All Forum Posts by: Frank Jiang

What you're looing for is a Physician Home Loan. Remember, there's no such thing as a free lunch. These loans typically have higher rates to make up for the lack of PMI. Do comparison shopping.

Best of luck!

Had a nice keynote speech from an economist today.  One slide, in particular, was very fascinating and I figured I'd share it here.  

The idea here is that nonresidential construction is a lagging sector compared to US industrial production. USIP got hit as a result of COVID, but nonresidential construction has not yet felt the impact since it lags by about a half-year.  It looks like it won't be nearly as bad as 08 since there isn't this massive spike of overbuilding that we saw back then, but a decline is still in the works.

Thoughts?

Chinese people who practice Feng shui don’t like to buy houses with 4 in the number because 4 is a homonym of death in Chinese.  As stupid as this sounds, it does in fact have an impact on home prices.  A house is only worth what another human will pay for it, and other humans sometimes think crazy things.

Are you able to refinance the mortgage to a lower rate?

Is the total payment high because you put a low % down (you mentioned this was previously a primary residence).

Is this house in a market that has the potential to appreciate?

Second post to the same topic to add clarity.

You are correct in that the way all of these comparison calculations work are all incredibly similar, but it seems like you're not super clear on when to use these different rates and their interaction with each other.  Here's a little more info that should help clarify the differences.

- Risk Free Rate: when you compare your deal against Rf, this is the risk-free-rate-adjusted return of the deal.  Since Rf is commonly either inflation or t-notes or something, what this most accurately represents in layman terms is your inflation-adjusted rate of return.  You can't simply say "I could invest in another real estate deal at 10%, so my Rf is 10%".  That doesn't make sense since that investment is not risk free.  You are referring to Opportunity Cost when you say that.  I personally find the risk free metric to be mostly useless.

- Cost of Capital: when you compare your deal against WACC, this is return rate of your equity within an individual deal, after factoring out the payback of all debts and equity partners

- Opportunity Cost: when you compare your deal against the opportunity cost of similar deals or any other investment you could potentially make, this tells you whether or not it makes sense from a pure return perspective to invest in one type of asset or another.

Super basic example below where you buy a 10% return property, and take out a 4% loan at 60% LTV and gather equity for a portion of the remainder 25% of value @ 8% and then comparing the return of your equity against inflation and an opportunity cost investment such as the stock market returning 7%:

Note that you compare the rf or inflation and the opportunity cost against your personal equity contribution.  Note that the most important number here is the 37% personal return on your own equity.

That rate of return is 35% when adjusted for inflation and 28% better than investing in the stock market over the same period, but really... who cares?  This is just spreadsheet shenanigans and has little bearing on your decisions for making or managing a deal in the real world.

WACC is an internal measure of your borrowing costs. It's not meant to be used to determine property value. What you do use it for is determining the IRR of your investment.

It is also the minimum necessary return that your project must achieve to breakeven.

Your goal is to widen this gap between your cost of capital and the project return as much as you possibly can.

This is known as the "Travelling Salesman" problem, and it is actually quite computationally complicated.  To give you an idea of the difficulty, here's a little chart:

There are several resources online how to solve a TSP, but honestly it's a lot more headache than it's actually worth. You'd probably be best off putting all of the addresses into Google Maps using the markers function.

You then print that out and draw your route between the markers.  The human brain is actually quite good at solving this problem naturally.

While this is fair to say in general, it really depends on the accessibility of the market.  While occupancy is tanking overall, there are several tourist areas which are almost completely unaffected by COVID.  For example, our hotel in Catalina Island, CA is hitting 95%+ occ every week, whereas the one in Monterrey is down in the 60%'s (20% points worse than same time last year).

I think it has to do with how impacted that market is due to air travel restrictions.  Places that were getting most of their traffic from locals driving there aren't going to be hurt while places that relied on people flying in are taking a big hit. 

For the OP, I would also like to understand what you mean by management and operational improvements. Are these items that you have already implemented and you have already experienced a jump in NOI as a result? Was it an occ/adr related issue or was it cost cutting?

Are you married?  If not, you better get searching.
It's $250K capital gains tax exemption limit for a single person and $500K for married.