All Forum Posts by: Shawn Q.

He has to show up to the closing or he's in breach - I'm betting he knows that and is hoping you don't show up to the closing so he can cancel the contract. If he never responds on the extension request, then he never responds. Doesn't change the contract, or the closing. Might be worth having your realtor remind his realtor about the closing so there's no 'oh, I misunderstood the date' shenanigans, though. 

I would avoid the variable rate myself. Also, 6 months seems short to me (I think my HELOC was 36 months at a teaser, then variable).

One other consideration - if you haven't identified a property the HELOC is a big risk in my eyes. That's because most HELOCs I've seen will require the collateral property be your primary residence. If you're just starting out it's hugely advantageous to buy each new property as owner-occupied and live there for a time. If your HELOC doesn't allow that, the bank can call it (which is rare, I think) or convert it to a property-secured personal loan or similar - and stop your ability to draw on the loan. This could keep you from accessing those funds needed for a live-in flip, or similar, just when you most need them. Also, depending on your specific loan the rate could skyrocket.

It's worth asking what those exits look like on a HELOC if you head in that direction.

I would definitely move back in with the parents - although I'd do it for as long as possible! Just to build up as much cash as possible to accelerate your investing. Definitely take a look at @Scott Trench's book whether you go down this path or not. 

As for the 50% rule - that's a decent rule of thumb for commercial, but not as good for SFR. You want to calculate your true maintenance/capex costs over time, as 50% will be too much to estimate for a time, then way too little. There are a few articles here that can explain this better than I can, and I'm sure there are some worksheets in the file place - but feel free to connect with me and I'll send you mine when I get it done.

One other thing I would recommend is to get to 5+ units as quickly as possible. The same logic for vacancy that works for multifamily/commercial works with SFRs as well I've found. Having one unit means you're either at 100% or 0% vacancy. If you have more units your vacancy risk is lower because your cash flow from your occupied units can cover expenses on your vacant units, and keep you from having to add cash from your W2 income. 

There are a few things going on in this thread, so I thought I'd summarize with questions so others can chime in:

• @Monish Lillaney - is your current primary residence on an FHA loan? If not, then you can still get an FHA loan on any newly purchased owner-occupied property.
• You don't necessarily need to refinance property A (unless you want to). Those terms are set and in place for the life of the loan most likely. @Sean Grapevine's point is very true, though - if you decide to refinance you have to do it as an investment property. 
• If you're able to do owner-occupied on the new property, you definitely should. Your bank's requirements and your cash position will help dictate whether you go with FHA or conventional.

You can carry up to 10 conventional loans, though banks may require higher down payments on the later properties, so there's no need to refinance yet unless you need to pull out cash or eliminate PMI.

I haven't looked into it in a while, but the lenders I spoke to in the past wouldn't lend on rent. However, if you set up a business (so, an LLC to hold the property and an LLC to manage) and have reproducible income they can lend against that income. I have a relatively small portfolio, though, so it didn't seem like a management LLC would ever throw off enough income to be worth it.

I rent to students (off-campus, so primarily grad or later-year undergrad) and I've never had issues. As for the scope of the rehab, I would recommend consistency with the area. Try to get into a few units in your neighborhood and see what the quality of their finishes is, then try to match. If sounds like the area is improving, so you might want to exceed the local finished (by a very little bit) but you don't want to go high end in a median quality area. 

One issue I've had with recent purchases, especially for students, is room/bath ratio - so definitely factor that in to the duplex/triplex calculations. Younger people seem to vastly prefer a 1/1 ratio, with 2/1 really being the max. Depending on the space, that might dictate your rehab plans as well. 

Longer term, I would think about your exit. Your timeframe for selling will also dictate how much money you put into the place. However, if this area is transitioning and your student base is growing strongly you might consider a lighter rehab now that's something you could expand on in 10 years. If you put in higher-quality floors, say, under carpet, and do high-quality tile throughout, you would have a durable product that might only require a low-dollar refresh when it comes time to sell.

In any case, sounds exciting and I'd love to know what you decide!

The ability to do this will also depend on the lease. Some leases (mine included) bar the tenant from operating a business out of the property. If the lease includes that clause you'll want to be very careful as you could be evicted on those grounds and your brand with AirBnb would be (probably irreparably) damaged. In that case, the only way to proceed would be with the landlords blessing, and likely would include profit-share to them. 

I definitely wouldn't assume your dad's car. At $450 a month in the 15% bracket you're using $518 of your pre-tax income for 26 months to do that, which doesn't seem like a good use of time or money. I would recommend selling the Suzuki and getting a beater for cash or just moving closer to work and biking (assuming you can - you didn't say what you do for the property management company). Focus on those cars that were mass-produced for the year so parts will be plentiful. 

More importantly - get a better job! Your income puts you way to close to subsistence level at this point. Even if you can live cheap and save 50% of your income you wouldn't be saving enough to really accelerate down payment savings. 

I wouldn't worry about credit at this point - your number is fine for a decent FHA loan. I would just be concerned with making sure you don't structurally restrict your options before you have a livable wage coming in.

@Aaron Millis, I definitely agree with @Julie Marquez that a construction management degree can be very, very useful, but it also depends on what your long-term goals are. I would strongly recommend reading @Scott Trench's book and focusing down on what your degree will be doing for you. If you're living/working in your target investing market, what are the highest reward jobs (and the associated degrees) you can get to create synergy with your investing future. If you're planning on commercial the construction management degree might be helpful. If you're hoping to build large syndications, the business/finance route might be helpful for networking. If you just need to maximize your income, maybe it's an associates degree in programming or web design that allows you to enter the workforce sooner and begin building your war chest. 

Your long-term goals will help dictate your degree. Speaking as an English Literature major (ugh!) it's helpful to be mindful when planning your degree. 

I agree with the other posters, address it immediately and research what your local ordinances are. In my town we're required to pay sewer, so there is variability there. 

Also, go back to your lease. There should be language in there similar to "Landlord will apply all funds received from Tenant first to any non-rent obligations of Tenant including late charges, returned check charges, charge-backs for repairs, brokerage fees, and periodic utilities, then to rent, regardless of any notations on a check" which allows you to bill them for any outstanding issues and add that to rent. If not paid in full they would be subject to whatever your late fee clause allows. This is where it's very helpful to have a daily late fee - if they're getting dinged for $5 per day until paid they'll pay very quickly (or you'll know you need to begin the eviction process). 

If you don't have a mechanism similar to the one listed above in your lease, I would talk to your lawyer and get it added to your template. Chalk this up to a learning opportunity.