All Forum Posts by: Drago Stanimirovic

Hi Tim,

DSCR loans are ideal for investors because they focus on the property's income, not personal financials.

Pros:

• No Income Verification: Lenders focus on the property's cash flow, not your personal income.
• Flexible Qualification: As long as the property's DSCR is typically 1.0-1.25, you can qualify.
• Faster Closing: These loans can close quickly, ideal for competitive markets.

Cons:

• Higher Interest Rates: Typically higher than conventional loans.
• Larger Down Payment: Usually requires 20%-25% down.
• Cash Flow Requirement: Only works if the property generates enough income.

For new investors, DSCR loans are great if the property has strong cash flow but come with higher costs. Let me know if you need help with lender options!

Best,

Drago

Hi Evelyn,

Congrats on securing a great deal! You're right to think about the tax implications of paying for the roof before owning the property. Here's a strategy that could work:

Escrow Agreement or Seller Credit

One option is to negotiate with the seller to either escrow the funds for the roof replacement or structure the deal so that you fund the roof but receive a seller credit at closing. This way, you would be paying for the roof as part of the property purchase, allowing you to claim the tax depreciation once you take ownership.

Delayed Closing with Roof Contingency

Another approach is to add a contingency to the closing that allows you to replace the roof before closing but delays the actual closing until after the roof is installed and insurance is in place. You’d still be using your funds, but by delaying ownership transfer, the expense would fall under your ownership period, making you eligible for depreciation.

Discuss these options with your tax advisor to ensure everything is structured properly for IRS purposes. Let me know if you need help with financing or structuring the deal further!

Best,

Drago

Hi David,

Yes, you can refinance into a conventional loan during the 5-year term if interest rates drop, provided your seller financing agreement allows for early payoff without penalties. This would protect you from being stuck with a higher rate when the balloon payment is due.

After 5 years of interest-only payments, you'd still owe the full principal. If you're house hacking, you could refinance into a conventional loan with as little as 5% down, assuming the property value and your financials qualify at that time.

Make sure the terms allow for early refinancing, and keep an eye on interest rates to refinance when it’s advantageous. If you need help structuring this, I can assist.

Best,

Drago

I see your point, but calling mid-term rental arbitrage “terrible” overlooks its potential when executed well in the right market. Yes, there’s upfront risk, but with smart sourcing, furnishing costs can be lowered, and the margins can be better than they seem, especially in high-demand areas.

Co-hosting and property management are solid alternatives, but they limit upside. Arbitrage offers more potential for returns, though it’s not for everyone. It's about finding the right opportunities, which are rare but not impossible.

It’s not inherently a bad model, just one that requires careful execution.

Have a good weekend!

Drago

Hi Zahcary,

Congrats on planning to buy your first investment property! When it comes to hard money lenders and rehab costs, it's common for lenders to require you to pay a portion of the rehab costs upfront. Typically, lenders fund around 80-90% of the purchase price and rehab costs, with you covering the rest.

Finding a lender who will pay 100% of the rehab costs up front is rare. Most hard money loans work on a draw system, where you pay for part of the rehab initially, and the lender reimburses you in stages as work is completed. They do this to limit risk.

However, some lenders may be more flexible if the deal is particularly strong, and your experience or financials are solid. Still, expecting a full 100% rehab payment upfront is less likely without significant collateral or a great track record.

If you need help finding hard money lenders or structuring the financing, I’d be happy to assist! Regards, Drago

Nice example here Travis, but calling mid-term rental arbitrage “terrible” might be too broad. 

The $11k you spent on furnishings is high-many operators cut those costs, which can reduce your break-even period.

While 1.5x long-term rents is typical in places like Oregon and Texas, some niche markets (e.g., corporate housing, traveling nurses) do achieve the 2-2.5x multiple. It depends on targeting the right demand.

Owning offers appreciation, but arbitrage provides flexibility without long-term market exposure, which some investors prefer. It’s not about the model being flawed, it’s about finding the right fit. Best, Drago

I guess this is your first deal with this partner so based on the inputs i would suggest structuring the deal 50/50 to leverage both partners' strengths. The partner with good credit secures financing and handles financial management, while the rehab expert oversees renovation and project execution. Both contribute capital equally, and profits are split based on ownership. Adjust the split if one invests more or takes on greater responsibility. Ensure major decisions are made jointly.

This setup balances the partnership and fairly rewards both contributions. Let me know if you need help structuring financing or further details!

