Class C: Personal loan for 200k, should I use it for multiple down payments, or...?

Hong Kong · Member since 2024 · 161 posts · 57 votes

First of all, feel free to make any and all comments you wish; there's no need to sugarcoat anything. I appreciate almost any feedback where the poster makes a sincere attempt to share their opinion, regardless of what it might be. Thanks.

I really like the idea of using OPM to invest. Here is my current situation - I can probably secure a personal loan for about 200k at around a 3-4% interest rate with a 5-year tenor. Repaying this shouldn't be a problem assuming I don't suddenly lose my job.

I am thinking about starting off in some class C neighborhoods and will be handling everything remotely. Perhaps I'll try to acquire around 3 properties in cash deals that need fixing up, rent them out, and then hold onto them... forever? Based on my previous investing history (completely unrelated to real estate), I would describe myself as a buy-and-hold kind of guy. Hopefully, things will go relatively smoothly with the rehab, vetting tenants, and so on. If the rent stabilizes, I can then consider refinancing these properties using DSCR or other valid options (please educate me, and let me know what other options you think are valid). What are your thoughts on this plan?

Alternatively, do you think it might be better to use the 200k to make down payments on higher-quality homes, i.e., ones that are almost rent-ready, and finance the remainder of those purchases with DSCR, etc.?

I'm entirely new to real estate investing, but I have a high risk appetite because I have seen other people achieve amazing things that many say cannot be done. I often look at them and think if they can do it, probably I can have some level of success too.

Other key info I may have left out above:
1) I am not in the US, and have no plans to visit or move there
2) I am not a US citizen, but possibly have a credit history there (maybe none) since I attended university there many many years ago
3) I am completely new to real estate - I've been reading crazily and consuming lots of content. Next step will be to start analyzing deals for practice and asking others for feedback on my analysis. Once I've done that multiple times and I'm getting positive feedback on my numbers it will be time to begin the real journey.

Thoughts please. Thanks again.

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

Quote from @Nicholas L.:

@Zach Howard

when you say a 'personal loan' at that interest rate - that must be a friends and family thing, right? no one is commercially loaning at that interest rate right now. and even for friends and family, that's more of a favor than a loan...

you asked not to sugarcoat, so here goes. what you're proposing, while possible, is incredibly difficult and highly risky, and i don't know how you would do it completely remotely with no plans to visit or set up a team.

i think i've said this in other posts, but there is tremendous demand for inventory right now among both retail buyers and investors. to BRRRR something, you need a goldilocks property - something distressed enough that it can be bought substantially below market, but not so distressed that it can't be repaired. everyone wants those deals, and so you're competing remotely / from your computer against experienced investors in person in any market you'd pick. on the chance that something comes to you somehow - you'd have to snap it up / put it under contract immediately, and again, that's very difficult to do remotely. as an example, you'd have to do something different than this:

https://www.biggerpockets.com/forums/963/topics/1195280-expe...

https://www.biggerpockets.com/forums/48/topics/1137397-balti...

i am trying to do the same thing locally, in person, and it's difficult. everything on and off market gets multiple offers almost immediately. and if it's sitting, and you see it, it means everyone else passed on it. what does that tell you?

on your second question - you're proposing 100% financing. you'll be cash flow negative / losing money, potentially for years and years. it's your money, so if you find something in a market you believe in and want to try to hold it very long term, OK - but again, it will be many years before you recoup all the interest you'd be paying. i don't think that makes any sense - there are investments that make money - but YMMV.

hope this helps

Your talking financial suicide.. Class C from half way around the world fully levered.. U will go broke that I can basically assure you or at least 90% chance this will not work and you will lose money.

U would be better off making loans with that 3% 4% money at 10 to 12% and make the interest rate delta pick very good borrowers and let them take the risk on the assets.. Thats what i would do.. BE the BANK..

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Nicholas L.Pro Member
Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
1y
@Zach Howard
when you say a 'personal loan' at that interest rate - that must be a friends and family thing, right? no one is commercially loaning at that interest rate right now. and even for friends and family, that's more of a favor than a loan...
you asked not to sugarcoat, so here goes. what you're proposing, while possible, is incredibly difficult and highly risky, and i don't know how you would do it completely remotely with no plans to visit or set up a team.
i think i've said this in other posts, but there is tremendous demand for inventory right now among both retail buyers and investors. to BRRRR something, you need a goldilocks property - something distressed enough that it can be bought substantially below market, but not so distressed that it can't be repaired. everyone wants those deals, and so you're competing remotely / from your computer against experienced investors in person in any market you'd pick. on the chance that something comes to you somehow - you'd have to snap it up / put it under contract immediately, and again, that's very difficult to do remotely. as an example, you'd have to do something different than this:
https://www.biggerpockets.com/forums/963/topics/1195280-expe...
https://www.biggerpockets.com/forums/48/topics/1137397-balti...
https://www.biggerpockets.com/forums/48/topics/1137397-balti...
i am trying to do the same thing locally, in person, and it's difficult. everything on and off market gets multiple offers almost immediately. and if it's sitting, and you see it, it means everyone else passed on it. what does that tell you?
on your second question - you're proposing 100% financing. you'll be cash flow negative / losing money, potentially for years and years. it's your money, so if you find something in a market you believe in and want to try to hold it very long term, OK - but again, it will be many years before you recoup all the interest you'd be paying. i don't think that makes any sense - there are investments that make money - but YMMV.
hope this helps
6 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
1y
Quote from @Nicholas L.:

@Zach Howard
when you say a 'personal loan' at that interest rate - that must be a friends and family thing, right? no one is commercially loaning at that interest rate right now. and even for friends and family, that's more of a favor than a loan...
you asked not to sugarcoat, so here goes. what you're proposing, while possible, is incredibly difficult and highly risky, and i don't know how you would do it completely remotely with no plans to visit or set up a team.
i think i've said this in other posts, but there is tremendous demand for inventory right now among both retail buyers and investors. to BRRRR something, you need a goldilocks property - something distressed enough that it can be bought substantially below market, but not so distressed that it can't be repaired. everyone wants those deals, and so you're competing remotely / from your computer against experienced investors in person in any market you'd pick. on the chance that something comes to you somehow - you'd have to snap it up / put it under contract immediately, and again, that's very difficult to do remotely. as an example, you'd have to do something different than this:
https://www.biggerpockets.com/forums/963/topics/1195280-expe...
https://www.biggerpockets.com/forums/48/topics/1137397-balti...
https://www.biggerpockets.com/forums/48/topics/1137397-balti...
i am trying to do the same thing locally, in person, and it's difficult. everything on and off market gets multiple offers almost immediately. and if it's sitting, and you see it, it means everyone else passed on it. what does that tell you?
on your second question - you're proposing 100% financing. you'll be cash flow negative / losing money, potentially for years and years. it's your money, so if you find something in a market you believe in and want to try to hold it very long term, OK - but again, it will be many years before you recoup all the interest you'd be paying. i don't think that makes any sense - there are investments that make money - but YMMV.
hope this helps

Your talking financial suicide.. Class C from half way around the world fully levered.. U will go broke that I can basically assure you or at least 90% chance this will not work and you will lose money.
U would be better off making loans with that 3% 4% money at 10 to 12% and make the interest rate delta pick very good borrowers and let them take the risk on the assets.. Thats what i would do.. BE the BANK..
Podcast Guest on Show #222
JLH Capital Partners51 Review
Website View Page
7 Reply
Zach Howard
OP
Hong Kong · Member since 2024 · 161 posts · 57 votes
1y
Quote from @Nicholas L.:

@Zach Howard
when you say a 'personal loan' at that interest rate - that must be a friends and family thing, right? no one is commercially loaning at that interest rate right now. and even for friends and family, that's more of a favor than a loan...
you asked not to sugarcoat, so here goes. what you're proposing, while possible, is incredibly difficult and highly risky, and i don't know how you would do it completely remotely with no plans to visit or set up a team.
i think i've said this in other posts, but there is tremendous demand for inventory right now among both retail buyers and investors. to BRRRR something, you need a goldilocks property - something distressed enough that it can be bought substantially below market, but not so distressed that it can't be repaired. everyone wants those deals, and so you're competing remotely / from your computer against experienced investors in person in any market you'd pick. on the chance that something comes to you somehow - you'd have to snap it up / put it under contract immediately, and again, that's very difficult to do remotely. as an example, you'd have to do something different than this:
https://www.biggerpockets.com/forums/963/topics/1195280-expe...
https://www.biggerpockets.com/forums/48/topics/1137397-balti...
https://www.biggerpockets.com/forums/48/topics/1137397-balti...
i am trying to do the same thing locally, in person, and it's difficult. everything on and off market gets multiple offers almost immediately. and if it's sitting, and you see it, it means everyone else passed on it. what does that tell you?
on your second question - you're proposing 100% financing. you'll be cash flow negative / losing money, potentially for years and years. it's your money, so if you find something in a market you believe in and want to try to hold it very long term, OK - but again, it will be many years before you recoup all the interest you'd be paying. i don't think that makes any sense - there are investments that make money - but YMMV.
hope this helps

It's not a loan from family and friends, it's a bank loan from a local bank in Hong Kong. Interest rates here tend to be lower than elsewhere (I have no clue as to why), and therefore to me it's appealing to borrow everything I can here and use it in the US assuming I can find deals where the numbers make sense. I'm sure it's hard to find, I'm sure there will need to be some luck involved, but whatever, I'll be patient and see what appears on my radar.

I wasn't strictly referring to a BRRRR strategy, because I guess in class C neighborhoods their may not be that much room for appreciation anyway. So perhaps not fixing them up to such a high standard that they will appraise at a significantly higher value, but so that they will be liveable to tentative tenants. The reason I mentioned DSCR loans is because if a property I buy and bring up to rent ready standards then starts cash flowing, rather than waiting to collect enough cash from the rents before I start on another property I'd like to accelerate the process by getting an additional loan and putting that money to work elsewhere - haha, I hope I'm making sense. I'll only take the DSCR loan if the property can still cash flow, even if it's not that stellar and only slightly positive.

I don't plan to visit, but I definitely plan to set up a team. A nice tip I got in a youtube video recently is once you've identified a market you wish to invest in, the first member of your so-called team should be other investors in the same market, especially those who are doing something the same or similar as you. If you can befriend and connect with them you can "borrow/steal" their resources such as reputable contractors, agents etc. I haven't 100% narrowed down my market yet, but once I do, I'll aim to connect with investors first, seek advice and recommendations and go about building my team this way.

Why would I be cash flow negative and losing money for years and years? The original loan will be paid off in 5 years, then the only expenses will be things like repairs/maintenance, property taxes etc - haha, or is there something I'm missing and not thinking about?
And, every one of your posts has been helpful to me so far. Thank you.
0 Reply
Zach Howard
OP
Hong Kong · Member since 2024 · 161 posts · 57 votes
1y
Quote from @Jay Hinrichs:

Quote from @Nicholas L.:

