All Forum Posts by: Victor Ong

I see. But there's a cap on the rent, while property cost is relatively high compared to certain pockets of LA city. Very similar environment to Asia where you have low yield on the cashflow but property value is trading at high multiples. There's also going to be a lot of competition if you are able to nail down a REO or distressed.

@Boris Suchkov

Any reason to target Alhambra?

I think we need to examine the balance sheet closely to understand what type of debt and why use debt. The key to manage debt is duration: how to match your debt duration with your cashflow. I am going to borrow Gordon Gecko’s famous quote with a twist:

Debt for a lack of better word is good...

For personal debt with short term maturity such as credit card (revolving credit), has the following nature:

Current Liability

1. Short maturity - due in 30 days or less

2. 0% interest rate within 30 days or less

3. High interest once you roll it over into balance

4. Convenient payment solution with traceability

In most situation, you would use CC as your recurring expenses that you can pay it off on your monthly income/cashflow.

Fixed Liability

For mortgage debt that has a long term maturity (25-30years), it helps to alleviate your cash outlay if you use it right. This is where debt becomes beautiful:

1. Allows you to take control of a potentially appreciating asset with possible of cash flow

2. If debt’s interest rate does not catch up with inflation, then lender loses money. Imagine if you have a mortgage rate at 3% and annual inflation rate is 2%, lender only makes a 1% spread, while your asset appreciates 2% per year. Your holding cost is simply 1% without factoring principle repayment and cash flow generated from the rental

If you are able to manage the duration well, then piling debt is not burdensome. A lot of RE investors piled on debt without cashflow to suffice the debt obligation in order to bet on huge appreciation, which is gambling. You are better off betting #36 on the roulette table.

Again, think about all the sovereign debts for the moment. They never pay back the principal but kept refinancing it while they print more fiat money to create inflation. The more inflation they created, the cheaper their debt would be.

@Vinay C.

I admire your persistency and grits. When my FHA offers were rejected, I ditched that route and move forward with traditional 25% down.

I see, where in the valley? The seller gave you a good deal on a $6k/m gross potential duplex while accepting your 3.5% down. I remember when I first started buying houses, my FHA offers were thrown out of the window.

I was also surprised that you don't have to perform much value add to get rent to market rate. 

I can see this is well played in the financial planning and execution, especially in a 6m turn around time. 

It's a great strategy to reduce your cashoutflow on a primary. However, value-add will contribute to most of the appreciation in value. Will there be any chances to value add to the property and raise cashflow?

Step1: FHA with FHA203k on a primary duplex with the ability to rehab.

Step2: Once stabilized, cashout existing equity and conserve capital on the side

Step3: If existing duplex allows you to build another unit, find another lender who could lend you based on ARV. If not, use your capital to build another unit per zoning

Step4: If the above land does not allow you to build, look for another one using your own capital. 

The trick here is using the potential rental income from the duplex to increase your gross income so you could borrow larger amount of debt. FHA has a hard cap of $980,325 loan amount on duplex and $1,184,926 on triplex.

 Try this

https://www.boxbrownie.com/

Wait for the eviction/rent/foreclosure moratorium to expire and let it sit for 90 days. Our lovely city and state officials are helping to brew a bigger bubble than 2008. 

A long post but I could see you have a plan in place and have done your research. I will be brief to your questions:

1. Investors won't look at your when you haven't earned your stripes. Real estate is different from technology start ups where investors look for pedigree, energy, and pure raw talent. Stay focus on your first deal since how you overcome it will attract a lot of attention.

2. We might see a massive default wave starting August, while the lending market is tightening up. I would continue to save and conserve capital for the next 12-18 months. Good deals will start popping left and right. You also want to wait for our lovely politicians to lift the rent/eviction/foreclosure moratorium ban. 

3. It's relative to your capital/income. There's a fine balance between how much money you have and how much you could invest. You don't want to overstretch yourself. For entry level with limited capital, South LA still has great value to pick up as the cost to yield ratio is probably one of the highest in LA. However, the credit quality will be an issue for investors, especially in the COVID environment. 

4. Google New Western Acquisition and speak to one of their reps. They are wholesalers.

5. All wholesale income falls into ordinary and is subject to income tax. The only way to reduce your tax liability is through expenses. No other way out. 

6. Your best bet is to use personal vesting since residential mortgages are more lenient and obtainable. LLC financing for 1-4 units are tough to find and expensive. However, you could transfer the title into LLC after you obtain the mortgage. The tax accounting and taxes still work the same between the two vesting, unless the property is vested for primary: taxation will be favorable for capital gain, but not for rental income.

7. Save money now and be patient for now as a perfect storm is coming. In the meantime, arm yourself with financial modeling tools such as IRR and DCF. The tools will help you to qualify the assets and shape your strategy: income or profitability approach

gluck

@Fahad Masud

I suggest that you to start putting rendering of the completed unit on the market, while you are rehabbing the property. This will speed up your process of finding a new buyer as the future unravels. Also have after repaired value appraisal done in the event that you’ll need to cashout refi to get your value add capita back.