All Forum Posts by: Varun Parkash

Thanks Paul, the purchase price of my friends house is, 1,175,000 (not 1.75M - my bad) and he has 10/1 ARM - and said he pays a monthly mortgage of $6k = which I failed to calculate - considering his hoa = $100 and property tax is standard Orange County = 1.05% Since he down-paid 30%, Going by your statement, it means he still has 30 years to pay off his loan with 1st 10 years at 3.1 interest rate and then for remaining 20 years - either he will refinance at that time into another ARM or 15 yr fixed loan or he will continue to pay remaining 20 years at yearly adjusted market rate. Does my thinking Makes sense?

Originally posted by @Vic Reddy:

BofA is very aggressive on Jumbo loans & offers best rates for high net worth/income individuals

Recently a Doctor client of mine closed with 7-yr ARM at 2.875% ,25% down on a $1.7mil home

Hey Vic i am assuming that your doc friend is paying a very high monthly P&I payment spread across 84 months in his 7 yr ARM compared to a 30yr loan at 3.875% interest rate spread across 360 months. I guess for individuals who can pour in a solid chunk of monthly P&I with no significant impact to debt-to-equity ratio - and no intent to make multiple investments - going forward with 7/1 or 10/1 ARM makes sense.

My question below might be dumb, but i want to clarify: 

Have you heard of any option where they give you a low rate due to ARM loan and still allow you to make payments spread across multiple years? 

Example: 10/1 ARM loan at 2.5 interest rate and then you get the option to pay it like a 30 yr loan with payments divided across 360 months - for 1st 10 years at 2.5 and then 11th year to 30th year at yearly adjusted interest rates? 

Hi Tyler, I have asked my loan officer to advice regarding the same. I still need to find about pre-payment penalty.

Originally posted by @Louis A.:

@Varun Parkash Unless I'm misunderstanding, you will not be saving $300 in P&I -- If you are refinancing 10 year arm @ 2.5%, your payment will increase substantially. Assuming you are financing 80%, your P&I will increase by ~$2100 with a 10 year loan. Yes, you will incur lower interest fees in the long-run but the cash-flow impact is substantial.

If you are thinking about investing in other properties, you should really think strategically about how a (higher) 10 year mortgage payment will impact your DTI (debt-to-income) ratio. Freddie/Fannie have very strict underwriting guidelines and once your debt-services obligations exceed their stated % of income thresholds, securing new conventional financing may prove difficult.

Personally, I am with @Andrew Johnson -- I have all of my properties in 30 year fixed mortgages. Yes, the interest rate if a little bit higher than a 10 year, but the lower payment helps me maximize my cash-on-cash return while allowing me to re-deploy excess capital to new investment endeavors.

 Thank You Louis for your insights. Initially, i thought that 10 year loan = 120 months = so my per month P&I payments will go substantially higher as you pointed out.

For example: current Monthly P&I on 550K with 20% down at 3.75 (30 yr fixed) = $2038/month

Monthly P&I on 550k with 20% down at 3.25 (10/1 ARM) = $2038 + $2100 = $4138/month = which is a Substantially bigger amount.

My friend confused me by saying that on 10/1 ARM = you can pay your monthly payment divided into 360 months, which i felt is wrong. 

Guys, I have a 30 year - 3.75% fixed rate loan on 550k property that I am thinking of refinancing it into a 10 year ARM. Currently the loan has completed 2 years. Property is now an investment property for which the original loan was secured as a primary residence loan. I also bought a 2nd home - vacation (315k) - closing in a few months - and have locked a 30 year loan at 3.875 interest rate - by paying $1300 fee. My question is : 1. Does it make sense to convert both of these loans to 10 year arm loans to get interest rates dropped to 2.5? 2. Since the second home hasn’t closed yet - my options are open and no closing costs etc has been paid yet. Is it recommended to take 10 year arm on it? 3. What fees/penalties do I have to pay to refinance house 1? I read that arm loan conditions are that home can’t be sold for 5-8 years ? Both these above homes are investment purposes and eventually I will be buying a 3rd home in 1.5-2M range for living myself in a couple of years. Currently I loose around 4K/year on home #1 (550k) - if my interest rate drops from 3.75 to 2.5 - there’s a considerable saving of $300 something per month in p&i Please advice the pros and cons

I might jump on the Stockton bandwagon once I go through my exhaustive market research.

Sorry but the San Antonio money making real estate boat has sailed and so has to Austin/Dallas one unless : 1. You are in to fixing and flipping 2. Wholesale deals 3. Foreclosures All the 3 options will require considerable amount of time & money along with risk factors. Easier bets are get a newer property - out of state - where property taxes are < 1 % , HOA below $50, no special city taxes, good schools and high median income of residents - if you want to obviously buy in class A neighborhoods and be a passive investor and bag a cash flow of $200-$300 per month with a chance of appreciation in next 5-10 years.

