Looking for advice - Unemployed and planning my 2nd purchase

13 Replies

Hi BP, this is my first post.

I am not a smart man, and I'm looking for some advice to help direct my thoughts and research toward my 2nd investment property.

From a high level, what would you do if you were in my shoes?

Here's my current situation, in excessive detail:

Earlier this year I rented out my home in southern California and moved to an apartment in Portland, OR.

I was working remotely and was laid off a few months ago.

Since then I've been receiving unemployment benefits and looking for my next job.

When employed I normally make around 100k doing database and software engineering.

My rental home has been a godsend during covid as it is cashflowing almost enough to cover my rent here.

So far my tenants have not brought up any finanal troubles due to covid.

They are mature and skilled, and most likely are working from home.

With the addition of the unemployment benefits and my already mininalistic/frugal lifestyle, my bank balance has been depleting but not too quickly.

It seems clear that my first priority needs to be getting employed, but there's only so much job hunting that can be done in a day and I'm not really sure what's going on in tech hiring right now - one recruiter signaled that companies are not really hiring much yet.

I've been taking this opportunity to learn and plan so that I can be ready to purchase my next rental property when the opportunity is right. At this point my strategy is simple buy and hold, and self-management of rentals. I managed and DIY'd several improvements to my first house so I'm comfortable working with most systems in a home, and comfortable with hiring and managing helpers, handymen, and subcontractors. I would not consider myself skilled enough to manage a significant rehab, but kitchen and bathroom remodels are within my comfort zone.

I'm still undecided about whether I think the fallout from covid will cause a major correction in RE prices but I've been getting some real heavy 2006 vibes from all the sellers markets, not to mention the unprecedented load of uncertainty we currently face. As eager as I am to expand my rental income, and even though I'm cashflow oriented, I'd hate to ruin a good thing by making a poorly timed buy.

Since I'm currently renting (lease ends in June,) and since I have family in NW WA that I'd like to see more often, I've been thinking about buying a duplex in that region (specifically, the swath between Sammamish and Bellingham) and possibly house hack it a bit. I understand that this area can be less than ideal for investing due to high prices and low cashflow potential. I'm not really sure about the reliability of the local economy either, at least in the areas that I could afford.

I'm not set on any one area or even on investing locally, but there would certainly be some benefits in that I wouldn't have to rent a place, and I could directly manage and work on the home instead of trying to manage it from across the country. At this point I have no interest in moving away from the West coast states.

Financial stats:

Credit score: 750

Other Assets

Cash $15k

IRA (VTSAX): $12k

Car value: $10k

Stats for my rental property:

Location: San Diego County

Size: 3bd/2ba 1200sqft

Current value: $510-540k (according to Zillow, Redfin)

Loan Balance: $200k

Rent: $2850

Interest Rate: 4.0%

Loan type: FHLMC Afford Mod (HAMP mod)

Principal + Interest: $1005

Escrow (includes sewer, prop taxes and homeowners ins): $545

Total mortgage payment: $1550

Yard maint + Handyman: ~$100/mo avg

Thanks in advance for any advice that you can spare. I don't personally know anyone who's into real estate and am fairly introverted so I'm hoping to break out of the vacuum and gain perspective as well as a sanity check on my numbers and goals.

Corbin,

Sorry to hear about the loss job, I hope you find one soon. If I was in your shoes, and you already stated it, would be to find a job so I can have an option of financing properties. It would be extremely hard to find a lender without an income, to include refinancing your current investment property. My other concern is how you calculate your investment property cash flow. Have you taken Cap Ex, Vacancy, PM, HOA (if any) fees into consideration? These factors may eat into your cash flow, if you're not placing them into your calculations already. As for your saved cash (15k), that amount would make me a little nervous, meaning I wouldn't want any less than that to cover any emergencies with your investment property or if any "life" things happen (car breaks down, medical, unexpected event). I used to live in Tacoma, and I know the market there is expensive, but I'm not too sure how Sammamish and Bellingham are; however, I recommend saving more capital to invest in that area.

So, after you find a job and save some more cash, I recommend doing a cash-out refinance of your investment property because you have a lot of equity just sitting there not working for you. I would use the money for a BRRRR option or buy and hold, whatever you are comfortable with. I hope this helps and welcome to the BP club. I am a newb too...I recommend searching the forums to find what other people have gone through. I bet there are very similar situations that someone already wrote about.

Dave

@Corbin Lane Sorry to hear about the job loss as well. While getting another job while you scale is probably a prudent move, just know there are ways to invest now without the job... you could use commercial financing or private money.  Both of these lending streams will want to see a track record, so finding a partner to help you on the first few projects would be nice. 