Regards,

Drago

Hi Lilly,

You're right to question those claims. Achieving 2-2.5x base rent in rental arbitrage is highly market-dependent and may work in tourist-heavy areas but is less realistic in stable markets like Houston. A 30%-50% premium over long-term rents is much more typical in cities like Houston.

Many hosts likely cherry-pick their best months to make profits sound bigger, often downplaying costs like furnishing, utilities, and management. Be cautious, those inflated numbers are often used to sell courses.

It's smart to base decisions on your market research. If you'd like help crunching numbers or exploring financing options, feel free to reach out!

Regards,

Drago

Hi Enrique,

Great question! When it comes to adding a 1/2 bathroom, even if it may not significantly increase your ARV (especially if you're already at the top of the market for the area), it can still provide value from a rental perspective. Here's why:

1. 1. Attractiveness to Renters:
   Renters often prioritize convenience, and having that extra half bath can make the property more appealing, especially for families or roommates. This can lead to faster leasing and fewer vacancies.
2. 2. Rental Value Increase:
   While exact rental increases can vary depending on the market, adding a 1/2 bath could allow you to charge a higher rent, possibly by $50-$100 per month or more, depending on tenant demand. It makes the property feel more spacious and functional, which could justify a higher rent compared to similar properties without the extra bathroom.
3. 3. Market Differentiation:
   Even if the ARV isn't impacted, it can set your property apart from others in the area. Competing properties might be capped at 1 bathroom, so the extra half bath could make yours stand out, potentially allowing you to maintain a higher rent over time.
4. 4. Long-term Investment Value:
   Over time, demand for properties with more amenities (like the extra half bath) could increase, which may help you achieve better returns, even if the immediate ARV bump is minimal.

Overall, it may not drastically change the ARV, but for rental purposes, it could enhance the property's desirability and boost cash flow. I'd recommend checking local rental comps with 1.5 baths to see the specific rent premium in your area.

Hope this helps, and best of luck with the rehab! 

Feel free to ask if you need further insights or financing help on future projects.

Best regards,

Drago

Hi Ryan,

It sounds like you're in a great position with your rental property, especially with both positive cash flow and significant appreciation over the years. When deciding whether to sell and reinvest in a higher cash-flowing market, you can use several tools and strategies to compare high appreciation markets versus high cash flow markets. Here’s a breakdown of what you can consider:

1. Return on Equity (ROE) Calculation:
One key metric to assess is your current Return on Equity. Given that your equity has doubled, it’s worth evaluating if your current property is underperforming based on the equity you’ve built.

Formula:
ROE = (Annual Cash Flow / Total Equity) x 100

If your ROE is relatively low, it might be more beneficial to sell the property and invest in a higher cash-flowing market.

2. Cash-on-Cash Return:
If you're considering a property in a different market, cash-on-cash return helps compare how much immediate return you're getting on your invested cash.

Formula:
Cash-on-Cash Return = (Annual Pre-Tax Cash Flow / Total Cash Invested) x 100

High cash-flow markets (typically found in secondary or tertiary markets) often have higher cash-on-cash returns but may offer lower appreciation over time.

3. Appreciation Potential:
Evaluate potential appreciation in different markets by studying:

• Historical Market Trends: Tools like Zillow, Redfin, or local MLS can give you historical price data. Look for cities with strong population growth, job creation, and infrastructure development.
• Cap Rate Compression: In appreciating markets, cap rates tend to compress over time, signaling strong property value increases. You can track cap rate trends on platforms like CoStar or LoopNet.

4. Market Analysis Tools:

• Mashvisor: Provides in-depth analysis of neighborhoods for both short-term and long-term rental properties, including cash flow estimates, cap rates, and appreciation potential.
• Roofstock: A marketplace for single-family rentals that allows you to compare cash flow and appreciation potential across various markets.
• Zillow’s Market Reports: These show market appreciation trends across different cities, helping you spot high-growth areas.

5. 1031 Exchange:
If you sell your current property and reinvest in a higher cash-flowing property, you may want to consider a 1031 exchange to defer capital gains taxes. This can maximize your investment potential when moving to a higher cash-flow market.

6. Comparing Markets:
High appreciation markets (like Los Angeles, San Francisco, etc.) tend to have lower cap rates and higher property prices, making them less cash-flow-friendly but better for long-term appreciation. High cash-flow markets (e.g., parts of the Midwest or Southeast) offer higher yields but lower appreciation.

A strategy could be to diversify: Sell your high-appreciation property in LA, then invest in a few smaller, higher cash-flow properties in secondary markets to balance both cash flow and growth.

If you'd like help analyzing financing options or structuring a 1031 exchange for a new property, I’d be happy to assist! 

Best regards,

Drago