All Forum Posts by: Timothy Howdeshell

Quote from @Jonah Slove:

My fiancé owes a small 2bed 2bath townhouse outright. It was her primary with a roommate until she moved in with me, now it is rented fully. It is valued at $1.3mil and she bought for $550k 5 years ago so not a bad return at all. Currently she only rents it for $2500mo because affordable housing is an issue in our small town..also STR is not allowed per the town. Now we are considering selling it to buy a more cash flowing property. Maybe some MFR in a bigger town an hour away. We would 1031. Pros and cons to this idea?

Pros to sell: You're getting a poor return on equity. If the home has a mortgage, you're also not cash flowing. Lastly, you're not setting aside money for reserves so are running a risk of having big CAPEX and no means to cover.

Cons to sell: You lose your low interest rate. You have to pick capital games tax on anything over 250k of gains, for all of it if you haven't met the two out of 5 years rule. You have to go through the process of finding a better returning property and acquiring it.

it's wonderful to be generous and if you can afford it, it sounds like you're doing a nice thing providing cheap housing. But unless you're very wealthy, you have to raise the rent or sell this place. You just have way too little returns on my equity. S&P 500 is up about 25% this year alone.

Quote from @Lucero Cruz Narino:

I am newbie in Wholesaling and i want to start soon. In order to start contacting those land owners and builders , do I need to have any business license first ? 

Could I those those purchase agreements under my SSN personal number? 

any recommendation is appreciated .

 You're getting some conflicting advice here. I'm not a lawyer so please don't take this as a legal advice. But here's my take as someone who is done by and hold, fix and flip wholesale and other real estate strategies.

an LLC serves multiple functions. Among those, the most common things you'll hear is separate your personal liability from the business, create separate bank accounts in order to get a taxable EIN and then use that for business credit. The first reason here is probably not very likely to happen. If you actually get sued, they will simply disregard the LLC. Given that it's unlikely you'll set it up in the right way in the first place and operated properly to avoid lawyers piercing the corporate veil. It is quite a pain in the butt and a distraction when you're trying to get a wholesale business off the ground. You can pay lawyers and other people to set this up for you and manage it, but then you increase your costs quite a bit on a business model that you're not sure you'll be able to pull off.

other reasons to form an LLC include looking more legitimate to other operators, and viewing the endeavor as a legitimate business in your mind so that you treated as such. These are all emotional reasons and are not necessary to get started as a wholesaler.

lastly, one of the big reasons that you'll hear to start an LLC is so that you can have right offs on your taxes. You don't need to have a formal legal entity in order to take right offs. You can simply operate your business as a sole proprietorship and still take write offs for business losses.

I know they make it sound easy and straightforward in the marketing material, but wholesaling is a pretty tough business.

If you're still going to move forward with it here so I would proceed with the LLC:

1. Do a few deals and bank 20 30k in your pocket.

2. Consult with an attorney and a CPA in order to set everything up properly from a get-go. Fund this out of your initial profit.

getting distracted with the nuances of business structure, bank accounts, legal filings, and all that other stuff is going to be a huge time suck. To be successful, 100% of your efforts need to be focused on getting a contract on a property at a price point where you can flip that thing. In order to do this, you're going to have to figure out the systems and processes to pull all of this off. It's a massive endeavor. You can do it, but don't add additional non-revenue generating activities on top of you're already high workload. 

Best of luck!

Something is not adding up. You may spend quite a bit of time trying to get to the bottom of this, but the short answer is that you need to find a new property manager immediately.

If the p.m. is doing inspections on a bi-annual basis then they should catch ongoing damage. Is the tenant simply trashing the house in the last month before moving out or they damaging it continuously over time? 

One trashed house out of four every few years is probably just bad luck but every house every year? Something's wrong.

Completely agree with @Scott Trench here. There has historically been a large emphasis on "doing deals" and the person who does the most deals is generally seen as the most successful. But just as with personal finance, it isn't how much you make, but how much you keep that determines your financial position and security. 

Paid off houses remove one of the levers that makes real estate attractive (amortized, fixed-rate debt payed off by someone else). I've also heard that having paid off houses makes you an attractive target for frivolous lawsuits. 

At the end of the day this is a highly personal decision that takes into account the totality of your financial picture, lifestyle, risk tolerance. For me personally ~50 units making $200 cash-flow today (expected to increase with rent increases) leveraged at 60% ARV sounds about right. But I like the challenge of running a business and the sense of purpose therein. If real estate is simply a means to an end then I could see less leverage and less assets being more preferable.

I can totally relate to @Jake Andronico and have gone through the same exact emotional rollercoaster. It's hard for others to relate as "owning 4 houses" sounds crazy successful and unattainable to the average person, but only you know the blood, sweat and tears that went into your position and how much ongoing PITA there is. 

