All Forum Posts by: Patrick Senas

Justin R. Well it's not like I come into the transaction with the intent of backing out. Most of the listings won't even show the property without an approved offer. They dot even have pictures of the interior posted. I understand if there are tenants but it's hard to determine if I even want the property without at least viewing the condition of the inside.

Andrew Johnson I completely agree with your assessment. Much like Joe Scaparra pointed out. It's all dependent on timing. I feel like Californias in the upper end of the recovery phase, how much farther can it go--who knows. I'm not sure I want to be a betting man. I could probably weather about 3-4 years worth of trouble given it caps at a ~10k annual loss. Anymore than that I'm in trouble. That's just the buffer I have with the BAH money saved up from the GI Bill. In my head cash flow is king. I wanted to get into REI for passive income, not equity building. I only limited my scope because of the limited tools in my tool box, VA and FHA with little money down. As well as my lack of knowledge of other markets. Not that I had much knowledge of this market either. I want to invest out of state but that lack of knowledge and fear is holding me back. Hopefully reading up on the subject on BP can alleviate that. On another note, so I have an offer out on a property. I did low ball the offer but if for some reason the seller accepts could I still back out of the sale? We used a standard CAR so there's a 17 day period for due diligence. Does that mean if I don't like anything I see within that period I can walk away with my earnest money deposit?

Justin R. From what I've been reading, it looks like BRRR is the way to go in SoCal. Or coastal Cali in general. I won't be able to use VA for those transactions unless it's a cosmetic fix. Though the pricing of those homes are still extreme. $600k C/D type duplex in a D type neighborhood. The sellers of those homes are disconnected from reality. Or maybe I am because they're still selling.

@Dan H.: I guess it depends no how you look at things. I can make it sound better if I say that instead of paying an initial 100k+ down payment (20% down), I'm slowly paying into it with an annual 6k payment. So I'm paying $500/mo for a principal paydown of $840/mo. Which will only improve if the historical data of rent & property value increases hold true.

My only fear is how I can stay afloat in a bad market. Like you said, it's near impossible to predict RE in the short term. So if things go south in the next 2 years, being in the position where I am not cash flowing will not be pretty. Especially since it will take me close to ~6 years to be cash neutral.

@Cody L. @Justin R.@Dan H.@Lee Ripma: It's especially difficult using a 0 down VA loan because that makes a big difference in the mortgage payments.

I just recently put in an offer on a 1/1 duplex in a college area. Its nice, requiring minor cosmetic repairs but is definitely rent ready. When I plug in the numbers using a conventional loan, 20 down, the COC and IRR is minimal but it definitely cash flows. (If I assumed my expenses correctly)

Now when I calculate using a 0 down VA loan, I will definitely be losing money per year. Roughly ~6k and it decreases with the annual rent growth. But comparatively, ~6k a year loss and I would probably break even in less than 6 years is minor compared to having to put down ~100k with a downpayment. I would also be building equity of at least ~60k by the time I go black. Hopefully cash flowing shortly after.

With a 1/1 unit, rents are already at about ~1500/mo. How realistic is it to assume that rents would keep increasing at a solid pace? Being in a college neighborhood, literally a couple blocks from SDSU, I couldn't expect college kids to be able to afford the prices now. Unless I cram more than one person in there in each unit.

The only reason I want to invest in San Diego is because I have the capability to use a 0 down VA loan. So why not ride this equity train. If you were in my shoes would you make the same investment choice?

All of these calculations are assuming I am NOT living on the property and is a full rental. I know most people justify being negative cash flow for cheap rent but I live with my girlfriend for $3000 annually. I don't need the "cheap" rent. Using the VA loan, I am required to live there for at least a year. I plan on renting it out as soon as possible.

From the information given, you're losing 175/mo on an investment. It sounds like you love the co-op and want to keep it. Are you increasing rent every year? It doesn't sound like it. The property value should also appreciate at least 3%, the national average. Though it also depreciates according to the IRS. So that depreciation will work in your favor. How much can you deduct off of your taxable income? Is that tax deduction less than your physical loss in revenue?

Actually, I take back what I said. I like @Jerry W. idea. More money for everyone!

Wow, thank you all for such comprehensive responses. 

Hi @Kevin Fox,  thanks! It's always great to hear what others use as metrics when comparing properties! I'll use your numbers for the rest of my screenings!

Hey @Andrew Johnson, I'm glad I asked this question here. Staring at all these spreadsheets is overwhelming haha. It didn't help that I've been comparing the wrong metrics! Thanks for the tips.

Lee Ripma Interesting, I guess CAP rates only play a small part in higher priced areas. I also read in a random post that an easy way to see if a home would cash flow would be to compare CAP rates vs APR on the loan. If CAP > APR then it's cash flowing. In your experience would that assumption be correct for a quick analysis? Granted if it's in a desired neighborhood. Unfortunately VA loans would only cover primary residences; and I believe you can't do that in a 5+ MF. That's in the realm of commercial zones. It would be nice though haha.

@Antoine Martel 

I see that you two have done multiple deals already. Are most of your investments in SoCal? I would love to connect and get some insight on how you've invested in this market. I would love to invest here but the numbers aren't adding up and it's driving me insane haha.