All Forum Posts by: Neil Henderson

Congratulations Julie! Love this story. 

The lender is just trying to lower their risk by getting you to have more skin in the game. As you gain experience, you may find lenders who are more flexible, but it's tough early on as they view you as a pretty big risk. 

Are there any local investors with more experience you could offer to partner with on the deal? Might ease the HML's concerns, or they might have the resources to move forward on the deal.

50% of a deal is better than 100% of no deal.

I know of some laws that allow new owners to break a tenant's lease so that they can move in, but I'm not aware of any laws that allow a tenant to break a lease because they've found a new place to live. 

Read your lease carefully and call a real estate lawyer.

So, some things to consider: If you're looking to buy and sell mobile homes, make sure you understand your state's laws regarding licensing. In some states, you need to be a licensed mobile home dealer. Maybe not if you're just renting them out. 

We recently interviewed Danny Burbol (episode coming soon), a mobile home investor, who buys mobile homes, rehabs them, then sells them using an owner finance model. He takes a small down payment from the buyer and then holds the note. They own the home and he acts as the bank. When he started off, he briefly ran afoul of his state's manufactured home regulatory agency. Personally, I would rather do that than do Section 8, but I don't know what your specific situtation is.

We love short term rentals but I share your concerns about how they'll perform in a recession. I would just say be REALLY conservative with your underwriting assumptions. Go in with plenty of cash reserves to handle any long periods of vacancy.

If I could buy a vacation rental somewhere that would also cash flow as a long term rental, that would be ideal.

Congrats, that's a rocking deal! I need more details! 

How'd you acquire the property for so little down? 

How many bedrooms? 

Any issues with short term rental ordinances in Nashville? 

Welcome Garrett,

I sympathize with your position. I was in significant student loan debt a little over 10 years ago. It's really tough feeling like you're "throwing money into the fire" paying down that debt rather than using it to invest. In my case, the interest rate on my loan was 9% and as you know, it's rarely possible to refinance into a lower interest rate. 

The advice I would have for anyone in your position, and forgive me if you've got this handled, is to first make sure you have a small emergency fund, doesn't need to be huge, $1,000 is fine to start. It's one of the baby steps from Dave Ramsey I really agree with. Just something to keep you from going in to more debt if an unexpected expense arises.

The next step really depends on your specific situation. What's your interest rate on the student loan? If it's above 6%, I'd say you're better off just paying down that loan as quickly as possible. It's like "earning" 6% on your money, guaranteed, every year. Sure, you could probably get better returns in a low cost index fund or buying an investment property, but it's not guaranteed.

If real estate is a preferred investment vehicle for you, it's also important to remember that your Debt To Income (DTI) ratio will be a major factor in whether or not you're able to secure financing on a property. The quicker you pay down that student loan debt, the quicker your DTI will improve.

If you absolutely feel like you must invest now, I would suggest putting money into a Health Savings Account (if able), and DON'T spend on it if at all possible. Save your medical receipts and cash out the HSA later using those receipts. DISCLAIMER: I am not a CPA. Please seek the counsel of a qualified tax expert.

If your DTI is low enough to allow you to purchase a property, I would encourage you to buy something you can house hack. Duplex, Triplex, Fourplex where you can live in one unit and rent out the others. Few things will accelerate the growth of your networth more than house hacking your way to lower housing costs.

I know it's hard feeling like you're missing out by paying down debt, but it's a lot like preparing for a long road trip. Better to make sure you've got a car that can handle the journey, than to set off into the unknown and breakdown in the middle of nowhere with no one to help you but a sketchy looking trucker named Red.

Good luck to you!

Wish I had a magic bullet answer for you, but I think the answer is patience. It'll be a numbers game. Also, do your best to limit the contingencies you request in your offer. 

All real estate is local. The Perris, Moreno Valley, Hemet markets are VERY different from the Birmingham, Huntsville, Indianapolis, Cleveland markets. 

I don't know anything about the Riverside County market specifically, but from the limited information you've given us, it certainly sounds like a classic cyclical market. I would say you're wise to maintain a cash position, if you plan to keep investing in those markets. 

For me, I'm not a fan of trying to time markets as it's burned me in the past. I'm a big believer in the 3 immutable laws of real estate investing:

1. Invest for cash flow (not appreciation) - Positive cash flow allows you to hold on to a property no matter what the market is doing and not be put in a position of being forced to sell when it doesn't make sense.

2. Invest with long-term, low-leverage debt - Leverage is a fire, it can accelerate your wealth building, it can also burn it to ashes. If you have properties purchased with high loan to value (greater than 20%) and short terms (under 20 years), you could find yourself in a world of hurt if the market drops right when your loan comes due.

3. Go in with sufficient cash reserves - don't use every dime to get into a property and leave yourself with nothing left to survive a major cap ex issue or a prolonged vacancy. 

Good luck!

Former condo owner here.

My biggest complaints with owning a condo revolve around the condo association, both the fees the associations charge and the control they have over your investment. 

The fees can eat all your cash flow in a hurry and the people on the board of the association are frequently terrible at managing the funds of the association. Then, because of their mismanagement, they'll raise the association fees to make up for their terrible financial decisions. 

The association board can also make your life miserable if they suddenly decide there are too many non-owner occupied units in a community. 

My advice, if you decide to buy a condo (or two) as an investment property, is to become a member of the condo association board as quickly as possible. That will be the best way to protect your investment. 

If you choose to do student housing, remember that their lease up period is very narrow, late May to early August. If you miss that window, you're SOL. They are also REALLY hard on rentals, so go in with a plan to tenant proof your unit the best you can.

I know @Sierra Crisp has purchased a lot of condos, so she may have more advice for you than me. I know she's traveling right now, so she might not be able to respond right away. 

I would make use of the Bigger Pockets analysis tools and then generate a report. There's a lot of data there and I think it presents it in a pretty easily digestable format. I think that's as good a place to start as any. 

Are these wholesale deals?