All Forum Posts by: Account Closed

For Conventional, there are two basic ways that income is evaluated - properties being placed into service (such as a new property being purchased), and properties already in service. For properties being placed into service for the first time, 75% for the gross rent (based on the appraisal/1007) is used. 25% is assumed as expenses/vacancy. 

For properties already in service, the bottom line on Sched E (or however you're reporting) is used. Start with the bottom line, then add back mortgage interest, property taxes/ insurance/HOA fees (assuming they are escrowed), and any noncash and onetime/extraordinary expenses, such as depreciation. Once you have this figure, net it against the mortgage payment for that property (if there is one). If the net figure is positive, meaning there is positive cashflow, it's added to your gross monthly income. If it's negative, it's considered to be a liability/debt and feeds into your DTI. If there is no mortgage payment at present, escrow items are not added back in the above explanation.

It's more nuanced than this and there are many exceptions/caveats, but this gives a high-level explanation. 

For DSCR loans, in most cases, the raw rental income is used, whether based on the rental appraisal (1007) or an actual lease. Some lenders compare this to only the actual mortgage payment and some include an expense factor. DTI and personal income are not considered.

@Account Closed

This is a great question, and while I wish I could give you a direct answer, it really depends on what you want your life to look like.

It might help to figure out your end goal first and then work backwards from there.

For example, if your plan is to buy a few properties and live off the passive income so you can focus on your hobbies, that’s going to be a completely different path than if you’re looking to network with limited partners and start your own syndication fund.

Keep your job!

You asked what are some daily things investors do which says to me you don't know what you are getting into yet. Focus on learning what to do, how to do it and finally do it with your W-2 income supporting you. You don't need to be "all or nothing" to try it out.

You didn't indicate how much wealth you have supporting you. It's not a concern if you are already financially free of the W-2 job.

I was living in the Los Angeles area as well when I started my "Out of State" investment journey. I was buying properties in Texas (DFW area) that cash flowed from day 1 (back in 2009.) Texas is difficult as a Californian due to the extremely high Texas property tax, coupled by the CA state income tax. It's a deadly duo.

I continue to invest in out of state rentals but predominantly in the South East. The friendly landlord laws, typically lower tax burden, and population/job growth have made the SE a great place to park assets. 

In general, your most important ally in OOS investing in your property manager. They are your "Hub" and your point of contact/reference for other team members. Agents can be important, but there are too many out there focused in the transaction. A property manager is relationship based, not transactional based. If they tell you property "A" can rent for $2500, then they are the ones who have to put their money where their mouth is. A good manager can make or break you while investing OOS. 

Side tip, if you decide to close without using a agent (not usually a good idea in a new market) then you need to 100% get an inspection (using your own inspector, not the listing agents) and be there during the inspection, title insurance (as always), and have a pre-existing relationship with a property manager. Get their opinion on the property (while respecting their time.)

Best of luck!

I would add local experienced investors, property managers and contractors/construction management companies to your team. I talked to two experienced and knowledgeable PM companies that gave me honest assessments of my properties - this was from networking with local investors. They know the rental market, tenant base of different neighborhoods etc. If had talked to those PMs before I made my offers on my OOS properties I would have made different decisions. 

If you're doing a BRRRR (which I don't recommend doing from far away if not experienced), having honest contractors walk properties for you. Some may walk 1 to 2 properties for you, not 10 or 20 (unless you want to pay them for their time) before you submit an offer. I found the renovations costs to vary widely and a couple of contractors said it costs X amount of dollars with no line item estimates (red flag there). I wound up not doing a BRRRR and the ARVs stated by the seller/wholesaler/agent to be on the high side.

Whatever numbers someone (wholesaler/agent) gives you, verify those. It takes time to build up these relationships. 

 Ok so this will cause controversy, you are saying the realtor is part " of your team" ? Come on, 99% of the time the realtor has no knowledge of the property, zero idea how much the reno is and is just there to sell the property. I am contacted almost daily for guidance. I then find out how the investor way overpaid, had no idea how much reno was really needed and so much more. Realtors are not part of your team. I have done let's just say one or two deals, and NEVER use a realtor. You and ONLY you need to know all the numbers. 

@Account Closed

thanks for the responses.  i still can't tell what your plan is =) it sounds like you live in Texas and are staying in Texas... is that correct?  if so... why not 1) house hack in Texas, and 2) invest in Texas?  what am I missing?

also - traditional, vanilla LTRs don't cash flow anywhere right now without some kind of niche or creative or hands-on or intense strategy.  you might be break-even in Texas and negative in California.  that is just where interest rates are right now.

think about putting 20% down on a $200K property.  that's 40-55K.  now say you 'cash flow' $150 a month.  do the math on how long until you recoup that down payment.

not trying to be discouraging, just trying to be realistic.

For your rental in Riverside, I would lean towards keeping that if it's a SFH or multi-unit and not selling for "cash flow" out of state. The only exception would be if it's a condo with high HOA fees but still might be worth keeping depending on your numbers. How long have you had this rental?

From your response, I'm understanding that you live in Texas right now but at some point plan to move back to CA. Like a couple of people have said, why not house hack in Texas? Live in that property for at least a year then if you move back to CA, house hack in CA if possible. And keep the Riverside rental  for CA appreciation. What do you think your estimated time frame would be for moving back to CA?