All Forum Posts by: Shane Elias-Calles

 AJ,

Here are the numbers my rental gets 2350 in rent and PITI is 1607 a month. On my tax return the depreciation expense made this property show as losing money but clearly it does not. The rents cover the debt substantially so the question is. Does this property impact my DTI? my expectation was that it would not!

Also i am looking to go convential for context ! 

Hey BP,

I'm running into some DTI Road blocks and am looking for some help. I was under the impression that if you buy a new rental and the debt service coverage is substantial enough, then the DTI is essentially a net zero.

Also when lenders are looking at tax returns, if depreciation is causing a loss to be shown on a tax return, is the depreciation expense added back when calculating DTI?

Thanks

Shane

I would consider more than just the cash on cash return. When I bought my first property I was obsessed with hitting a cash flow number. Turns out that 4 years later the appreciation of the house is 10x what I have made in cashflow over those same 4 years after repairs and everything else that comes with a rental property.

As a result, I now look for properties that cash flow enough to make sure I can keep the house long term. Make sure I have some reserves for each property, and then zero in on properties in highly appreciating markets. It is my opinion that long term appreciation either market or forced is what makes you wealthy, not $200-$500 a month in cashflow.

Hope this helps!

 Hey @Paul Cataldo, if your two properties are cashflowing at those levels and you have two years of land lording experience, the bank should be able to attribute the rental income of those properties to offset the debt in your DTI. For example i have a property where PITI is 1607 but rents are 2350, and it shows up as a wash on my DTI.

Perhaps check with a lender and see how they would evaluate your current debt if you were to apply for another loan. 

Happy investing! 

@Amanda Black, a lot of people hate on the idea of having an expensive primary residence especially here in CA. But as a lot of others have mentioned there are always two sides to every coin. 

When you buy in state you can put low money down vs having to spend more on a traditional investment out of state. In addition, CA historically has appreciated very rapidly. 

I live in southern CA and bought my first house out of state for $260k, its been three years and it is now worth roughly 420k. Last year i bought a primary residence here in CA for $770k people thought it was silly. The house a year later is comping around 930k, meaning ive made the same amount in appreciation in a third of the time. Yes my payment is high on a monthly basis but in two years I can sell the primary residence and take up to 500k tax free, buy another california home and take the additional capital ive made and invest in more out of state properties. 

CA can kill your scaling process if you have a high mortgage payment and your equity is stuck in the house, if you can be creative however and either sell, or rent out the condo after a year the california equity gains can actually accelerate your growth. 

 Try to go to a real estate meet up or get in touch with a local investor who does a lot of deals with a specific contractor. At times referrals are hard to come by as people don't like sharing their ace in the hole but if you build enough relationships and provide some bigger investors enough value they will typically offer some introductions to their good contractors. 

I hired a contractor once who ghosted me, I called a larger investor he also worked for and let him know his contractor wasn't showing up. luckily for me the investor was a man of principle and he called the contractor and told him he would pull all of his work from him unless he showed up to my property. 

there is power in numbers ! 

I would consider more than just the cash on cash return. When I bought my first property I was obsessed with hitting a cash flow number. Turns out that 4 years later the appreciation of the house is 10x what I have made in cashflow over those same 4 years after repairs and everything else that comes with a rental property. 

As a result, I now look for properties that cash flow enough to make sure I can keep the house long term. Make sure I have some reserves for each property, and then zero in on properties in highly appreciating markets. It is my opinion that long term appreciation either market or forced is what makes you wealthy, not $200-$500 a month in cashflow. 

Hope this helps! 

 Thanks Steve, that is a correct assumption, and it is the direction I am pursuing now. will be using the cash to pay down the heloc then lock and load when the next good deal comes along! I appreciate the insight

@Joe Homs 

@Kerry Baird 

Thank you both! to share a little bit more, the line of credit is actually 93k and i have 33k out on it and 60k that can still be used. The current interest payment on the 33k is being covered by the rents of the investment property it is currently drawn on. 

Outside of that are the other two debts of the car and 0 zero-interest credit card... my thought was to use the cash and line of credit to buy and fix up another rental. The interest payments on the LOC and both mortgage payments would be covered and have cash flow left over. with that being said i could use the liquid cash to pay back the line for now, and use that money that was going to interest payments to pay off the debts until i look for another rental at which time could draw the line again for the next down.

 Anyway i appreciate both of your feedback on this one! 

Thanks

Shane

Hey BP Here is a current situation I need some advice on.

Currently have 45k in liquid cash, and 60k on a HELOC. On the debt side I have a 9k car loan, and 7.5k on a zero interest credit card. Should I pay off the debt before buying a property? Or buy another rental and continue to chip away at the debt monthly?

Thanks

Shane