Originally posted by @Matthew Paul:

So the guy spent 2 million and bought 310 houses . Now he has to get insurance , depending on the houses , lead paint inspections , pay fines for code violations , secure vacant properties . Seems to me he could have bought 10 million in liability 

He is not a one-man army, most of his portfolio might be a steal considering it already has people living in them and he is just building mad-crazy wealth and of course with any investment, risks are involved for which he will have his plans since he is local.  

Biggest Joke is: imagine a scenario as they show it in the video too: $500 per month * 12 = $6000 earned in rent in one year = property paid for itself and now every penny he earns on it is pure profit - no loans/no games/no drama. The occasional risk of a bad tenant, crime neighborhood, trashed property will always be there. But in 3-4 years, he will have earned back his 2M easily as all the properties will pay for themselves and then all he is liable is for standard tax costs and whatever standard repairs/maintenance that any landlord has to do on an old home. Not everything is golden for him, but still considering the time - when he would have bought them at rock-bottom-laughable prices - he has strong chances to win in the long run.

Originally posted by @Account Closed:

@Varun Parkash In 2011 I was able to sell most for around $9k each. Overall I broke even, but I was lucky to walk away unscathed. I wrote off real estate but re-entered in 2014, investing locally. And it was a great decision! 

 Oh, Glad Saj that you were able to make it even in the worst case. I currently own out-of-state properties Class A in prime-neighborhoods only - but since they are all brand-new, been lucky so far. 

Originally posted by @Dan H.:

Originally posted by @Varun Parkash:

Originally posted by @Dan H.:

Originally posted by @Varun Parkash:

A real simple answer, HOUSING is a GAMBLE - believe it or NOT, the Invisible STROKE of luck is at its full force when you buy:

Example: hundreds of folks became millionaires who bought between 2011-2013 - TIMING - a stroke of luck - which a few calculated/researched/predicted and hence capitalized on it.

There are many types of landlords - frugal/slum-lords/penny-pinchers/businessmen etc. = pick your choice!

I would argue that where ever you park your assets has some risk. If I park my assets in an FDIC insured bank account the risk is that inflation outpaces the growth leaving me with less purchasing power. If I invest in RE the risk is that the RE depreciates. If I invest in stocks there is the risk of a market crash. If I invest in bonds there is a risk of default and bonds becoming worthless.

We have been investing in RE a long time and I believe we have done better on our RE investments than we would have achieved on any other investment option that we would have considered.

Also I do not feel that it was a stroke of luck for the purchases we have made including those between 2011 and 2013.  We know our market.  We know its history.  We understand the supply and demand and its impact to prices and rents.   

BP is a site largely dedicated to RE investors in its various forms. Are these investors hoping for luck?  I would hope by being on this site they are educating themselves and not relying mostly on luck.

BTW our most lucrative purchase was in 1999 but even our purchases that were made shortly before a market correction (purchases in 1993 and 2003) look like they were good investments today. 

 I would say that not everyone knows their market and studies can certainly help, but i don't know who holds the crystal ball to tell you that everything is going to drop rock bottom in XX month of XX year. Certainly, trends can be studied etc. but going by the same trend of 7 year bull and 7 year bust market, we have exceeded the bull stage already in today's market,  now going by your statement of analyzing/studying market and predicting what's coming next - when do you envision this current market on a serious dopamine run to bust? 2020? 2022? 

My opinion is that our market will not have the RE appreciation going forward of the last 6 or so years but will continue to have rent appreciation for at least the next few years.  I have had this belief for at least 2 years and yet in my market the last 2 years had significant RE appreciation (so I was, at best, early in my prediction).

My belief on the rent continuing to appreciate is based on many factors but the primary one that I use is that rents lag RE fluctuations in both directions in my market.  There is also the link I posted in this topic on the USC study of their research into the rents in my market (i.e. rents will raise $129 before 2019) and also the supply and demand (i.e. the unoccupied rate is very low).

I see no indicators of a huge RE market correction/crash in our market but we have invested through a couple RE Crashes and experienced no rent depreciation and have completed some of our better purchases in the declining/recovering market.  So I look at the next RE crash as another opportunity to purchase more RE at reduced prices (like an RE sale).  If properties drop 20% next year we will need to decide between apartment buildings or commercial business REs, but we will be buying.

 Great Dan! I am able to raise $100/year for my Orange County, CA Tenants. Interestingly, I also studied a study by USC professor where he aggregated the data from over 30 years (starting 1975) to predict the boom-bust 7-year cycles. A 20% drop is a big correction as my studies tell me that back in 2011-2013 time-frame, prices in Southern CA - primarily OC properties dropped in 20-25% range. It's shaving off a solid chunk - 100k (20% down) off a 500k condo in a city like Irvine. I will be buying too if that happened in 2020.