All Forum Posts by: Stan K.

Welcome @Jonathan Victoriano! Make sure to read BP blogs and listen to the podcasts - it's a wealth of information

Welcome @Nathan Poteet and congrats on the baby!

@Kevin Jorgensen Every time you sell, you pay commissions; every time you buy, you pay acquisition costs (finance charges, inspection, appraisal, ..) as well as the costs to get the new place to rentable condition. So in this case, you'll lose about $30k out of your $245k equity. 

Do the math and, most importantly, talk to your wife - you both need to be in agreement on what to do next :)

@Kevin Jorgensen A good question to ask is what would you do with proceeds if you sell the house? It sounds to me like you don't need the cash and want to get into real estate - here's a great way for you to get into REI.

@Kenneth Cowan, here are some additional expenses that others haven't mentioned yet:

• Make sure you have enough in the emergency fund to last you 3-6 months in case you lose your job.
• Taxes at the time of closing - you might owe a little bit in taxes to the current owner at the time of closing (or it could be that they owe you)
• It's not clear how you estimated rehab costs. If you had inspection done and a contractor gave you an estimate, you might be good. Otherwise, inspection might find additional items that need repairing
• Reserves to cover expenses while looking for tenants. You'll need to have enough to cover the time it takes you to repair/rehab the property plus the time it will take you to find a new tenant. Make sure you have enough wiggle room. This will also apply after tenants move out (a year or two later).
• If you are using a property manager to find a tenant, they will charge you about 1 month rent. This can vary similarly to the monthly fee they charge, so you might want to talk to them about it.
• Emergency fund. Things break. You want to make sure you have some money put aside for an emergency repair.

Other general comments

• Since this is your first property, try to find one with minimal rehab needed unless you have experience rehabbing or know someone who does
• Banks might not want to loan you for small purchases like this one
• Your rent/arv value is 2.3%. This is very high these days even in good cash-flowing markets. The only way to get there is to purchase a C level property in C neighborhoods. I would stay away from those unless you have experience. 

@William E. has a few very good points. I would also suggest you read Ben Leybovich's article so you know what to expect when purchasing lower-end houses - https://www.biggerpockets.com/renewsblog/2014/02/25/why-you-should-not-buy-cheap-houses/

Hope this helps and good luck with your first purchase!

This isn't FUD. Markets reacted to the proposed changes to our economic policies. Treasury yields went up because markets expect these changes to drive up inflation. This hike in bond rates is what drove mortgage rates higher.

Also, it looks like there is some confusion here between mortgage rates, treasury yields and Fed rate. While mortgage rates and treasury rates are closely correlated, fed rates rarely have anything to do with either. Here's a chart that shows how they compare over the last 16 years.

@Sean Golin it all really depends on your circumstances and goals. As @Kevin Siedlecki mentioned, there are multiple reasons you might want to repay your mortgage

• You don't want to expand and buy more investments (real estate, stocks, etc.)
• You are happy with cash flows after you pay down your mortgage and don't need any additional investments
• You want to reduce your risk and lower your expenses in case tenants move out and you can't fill the vacancy
• You don't think that you can find other investments that will return better than 4.75%

Buying additional properties definitely has the potential of increasing your income. However, it comes with higher risk. For example, if you lose both tenants, your total expenses will be much higher. Can you afford that?

There are a few alternative strategies you might want to consider:

• You can refinance your current mortgage to lower your monthly payments. However, I don't think you can find anything much better now after the rates hiked.
• You can pay down a portion of your mortgage to the level where you feel comfortable you can afford another property and expand slowly
• Buy another property but put down more than the regular 25%

From the timing perspective, we now switched to a rising interest rate environment. If you believe wall street investors then it might make sense to hold on to this mortgage. Here's an interesting article on this subject from one of the more respectful financial bloggers - http://www.financialsamurai.com/mortgage-pay-down-strategy-in-a-rising-interest-rate-environment/

In the end, the real answer depends on your current situation, your expectations of the future and the level of risk you are willing to take.

@Joe D. I haven't heard of that number either. However, I think you should look at as many houses as it takes for you to get a feel for the market. If you can walk into a house and say how much it can sell for, how much you need to spend in repairs, how much rent you can get, how long it will take you to find the tenants, then I think you've visited enough. I personally keep visiting open houses even when I'm not looking to buy - it keeps me up to date on what's happening. 

As for working with realtors, you absolutely don't need to drag them to every house you are visiting. Just leave their business cards whenever you visit a house which you like or what to get more info about.

@Account Closed Here's a list of expenses you need to be able to cover on top of your down payment:

1. Make sure you have enough in the emergency fund to last you 3-6 months in case you lose your job
2. Closing costs: usually 1-2% of purchase price (this includes financing/bank charges, inspection, appraisal, etc.) plus points if you decide to buy them
3. Insurance. Most banks will want you to pay one year of insurance in full upfront. 
4. Taxes at the time of closing. You will either get a credit from the current owner or will have to reimburse them for the taxes they paid. This depends on when you buy and when the taxes are due. 
5. Taxes after you purchase the property. You will need to pay property taxes. Note that after you purchase, the property will be re-assessed at a higher price and you will have to pay taxes higher than the previous owner. Based on the numbers you provided, it could be twice as much.
6. Repairs. The amount depends on the condition of the property and the level to which you want to update it. Also, inspection can find items that need significant investments (for example, a roof or HVAC might need to be replaced). Make sure your offer is subject to inspection, so you can get out of the deal if it gets too much.
7. Security deposit. If the place is rented, you should get the security deposit tenants paid to the current owner
8. Reserves to cover expenses while looking for a tenant. When you are just purchasing, you need to have enough to cover the time it takes you to repair/rehab the property plus the time it will take you to find a new tenant. Make sure you have enough wiggle room. This will also apply after tenants move out (a year or two later).
9. Emergency fund. Things break in most inconvenient time/fashion, so you need to make sure you have funds to cover them.

As far as the difference between assessed value and asking price, as others mentioned, assessed value is based on the last purchase price. It will change after/if you purchase the property. This will also raise the property taxes you'll have to pay.

Hi @Anthony Beckemeyer, The highest inspection quote that I saw in SF was about $1.5k for a duplex. $2k sounds quite high, especially if it is for an SFR. Having said that, it all depends on the property and there are a number of things that can contribute to higher costs. Here are a few that come to mind:

• If a detailed termite report is included, the cost will be higher. Same with asbestos or other chemicals.
• Is the roof easily accessible? Is there an attic?
• Are there fireplaces?
• Size of the property. The larger it is, the more expensive it will be.
• How old is the property? Most of the homes in SF are very old and this can easily add to the cost.

I would recommend getting at least two more quotes. 

Edit: Here's a good article on home inspections. It talks about different costs depending on what's included. It also covers questions to ask your inspector - http://www.homeadvisor.com/cost/inspectors-and-appraisers/hire-a-home-inspector/