All Forum Posts by: Tom Wagner

An FHA loan is definitely the way to go here IMO. Much better risk/return profile than 20-25% down on a commercial loan.

Also, you are in great shape with your existing house. If you have $120k in equity on a $280k house you could refinance and walk away with ~$50k ($210k refi proceeds - $160k current balance). If your interest rate is lower than current market rates you could also consider a HELOC in order to keep your current rate as well.

Too many variables unknown to give solid advice. What percentage of your net worth does the equity in this home represent? If it is a significant percentage selling now to mitigate risk seems smart, but if not

Also, what is the property state now? Is it sitting vacant?

It is difficult to give a good answer without knowing your circumstances in more detail

Sounds like a hairy deal from a structuring standpoint. Will you be being compensated at market rate for your work on the property or will you be working at a discount? If at a discount then that should be factored into the equation.

I would be very careful analyzing a deal with leverage involved, as levered IRR can be distorted by increasing your LTV.

I instead analyze deals based on the going-in and pro-forma cap rate. I watch the market carefully and analyze deals as they close to see what the market cap rate is.

And stepping back, a 4.47% cap condo in Wilmington does not sound like a good investment. For older builds investors are unearthing 5%+ cap's in NYC/LA/etc -- so I think the hurdle for Wilmington should likely be >= 5.5%

100k in market for 30 years at 8% year = 100k * 1.08^30 = $1,006,000

100k down into 500k house for 30 years at 3%/appreciation = 500,000 * 1.03^30 = $1,213,000

And the property may not be generating cash flow now, but it will be spitting off cash flow as your mortgage stays fixed and rents continue to rise.

Because of the leverage real estate wins almost every time.

Good question. In all the deals I've looked at I've never seen two that are exactly the same. Some differences to consider:

* Interior finishes

* Exterior finishes

* Sqft, bedroom count and bathroom count

* Floor plans

* Ability to add a bedroom

* In-place taxes and rents

* Year built

* What street each property is on / what submarket it is in

* Whether it has parking

* Landscaping

* Immediate neighbors

* Proximity to transit, schools or parks

More often than not it will become clear which property is better the deeper you dive into your analysis. And in my analysis I index/focus heavily on the neighborhood street of each property, as I am investing for appreciation instead of cash flow.

I saw some interesting data on Twitter recently used as the basis for an argument that rising interest rates will not necessarily cause prices to fall:
https://twitter.com/NikhaarSha...

I tend to agree and think that the only way prices substantially adjust is if inventory/supply increases.

Are you an active real estate professional? I believe you need to be in order to offset capital gains or ordinary income with depreciation.

Disclaimer: not an accountant, CPA or lawyer