@Zach Howard
when you say a 'personal loan' at that interest rate - that must be a friends and family thing, right? no one is commercially loaning at that interest rate right now. and even for friends and family, that's more of a favor than a loan...
you asked not to sugarcoat, so here goes. what you're proposing, while possible, is incredibly difficult and highly risky, and i don't know how you would do it completely remotely with no plans to visit or set up a team.
i think i've said this in other posts, but there is tremendous demand for inventory right now among both retail buyers and investors. to BRRRR something, you need a goldilocks property - something distressed enough that it can be bought substantially below market, but not so distressed that it can't be repaired. everyone wants those deals, and so you're competing remotely / from your computer against experienced investors in person in any market you'd pick. on the chance that something comes to you somehow - you'd have to snap it up / put it under contract immediately, and again, that's very difficult to do remotely. as an example, you'd have to do something different than this:
https://www.biggerpockets.com/forums/963/topics/1195280-expe...
https://www.biggerpockets.com/forums/48/topics/1137397-balti...
https://www.biggerpockets.com/forums/48/topics/1137397-balti...
i am trying to do the same thing locally, in person, and it's difficult. everything on and off market gets multiple offers almost immediately. and if it's sitting, and you see it, it means everyone else passed on it. what does that tell you?
on your second question - you're proposing 100% financing. you'll be cash flow negative / losing money, potentially for years and years. it's your money, so if you find something in a market you believe in and want to try to hold it very long term, OK - but again, it will be many years before you recoup all the interest you'd be paying. i don't think that makes any sense - there are investments that make money - but YMMV.
hope this helps

Your talking financial suicide.. Class C from half way around the world fully levered.. U will go broke that I can basically assure you or at least 90% chance this will not work and you will lose money.
U would be better off making loans with that 3% 4% money at 10 to 12% and make the interest rate delta pick very good borrowers and let them take the risk on the assets.. Thats what i would do.. BE the BANK..

You know seeing people complaining about interest rates elsewhere has really made me think of exactly that thing, borrow as much as I can, and even get friends to borrow at the lower interest rates here (assuming they qualify) and then arbitrage my way to profits. However, too many risks with that, and too many regulations I guess... I'm not a financial lender or whatever the legal term is.

If possible, can you recommend something real estate-related? What would you do with the 200k? I don't think I can reap the same benefits from notes that I can from owning property. There are no write-offs for decpreciation, no continuous rent payments and so on.

I appreciate your reply.
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
1y
Quote from @Zach Howard:

Quote from @Jay Hinrichs:

Quote from @Nicholas L.:

@Zach Howard
when you say a 'personal loan' at that interest rate - that must be a friends and family thing, right? no one is commercially loaning at that interest rate right now. and even for friends and family, that's more of a favor than a loan...
you asked not to sugarcoat, so here goes. what you're proposing, while possible, is incredibly difficult and highly risky, and i don't know how you would do it completely remotely with no plans to visit or set up a team.
i think i've said this in other posts, but there is tremendous demand for inventory right now among both retail buyers and investors. to BRRRR something, you need a goldilocks property - something distressed enough that it can be bought substantially below market, but not so distressed that it can't be repaired. everyone wants those deals, and so you're competing remotely / from your computer against experienced investors in person in any market you'd pick. on the chance that something comes to you somehow - you'd have to snap it up / put it under contract immediately, and again, that's very difficult to do remotely. as an example, you'd have to do something different than this:
https://www.biggerpockets.com/forums/963/topics/1195280-expe...
https://www.biggerpockets.com/forums/48/topics/1137397-balti...
https://www.biggerpockets.com/forums/48/topics/1137397-balti...
i am trying to do the same thing locally, in person, and it's difficult. everything on and off market gets multiple offers almost immediately. and if it's sitting, and you see it, it means everyone else passed on it. what does that tell you?
on your second question - you're proposing 100% financing. you'll be cash flow negative / losing money, potentially for years and years. it's your money, so if you find something in a market you believe in and want to try to hold it very long term, OK - but again, it will be many years before you recoup all the interest you'd be paying. i don't think that makes any sense - there are investments that make money - but YMMV.
hope this helps

Your talking financial suicide.. Class C from half way around the world fully levered.. U will go broke that I can basically assure you or at least 90% chance this will not work and you will lose money.
U would be better off making loans with that 3% 4% money at 10 to 12% and make the interest rate delta pick very good borrowers and let them take the risk on the assets.. Thats what i would do.. BE the BANK..

You know seeing people complaining about interest rates elsewhere has really made me think of exactly that thing, borrow as much as I can, and even get friends to borrow at the lower interest rates here (assuming they qualify) and then arbitrage my way to profits. However, too many risks with that, and too many regulations I guess... I'm not a financial lender or whatever the legal term is.

If possible, can you recommend something real estate-related? What would you do with the 200k? I don't think I can reap the same benefits from notes that I can from owning property. There are no write-offs for decpreciation, no continuous rent payments and so on.

I appreciate your reply.

Nope can mention any that will be better risk reward than making the Delta on a 3% loan in the US.. other than buying better class assets and break even and bank on values rising and what little depreciation does for you.. I would much rather have write ONs than write offs..

However again if your bound and determined to buy the physical assset then you need to buy quality not C class.. you will NOT get consistent cash flow like you are thinking your will. you will have tenants stop paying you will then get NO rent for 2 to 6 months as you evict and then spend thousands rehabbing the house they just trashed.. Buy quality assets with NON section 8 tenants that have 700 fico scores thats safe bet in the US> And what I do .. I already did the C D class section 8 gig I had 300 of them. NEVER EVER again.. I only buy Strong B or A and live with the 5 to 6% return but the real money is made in lending and new construction for us.
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JLH Capital Partners51 Review
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1 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
1y
Quote from @Zach Howard:

Quote from @Jay Hinrichs:

Quote from @Nicholas L.:

@Zach Howard
when you say a 'personal loan' at that interest rate - that must be a friends and family thing, right? no one is commercially loaning at that interest rate right now. and even for friends and family, that's more of a favor than a loan...
you asked not to sugarcoat, so here goes. what you're proposing, while possible, is incredibly difficult and highly risky, and i don't know how you would do it completely remotely with no plans to visit or set up a team.
i think i've said this in other posts, but there is tremendous demand for inventory right now among both retail buyers and investors. to BRRRR something, you need a goldilocks property - something distressed enough that it can be bought substantially below market, but not so distressed that it can't be repaired. everyone wants those deals, and so you're competing remotely / from your computer against experienced investors in person in any market you'd pick. on the chance that something comes to you somehow - you'd have to snap it up / put it under contract immediately, and again, that's very difficult to do remotely. as an example, you'd have to do something different than this:
https://www.biggerpockets.com/forums/963/topics/1195280-expe...
https://www.biggerpockets.com/forums/48/topics/1137397-balti...
https://www.biggerpockets.com/forums/48/topics/1137397-balti...
i am trying to do the same thing locally, in person, and it's difficult. everything on and off market gets multiple offers almost immediately. and if it's sitting, and you see it, it means everyone else passed on it. what does that tell you?
on your second question - you're proposing 100% financing. you'll be cash flow negative / losing money, potentially for years and years. it's your money, so if you find something in a market you believe in and want to try to hold it very long term, OK - but again, it will be many years before you recoup all the interest you'd be paying. i don't think that makes any sense - there are investments that make money - but YMMV.
hope this helps

