All Forum Posts by: O'brian R.

There's been some major changes with FHA rules so the cancellation of mortgage insurance premiums (MIP) may not be as straightforward as going away once you reach a certain equity point and depends on when you got the loan.

Many people have been referring to the FHA mortgage rules dated prior to June 2013. Whereas for a 30 year loan term, the annual MIP cancels once LTV reaches 78% and you've been paying MIP for at least 60 months.

The current rules, however, have changed and are as follows for a loan less than or equal to $625,500:

• For a 30 year loan
  
  • LTV <= 90%: MIP of 0.8% for 11 years
  • LTV > 90%, but <= 95%: MIP of 0.8% charged for the entire length of the loan (30 years!)
  • LTV > 95%: MIP of 0.85% for the entire length of the loan (30 years!)
• For a 15 year loan
  • LTV <= 90%: MIP of 0.45% for 11 years
  • LTV > 90%: MIP of 0.7% for the entire length of the loan (15 years)

Reference: http://portal.hud.gov/hudportal/documents/huddoc?i...

So as you can see, you could be paying that annual MIP for all 30 years of your FHA loan. The way out of course is to refinance to a conventional loan once you have 20% equity.

Hopefully I'm getting these facts right, but @Shaun Weekes has a lot of knowledge with FHA and can confirm or correct me if I'm wrong.

I generally bounce around and visit many of the local meetups (REIAs, cashflow games, and informal BP meetups) based on the topic of discussion. While many of these groups do pitch their annual memberships to visitors, I prefer to not be locked into just one group. Perhaps being in LA, I'm fortunate that there are a lot of other options and alternative meetups to attend (some free some not) to network and grow as an investor. 

I think nearly every meetup I've come across encourages newbies (wouldn't be very welcoming if they didn't) so don't let that pitch alone sway you. Check out several if you can. If you really find a lot of value with just one group and feel that your needs are being met, then I don't see how joining can be a bad idea. 

I haven't done it personally, but yes you can get an FHA loan even if you have a conventional loan on your personal residence, assuming you meet the usual DTI, credit score minimums, etc. The only catch is that you're going to have to move into the 4plex as a condition of receiving the FHA loan.

@Melvin, that's news to me. I heard if you can prove that you'll actually be moving into the 4plex, then it can be done. 

Welcome @Amber Koontz! 

I'm assuming when you say that you're staying for only 2 years, that your plan is to avoid capital gains tax and then roll that into the purchase of another property. Just keep in mind for your duplex, since only 1/2 is considered your personal residence and the other 1/2 is an investment, that only a part of your sale proceeds would avoid capital gains tax (up to 250k or 500k if married). Though you can 1031 it, but the timelines for purchasing the second property to roll the gains can be difficult.

Have you looked into FHA financing with possibly adding a 203K rehab loan? Since you plan to live there, you can put as little as 3.5% down for a 30 year fixed loan. With FHA, you have to live there for 1 year I believe. If you're adding a lot of value by rehabbing the place, maybe in a couple years you can do a cash-out refinance to a conventional loan which would remove the mortgage insurance premium attached to the FHA loan. Then since you no longer have an FHA loan, you'd technically qualify to do another FHA loan at 3.5% down if you want to move into another multifamily (2, 3, or 4 unit). So instead of selling, you'd own 2 properties and will have avoided any capital gains tax. In summary, you avoid the capital gains tax all together, you keep your first duplex, have it rented out completely, and can repeat the process on a 2nd property with a lot more experience.

In terms of the Houston market, I know @Adam K. is over there and would have a lot of valuable input. 

Welcome @Jon Rowe! I'm also an engineer. Yes the math skills do come in handy. A lot of real estate books don't go too heavy into calculations, but if you're like me you'll really appreciate Frank Gallinelli's book, What Every Real Estate Investor Needs to Know About Cash Flow ...And 36 Other Key Financial Measures. 

