All Forum Posts by: Sam Lewis

Very well said @Kevin Hill. Down here in Maryland we expect the same thing come November (ish). I agree, as most flips take 6 months to complete, I would NOT want to be wrapping up a flip in November.

Maryland has quite a bit of cushioning from the massive amount of federal contracting. DC takes all the tax payer money across 50 states and pours it all across Maryland and Virginia... 

Originally posted by @Alexander Felice

I heard real estate values can only go up! ;) ;)

Haha right? It goes up 3% a year no matter what I heard... (s)

You do not have to use an FHA loan for a househack. What I recommend is going the conventional route and putting 3% down if you plan to live there (owner occupied). You can do a low down payment conventional mortgage once a year (i.e. Freddie Mac, Fannie Mae, etc.)

A common term you'll come across in real estate investing is leverage. If you can access more property with less capital out of pocket, it may allow you to grow faster through leverage. 

Let's say you are eyeballing a 200K home. If you do 3% down, you'd pay 6K in a downpayment plus another 6K in closing costs (12K) total. You will have a higher loan payment since your loan amount is higher (194K), but you have access to a 200K property that you can rent out and ideally cash flow positive.

If you do 20% down, you'd pay 40K towards the down payment plus another 6K in closing costs (46K) total. While your loan payment will be lower (160K), you'd cash flow better and avoid paying any PMI (principal mortgage interest). Now both options have their pros and cons. While Option 1 is a little riskier, Option 2 staggers your growth and doesn't allow your money to work for you as much.

Your ROI will be much higher with the first option, and one that I highly recommend if you have steady income, solid credit, and plan to live in the same area for the next 2-3 years.

Welcome to BP! Addressing your points below: 

1) how do you know what strategy to try first? I am definitely drawn to house hacking bc of the house rental prices in Seattle area. Would you advise the first deal be in state or out of state? Why?

Brandon and David especially recommend starting out househacking because it allows you to wear a ton of different hats at once. You get to be involved in the process of purchasing a home, tenant screening, creating lease agreements, working on minor repair work, creating a network of contractors, etc. 

With all that being said, househacking is great because you can qualify for a government assistance loan (anywhere from 3-20% down) since you will be living in one of the units (or one of the rooms if it is a single family home). 

I would highly advise your first property purchase to be in-state, preferably in an area you consider your "backyard." It's way better to make mistakes in your local sandbox then in the middle of a highway. 

2) A friend advised me to go to a loan officer to see what I can qualify for. Should I do this before I have my strategy figured out? If I get my pre-approval, how much time do I have before I have to find my "deal"? And does this work for out of state?

Nothing hurts with getting the opinion of a loan officer. Typically they don't run a hard pull on your credit, so it won't affect your credit score. Typically pre-approvals are good for 60-90 days depending on the lender. 

A lot of lenders nowadays service multiple states, but again, I cannot stress the importance in investing in an area you are familiar with. If that area happens to be out of state, go for it, but if you don't plan to live there, you legally would not qualify for a low down payment option. 

You are making a good move by reconsidering how much equity you have in the property. 

With your current numbers, your ROE (return on equity) is $650*12/120,000 = 6.5%, which is definitely not making your money work for you. 

Your best move is to either Refi or get a HELOC on the property. Some local banks or credit unions could go up to 80% LTV.

Once you have access to 90K, you could hypothetically buy 3 more properties in the 120K range with a 20% down payment, along with closing costs. Even better would be to finance off-market deals that allow you to have equity going in.

For instance, find a 120K property that a wholesaler can sell you for 100K (perhaps he/she has it under contract for 90K or so). Put in some sweat equity and get the property to appraise for 140K. Get a loan on the property at 75% LTV and pull out your initial investment and then some.

This is what I would do, and if you fund your deals with hard money, you typically only have to contribute 20% of the "all-in" cost of the rehab (i.e. purchase price + rehab costs). 

Going about it this way would really slingshot your investment potential!

There is a solid difference between ROI and CoC return. I like to look at CoC since it is the money that actually ends up in my pocket. ROI typically includes principal pay down, appreciation, among other magic numbers that I can't access.

Assuming you rented the property the day after you purchased, your 1 year CoC return (net rental income/total cash invested in one year) would be = $215*12/19000 = 13.5%

This is an OK deal. I don't like how close your rental income is to your monthly costs. I always aim for the 50% rule. One property I have rents for $1750 and I net about $750, so I'm almost there. 

Potential alternatives:

• Increase the value of the property somehow to command higher rent, and possibly build this into your loan. With 19K as a bundle of a down payment + closing costs it sounds like you are going about a 20% down conventional loan. Some lenders can build an additional 5 or 10K construction/rehab budget into the loan, but note this typically adds 1-2 weeks to closing
• Use a 3% owner-occupied FHA loan and live in one of the rooms as you either fix up the property, or decide to rent out rooms immediately.
• Another option would be to find another deal that may provide a better CoC return : )

Roger that. This is really interesting - hope to see more of these posts soon 

I am really enjoying investing in BalCo (think Parkville, Middle River, Dundalk, and Essex)

That's my guy... : ) 

Hey Gina,

Multifamily availabilities are fairly sporadic across Baltimore City, however there are more listings on the northside rather than southside, such as Belair-Edison, Charles Village, and Sandtown Winchester.

I've seen quite a few pop up in Baltimore County near BWI, such as Halethorpe or Arbutus, as well as Brooklyn Park and Glen Burnie. I have seen some pop up in Parkville like you mentioned.

I personally have seen numbers work out quite well near Halethorpe/Arbutus, and I typically invest in the county moreso than the city. It all boils down to the neighborhood, rentability / curb appeal, and whether the home is already rented out or not. 

What's tricky about multifamily is they are typically already owned by investors who have the units rented out, so if you want to fix and flip, or fix and rent, it can be tricky to get your money in and out quickly.

Let me know if you have any questions!

Legally you can purchase the property as a primary residence. It is up to you what you decide to tell your lender. 

From a lending perspective it is not illegal to rent out rooms, assuming you live there, but most counties have restrictions on number of non-related renters you can have living in the same dwelling (i.e. shared space).

For example, in Baltimore County you an owner cannot rent the same dwelling to more than two unrelated occupants. In other words, you cannot rent the 4 rooms to 4 people who happen to be unrelated or are not married. However, if you rented the upstairs to two married couples, legally you would be fine, since each couple is one set of "unrelated occupants." 

Hoping this makes sense. Let me know if you have any questions!