If you're struggling mentally due to comparison to those more successful take a content break. 3 months or of no books, podcasts, social media, etc. The reality is that you're killing the game. 

Quote from @Alexandria Garreau:

So long story short, my interest rate has increased on my rental property and my mortgage payment went from $1220 a month to $1969. Tenants pay $2350/mo and after the rate increase, this no longer covers mortgage/taxes/insurance. Technically I’m losing $120 a month - which isn’t a lot, but I was cash flowing $900 from it before the increase. Here is where I’m at for next steps:

1. Be open and honest with tenants and tell them that the rent will need to be increased to $2500. 
2. Evict tenants (I would give them a couple months to find a new place) and take the chances with airbnb. It is becoming a bigger thing where I live now. 
3. Either increase or not increase rent then sell it in the spring when the market is a bit more hot here. 
4. keep tenants but tell them I want to sever the house to make it a duplex (would cost nearly $15,000 to do likely) and then airbnb or rent basement. 
5. Any other suggestion that’s out there. 

I’m kind of at a point where I feel impartial to every option. I think #1 is most realistic but I do want to duplex it in the near future. & since I’m on a variable rate, if it goes up any more I don’t really know if I could increase their rent more. 

I appreciate any and all input, thank you! 

 Hey Alexandria. Interesting dilemma, you've got there.

it is a cautionary tale of using variable interest rates on rental real estate. Number two is out. You won't be able to evict the tenant just because your cost of increased that needs to be a violation of the lease in order to evict them. Now. You can still have the conversation with them and let them know that you would like to increase the rent or sell the property, but that's probably not in your best interest.

pumping a bunch of money into a duplex conversion doesn't sound ideal either, but I guess if the numbers work out it could be a good fit. Not sure how you intend to do that for 15,000 though unless it already has a separate kitchen. 

on the bright side, it doesn't sound like rates are going to go up and will most likely go down next year so I don't think your mortgage will increase any further at this time. $120 a month doesn't sound too bad so I would just hold on to it and reevaluate once you've had some distance from the shock of the mortgage rate increase. Try to refinance that thing into a longer-term fixed rate mortgage in the meantime, which may put you back into a good amount of cash flow

Quote from @Hector Serna:

Hey guys,

If any of yall have come across my previous post you’ll find that I recently had an offer accepted for a short sale in Cicero, IL. The numbers are as follows.

1959 Build Single family home: 3 bed (possible 4), 1 bath

Home price: 180k (Avg home in the area 240k-270k)

PITI Mortgage: $1,855

Down Payment: $9,000 (5%)

House needs approximately 15k-20k in repairs (A lot being cosmetic)

I recently learned that in order for me to rent it out, I needed to either put 20% down or live in it for a year.

I’m currently leaning towards living in it and repeating in my 2nd property in the future.

When I originally went to check out the house I learned that the water was shut off due to the bill not being paid. During the process, I was originally told that we can possibly get the seller to pay the water bill or that we can ask the town to turn it on so that I can get a proper inspection upon getting my offer approved. Today I learned that the seller is not willing to pay and the town is not willing to turn on the water until the bill is fully paid.
My realtor relayed we can either pull out of the deal or I can pay the water bill to perform the inspection thoroughly.

I’m looking at paying $1k+ for a water bill of a property that’s not mine I’m not even sure if I’ll go through with after the inspection (if worse defects are found).

I don’t know what to do.

thank you.

Too many red flags here. Buying a house without the ability to check the systems is asking for trouble. I did this last year and when I got the water on learned I needed to re-plumb the whole house. Nice 5k hit to expenses. Your cost may vary considerably from this.

I also think 20k is a pretty light rehab. I'm skeptical if that is enough, but without seeing the home or city would have no idea. If you're not doing owner occupied you're looking to leave 30-40k in the deal. Does it cashflow or break even at $1900/mo when factoring maintenance, CAPEX, management, and vacancy?

Rent needs to be  2500/mo.

lots to consider here!

youre on the path now though so if this doesn't work out don't stress, another deal is always around the corner!

Quote from @Jeff Hines:

Hey everyone,

I am a 28 year old who currently lives in NC. I just want to explain my circumstances and see how people with experience and knowledge in real estate would move forward if they were in my shoes. I have $150k in cash that I received from an inheritance and would like to use it to invest in real estate(I already have 6 months of reserves of my own money saved). I also have a credit score of 756.

My overall goal is to buy enough doors to supplement working full time so one day I can focus full-time on becoming an entrepreneur. I know that will take some time but I would like to get started ASAP! I took a few years out of work to take care and spend time with a family member whp passed, so I have only been working for a year now. This has caused me to have trouble with getting approved for loans/mortgages due to my work gap. I have done some research and have found a few ways I could possibly start investing in real estate. If you would take a different route than the ones I’m going to list below please let me know.