A mouthful of a title I know. This book goes into just about every real estate financial equation you may come across and is great for a new investor. My recommendation is to read the book and then set up a simple spreadsheet where you can start to analyze deals as you come across them. You'll pick things up pretty quickly. Then also add little metrics like the 50% rule and 1 or 2% rules as rules of thumb. If you don't want to start with making your own tool (though I recommend you do since you learn much more that way), J Scott has a great free calculator that you can download here: 

http://www.biggerpockets.com/files/user/JasonScott/file/20-sfh-rental-analysis

Thanks for a great explanation of IRR and MIRR @J Scott

1) Get educated 
Read books (The Millionaire Real Estate Investor and What Every Real Estate Investor Needs to Know about Cashflow come to mind), listen to the BP podcasts as well as many other real estate related programs (e.g. The Real Estate Guys Radio Show), and start attending your local REIAs. If you can establish a friendly relationship with other real estate investors, take them out for coffee to chat with them and pick their brains. You'll come up to speed much faster if you're actively engaging with other people about real estate.

Oh and of course, the BP forums. 

At this step, you need to establish what your real estate investing goals are so that you can establish the right criteria to guide what properties you'll be looking for. Are you interested in long term buy & hold? Trying to flip? Are you looking for a completely passive investment where someone else will manage? Maybe you're looking for a personal residence as well that you can live in, fix up, and then rent out. Or if it's a 4 plex, get an FHA loan at 3.5% down to live in one unit, manage the other 3 units to gain management experience, move out after a year and then repeat the whole process. Whatever it is, you'll need to have some idea of your investment strategy in order to effectively talk with agents and lenders on your team (step 2).

2) Assemble your team (agent, lender, property managers, etc.)
Now that you have an idea of your buying criteria, you need to assemble your team. You may have to speak with several agents before you come across one that has experience with investors and one that your personality jives with. I'd recommend reaching out to other BP member or investors you come across when you attend your local REIAs for referrals. Once you have an agent, they will send you listings that meet buying criteria (house type, location, condition, etc.). Same goes for lenders. Talk to several. Compare rates, their fees, and it's always helpful to get referrals. If you're going to hire a property manager, again talk to several. Along with your agent, PMs can also help you learn the market in terms of average vacancy/occupancy rates as well as what they think a property can rent for. You want to make sure you check with the PM before you buy a property because if they advise you that a certain property will be tough to rent because of X, Y, or Z, then those are red flags for you as a buyer that you'd want to know.

Though I have steps 1 and 2 listed, you never stop educating yourself. And you never stop networking and talking to other potential team members. It's a continuous process. Good luck Ronnie!

Welcome @Mitch Rice! I try to stay away from the allure of very high COC numbers because those generally come with more risk when it comes to your tenants. Especially since I'm investing in KC from out of state, I prefer properties near very good schools (like in Blue Springs), which should keep my house values stable if not appreciate slightly more than ones in less desirable neighborhoods. My COC return may not be as high as a property in Raytown or those in the Hickman Hills school district, but being that I'm investing for the long haul as well (i.e. 20+ yrs), I think a nicer class property will fare much better over time.

You must be thinking, "How the heck am I doing this from out of state?" Well I didn't buy turnkey, if that's what people are thinking. I couldn't have done it without the help of @William Robison. He's been absolutely essential to my investing out in KC. If you're interested in Raytown or any of Jackson County for that matter, William has a ton of experience and knowledge of the area down to the street level. I recommend talking to him. Good luck!

@Dennis Standers. Some things to consider include the new mortgage insurance premiums (MIPs) that are in effect this year. For a 30 year loans at 3.5% down, you'll have to pay an annal MIP of 0.8% and upfront MIP of 1.75% of the loan. Often times the upfront MIP can be added into the loan amount. The annual rates have gone down half a percent since a couple years ago, but the down side is that you'll now have to pay the annual MIP for the entire duration that you have the loan. Even after you reach over 20% equity, the annual MIP would still exist. If I were to do the 3.5% FHA, I'd be looking to refinance once I hit 20% equity to get rid of the MIP...though who knows how much higher the interest rate will be several years from now.

I'm not sure what a duplex in Indiana is going for, but if you have the funds available in your HELOC, I'd analyze both cases where one you do the 3.5% down as well as a 20% down deal.