All Forum Posts by: Frank Jiang

You make $3,000 per year on the house in net rental cash flow after cap ex (250 / month * 12).  On an opportunity cost of 145,000, this represents a 2.1% return on your investment.  You can directly compare this 2.1% against the interest rate of your loans (5.5%).  Since it is worse, that implies you should sell the house and pay off the loan, gaining 3.4% in cash velocity from your current position.

Even increasing rent $200 per month (good luck with that with COVID) would only increase your return to 3.4%, which is still worse than your loans.

This model, of course, assumes that you would gain no further benefit from appreciation.

The problem is that while the federal interest rate is 0 and Fannie and Freddie will continue to purchase these loans, the true reason that the actual mortgage rate would go down is an increase in demand of these loan from the secondary market (increased demand = increased price = decreased rate).
Right now, investors are spooked, so the secondary market for these loans has fallen off in demand as people adopt a "wait and see" mentality for this outbreak.  Because there is no demand for these loans, there is no incentive to underwrite them at a lower rate.

Cashflow is not profit.  There are cash outflows and accruals that need to be done to truly get to profit.  Profit is also a far more valuable metric than cashflow if you can do the extra legwork.

Things you need to add back to cashflow to get to profit:

- Principal payments on debt.  These add to your balance sheet net worth and is recouped upon divestment of the property.

Things you need to subtract from cashflow to get profit:

- Accrual for capital expenditures and maintenance (sometimes referred to as reserve)

- Accrual for future vacancy

- Depreciation if you are accounting for taxation purposes

Some very low barrier to entrance options are Sun Communities and Equity Sun Life Properties.

So glad other people understand this concept.  The mantra of "the buyer's agent costs you nothing" is typically reiterated by realtors working as buyer's agents and it is a terrible misconstruction of how having a buyer's agent actually effects the deal.

Call them out on their slow response time.

The agent is concerned that this deal will be killed by some sort of back end agreement that doesn't get properly notarized.  Or worse, for the deal to go through with the paperwork failing to document some sort of material agreement made between you and the seller without her knowledge and for one of you to seek recourse against her in the future.

I would note that she has been slow, state that you understand her concerns about the above, CC her on further communication, but firmly state that unless she can remedy her slow response and give your deal the love it deserves, you will continue to speak directly with the seller to move the deal forward.

Student loan debt should be dischargeable in BK.  Effectively risk-free 7% lending just continues to fuel idiotic inflation in the price of college.  Making the underwriters actually do their jobs and assess the feasibility of payback based on potential future earnings would bring some much-needed common sense back into the system.

Mobile Home Due Diligence Checklist

I would recommend changing your mentality about business relationships.

What I mean by this is: the lender is probably not "full of ****" or "bsing you". It is true that under FHA guidelines, you should be able to put 3.5% on up to a 4-plex. However, specific lenders have items called "overlays" which are additional rules on top of traditional lending guidelines that their underwriters have identified as unacceptable risks. For example, this lender may have an overlay that any property with over 2 units requires an additional down payment to mitigate risk. This is a reasonable risk adjustment on the part of the bank and your lender has no control over this.

All you have to do is go find another lending institution without this overlay instead of spending time insinuating that this person is lying to you when they likely are simply conforming to the rules of their individual institution.

You need to analyze the financial health of the HOA in addition to running the value of the property. HOA boards can be notoriously incompetent at managing their financials. What you specifically want to look for is the useful life on all large capex items covered by the HOA (roofs, walls, community areas, etc) and to ensure that the reserves held aside to replace these items adequately cover the cost of these items.

You also want to be wary of poor practices by the board (embezzlement, conflicts of interest in vendors) that can inflate costs.

In general, I don't like HOAs because they reduce the amount by which a house can appreciate. HOA fees never go anywhere but up.