college grads).  We see houses just like any other physical possession and rarely get attached.  We can usually do the whole routine of 'move out, move in' in under a week while working our normal jobs for under $1k.

The closest idea that I can find is this: https://passiveincomemd.com/buy-one-property-a-year-and-retire-early/

(main distinction being that we live in these houses and pay a lower DP)

The specific questions that arise in my mind are as follows:

• Why don't other people do this? 
  (I literally haven't been able to find discussions of this strategy anywhere, but maybe I'm using the wrong keywords when I search)
  I can think of some main reasons:
  (a) This is a bad investment strategy for some reason that I'm unaware of (maybe I'm doing the numbers drastically wrong, underestimating the costs of moving into a new house in the same town, etc).  If so, I'd LOVE to hear why (and then would alter my approach).
  (b) People do not like the idea of having their real estate investing affect their personal life RE: having to move out every year into a new house (though I see this as similar to house hacking in the way that it is mixing personal and investment lives, thereby inconvenient in some way in the day-to-day).
  (c) Too slow for most peoples' tastes (though we don't mind it based on our personal goals).
• Are houses that are attractive to college kids the right market for this?  I've targeted college rentals because they usually meet the following criteria:
  (a) They are fairly cheap to purchase (not the ones right next to campus... but a few blocks away).
  (b) Easy to rent out afterwards.
  (c) Easy to Airbnb/rent while we live there.
  (d) Usually, the repairs are deferred-maintenance-related (in addition to easier value-adds like adding BRs) and can be completed by non-professionals (i.e., us and our informal subcontractors) slowly but surely over the course of a year.  Plus, college kids don't seem to mind our usually imperfect repair work. ;)
  (e) I work at a university and likely will for the rest of my life (though will move to a new university probably 2-3 times over the course of my career), so being a close distance to work is attractive.
  (f) My wife and I actually like college kids generally as a demographic. 
  All that being said... if there is a market that is better suited for this strategy, I'd love to hear about it!
• This seems like a slow-but-sure way to financial freedom... but am I missing something?  Obviously, we have to be diligent about running our numbers and ensuring that each house will cash flow a couple hundred dollars monthly after the mortgage, repairs, cap-ex, etc.  But am I missing something big-picture-related?  If not, why doesn't everyone do this?  Seems like a very easy and cheap way to attain independence from the 9to5.  
• Our pie-in-the-sky end goal is to - when we have 10 houses or so - leverage our way into an apartment complex (e.g., refi, 1031 exchange) to reduce overhead and generally step it up to the next level.  Who knows if we'll get there, but that's what we are aiming for.

Thanks in advance for comments/concerns/critiques!  

Best,

Matt

TL;DR: We buy and move into a new house every year (5% DP/conventional), renting out the previous house with a buy-and-hold strategy with a long-term horizon.  Thoughts?

EDITED: Mis-typed some info.

NOTE: My profile says "Athens, GA" but we live in Lincoln, NE now, which seems like a more affordable market.

Good afternoon,

Newbie here.  My wife and I are moving to Lincoln, Nebraska and are looking for a 2-4 unit multifamily (conversion or original) to house hack.  I've been running some numbers on on-market multifamilies and (when assuming the 50% rule... I know, big assumption) I find that cap rates seem to float around 5-7%.  Most properties do not appear to meet the 1% rule, but some do (maybe 10-20%).  

Just wanted to make sure that those numbers sound accurate to investors in the area and that I'm not missing something. I'm not worried about attaining cash flow in the short-run, but want to make sure I'm not buying into multifamily-hype when the area has had prices get too inflated and push down cap rates. I've been told that the Lincoln market has been hot this year (like many markets) and I have seen properties fly off the market in days (mostly SFH but some MFH).

I'm going to buy something soon (SFH or MFH) on a conventional loan with the intention of moving on and renting it out a year later, and I'm trying to decide if multifamilies are just too hot to touch right now and if I should just look at SFHs (if they have better cap rates).

Any feedback and advice would be appreciated.  Thanks!

Best,
Matt