Your talking financial suicide.. Class C from half way around the world fully levered.. U will go broke that I can basically assure you or at least 90% chance this will not work and you will lose money.
U would be better off making loans with that 3% 4% money at 10 to 12% and make the interest rate delta pick very good borrowers and let them take the risk on the assets.. Thats what i would do.. BE the BANK..

You know seeing people complaining about interest rates elsewhere has really made me think of exactly that thing, borrow as much as I can, and even get friends to borrow at the lower interest rates here (assuming they qualify) and then arbitrage my way to profits. However, too many risks with that, and too many regulations I guess... I'm not a financial lender or whatever the legal term is.

If possible, can you recommend something real estate-related? What would you do with the 200k? I don't think I can reap the same benefits from notes that I can from owning property. There are no write-offs for decpreciation, no continuous rent payments and so on.

I appreciate your reply.

PS I like Iowa just started there myself in 24 providing capital to local flippers and landlords .. doing what I preach lending money .. although I did buy a storage unit.
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2 Reply
- Frankie Paterno
  Investor · Staten Island, NY · Member since 2016 · 59 posts · 35 votes
  1y
  @Jay Hinrichs Im also interested in lending .. I got about 1.2M just sitting here would like to put to work.
  0 Reply
Zach Howard
OP
Hong Kong · Member since 2024 · 161 posts · 57 votes
1y
@Jay Hinrichs

Just curious, any advice/comments/thoughts about how to possibly get started lending?

1 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
1y
Quote from @Zach Howard:

@Jay Hinrichs

Just curious, any advice/comments/thoughts about how to possibly get started lending?

its very easy.. tehre are 35 states that do NOT require any license to do NON owner occupied loans.. very simple talk to local attorney have them prep your note and mortgage and your good to go.. should not cost more that 1k or so for the docs.. Just like any bank.. I have been doing this since the mid 80s over 3500.00 transactions and If I can do it you can do it :)
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JLH Capital Partners51 Review
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1 Reply
Nicholas L.Pro Member
Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
1y
@Zach Howard
lots here but i'll tackle just a couple things quickly...
-i mentioned BRRRR because you said "acquire around 3 properties in cash deals that need fixing up, rent them out" - that's BRRRR. if you meant that you'd buy in cash, fix them up, not refinance, and hold... then I don't think I understand how you envision that working.
"if a property I buy and bring up to rent ready standards then starts cash flowing..." - it's not going to. interest rates and prices are basically too high right now.
"Why would I be cash flow negative and losing money for years and years?"
again, not sure if we're talking about the same thing or not. i assumed you meant using the low interest loan for the down payment, and a DSCR loan for the balance. that will not cash flow - you won't be generating "cash flow" from the property that will go beyond servicing the debt and allow you to pay down any principal.

1 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
1y
Quote from @Frankie Paterno:

@Jay Hinrichs Im also interested in lending .. I got about 1.2M just sitting here would like to put to work.

there ya go.. I am off to WA DC this morning but if you send me a PM we can discuss. We keep 8 figure working we are small time but if you check my website you can see what we do in a short over view.. Although Frankly I personally would never lend money in NY unless its was extremely low LTV to the very best borrowers.. unravelling NY mortgages time is measured in years not months best to lend in Deed of Trust states were unravelling a bad loan is one year or less and a few grand.
Podcast Guest on Show #222
JLH Capital Partners51 Review
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1 Reply
Nicholas L.Pro Member
Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
1y
@Jay Hinrichs
DC! stay safe.
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
1y
Quote from @Nicholas L.:

@Jay Hinrichs
DC! stay safe.

well thats part of the job checking out your collateral.. :)
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Zach Howard
OP
Hong Kong · Member since 2024 · 161 posts · 57 votes
1y
Quote from @Nicholas L.:

@Zach Howard
lots here but i'll tackle just a couple things quickly...
-i mentioned BRRRR because you said "acquire around 3 properties in cash deals that need fixing up, rent them out" - that's BRRRR. if you meant that you'd buy in cash, fix them up, not refinance, and hold... then I don't think I understand how you envision that working.
"if a property I buy and bring up to rent ready standards then starts cash flowing..." - it's not going to. interest rates and prices are basically too high right now.
"Why would I be cash flow negative and losing money for years and years?"
again, not sure if we're talking about the same thing or not. i assumed you meant using the low interest loan for the down payment, and a DSCR loan for the balance. that will not cash flow - you won't be generating "cash flow" from the property that will go beyond servicing the debt and allow you to pay down any principal.

Hmm, what I was originally asking was something like this - what do you think is the best course of action:

1) Get a 200k loan (3-4% interest, 5 years to repay) Use this to make a 100% cash purchase of 1, 2, or 3 properties in a C class neighborhood, and do the minimum rehab to make it rent-ready.

2) Get a 200k loan (3-4% interest, 5 years to repay) Use this to make the down payment on multiple properties, finance the remainder of those purchases with whatever loan options are available - probably only DSCR.

3) Something else entirely...

Hope this makes sense.

