All Forum Posts by: Nathan W.

My question would be why are we trying to compare COC returns for a financed multi and a non-leveraged portfolio of SFRs, instead of using cap rates? Am I missing something here?

 You clearly know your stuff, so let me challenge this a bit with something that kicks around in my head (that I have admittedly never done the math on because it gets complicated quickly).  But what considerations do you give to the fact that the withdrawal would be of before tax money?  Meaning, your recommendation to save organically and budget and what not implies to do so with after tax money from your W2 job, correct?

If so, he has already paid taxes on that money, and had to earn 33% more or so than what he actually has at his disposal.  That should be part of the equation.  

Furthermore, what is his cost basis in the meantime? If it takes him 3 years to save up for a down payment for his home, he is pissing his money away in rent.  You are from DC so I know you know that rent is cheap (har har), but this should be taken under consideration when this advice is given, should it not?

While I do agree that a hardship withdrawal in this situation is probably not a good idea, I think part of the picture is missing in your rebuttal.  

The hard money loan seems like a better deal in any case, and the private loan from a willing family member or potential business partner would be the best, IMO.

 You may a valid point but another angle to view it from is that you are borrowing $25k from a tax free account.  The relevance being that if you wanted to save up that $25k in the first place, outside of the 401k, you would have to have done it with after tax dollars.  So you are effectively having to "earn" $35k either way. 

I would much rather borrow funds that have been growing tax free, matched by my employer no less, than to save up $25k from my paycheck.  Especially when the interest on that money is not only being paid back to my account, but in future year inflated salary dollars to boot.

 Man all I have to do is state that my appreciation rate is 7% for a reasonably long time, then I can count on it no matter what? I have been doing it all wrong.

I will just be honest with you.  The likely reason, in my opinion, that you are not getting any responses is because your writing is awful.  Your wall of text and random ellipses read like Charlie Brown's teachers.

 I may be wrong, but you have the option to not report their transactions to the credit bureaus.  Although if they do want it to be reported, I can understand them not wanting it to be reported as delinquent on the first.

I use Erentpayment and am happy with their serivce.  Their CS reps are very responsive and super helpful, but their software options are a bit clunky and not very elegant as they do not have the ability to account for situations which you describe here. I gave one of my tenants a $120 discount on rent last month because sewer plumbing issues kept him out of the unit for a few days.  We were able to basically brute force attack this into the erentpayment system, using the customer service rep to temporarily lower the rent amount due, but it was not at all an elegant solution.

I think with a bit of software architecture rework, erentpayment would be the best option out there. As it is, they are still great and the company I choose to use, but sometimes frustrating to navigate.

Yes, my exit strategy would be to walk away if it got called due.  The seller is in no worse of a situation than they are in now, with tremendous upside if things work out.  Unfortunately, not all deals are winners and not everyone can be helped.  Of course, I would be completely up front with the seller from the get go that some things are out of my control, but what I am offering is an opportunity to help them maintain their credit and get out of a property that they can not afford.  I do not have any ethical qualms about this as long as communications are honest.  Sometimes things just don't work out...

 Why not? If it is cash flowing each month, and paying down that underwater note, and buyer presumably has no money of his own into the deal, then what is the problem? Just too thin of a deal for you?

You said you were getting a combined $2200 for the apt/house in your first paragraph, but stated at the end it was $500 + $1200? Where is the additional $500 coming from?

I don't have much advice for your situation since I have no idea what your holding costs are, but it sounds like it is cash flowing pretty well.  If it is cash flowing more than you would pay in rent, it is probably an ok deal to keep as a  rental.

I did notice that you said that you have to wait 2 years until you can count the income from the property towards a loan--that is not actually true for all loans.  I don't know about Freddie, but Fannie underwriting guidelines now allow you to claim income that you claimed against your taxes immediately.  It also allows you to use an executed lease for 75% credit if you haven't filed taxes on the property yet (say you just started renting it in January with a lease).  A lot of lenders will ahve stricter guideliens than this, but that can just show you what is available.

Good luck

This is a very easy solution--either require double down payment (probably supplied by his parents) or get his parents to co-sign or guarantee the lease.  If he seems like a good kid, has a job, and has favorable landlord references I would rent to him with no qualms about it.