All Forum Posts by: Nathan W.

I am in agreement with Wayne. There is almost no way you will find a lender who will do a traditional mortgage for $20 with $80k in repairs needed. Not in my experience anyway.

What is your predicted ARV? If it were me and the ARV was at least $125k after you fixed it up, borrow the money from private or hard lender ($100k) and do your rheban, then do a traditional loan on it to pay back the $100k. Since your LTV would be about 80% it would work out well for you with just your $10k investment, loan costs, and closing costs.

i will bet my years worth of income that a $360k SFH is not cash flowing $400/month. My guess is OP took rent amount, subtracted PITI, and determined that is $400.

I would love to be proven wrong however. 

Hey all, I have a potential opportunity to make a play at a condo with upcoming redevelopment. The HOA community has already selected the developer after a very thorough RFP process, and have worked diligently up front to make the process as painless for the community and for the future developer as possible. 90% of the community have voted for the measures the HOA BOD has introduced during the process, and I don't foresee that changing. Basically, it would be very surprising if this does not end up as a foregone deal within the next few weeks (I think they are meeting to finalize at the end of September). I assume the buyout will occur within the next 3 years (and likely much sooner).

Here are the numbers are a 2 Bed 1 Bath within the community:

Current purchase price: $165k

Developer buyout price: $225k

Buying Costs: $5500

Make Ready to Rent: $2500

Selling Costs: $2500

Rental Estimate: $1600/month

Vacancy Rate: 8.3%

Monthly HOA: $673 (covers all utilities and exterior maintenance)

Yearly Insurance $650

Yearly RET: $1800

Repairs/Maintenance: 3%

Total NOI would be about $520/month (no mortgage there).

My plan would be to take on a buddy of mine as an investor.  I would take out a mortgage for 80% of the purchase price, and he would front the money for the down payment, buying closing costs, and make ready costs ($41k total).  He would get an 8% preferred rate of return on his money with no future payout when I sell.  

For me, the mortgage would be about $710 a month (30 year at 5%) and his preferred rate of $275, for a total burden of $985/month. With NOI at $520, that means I am coming out of pocket $450 or so per month.

By the end of the 3 year period, the following numbers are germane:

Sale Price $225,171

Mortgage Balance $(126,220)

Investor Balance: $(41,000)

Selling Costs $(2,500)

Buying Costs $(5,783)

Make Ready $(2,500)

Mortgage/Investor Payments $(35,466.40)

Expenses $(33,127)

Rental Revenue $52,819 

Total realized gain: $31,000. 

So for $5400/year out of pocket expenses (NOI - Payments) I am realizing $10,000 return. This is a 50%+ cash on cash return for me for the next 3 years.

I welcome critique of this plan.  

 Yes they are different. A Cashout refi is basically just taking out another mortgage on your property, erasing the old one.  So if your property is worth $200k, and you have a balance remaining of $100k on the mortgage, you could do a new 30 year fixed (or whatever your lender offers) for probably around $160k ($200k minus the 20% they will require you to maintain in equity in the property).  After paying off your original note of $100k, you have $60k tax free in your pocket and a new 30 year note to show for it (with higher payments than you were previously paying)

With a HELOC, all you are doing is taking a piece of the equity spread you have in your home. So if we use the same example as above, your home is worth $200k and you have a $100k note, and a lender that will do a 90% LTV for the HELOC, you could take a loan out with them for $80k ($200k * 0.9 LTV minus the original note). Your original note stays in place so your payments there remain the same, but now you have payments against that $80k. The HELOC rate is also going to be higher than a locked mortgage rate, so your interest payment is going to be higher.

The benefits and tradeoffs are that HELOC loans, while they have a higher interest rate, usually are less expensive per month since they usually aren't amortizing. The downside of this, of course, is that SINCE they are not amortizing, you will not be paying down your principal each month and at the end of the loan you will owe more than if you had taken an amortizing loan.

 You have given two bad pieces of advice in this single post.  First, you have to take the depreciation, even if it is on a house you live in.  Second, that sellers exclusion is not applicable for the depreciation recapture.  You always have to pay taxes (at 25%) on it, from my understanding.

OP: I can't imagine that you would have to take the depreciation for the years that you are not renting it out, but I would talk to a CPA to be sure.  They will also be able to tell you what percentage of the house square footage you have to take that depreciation on.

Hey man, welcome to the forum.  I am in Alexandria as well.  This is a very tough market for rentals since the purchase price to rental price ratios are so skewed.  It is very tough to make a cash flow play around here and most beginners don't want to take an appreciation play (which admittedly does have huge upside here) due to the risk.  I am struggling with this myself.

I've decided for passive income I am going to look at purchasing notes in the area, as well as look at tax liens in DC and maryland (VA is not a tax lien state). That is about the only way an investor can make a passive cash flow play in this area.

If you want to be more active, both wholesaling and flippings are very lucrative in this area with the high prices.  

Take that $1500 and start a marketing campaign.  Then in the second month do it again.  2 months later you are $3k in and should have a pretty good idea if you are good at it or not.  There are plenty of resources on this site about wholesaling.  What it really boils down to is your time spent researching it worth the $1500 you are giving to coaches instead? If I couldn't make it on my own with a $3k investment, I would then seek mentorship (or a new niche).

I would almost certainly put the down payment down to avoid PMI. PMI has no return on investment, whereas you at least are buying more equity in your home if you put more money down on it. Technically it is a math problem, and I am all about using leverage, but there are some things I am willing to leverage on and somethings I'm not. PMI would fall into that latter category.

 That's part of it, but even if it's not, it doesn't mean you shouldn't refinance. Even if your monthly payment goes up $100 or so per month, that might mean that you could cash out $25k and put that on another house (or other investment vehicle).  If that second vehicle pays out more than $100/month, then you have made a worthwhile investment decision.  

It is a great way to start to scale up.  As you acquire more property, the more opportuntiies you have to cash out and acquire even more property.  The snowball effect is a great thing in Real Estate investing...

I may be misreading your post, but I interpreted it as that you think you MUST move out after 2 years to avoid having to pay capital gains.  That is not the case at all.  The exclusion that I think you are talking about is the capital gains exclusion on primary residence that as long as you have made it your primary residence for two of the last five years, then you are excluded from capital gains (to a limit of $250k or so for single people, I think).  So you CAN move out after 2 years and avoid capital gains, but you don't HAVE to.  Sorry if i misread you.