All Forum Posts by: Robert Smith

Jomar,

In my opinion, Section 8 is probably the safest place to be right now if you are a buy and hold investor. There are a lot of investors out there with market renters who are probably wishing they were in Section 8 instead right now. If you have tenants that have 100% vouchers, it is likely that this pandemic had had no effect on your cash flow as this money comes direct from the government.

However, I can attest that the communication difficulties that you are having with HACC are not uncommon right now. For whatever reason, their capacity for processing moving papers has been greatly diminished. In April, I purchased and rehabbed a SFH in Country Club Hills (very light rehab). My property manager found a tenant in less than a week and she wanted to move on May 1. However, HACC has been extremely slow to process her moving papers. It now sounds like July 1 will (maybe) be the actual move in date.

Full disclosure here. I'm a newbie with 1 (currently empty) rental. But to answer your question, I think Section 8 is a great place to be right now for the stability in cash flow. However, if you are actively trying to fill units, you should be prepared for delays because HACC (and I assume CHA) are not operating at full capacity.

Hey Kirk,

This is a great question and I'll be very interested in hearing what some of the more experienced investors respond here. It may be true that the market is high right now (I'm in the Chicago west suburbs as well). However, if your goal is buy and hold, most people would tell you that as long as you are purchasing wisely, a market down turn should not affect you greatly. If you are trying to flip houses, maybe now is not the perfect time; however there are lots of folks in this area making money flipping houses even right now.

Paying down your house and taking out a HELOC is, indeed, a nice idea. You sort of get the best of both worlds--equity in your home and easy access to this equity. But if your plan is to put this money into your house and then go back to saving money while the market corrects itself, I think you should consider what this will do to your psyche. Most new investors bail on investing because they run out of steam--emotional momentum if you will. If you have money to invest now, my suggestion would be to do it NOW. Think of the boost in will power this would give you after you closed on your first property. Your first deal isn't going to make or break you anyway.

Besides, who knows what the market is going to do? You could be waiting around forever. In 5 years from now, you may be kicking yourself if you waited. Strike while the iron is hot! And I'm telling you this from experience. I started with all kinds of fire back in 2016. But since I didn't take any real action back then, I quickly faded away. Only now, 3 years later, am I taking the action that I should have taken then. Don't make the same mistake.

As far as velocity banking, I have also seen many of the videos and I agree, it's difficult to understand. Wasn't it Warren Buffet who said "Never invest in a deal you don't understand"? He's smarter than I am so ...

Hey @Timothy Boyd. 

This is an interesting question and it actually gets posted quite a bit here on BP (or variations of it). It basically comes down to "Is the appreciation and loan pay down worth zero or slightly negative cashflow?" Most people here will tell you to sell it if it doesn't cash flow and I tend to agree. However, I was actually in a somewhat similar position a few years back and did actually sell, but it ended up being the wrong decision.

I was living in Ft Wayne, IN in a SFH I had purchased in 2006. You know, when prices were really high. A job opportunity came up for me in 2012 and I had to move suddenly. You know, when prices were really low. What I SHOULD have done is held on to this as a rental, taken the minimal or slightly negative cash flow and then sold it when the market turned around. What I ACTUALLY did was sell this at a $10k loss. I suppose it could have been worse though. I've stories of other people losing way more. The point is that today this property is worth about 25% more than when I sold it. If I had held on to it, today I would be better off by 7 more years of equity that a tenant would have paid for as well as the appreciated value. Today, it's easy to see why this was such a bad decision. But at the time, no one knew where the bottom was (at least I didn't).

If you sold this house today, it looks like you could walk away with $35k or so after paying your agent. If you decide to hold on to it and the market turns against you, you will either have to accept the loss in equity or be tied to this property for however long it takes for the market to recover. When you hold on to a cash flow neutral property, your betting on appreciation. I suppose this is fine as long as you recognize that it's a bet, not an investment. 

For me, I would take the money and run. $35k is a nice chunk of money to put toward a cash flowing investment. 

Thanks @Tom Shallcross for the feedback. I was encouraged when I saw this deal until I actually ran the numbers. The two criteria I've been using are: 

1. 1) >$200 cash flow after all expenses as shown above and 
2. 2) >10% cash on cash ROI.

But deals that fit this criteria appear to be pretty rare on the MLS. I must be either looking in the wrong market, have unrealistic expectations on returns or have unrealistic expectations on what is available on the MLS these days.

Are folks finding workable buy-and-hold deals through their agents in the burbs these days?

Hey BP, 

I recently started working with an agent who works in the south suburbs of Chicago (Homewood, Hazel Crest, Matteson, Lansing, etc). We are still feeling each other out but I can tell he knows way more about investing than all of the other agents I've spoken with. In order to get an idea of what I want, he gave me an example of a house he help a client of his close on. Here are the details:

• purchase price: $85k + $3k closing costs = $88k acquisition
• rehab: $25k
• ARV: $150k
• annual taxes: $6k (it's Cook county)

After it's rehabbed, he says it will likely rent to a section 8 tenant for $1687/month. And his investor client will be able to pull all of his money out leaving only 20% in equity (BRRR method).

Now, I ran these numbers with financing terms  I'm able to get (hard money) while accounting for expenses in the following way:

• 5% for vacancy ($85)
• 5% for repairs ($85)
• 5% for CapEx ($85)
• $125 for management (he works with a management company)
• $100 for insurance (just a guess)

After including these expenses and assuming 75% LTV after refinance, I end up with a right around $50 cash flow. This seems like a very thin deal to me even though I would be able to pull all of my money out. My agent says his investors generally only require that the Principal + Interest + Taxes + Insurance be no more than 75% of the rent in order to make it work.

The numbers on this deal are way better than most of the deals I've been analyzing. But even so, it looks thin when I use my method. Am I simply being too conservative? I do actually think this agent knows what he's talking about, but ... we are all driven by self-interest, right?

I'd love to hear some thoughts. Thanks in advance!

Wow! Thanks guys for the quick replies. @Carl Fischer's response sparked an hour long Googling rabbit hole. I definitely need to speak with an expert. 

The way you used your SDIRA, @Sharon Steenbergen, is interesting; that is using your SDIRA to fund the down payment for a property. But do I understand correctly that any cash flow gained from this property go directly back to the SDIRA? So, if your goal was to replace your monthly income from a W2 job with cash flow, is the SDIRA route appropriate?

Hey BP,

I have $100k collecting dust in a 401k from a previous job. I'm considering either rolling this money into my current 401k (boring) or doing something more "real-estate-y" with it. I understand there are ways to put this money into a self-directed IRA/401k (thanks to a blurb in Anson Young's book on Finding and Funding Great Deals). And that this money can then be invested in real estate. I like the idea of hard/private money lending with this money for a couple of reasons:

1. Returns appear to be higher than the 1.5% this fund is getting YTD
2. Could provide experience about this process as a lender
3. Could help me foster relationships with players in this space to fuel my own real-estate goals (most important)

With those 3 goals in mind, what are some of the things I could do with this money? What are some of the pitfalls and gotchas involved? And is $100k even enough money to get in to this area?

Thanks

Hello all. To say that I am new to real estate investing is probably an insult to newbies. I have zero experience, other than having been a homeowner. I have a good job that I love, but I want to escape dependency on traditional gainful employment. I am excited to learn about how others have accomplished this.