0 Reply
Zach Howard
OP
Hong Kong · Member since 2024 · 161 posts · 57 votes
1y
Quote from @Jay Hinrichs:

Quote from @Zach Howard:

@Jay Hinrichs

Just curious, any advice/comments/thoughts about how to possibly get started lending?

its very easy.. tehre are 35 states that do NOT require any license to do NON owner occupied loans.. very simple talk to local attorney have them prep your note and mortgage and your good to go.. should not cost more that 1k or so for the docs.. Just like any bank.. I have been doing this since the mid 80s over 3500.00 transactions and If I can do it you can do it :)

"If I can do it you can do it :)"

Haha, this is exactly my problem in life... if other people can pull off out-of-state investing in class C neighborhoods, maybe I can too?
0 Reply
Henry ClarkPro Member
Developer · Member since 2020 · 4k+ posts · 4k+ votes
1y

OP the good thing about BP is lots of opinions and experience. You get to pick what you want. We don’t know all of your info. Nor may appreciate your risk tolerance level.

1. Financial terms. Your personal loan has a 5 year balloon period. Assume you will be making payments in it. Not 100%. Your house loans will be long term say 25 years. Never invest in Longterm assets with short term debt. Even if it is just the downpayment. This is a lesson many investors and pro investors fail over and over again.

2. Real estate investing can be a combination of cash flow or appreciation. If you’re talking C properties probably cash flow. Making this up but you will probably need to own 100 of these to match the stories you’re referring to. I would both buy a property to get your feet wet and at the same time make a plan to scale. Personally I would stay away from this. Lot easier ways to grow wealth.

3. It is always better to invest locally. Looks like you’re in Hong Kong based on your tag line. We already invest in Belize. Thinking about Italy or Sicily. Did Xmas in Malta. Lived it but they drive in the opposite side of the road. The following is the thought process on a house we looked at in Italy over Xmas. Our interest in Italy Sicily is both our brother and son are based over there.

Deal analysis in Italy.
1. 2,000 sq meters. Two story. 3bd, 2bath
2. 12 acres in the valley between two hills. Most villages are on top of the hills. So property is private. But is in a rise of land so it has a broad view down the valley. My brother lives above.
3. 2007 house just updated by owner.
4. Asking $495k euro. 3% interest fixed, 10% down. 25 year term. Probably get down to $430k.
5. Location. 25 minutes to beach, 40 minutes to Florence, 15 minutes to Pisa, 60 miles to snow skiing. 10 minutes to Home Depot style store, etc. Desirable location both locally and regionally.
6. Revenue stream. Own living quarters. Weekly Airbnb. Military or civil service housing using their Base Housing Allowance.
Now what does the above have to do with you and HongKong.
7. Revenue stream. Airbnb. Shared living quarter rental, Military or Civil service rental. US military or civil service or other government renters are low risk, high collectibility, steady flow.
8. Hong Kong both chance for cashflow and appreciation. At 3% interest you’re bearing both inflation and appreciation from the cost side.

9. Our deal was a new build. Thus easy to manage and low Capex expenditures.
10. It would be local for you. And your team would be local.

11. Just like there is only so much beach frontage. There is only so much Hong Kong. Guaranteed value appreciation or maintenance.
Although you said you don’t mind high risk. Your true return has to be risk adjusted. Example. I would take a 10% return in my home town A/B versus a 15% return in a C market OSS. The 15% return is in paper and not sustainable.
2 Reply
Nicholas L.Pro Member
Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
1y
@Zach Howard

1) Get a 200k loan (3-4% interest, 5 years to repay) Use this to make a 100% cash purchase of 1, 2, or 3 properties in a C class neighborhood, and do the minimum rehab to make it rent-ready.

option 1A: if you buy two to three $75K properties remotely, anywhere, you will get absolutely crushed, period, regardless of how you finance them. this is just not a viable option for a remote investor. example: there are $75K properties here in Pittsburgh. but the ones in OK neighborhoods need MAJOR, major rehabs to be safe and high quality - think another 50-100K on top of the purchase. i just got outbid on a property in a nice neighborhood that i offered 60K on. it needed an 80K rehab.

option 1B: buy one 200K property in "all cash" using the loan. you will lose money as @Henry Clark noted.

2) Get a 200k loan (3-4% interest, 5 years to repay) Use this to make the down payment on multiple properties, finance the remainder of those purchases with whatever loan options are available - probably only DSCR.
option 2: this is 100% leverage. you will lose money. the rental income will not cover the debt plus the expenses - you are servicing 2 loans per property.

2 Reply
Corey ConklinPro Member
Investor · Member since 2021 · 129 posts · 209 votes
1y
@Zach Howard Using OPM isn't a bad strategy when it comes to real estate. The problem is thinking when you are starting out that you should use 100% OPM.

Don't use this money for down payments, and don't use it to be 100% leveraged. As others have said you WILL fail. There are other ways to use OPM and not be as risky about it.

What you should do is leverage this money at 80% LTV and put 20% of your own money into the deals. That gives you a great advantage to the lending investors are getting here in the states with the much lower interest rates.

As others suggested you could also lend this money out for 10-12% and make your money that way and not put yourself on risk on the asset. The problem there is you only have 200k and there are a lot of local lenders that offer similar same terms, so why would anyone chose someone outside of the states? If you go this route you better find a way to set yourself apart. That means you'll probably have to take on riskier borrowers or agree to riskier terms.

My advice - If you don't have boots on the ground here in the states (that you can rely on), or someone you know you can trust to borrow this money then I wouldn't risk it. Make those connections first.

I know you want to take advantage of a great opportunity in your lending terms but that's only a piece of the pie when it comes to success in real estate.

