All Forum Posts by: Scott Passman

This is always a preference thing, and mine would be to take a 30 year every time.  Being successful in real estate long-term often involves being well capitalized and having high safety margins between incoming rents and outgoing expenses, so the bigger the margins are the less risk you have.  Taking the 30 year gives you a lower monthly payment and more flexibility with your capital to put into reserves or reinvest.  Plus, the longer you spread out the debt repayment term the more "cheaper" dollars you get to repay it with into the future as we all know a dollar is worth less tomorrow than it is today.  Rates are so low even for 30 year terms that it makes it even more appealing. 

I'd take the 10k credit at closing every time, especially for such a large loan amount.  Reducing 10k off the purchase price will have a negligible impact on your monthly payment and in the grand scheme of things won't really make much of a difference if you are planning to hold for any real length of time (more than 1-2 years).  On the flip side, getting to keep 10k in cash helps increase both your return on investment/Cash on Cash and gives you more money for reserves or to invest. That is far more valuable than reducing your monthly payment by about $30mo. 

It looks about right to me.  There are certain costs on the lender's part that come with any loan whether it's for $36k or $360k along with the prepaids for homeowners insurance and taxes.  There is a cost to gather and prep all the closing documents so the lower the loan value the more exaggerated they look compared to the loan, however, the costs on the lender's part remain no matter what the loan amount.  

On a side note, it's hard to find lenders who will provide such a small loan and the ones that do generally will require points be paid up front and a higher interest rate to help recoup their costs.  With such a small loan value it really is pretty worthless for the lender to spend the time and resources to create this loan for such a small payoff when there are plenty of other people trying to get bigger loans that will ultimately make the lender more money.  So all in all, I wouldn't fret about these closing costs. 

Hey @Jonny Abramson!  @Nate Shields has a lot more experience in Dekalb than I do, so his advice is definitely valuable.  But one thing I would throw out there about Dekalb is there was ~ $1 billion invested there last year alone most of which came from the new ChicagoWest business center locking in deals with Facebook for a new data center along with Ferrara Candy Company to add a new warehouse and distribution center.  There were several other big project announcements too (and more space in the ChicagoWest business center to attract other companies) that project to add about 1000 new well paying jobs along with the city getting more active in demolishing and repurposing more buildings downtown.  There is definitely some potential for Dekalb to start turning things around and build itself into more than just an old manufacturing town/college town.  Time will tell if things pan out, but there is good reason to believe Dekalb should start to see at least some growth over the next 3-5 years.  

@Sydney Munson I also have an out of state property and can definitely relate to what @Jimmy Chao mentioned in regards to maintenance.  I have a PM company that manages it for me, however, I am prepared to take over self-management at some point in the next year or two because I ended up developing a relationship with a handyman out there who also assists with managing properties in the way you mentioned (ie: will show the house, set them up with keys, take a look at any issues etc) and only charge an a la carte hourly fee for any of their time rather than a %.  

One thing to consider if utilizing a PM company to place a tenant for you is that if they will not be managing the tenant there is a lot less incentive for them to thoroughly screen and be very selective in who they place. Since they don't have to work with the tenant afterwards there is a less incentive to try to stay away from a potentially problematic person.....they get paid either way so the faster they place a tenant the better.  Just something to consider. 

There are some great books on this list, as always.  One book I want to throw out that hasn't been mentioned is Ayn Rand's Capitalism: The Unknown Ideal.  I must say that I find it comforting in some ways because all of the things it discusses back in the 50's and 60's are EXACTLY the same things that are going on now with politics, the arguments about socialism vs. capitalism, and even the terms and rhetoric used.  History is a great reminder that at any point in our lives whatever we are experiencing has happened before in some way.  This book offers good insight into what free market capitalism actually is and provides some opportunities to evaluate markets, policies, and economics through a different lens. I had to keep looking at the publication dates because there were so many words/phrases/slogans used that are verbatim what I read today that I couldn't believe it was published 60 years ago!

There are some things to consider with these types of rentals:

1. Tenants renting a single room are likely going to come and go more frequently so you should expect a higher turnover rate meaning more time and work finding new tenants. 

2.  Because a single room will be much cheaper than a typical apartment or home, you are likely going to have a larger portion of tenants being people who may have significant financial constraints, poor credit, eviction histories, and in general come with a little more "baggage".  That isn't to say all tenants would be like that, just generalizing that at this income level of rental you will tend to attract tenants that demand more time and attention. 

3. You mentioned you would live the property so that should make it easier, I would reconsider that it may actually be harder because it will be easier to come knock on your door and get you involved with any tenant disputes. In this case, distance would probably be helpful to let tenants work out disputes themselves like they should. 

4. With more rooms comes more income potential.  There will be more work to manage a property like this, but if done well you will likely have more cash flow potential. 

All in all, it's not a bad type of investment and people need affordable places to live so the demand is there.  You would just need to screen very well and be prepared to have a little more work to manage the property than say a single family home out in the suburbs. 

There are a lot of variables present (loan debt amount, interest rate, rental rates in your area, etc), however, in general you would likely get the best bang for your buck by househacking.  The amount of monthly expenses you would save would likely add up to much, if not all, of your student loan debt obligations plus you would own an asset which is likely to appreciate over time and that you are building equity in for the long haul.  Plus, I personally wouldn't put anything additional into student loan payments right now because there is such a heavy push from the democratic platform to pass some type of loan forgiveness that unless someone has a ridiculously high interest rate, it may be best to see what comes of this before paying additional money towards the principle. 

@Jesse Meyer Congrats on getting the "bug". Honestly, the next step you should take is to sit down and spend some time thinking and clarifying what exactly you want to get from REI and out of life. Do you want additional income streams, build enough monthly cash flow to retire early, utilize real estate to build wealth over the long haul, reduce your monthly living expenses, build a new career out of it etc? There are so many different avenues and ways to get involved that you need to have some clarity on what you are working towards.

After that, I think the 2 best places to start are to begin networking with other investors via local real estate meet ups or reaching out to people in your area on BP and possibly looking to house hack a first investment.  If I could go back in time, I would have house hacked with a 2-4 unit building every year for the first couple years to both save on my living expenses and speed up the acquisition process for building a nice portfolio.  House hacking is such a powerful tool and doing it when you are young and single is a great way to learn how to manage a property, analyze deals, interact with others, build relationships, and it tends to be very forgiving with mistakes because of the money you can save each month on living expenses.  

I'm writing some articles and I find that I keep dropping movie quotes into them to parallel a theme or message. It's the end of 2020, which has been an interesting year for everyone, and I thought it might be fun to see what kind of movie quotes people can drum up to use for real estate investing advice. I'll throw a few out there to start:

-"Free Your Mind" (The Matrix)- We all have self-limiting beliefs and if we can let go of some of these beliefs we often find we are capable of doing and achieving so much more than we ever thought.

-"Aim Small, Miss Small" (The Patriot)- Often times new investors set criteria larger than a proverbial side of a barn because they are afraid to miss a deal. But the reality is the more specific and precise we set our criteria the more likely we are to achieve it because it eliminates a lot of the "noise" and allows us to focus on a limited number of things related to our goal.

-"Just Keep Swimming" (Finding Nemo)- This is a great year for this quote! Investing in real estate has ups and downs and in order to be successful you have to ride out the challenges that get thrown your way. If you "just keep swimming" you will eventually make it through.

Cheers to a great 2021!