All Forum Posts by: Felipe A.

Thank you all for the feedback. Will look into options regarding the principal residence issue. Chinmay J. I did forget to mention that the property is maintaining favorably vs the comps - it's a good price and I think it can be had for even less. Original owner, great condition, new furnace and Windows - basically any work that needs to be done to a condo has been done already. HOA fees aren't cost prohibitive. My main concern is with a property like this that will have very slow/steady appreciation, what is the best method to take out equity. Thanks again!

Hi all:

The good news - my wife and I are expecting our first next month. Her mother has very generously offered to come and help us out with the baby for 1-2 years. Unfortunately, we only have a basement for her. Fortunately, we live in a great neighborhood and attached to our neighborhood are some (mostly) 2-2 condos in very good shape (ranging 200-220k) that we've been eyeing. My wife and I started thinking long term and thought it would be good to have her mom stay in this condo while we pay for the PITI (we look at it this way rather than paying a daycare/nanny which could be in the $1500-2000 range per month for a few years - yes, they are that expensive). Her mother has generously offered to put down 11-12% and we would probably put in an additional 8-10% (totally manageable for us). Down the road when her mom decides to move back home, we would rent the property out (it would be slightly cash flow positive but these condos rent very easily). We would be just shy of the 1% rule, but comfortable enough with it. We would be doing this for convenience moreso than our principal investment vehicle.

My questions:

- For our principal residence, I am the sole name on the mortgage.  Can my wife apply for the mortgage on this property as if it's HER principal residence?

- For this kind of investment, what would be the best way to pull out equity within 1-3 years?

- Am I missing anything?  I know this is not the typical great deal that folks here are looking at but I just want to make sure I am not missing anything.

Thanks in advance.

Originally posted by @Charles Adams:

Hi Filipe

My first question is how old is your father and why are you flooting these ideas knowing the reason would help for better ideas/suggestions and your father wouldn't be able to live in the house while the renovations are being done. Florida homes are built on a slab so to install proper ac/heating you have to cut channels or venting channels in the concrete/floor you could come through the attic but that's not green and a professional would advise against it, is the ac your biggest desire to update? If it's retirement income then I'd stick with the cheapest renovation possible improving the property and increasing the value a lot of times landscaping and or grounds work done improves the visual there by the perceived value and that can be done while your father lives there. 

 Hi Charles.  He's in his mid 60s.  We do have a plan in place while the renovations are being done (staying with a family member), regardless if it's for 2 months or 6 months.

As to your AC comment, it should not be a significant issue because as per him (he's an engineer himself and has been in the homes business for some time) it should not be an issue.  At this point, we're looking to go beyond nice landscaping and rehabbing on the cheap simply because it's akin to a bandaid approach to fixing something.  In my mind, if the money is there, shouldn't we look at more robust improvements?

One of my biggest questions is where to start.  I think for one he needs to figure out what he wants to do with the house as part of his estate but I know he favors option #1 (full reno).  Assuming that's the case, does he meet with an architect first to get ideas on paper?  

John, great insight.  I really like the historical society approach - an interesting idea but I can see how that can open a can of bureaucratic worms.

I am not sure what sub forum to direct this to - this one seemed like the best one.  I'm turning to the forum for some preliminary advice.

Here's the short version:

My father still lives in the house I grew up in.  It's in Florida and it's located in a very high demand/high value area.  The house is a 1920s house on a corner lot but hasn't had big improvements (outside of a minor reno on the kitchen) - there's no central AC, for example.  Great lot size and a house with "great bones" (the architecture of the house is very classic style of this area).  I'd say comparables with corner lots in this area (assuming major upgrades/reno has been done) are in the $1M+ but my father's house would probably only sell for 600-700k because of its condition.  The house is completely paid off.

IMO, he has 2 main options:

1) Make a major renovation (not a tear down but a full gutting) - somewhere in the $100-200k range, build an addition, add a pool, gut most of the inside, etc. and truly make it an amazing house that he could turn around and sell for $1-1.5m in the near future.  Or, if he chooses to, he can gift it or sell it to family at a discounted price.

2) Make a minor renovation ($40-50k) to make it very comfortable (central AC, new bathroom, etc.) and hold onto the asset and maybe down the road gift it or sell it to one of his children.

The house is his best asset and my attitude has always been #1.  It can be a pretty amazing house and can be used to host family from out of town, etc., and keep the house "in the family" for generations.

If #1 is the choice, where does one start?  I'm sure there are estate planning scenarios he has to account for and there are financial impacts for it as well - besides increased property taxes, what other financial implications are there?  I'm guessing he should take out a home equity line to finance the construction but i'd have to see if the interest deductions on his taxes would offset the increased property values and interest payments on the line.

Anyhow, I figured I'd turn the forum for some advice.  What other considerations should I take into account?

Thanks in advance!

Originally posted by @Jerry Padilla:

@Felipe A.

• The typical cash out financing is done after 6 months of owning the property, based on ARV and available for mortgages #1-4. Please see delayed financing for less than 6 months after closing.
• On a primary residence you can pull out up to 80% LTV on a SFR and up to 75% LTV on 2-4 unit multi-families.
• On an investment property; A SFR if you have #1-4 mortgages you can pull out up to 75% of the equity and a duplex is up to 70% equity.
• On an investment property; If you have #5-10 mortgages you can only pull out money in the first 6 months (delayed financing) that you own the property, if you didn't originally get a mortgage on the property. As long as the value is there (on a SFR 70% LTV and duplex 65% LTV) You can take out up to the purchase price plus closing costs on the property.
• If you are willing to pay the fees and go through two closings.... You can take out private or hard money on free and clear properties #5-10 and do a rate and term refinance with conventional to pull money out on them.

http://www.biggerpockets.com/blogs/5110/blog_posts/42766-all-about-conventional-cashing-out-on-those-properties-1-10

 Jerry, thanks so much for the great response.  I will read up on that link.  In your experience, do the 6 month minimum vary per state or is that pretty standard?

I am a beginner and I think this is the part of buying real estate that becomes very scale-able. What kind of considerations do I need to make before doing a refi in the BRRRR?

For example, let's follow this simple example:

SFR for sale at $105k, ARV is about $70k. I purchase it for $70k and put 20% down ($14k). The note on the property is therefore $56k and I automatically have 30% equity (70% LTV) in the property.

When can I refinance the 70% and pull my money ($14K) out? Do I have to validate operating the property for a certain amount of time before being eligible for a refi? If not, can I technically refi the minute I get a 70% LTV on the property? (Which would technically be day 1 after owning the property.)

TIA!

@Kyle J. and @Daniel HSieh give sound advice.  Don't mess around with fraud or anything that remotely resembles it.  Bad news and it could lead you down a bad road.  Do some research on your own.  The beginners guide to RE investing on this site is free and has all the answers you need to know including a section on how to finance.  

Does the HOA fee include utilities?

Also, with condos, do people here wrap the HOA fee into the rent payment? Or is that an operational expense that is absorbed by the landlord?

legal zoom is a much more affordable option to incorporate and set up an LLC.

This is an interesting question and I'm wondering if the same arguments apply to $100k (as opposed to $1M.  Is it better to start accumulating SFRs and then over time starting paying them off quickly before freeing up enough cash flow to start supporting a bigger multi family?

It's a key question when looking at things from a "how do I scale" perspective. 

Good discussion.