0 Reply
James Hamling
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
1y
Quote from @Zach Howard:

Quote from @Nicholas L.:

@Zach Howard
lots here but i'll tackle just a couple things quickly...
-i mentioned BRRRR because you said "acquire around 3 properties in cash deals that need fixing up, rent them out" - that's BRRRR. if you meant that you'd buy in cash, fix them up, not refinance, and hold... then I don't think I understand how you envision that working.
"if a property I buy and bring up to rent ready standards then starts cash flowing..." - it's not going to. interest rates and prices are basically too high right now.
"Why would I be cash flow negative and losing money for years and years?"
again, not sure if we're talking about the same thing or not. i assumed you meant using the low interest loan for the down payment, and a DSCR loan for the balance. that will not cash flow - you won't be generating "cash flow" from the property that will go beyond servicing the debt and allow you to pay down any principal.

Hmm, what I was originally asking was something like this - what do you think is the best course of action:

1) Get a 200k loan (3-4% interest, 5 years to repay) Use this to make a 100% cash purchase of 1, 2, or 3 properties in a C class neighborhood, and do the minimum rehab to make it rent-ready.

2) Get a 200k loan (3-4% interest, 5 years to repay) Use this to make the down payment on multiple properties, finance the remainder of those purchases with whatever loan options are available - probably only DSCR.

3) Something else entirely...

Hope this makes sense.

This isn't just high risk your talking about Zach, your talking about compounded high risk.
Your wanting to do high-risk via extreme leverage....
via high risk OOS investing, committed to never being boots-on.......
via high risk class c.......
doing reno's to make habitable which is high risk at a level we should just call it EPIC risk.....
We are talking high risk to the 4th+ power.
Odd's would be far mor ein your favor if you just bought lotto tickets.
You need to understand that given your situation the asset and operational impact must be absolute minimal, lowest risk exposure possible. So were talking turn-key NOT low class reno needed.
And from there, the magic is in how you leverage, that's the profit center. Seller financing will be "golden", turn-key is the awesome sauce, and with a target of APPRECIAITON, so appreciating market NOT based on hopeium but on MATHS. So satellite market.
There is a difference between being risk comfortable, and being a Kamikaze pilot.
3 Reply
Natalie AlliePro Member
Member since 2024 · 24 posts · 17 votes
1y
I agree that Class C is definitely not the way to go unless you are just going to flip the properties to home buyers looking for a primary residence. There are many Property Managers who will not take on a Class C properties for management because of the area they are in and if the PMs vetting standards are high, you will likely run into an issue finding a tenant. There is absolutely a way to have eyes, ears and boots on the ground for finding and rehabbing properties. You may want to get in touch with some realtors in whichever markets you are interested in that specialize in off market deals (pocket listings) and who are also "investor friendly realtors," not just ones that want to off a garbage property to you. The reason I say off market is because most seasoned real estate investors do not want to buy someone else's investment flip and if the property is a deal such as the ones you are looking for, it will likely sell quickly, which leaves you with the leftover inventory unless you're ready to make a quick decision every time. Let me know if there is anything I can do it help! -Natalie Allie Evernest Property Management
1 Reply
Zach Howard
OP
Hong Kong · Member since 2024 · 161 posts · 57 votes
1y
Quote from @Nicholas L.:

@Zach Howard

1) Get a 200k loan (3-4% interest, 5 years to repay) Use this to make a 100% cash purchase of 1, 2, or 3 properties in a C class neighborhood, and do the minimum rehab to make it rent-ready.

option 1A: if you buy two to three $75K properties remotely, anywhere, you will get absolutely crushed, period, regardless of how you finance them. this is just not a viable option for a remote investor. example: there are $75K properties here in Pittsburgh. but the ones in OK neighborhoods need MAJOR, major rehabs to be safe and high quality - think another 50-100K on top of the purchase. i just got outbid on a property in a nice neighborhood that i offered 60K on. it needed an 80K rehab.

option 1B: buy one 200K property in "all cash" using the loan. you will lose money as @Henry Clark noted.

2) Get a 200k loan (3-4% interest, 5 years to repay) Use this to make the down payment on multiple properties, finance the remainder of those purchases with whatever loan options are available - probably only DSCR.
option 2: this is 100% leverage. you will lose money. the rental income will not cover the debt plus the expenses - you are servicing 2 loans per property.

So... no option 3? :-(

I want to make a quick comment in this thread in case I actually go through with this crazy class C idea - rathawk. Hopefully one day I'll be back to explain what it means.
0 Reply
Zach Howard
OP
Hong Kong · Member since 2024 · 161 posts · 57 votes
1y
Quote from @Corey Conklin:

@Zach Howard Using OPM isn't a bad strategy when it comes to real estate. The problem is thinking when you are starting out that you should use 100% OPM.

Don't use this money for down payments, and don't use it to be 100% leveraged. As others have said you WILL fail. There are other ways to use OPM and not be as risky about it.

What you should do is leverage this money at 80% LTV and put 20% of your own money into the deals. That gives you a great advantage to the lending investors are getting here in the states with the much lower interest rates.

As others suggested you could also lend this money out for 10-12% and make your money that way and not put yourself on risk on the asset. The problem there is you only have 200k and there are a lot of local lenders that offer similar same terms, so why would anyone chose someone outside of the states? If you go this route you better find a way to set yourself apart. That means you'll probably have to take on riskier borrowers or agree to riskier terms.

My advice - If you don't have boots on the ground here in the states (that you can rely on), or someone you know you can trust to borrow this money then I wouldn't risk it. Make those connections first.

I know you want to take advantage of a great opportunity in your lending terms but that's only a piece of the pie when it comes to success in real estate.

I'm curious as to why you suggest putting down 20% of my own money. Somehow I think it's better to hold onto my own money and keep that dry powder on the sidelines waiting to get into the game if there are some emergency expenditures (haha, very likely with the kinds of deals I'm thinking about in class C neighborhoods). I can't wrap my head around your ideas, but I would really love for you to educate me on your thought process. And why 20-80, is that some magical ratio, or perhaps it's backed up by some sort of statistical analysis?