As far as what to do with your home in SD, for now, I would just sit on it until you are ready to jump into a project. Just know the ROE is low! So your money in that home is being super lazy and probably has a higher and better use. Personally, I would not refinance it to pull equity. Your rent to value will drop significantly. If anything, I would sell and reposition the cash into a better-balanced market (cashflowing and appreciating). Also, I would get out of a state that is tenant-friendly and put the control back in your hands as a landlord.

I agree with what you said and others, finding a new job should be your priority.  Be creative and see if people are looking for contract jobs, not permanent, but still income.

You are going to find it hard to get a loan with no income.  One option would be to sell your current rental and use that to buy a duplex or another place, but again without income, could you get the loan and would you actually come out ahead.

@Corbin Lane Also sorry about the job situation. If you are considering moving up here to that area you described companies like Microsoft, Amazon, Google, Facebook and more are still hiring if your skill set is a match. There may even be remote work opportunities as well. Most have operations in the Redmond, Bellevue and Seattle areas. I've been poking around looking for duplex opportunities for our son in the greater area and things are pricey and generally get less expensive the farther north of Sammamish you go ( or south for that matter ).

@Corbin Lane

Welcome to BP! I agree mostly with what has been said and that finding a job is probably the most important thing to tackle before purchasing another property. You do have a lot of equity in your San Diego home that you could eventually leverage. I would secure the job and work on building up your cash reserves. Let me know if there is anything I can do for you down here in San Diego.

As others have said, get a job first, preferably in the same field. In the meantime, we will see what the market does, you may be glad you waited to invest.

Forrest Faulconer

Wow these are all excellent replies, I'm so grateful for your help.

The common thread has been that I need to get a job, and I could not agree more.

It is extremely frustrating to not be bringing in income.

Tech can be a difficult industry due to the turnover both of jobs and skill sets.

I have been using this time to update my skills by working on several new code projects, as I always do when I have a break.

Another good and recurring point was my low cash reserves.

It definitely has me feeling nervous.

Maybe I could cash out some equity as a last resort, hopefully it will not come to that.

The main reason my reserves are so low (aside from the layoff) is that I had to extend myself in order to get the home ready for rental.

I did a lot of upgrades in a short time and then moved out of state, which was also somewhat costly.

All in all I have few regrets given the way the timing of everything worked out.

@David Zeek The house does not have an HOA, and since I'm self managing it (so far) PM is also zero.

I had taken Vacancy into account in my initial calcs, but with Cap Ex you have touched on a blind spot in my calculations.

I will work on a spreadsheet to get a better handle on that, but to summarize:

Most interior systems, water heater, appliances are new enough that I'm not worried about them.

The roof was replaced in 2006.

The central AC system is the biggest liability on my mind due to the fact that it uses the old coolant and will have to be redone when it finally fails.

I've mitigated this by recently replacing capacitors in the outdoor AC unit as well as the blower motor and its capacitors inside the furnace.

Correct me if I'm wrong but it seems like the price of this home may actually be an advantage in terms of capex because the cost of a given repair isn't as large of a percentage of the value of the property as whole.

In other words if I have to spend $10k on a new furnace, it seems like I'd rather be putting it into a $500k house than a similarly sized $200k house somewhere else.

Your point about my stagnant equity is exactly why I'm posting here.

As soon as I feel that it's relatively safe to do so, I'd like to start leveraging out.

In the mean time I will self educate and plan.

@Whitney Hutten You make some very interesting and unexpected points.

At this point I'm intimidated by non traditional financing but I do plan to learn a lot more before I make my next purchase.

I've been thinking quite a bit about partnering with more experienced investors as it seems like a great way to gain mentorship as well as to maximize the success of the investment.

At this early stage my portfolio is fragile and I can't afford to make big dumb mistakes.

At the very least I do not want to make another RE purchase until I'm feeling really solid on my network and education, not to mention the recovery of the economy.

The question of whether to sell or hold has tormented me for years.

There is one other factor I neglected to mention in my OP that made me decide to hold the property, for at least a year or two longer:

This home is within throwing distance of a major city overhaul project that is drastically improving the area immediately surrounding it.

It's been transforming a creepy downtown area that previously you would not want to walk at night (or even the daytime) into a bustling mixed use community.

The project has been going on for years and right now is finally in progress in the blocks visible from my house.

Also the house has easy freeway access, and is positioned within 10 minutes of an extremely expensive beach area.

It's within easy commuting distance to a small but growing tech/industrial hub, and they're running out of open land to build fancy developments nearby.

(My renters work in that hub.)