1. Since I can’t afford to pay cash for a home here in North Carolina, pay cash for a home in places like Detroit, Alabama, or Ohio. I would then renovate, rent, and refinance. Rinse and repeat this process over time.
2. Instead of paying cash use that money and spread them over multiple dscr loan so I can own more doors and just collect the cash flow after expenses.
3. Wait another year so I can have two years of work history/W-2s. This would increase my chances of being approved for a FHA loan. This would allow me to save money compared to paying cash or the huge Down-payment DSCR loans require.
   

Are there any other no documentation loans other than DSCR loans that I should look into?

If anyone has any advice or recommendations on how you would get started in real estate if you were in my shoes please let me know any and all suggestions would be greatly appreciated!

 It sounds like you're in a great position and just need a little more time to qualify for conventional financing. I can tell by your language that you're fairly well versed in the basic financing for real estate. And the fact that you have 6-months of expenses saved up prior to inheritance tells me that you're disciplined and decent with money (this is relatively rare). So you have a lot going for you. 

I can't advise you on what to do specifically. If I were in your shoes I would simply look for a co-signer to a loan and look for a small-multi family in your home town where you can house hack. It could be a single family as well, but with your cash position it seems favorable to go a little bigger. The drivers of wealth in real estate favor scale (appreciation, depreciation, and loan paydown; cash-flow should be easier with more units as well due to economies of scale). 

The rules on multi-family owner occupied recently changed allowing you to put down as little as 3.5% on up to 4 units. You just need to get that co-signer (rich uncle?). I would start by thinking through who can serve that role for you. Next, go and speak to at least 5 lenders, explain your situation and let them advise you on how to make it happen. 

I wouldn't recommend an all-cash purchase, especially out of state as this will deplete your cash reserves (please don't go buy an $80k rental in the hood :-D ). There are other concerns with this approach, but 50% down on a ready to go $150k rental in a cheaper area? Could be a good fit. Get into a property with less upside, but less risk. Then when you're skilled up and confident you can take your remaining non-emergency, non-reserves cash and scale more aggressively. 

As a point of clarification, DSCR loans don't require a higher down payment than conventional, they just have different underwriting criteria and less concern on your personal financial situation. Rates and fees are higher though. That's for sure.

Be careful being eager to spend the money. You'll read a lot about how cash is trash and if you don't invest you're losing money. There is some truth to that, but that rhetoric largely came out of a massively long bull market with historically low rates. Today you can get 5% in a high-yield savings account, take it slow, and plot out your moves to do this thing right. 

Good luck!

Quote from @Carlos Ptriawan:

Especially @James Hamling   , just read a market statistic and its mind blowing.
The age of first time home buyer in California is now 49 years old, in 1980 it used to be 32 years old.
In TX:  37 years old and FL is 42 years old.

The youngest age for FTBH in 2021 is located at the state of Iowa for 29 years old. 

It just mean in CA it's almost impossible for next generation to be landlord then, unless it's an inheritance.
And this very long time boom cycle is giving very advantageous position for baby boomers that lived in CA and purchase houses. 

No wonder Florida and Texas price is going up in early 2020s !!

 I'm from the mid-west, but live in CA. It blows my mind, but most Californians don't ever even consider leaving and have seldom lived outside of the state. They simply don't know any other way and are unwilling to consider an alternative. 

It keeps many in the state in a perpetual state of just barely scraping by. 

Quote from @Andrew Syrios:

Quite a few, especially if you use any debt at all. The secret about real estate is that, when it comes to buy and hold, you build wealth through appreciation/principal paydown; i.e. you gain equity that you can eventually tap into by either selling or refinancing. The cash flow is really just the cherry on top and usually modest for quite a while. 

My thoughts exactly (and my experience :-) ). The name of the game is getting equity, somehow, someway. Real estate is a great option due to leverage options and tax benefits primarily. But it really boils down to building that equity. For buy and hold it is a long term play which is very slow. Cash-flow is a defensive strategy at best (I don't find it very reliable; unexpected CAPEX, vacancy, etc.).

Once you have several million in equity it would be easy for most people to generate enough income to live comfortably (unless you're in expensive coastal markets I guess). But it doesn't need to be real estate. Cash, business equity, stocks all can be converted into monthly income. Getting there is the trouble! 

Quote from @Andrew Syrios:

Quote from @Frank D.:

Quote from @Andrew Syrios:

LOL, reading through these responses it would appear that the hardest part of flipping is acquisition, due diligence, budgeting, dealing with contractors, negotiating, psychology, financing and well, all of the parts of flipping. 

 Over analyzing every single detail doesn't work either, its fluid......things beyond your control. Sometimes you just have to roll with the punches.....

 Very true, although I was just referring to what I saw in the comments and basically every aspect of flipping was considered "the hardest part" by someone in here.

 That makes sense to me. Everyone has different skills and strengths and will find different parts of running a business challenging.