All Forum Posts by: Spencer Cornelia

@Account Closed I wrote about it here: https://www.biggerpockets.com/forums/223/topics/64...

I'm very fortunate that my first deal took forever, I had to deal with lawyers, title company, and owner for nearly a year which led me to understand the process of closing a deal very well as compared to just buying one off the MLS. Additionally, it was seller financed (seller carry) so I had some experience with creative financing right off the bat.

@Robert Hooks I understand that argument.  I also don't know everything about you, which would be required to really evaluate whether you should do a 10 year.  If you're earning a huge income on the side and reasonably anticipate that income to continue for the next 10 years, you could convince me that refi into a 10 year note and paying it off while breaking even (let's assume that is worst case scenario), then I could see that as a good decision.  That way, in 10 years, you will have a monster cash flow and can essentially be financially independent if that's your monthly spend.

However, I'm always considering the risk.  If you count on always having like 6 months of reserves available, I don't see the risk of a 10 year note and a break even property.

@Alexander Chavez Well done on the first deal.  Sounds like great numbers.  You can always look into your second deal.  I'm sure there's one person in that 60 mile range who is open to creative financing / seller financing.  Since it sounds like you don't have enough for a 25% down payment on investment property, you can spend the time now educating yourself on all of the different seller financing options.  Owner carry, subject to, etc.

Since it isn't clear if you're still living in this duplex, please stay in this duplex for at least one year, per FHA rules. If you're looking to go house hack somewhere else, you are playing with fire.

Since I recommend understanding how to determine repair costs yourself, find a local contractor and pay him to walk the property with you.  After doing this for 2-3 properties, you should start to become aware of general costs and what to look for.

You'll gain a lot of credibility with investors if you know the rehab numbers.

You have a 4.375% interest rate on an investment property that cash flows really well.  That cash can be used as reserves, can be put towards your next property, or put into another investment vehicle.

By refi into a 10 year note, you are greatly increasing your risk.  Your monthly debt service is now significantly higher which means you really need to have all other 3 units rented out in order to break even I'm assuming (3 because you said you would move in).  Also, what happens if something goes wrong?  You will now have a huge monthly bill that you must pay.

I'm not going to tell you how to think, but looking at mortgage loans and comparing how much you pay in interest is not a beneficial exercise IMO.  You're paying a lot of interest sure but you're using leverage to make a bunch of money.  None of that interest REALLY comes out of your pocket so why are you worried?

Lastly, return on equity is a good metric for how much your money is making you.  If you refi into a 10 year note, you will be adding A LOT of equity into your property, but only cash flowing like $100 per month.  So as you get some serious equity, your return on equity is going to be diminishing rapidly.  I don't know your purchase price, but given the monthly payment I'm assuming somewhere in the $500k range.  By year 5, you'll have something like $200-$250k of equity and only making $100/month.  Holy smokes that is bad.

My first property closed roughly 18 months after I began to really spend my time looking into real estate investing.  The owner agreed to sell the property 12/2017 and I didn't officially close until 12/2018 so my timelines are pretty interesting.  This question is extremely market dependent.  In the midwest, I could have grabbed deals within the first month or two.  Additionally, the amount of capital needed is drastically different between coasts and midwest which adds a layer of difficulty for those without one deal.

@Rodrigo Alcala Turned into one of the best purchases I've ever made.  Appreciation and cash from roommates led to my ability to land a 4plex and 2 flips.  Would recommend it to every beginner.

LA sounds like a fun market to start in lol.  I honestly would consider moving at any cost possible to get out of that market. But that's me.  If you don't have that option, then you're going to have to get creative.

Here's what I would do: I would buy a list online of all 4-5 bed houses in a certain area under a reasonable price.  Write letters to them saying you want to buy their house.  Find someone who needs to sell.  Offer them seller financing or wraparound mortgage.  Rent out all rooms to break even.  That's a great start.

I am vague on how to do this for a reason.  When you're just starting out, you really want to get into a deal as fast as possible.  But you need to be learning as much as you can, becoming comfortable with all kinds of real estate transactions, and networking as much as you can with people in LA who are ONE step ahead of you.  This is important.  Just one or two steps ahead of you.

If you don't have a lot of cash to start, you have to get creative.  And being creative comes from a vast database of knowledge of solving problems.  If you spend the necessary effort learning and networking, success is inevitable.  Choice is yours.

I love how everyone just jumps in and inputs what they think is best for a stranger they've never met.  @David W. unless you've met any of the people commenting in here, I wouldn't listen.  Listen to the input on running numbers but not on whether you should buy or not.  Only you know what's best for you.  It looks like we all agree that you ran your numbers in a very solid way and we can see that you are getting a very solid 7+% return.

If you like that return and it aligns with your goals, then buy it man.  Getting in the game is way better than sitting on the sidelines (which most people will do for years).

@Matt Lewis regarding house hacking.  Your first deal doesn't have to be a home run.  I bet if you asked 100 successful investors if they loved their first deal, I have a feeling a majority would grimace and explain why they did a few things wrong or grabbed a property that wasn't as good as they thought.  So you're first house hack / live in flip or whatever you end up doing doesn't have to be perfect.

Look in an area with good rental market, buy a 4 or 5 bed house and rent out all the other rooms to roommates.  You will break even or come out ahead in almost all scenarios.  IMO this is the safe option.  If you want to do better, then study up and network with locals.

@Rodrigo Alcala with little cash, you have limited options.  One option is to team up with another individual or a small group and do deals together.  Another is to find deals off market using creative financing.  Creative financing is a topic that an experienced individual can write an entire book on so I'll save it for you.  If you are wanting to find rental properties with limited cash, I would advise spending the next 12-16 months learning as much as you can about off market financing.  Even better is if you can connect with local real estate investors and learn from them.

I'll give you one place to start: read up on seller financing.  This is how I landed my first 4plex.  You can read about it on the forums here by searching my page - How I Bought my first 4plex or something like that.