All Forum Posts by: Nat Love

I am intrigued by the Gator method opportunity. Before spending $3000 I wanna make sure that it is not hype or exaggerated claims. 
how long does it typically take to make your first gator deal after joining the program? How frequently does one typically make deals after the first deal? I understand that the investment or time and energy is required and correlates with success rate. But what is typical for someone who is committed? 
is it worth $3000?

Yes it really depends on what you're real estate goal. Some people put only the minimum down payment due to the limited reserves. Even if you have that reserves as stated, some people would use those funds to do any major/minor rehabs so that they can elevate their property or just flip the house for quick profit. However, if it's in the long run and you have that extra reserves, there's no harm of putting more down payment since you're paying towards principle and potentially waiving MI (mortgage insurance) @Albert Bui @Carlos Valencia

There are many ways to approach this problem; however, 1 way to look at it is from an analysis perspective.

Note: The response below assumes that you have positive cash flow regardless of the down payment size
If you run a property through the BP Calculator, you will see that your CASH FLOW increases as you put more money down. This is because your largest expense, the mortgage payment, decreases as your down payment increases.

On the other hand, as you put more money down, your CASH ON CASH (CoC) return decreases. The CoC is just a fraction with the annual cash flow in the numerator and your total investment in the denominator. So as you increase your down payment, the numerator increases (good) while the denominator increases (bad). The problem is that the denmoniator (your investment) increases substantially more than your numerator (your cash flow).

In summary, you can think of CoC as "bang for your buck". It is the amount of cash flow you make for each dollar you invest. So this is why I strive to maximize CoC, not cash flow. And this is why I'd opt for putting less down.

If your goals are different, that could lead you down a different route though.

@Nat Love when you put 5% down your ROI is much higher over the long run. Also PMI is such a small cost that it is a terrible return on your 15% extra downpayment to try to avoid it.

When looking for a good house hack I consider a couple things.

1. Will it reduce my cost of living when compared to renting?

2. What is my net worth ROI on my downpayment and is this better than another investment opportunity I have access to.

Your Net Worth ROI calculation takes into account the appreciation, loan paydown, tax benefits, and the rent avoidance (the difference in what you pay towards your mortgage compared to your rental situation). The total of that number over the year divided by your 5% down payment is your net worth ROI. Because you are getting the home for 5% down and hopefully holding for the long term, you will almost certainly be get a better ROI than the ROIs you can get elsewhere in the investing world.

That is what I look for. Now, how do I calculate that? I have a great calculator to help figure this out.

The inputs for the image in this screenshot are as follows:

500k purchase price duplex.

Rent each side for 2k/month (this is after you move out)

5% down payment

Closing costs: 7k

6.4% interest rate

Insurance: $250/month

Utilities (paid by owner): $400/month

Vacancy budgeting: 5% of monthly rent

Maintenance budgeting: 8% of monthly rent

CapEx budgeting: 7% of monthly rent

Even though you are negative $312/month after budgeting for future expenses your net worth ROI is massively positive. Real estate is one of the best ways to build long term wealth. And house hacking is an incredible hack to get started with only 5% down.

I work with Mark Adam with RPM Concierge for several properties in Bergen County. I highly recommend him, please mention my name if you end up reaching out!

Are you working with your bank or local CU? Doesn't sound too far off to what you can get on HELOC's nowadays.

How do you plan to repay the balance? What is your current rate on your 1st mortgage?

@Nat Love You could and avoid paying PMI, but at the cost of a way larger down payment. The idea is that you can use that extra money as reserves or find another property to invest in. You could even put it in an index fund and let it grow overtime instead of having it tied up in the property.