I'm still really not sure what to do, so thank you very much for your contribution to this thread, I hope you'll say more. I'm still in reconnaissance mode... so need to collect as much information and knowledge as possible before deciding what to do.
0 Reply
Zach Howard
OP
Hong Kong · Member since 2024 · 161 posts · 57 votes
1y
Quote from @Henry Clark:

OP the good thing about BP is lots of opinions and experience. You get to pick what you want. We don’t know all of your info. Nor may appreciate your risk tolerance level.

1. Financial terms. Your personal loan has a 5 year balloon period. Assume you will be making payments in it. Not 100%. Your house loans will be long term say 25 years. Never invest in Longterm assets with short term debt. Even if it is just the downpayment. This is a lesson many investors and pro investors fail over and over again.

2. Real estate investing can be a combination of cash flow or appreciation. If you’re talking C properties probably cash flow. Making this up but you will probably need to own 100 of these to match the stories you’re referring to. I would both buy a property to get your feet wet and at the same time make a plan to scale. Personally I would stay away from this. Lot easier ways to grow wealth.

3. It is always better to invest locally. Looks like you’re in Hong Kong based on your tag line. We already invest in Belize. Thinking about Italy or Sicily. Did Xmas in Malta. Lived it but they drive in the opposite side of the road. The following is the thought process on a house we looked at in Italy over Xmas. Our interest in Italy Sicily is both our brother and son are based over there.

Deal analysis in Italy.
1. 2,000 sq meters. Two story. 3bd, 2bath
2. 12 acres in the valley between two hills. Most villages are on top of the hills. So property is private. But is in a rise of land so it has a broad view down the valley. My brother lives above.
3. 2007 house just updated by owner.
4. Asking $495k euro. 3% interest fixed, 10% down. 25 year term. Probably get down to $430k.
5. Location. 25 minutes to beach, 40 minutes to Florence, 15 minutes to Pisa, 60 miles to snow skiing. 10 minutes to Home Depot style store, etc. Desirable location both locally and regionally.
6. Revenue stream. Own living quarters. Weekly Airbnb. Military or civil service housing using their Base Housing Allowance.
Now what does the above have to do with you and HongKong.
7. Revenue stream. Airbnb. Shared living quarter rental, Military or Civil service rental. US military or civil service or other government renters are low risk, high collectibility, steady flow.
8. Hong Kong both chance for cashflow and appreciation. At 3% interest you’re bearing both inflation and appreciation from the cost side.

9. Our deal was a new build. Thus easy to manage and low Capex expenditures.
10. It would be local for you. And your team would be local.

11. Just like there is only so much beach frontage. There is only so much Hong Kong. Guaranteed value appreciation or maintenance.
Although you said you don’t mind high risk. Your true return has to be risk adjusted. Example. I would take a 10% return in my home town A/B versus a 15% return in a C market OSS. The 15% return is in paper and not sustainable.

"Never invest in Longterm assets with short term debt."
What makes you state this? Curious to hear the rationale behind this mindset or... mantra.

"Your personal loan has a 5 year balloon period."
If I understand what you're saying correctly, no, it doesn't have any balloon payments. After the loan is drawndown I need to immediately start making monthly payments for the next 60 months. Each payment is exactly the same amount. Early repayment will mean a 2% fee being assessed.

Yes, I'm based in Hong Kong, but have no intentions of investing in property here. I have no idea how anyone makes money investing in real estate in the Hong Kong market - other than developers, that is. Just a case in point, the tiny apartment I live in (800 square feet) the mortgage payment is about 4000 per month, and the typical rent for such a place would probably be somewhere between 1500 to 2000 per month. So the in terms of getting something that cash flows locally... the numbers never pencil as far as I see. Of course, there is always the possibility I could be wrong, just as I could be wrong about maybe jumping into some class C properties. However, before doing anything I take my time to gather information, think outside the box, connect with people who have done the very thing that other people say is impossible, stay patient, see whether there are any unique solutions I can bring, and only then decide what to do.

Thanks a lot for your feedback, and I'm looking forward to learning more, especially on the thesis of not using short-term debt for a long-term investment.
0 Reply
Zach Howard
OP
Hong Kong · Member since 2024 · 161 posts · 57 votes
1y
Quote from @James Hamling:

Quote from @Zach Howard:

Quote from @Nicholas L.:

@Zach Howard
lots here but i'll tackle just a couple things quickly...
-i mentioned BRRRR because you said "acquire around 3 properties in cash deals that need fixing up, rent them out" - that's BRRRR. if you meant that you'd buy in cash, fix them up, not refinance, and hold... then I don't think I understand how you envision that working.
"if a property I buy and bring up to rent ready standards then starts cash flowing..." - it's not going to. interest rates and prices are basically too high right now.
"Why would I be cash flow negative and losing money for years and years?"
again, not sure if we're talking about the same thing or not. i assumed you meant using the low interest loan for the down payment, and a DSCR loan for the balance. that will not cash flow - you won't be generating "cash flow" from the property that will go beyond servicing the debt and allow you to pay down any principal.

Hmm, what I was originally asking was something like this - what do you think is the best course of action:

1) Get a 200k loan (3-4% interest, 5 years to repay) Use this to make a 100% cash purchase of 1, 2, or 3 properties in a C class neighborhood, and do the minimum rehab to make it rent-ready.

2) Get a 200k loan (3-4% interest, 5 years to repay) Use this to make the down payment on multiple properties, finance the remainder of those purchases with whatever loan options are available - probably only DSCR.

3) Something else entirely...

Hope this makes sense.

This isn't just high risk your talking about Zach, your talking about compounded high risk.
Your wanting to do high-risk via extreme leverage....
via high risk OOS investing, committed to never being boots-on.......
via high risk class c.......
doing reno's to make habitable which is high risk at a level we should just call it EPIC risk.....
We are talking high risk to the 4th+ power.
Odd's would be far mor ein your favor if you just bought lotto tickets.
You need to understand that given your situation the asset and operational impact must be absolute minimal, lowest risk exposure possible. So were talking turn-key NOT low class reno needed.
And from there, the magic is in how you leverage, that's the profit center. Seller financing will be "golden", turn-key is the awesome sauce, and with a target of APPRECIAITON, so appreciating market NOT based on hopeium but on MATHS. So satellite market.
There is a difference between being risk comfortable, and being a Kamikaze pilot.

