All Forum Posts by: Tim Hendricks

@Brandi T. you raise a good point about total tax burden. It will depend on your specific income level and house type, but I would assume that OP @Rafael Gallardo will have a lower tax burden in TX than CA based on what he shared. At $45k/year in income in CA, assuming 6% net state income tax (after any deductions, etc), he's looking at $2700/year in taxes.

While CA has a lower property tax rate than TX, with the absolute value of the homes being so much more expensive, your total property tax dollars will be lower in TX. Let's assume he buys a $200K home in TX and pays 2.5% in property taxes, or $5000/year. A starter home in the CA exurbs might be had for $350K and a 1% tax rate, or $3500/year.

TX = $5000/year

CA = $3500 property + $2700 income = $6200/year

That also assumes that he is even able to purchase a home in CA, which is not likely possible.

I don't mean to paint TX as a tax-free utopia, but it does have a lower overall tax burden for *most* people. It's also producing more new jobs than almost anywhere else in the country, which is driving income growth, especially in Austin.

Texas is certainly more affordable than California on many fronts. We do not have a state income tax - that savings alone will cover most of the $2/hr differential that you are currently earning. Add in gas prices and other commodities, and you will come out ahead in TX vs. CA with only a ~12% income swing.

As Jordan indicated, $150K will not take you very far in Central Texas. Your only option for something in the Austin metro area at that price point would be a small condo in some less desirable parts of town, often conversions from former apartment complexes. For lots of reasons, I would stay away from that for an investment.

If you can push your budget to $200-$220K, you start having some good options in the 20-30 mi radius suburbs - places like Kyle, Leander or Hutto.

Hi Levi,

Congrats! 

1) If you want to ever be able to sell the main house separately from the ADU, you would need to do a condo conversion. If the lot is at least 5750sqft and meets a few other requirements, it's a straight forward process, and will likely cost you in the $5-$10K range in legal and recording fees. The biggest hurdle in going that route would be that you would likely have to refi your mortgage.

If you are just renting one unit, and not selling it, I would not go down the condo conversion route. A lot of unnecessary expense and hassle.

2) You can register the ADU with a sub address (Unit B, etc) with the post office without having to go down the condo conversion route. Mail delivery is completely independent of any other titling/deeding actions.

Good luck!

Tim

Josh,

I would find a small, local bank. As Andrew pointed out, conventional/Fannie/Freddie loans are a bit of a commodity - just about any bank or mortgage broker can originate those.

Once you get to 10 financed properties, or if you need the ability for more creativity and flexibility in lending, you need a local bank that will get to know you and operates in the communities where you live and plan on investing. Having a deposit relationship with that bank will go a long way when you start to try to establish a lending relationship.

Start working the phones - call 5 or 6 small local banks, ask to speak to someone in commercial lending and describe your situation. Ask in broad terms how they would work with an investor like you - loan terms, LTV, DSCR rations, etc. Make sure to ask for someone in commercial vs. real estate - telling whomever answers the phone that you want to talk about financing a house or getting a mortgage will usually get you routed to a conventional originator vs. the type of loan officer that you want to connect with.

Originally posted by @Aubrey P.:


or Would it be worth trying to package together the $600K to the amount left on the mortgage I have on my old house ($130K left on that) with the the other bank?


The bank will require a separate deed of trust for each property. It's not a good thing from your perspective to cross-collateralize the two properties, in the event that you ever had a financial problem. Give your low rate on the existing mortgage, I don't think I would refi it. I would just go with a 2nd to get as much capital as you need.

Hi Aubrey,

With $300K income, you should not have any problem getting a mortgage for the purchase of your new place. Jumbo mortgages can be harder to come by these days, but assuming the new place is still in DC, you are well under the jumbo limit of $765K.

If you are trying to come up with cash to use as a down payment on the new place, I would consider a home equity line / 2nd mortgage against the larger condo you already own. It sounds like that is your current homestead / primary residence? If so, you should be able to get very favorable loan terms on a 2nd against it. Then use that money as a down payment to get to an 80% LTV on the new purchase.

Between your income and the project rents you described, it doesn't seem like carrying an extra $120K (enough for 20% down on the new purchase) in debt would be a problem for you. It should also be tax deductible against your rental income (check with your CPA).

Adam,

Congrats on the great appreciation! I've personally been through 4 corporate relos - they are getting rarer and rarer in today's world.

Austin is a great market to hold rental real estate, but typically your GRM will be pretty poor for a home like you described. It does not surprise me that you won't be able to cover your nut with expected rent, and that's before management, leasing, vacancy, and repairs/maintenance. All of those will take, on average, 25% of your forecasted gross monthly rents. So if you think you can rent for $3K, your net over time will be more like $2250.

I would take advantage of the great relo program & sell the house, then invest some of the proceeds in a more typical SFR play - $200-$275K homes in Austin.

Depending on your interest rate & term, I'm guessing you owe ~$400K on your home now, so you stand to clear $350K cash. Assume you will take $150K out for DP on a new primary residence wherever you are moving to, and you have $200K left to invest. Purchase 3 smaller/cheaper homes, have cash to buy your new place, and achieve positive cash flow on your new rentals while still getting exposure to the Austin RE market.

Historically, homes closer to the median price point see the best appreciation. I'm not sure that you will see the same run rate for the next 4 years that you saw in the last 4. The number of people with incomes able to buy a $800K-$1MM home is finite, and the options quite large.

Good luck!

Tim