Whether all of this will actually pay off is far beyond my ability to guess but based on what I've been watching happen in the neighborhood I've been hesitant to let it go just yet.

My hesitation has grown my equity by around 35k over the last year, though I suspect that could soon be erased due to covid.

Admittedly this is all speculative but my gut feeling is that this home could appreciate significantly in the coming years.

Your point about tenant friendliness is interesting to me and one that I've been reading and thinking about.

I have not yet come across any specific laws in California that I felt were difficult to comply with.

My home is inside the limits of a smaller city with a deverloper-friendly local government, which is part of the reason for the massive redevelopment of downtown.

Admittedly I'm not as informed as I could be on this so if you're aware of specific laws that may become a problem for me in that region please clue me in.

@Theresa Harris I agree, I definitely want to have a job before moving on to my next investment. As far as contracting, that's always been part of my diet and I am putting myself out there for freelance work as well. Due to changing tech my major specialization is going out of favor so I am once again looking at reinventing my career.

@Chris Wilson I'm not sure if I'll ever be a MS/FAANG employee but I guess it could happen. My background and job prospects tend to be SMB SAAS.

Sammamish itself is far beyond my price range but in general I do like the areas surrounding the eastside tech hub (Bothell, Mill Creek, Redmond, etc.) Given my price range and desire to buy a duplex, more likely I would be looking at the northern end of the region I mentioned (Marysville, Burlington, Mt. Vernon, Bellingham etc.) These areas are more accessible for me but more dubious in terms of local economy.

@Mark Frattini Thanks for the warm welcome and excellent advice. I will definitely keep you in mind in case I decide to make any moves in SD.

@Forrest Faulconer I agree about timing, and it seems to me that the major impact of the pandemic to the RE market is still ahead of us.

The question on my mind is whether (and to what extent) the impact can (or will) be mitigated by government intervention.

@Corbin Lane Also sorry about the job situation. If you are considering moving up here to that area you described companies like Microsoft, Amazon, Google, Facebook and more are still hiring if your skill set is a match. There may even be remote work opportunities as well. Most have operations in the Redmond, Bellevue and Seattle areas. I've been poking around looking for duplex opportunities for our son in the greater area and things are pricey and generally get less expensive the farther north of Sammamish you go ( or south for that matter ).

@Corbin Lane  Sorry about the double post. The latest Boeing issues aside the growth up north has been amazing. 



I would be looking at the northern end of the region I mentioned (Marysville, Burlington, Mt. Vernon, Bellingham etc.) These areas are more accessible for me but more dubious in terms of local economy.


I live in Sammamish, we drive by those areas once or twice a year on our way to Whidbey Island. It is absolutely stunning how much growth has occurred over say the last 5+ years. The Marysville area in particular has been gangbusters and rivals many areas further south for the amount of major retailers available next to 5. When we think about possibly retiring to say Camino Island the proximity to retail, services and medical available in Marysville actually weighs as a big positive for that option.

I'd consider getting a job related to real estate. Nothing's better than being a wholesaler or realtor and having access to deals, or being an appraiser and being 100% confident in your ARV.

I found myself unemployed when I closed a personal training business in March. I ended up getting full on into BRRRR and am recycling my money for the first time with a new venture. I find myself in a similar situation, since once I refinance to cover the upcoming duplex I'm buying I won't be covering my personal monthly expenses, despite creating 230K in forced appreciation over 4 units by the end of the year. I'm projected to be completely financially free by the end of the year, though so just a bit more grinding. My goal while most of my money is committed to this project is to wholesale some to make some money, learn more about my market, have a lead gen source that I can use to cherry-pick the best deals and keep myself busy before my next project.

Personally, I wouldn't want an OOS rental so if I were actually in your shoes I'd sell it as a turnkey rental and use the money to find a market near your family/current location.

Don't worry about timing the market unless you're buying turnkey. With BRRRRing property you can force appreciation and get your money back quickly enough that you're basically using a dollar cost averaging approach.

Perhaps a new job can combine the skills of something in software engineering & real estate. Something to think about. You're seeing a ton of problems we have as investors, how can your experience in software engineering solve them?

@Corbin Lane I love the Skagit County region and you could find a sweet house hacking deal here. But just like everyone else said, traditional financing is going to be hard. I give a personal vote for Anacortes, best little town around.

@Corbin Lane Sorry about your job loss. Don't stop the job search, I've seen some colleagues in tech find new jobs after layoffs. Sure, it took them a little longer than normal, but they eventually found a spot. Keep at it! If you're looking for software dev positions I may be able to put you in for some referrals at my current company - feel free to dm me. Good luck!