I am super interested in seller financing, no disagreement there. I also acknowledge that the ideas I'm discussing in this tread are extremely risky. But that is exactly why I am discussing them before (or even if, as I'm not sure whether I'll eventually do anything in class C) and not after the fact.

Btw, about the need for rehab, I'm talking about what I think should be fairly straightforward things, like replacing carpeting, repairing drywall, but not a complete gutting and remodeling. I'm not that crazy... I think. Nothing over 20k.
0 Reply
Zach Howard
OP
Hong Kong · Member since 2024 · 161 posts · 57 votes
1y
Quote from @Natalie Allie:

I agree that Class C is definitely not the way to go unless you are just going to flip the properties to home buyers looking for a primary residence. There are many Property Managers who will not take on a Class C properties for management because of the area they are in and if the PMs vetting standards are high, you will likely run into an issue finding a tenant. There is absolutely a way to have eyes, ears and boots on the ground for finding and rehabbing properties. You may want to get in touch with some realtors in whichever markets you are interested in that specialize in off market deals (pocket listings) and who are also "investor friendly realtors," not just ones that want to off a garbage property to you. The reason I say off market is because most seasoned real estate investors do not want to buy someone else's investment flip and if the property is a deal such as the ones you are looking for, it will likely sell quickly, which leaves you with the leftover inventory unless you're ready to make a quick decision every time. Let me know if there is anything I can do it help! -Natalie Allie Evernest Property Management

I am not planning to flip at all. I only want to buy and hold, recoup my initial investment, and only then maybe lease to own if it's too much of a headache to continue managing them etc.
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
1y
Quote from @Zach Howard:

Quote from @Henry Clark:

OP the good thing about BP is lots of opinions and experience. You get to pick what you want. We don’t know all of your info. Nor may appreciate your risk tolerance level.

1. Financial terms. Your personal loan has a 5 year balloon period. Assume you will be making payments in it. Not 100%. Your house loans will be long term say 25 years. Never invest in Longterm assets with short term debt. Even if it is just the downpayment. This is a lesson many investors and pro investors fail over and over again.

2. Real estate investing can be a combination of cash flow or appreciation. If you’re talking C properties probably cash flow. Making this up but you will probably need to own 100 of these to match the stories you’re referring to. I would both buy a property to get your feet wet and at the same time make a plan to scale. Personally I would stay away from this. Lot easier ways to grow wealth.

3. It is always better to invest locally. Looks like you’re in Hong Kong based on your tag line. We already invest in Belize. Thinking about Italy or Sicily. Did Xmas in Malta. Lived it but they drive in the opposite side of the road. The following is the thought process on a house we looked at in Italy over Xmas. Our interest in Italy Sicily is both our brother and son are based over there.

Deal analysis in Italy.
1. 2,000 sq meters. Two story. 3bd, 2bath
2. 12 acres in the valley between two hills. Most villages are on top of the hills. So property is private. But is in a rise of land so it has a broad view down the valley. My brother lives above.
3. 2007 house just updated by owner.
4. Asking $495k euro. 3% interest fixed, 10% down. 25 year term. Probably get down to $430k.
5. Location. 25 minutes to beach, 40 minutes to Florence, 15 minutes to Pisa, 60 miles to snow skiing. 10 minutes to Home Depot style store, etc. Desirable location both locally and regionally.
6. Revenue stream. Own living quarters. Weekly Airbnb. Military or civil service housing using their Base Housing Allowance.
Now what does the above have to do with you and HongKong.
7. Revenue stream. Airbnb. Shared living quarter rental, Military or Civil service rental. US military or civil service or other government renters are low risk, high collectibility, steady flow.
8. Hong Kong both chance for cashflow and appreciation. At 3% interest you’re bearing both inflation and appreciation from the cost side.

9. Our deal was a new build. Thus easy to manage and low Capex expenditures.
10. It would be local for you. And your team would be local.

11. Just like there is only so much beach frontage. There is only so much Hong Kong. Guaranteed value appreciation or maintenance.
Although you said you don’t mind high risk. Your true return has to be risk adjusted. Example. I would take a 10% return in my home town A/B versus a 15% return in a C market OSS. The 15% return is in paper and not sustainable.

"Never invest in Longterm assets with short term debt."
What makes you state this? Curious to hear the rationale behind this mindset or... mantra.

"Your personal loan has a 5 year balloon period."
If I understand what you're saying correctly, no, it doesn't have any balloon payments. After the loan is drawndown I need to immediately start making monthly payments for the next 60 months. Each payment is exactly the same amount. Early repayment will mean a 2% fee being assessed.

Yes, I'm based in Hong Kong, but have no intentions of investing in property here. I have no idea how anyone makes money investing in real estate in the Hong Kong market - other than developers, that is. Just a case in point, the tiny apartment I live in (800 square feet) the mortgage payment is about 4000 per month, and the typical rent for such a place would probably be somewhere between 1500 to 2000 per month. So the in terms of getting something that cash flows locally... the numbers never pencil as far as I see. Of course, there is always the possibility I could be wrong, just as I could be wrong about maybe jumping into some class C properties. However, before doing anything I take my time to gather information, think outside the box, connect with people who have done the very thing that other people say is impossible, stay patient, see whether there are any unique solutions I can bring, and only then decide what to do.

Thanks a lot for your feedback, and I'm looking forward to learning more, especially on the thesis of not using short-term debt for a long-term investment.

look at Rural Japan its closer and much better tenants you can buy homes there for 40 to 60k that rent for 500 to 700. never a worry about tenant issues like your going to experience with C class US tenants. 800 sq ft is a very large home in Hong Kong if your not living with family and your maid in the same apartment
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