Rental Property Investor · San Ramon, CA · Member since 2016 · 28 posts · 5 votes
Hello fellow BPers! New to the site and RE investing, but loving the wealth of information that is provided here. I have been living and working in San Francisco, CA for 2 years. I lived in Tampa Bay, FL for 9 years prior to my move, and all of my family is still there. I want to invest in a tri/quadplex this year. I have a relatively good credit score (780) and 20k in student debt. a good. I make a decent salary for the Bay area, have a good amount of savings and don't have many expenses outside of rent and student loan payment. The issue is the girlfriend and I will be quitting our jobs come January and traveling abroad for 4-5 months in SE asia/ NZ, to teach CPR and basic medical training (Volunteering). I am not sure if it makes sense to invest in a MFR now and get a solid PM and tenants, or to wait until we get back and invest. I feel as though upon coming back they will frown upon our hiatus, and it will prolong the approval process for a loan. I will not have any issue getting a job upon coming back to the states. I spoke with a lender in the SF area and he is willing to work with me. I haven't gotten approved yet, but he said the pre-approval is good for 90 days. My credit union from FL will not work with me due to not living in FL anymore. I am still calling around in FL and CA to find the best terms and rate. Any information is greatly appreciated, sorry for the abundance of questions. Thank you in advance!
So my Questions are:
1) Should I buy the MFR before we leave?
2) Should I wait until we are back to invest?
3) Should I get lending from a FL based lender or San Francisco Lender? Any recommendations for a lender in either area?
4) Will the scoring model they use to pull credit for pre-approval affect my credit score?
5) If approved would it be best to put minimum down payment 3-5% or 20%?
Are you getting your job back when you get back?
I doubt a lender will be willing to give you a mortgage with no income. I would move now and have your family manage it if that's possible.
Are you getting your job back when you get back?
I doubt a lender will be willing to give you a mortgage with no income. I would move now and have your family manage it if that's possible.
@Kyle Murphy, Hello, I hate to see this kind of question as it makes me afraid for you and your girlfriend to even think of taking on more debt before you have paid off all of your other debts. Try to understand that we may be at the top of the real estate Cycle not the bottom. Caveat Emptor. That means that values may go flat here in Tampa where we lost up to 60% of property value during the 2008 to 2010 Economic Collapse. Some of my rentals actually went back to be worth what I paid for them, 20 years before when we had been in a flat appreciation cycle for 10 years. If you were to think like Warren Buffett, this would be the time to Sell and wait for the next bottom in the RE Cycle to Buy at a natural discount instead of searching for a Deal. That is where I am at. I grew up in Palo Alto and 47 years ago I had saved $25,000 when I was 19 years old. I could have bought downtown Palo Alto and sat back to just collect the rents and been a multi millionaire in short time without all the Sweat Equity that I have had to put into my rentals here in S. Tampa, during this last 30 years. Hind sight is 20/20. I keep suggesting what Dave Ramsey teaches...you want to get Debt Free first. Then, I say that the best Real Estate "investment" is always your first home because of all the first time Buyer discounts and you can live in that home for 2 years and then have a fixed up Residence to Sell, Tax-Free and go find another one to do without having the insanity of managing tenants here in Tampa, Florida. You can also Buy your first home and find a Deal to rent and plan to fix up both of them to move into the rental after you Sell your Residence and find another Deal as a Business Plan like me. Think. If I can maybe make 1% per year by keeping the money in a Savings Account. Or I can find a Duplex or Triplex to fix up in Tampa that will maybe make me $100+ a month and be an Absentee Landlord. Or I could Buy a Corporate Bond that will give me a few percents a year. Or I can learn how to Buy Debt like Jimmy Napier and make a little more. Or I can Buy a Stock or ETF that gives me Dividends and hope that this next downturn is not going to destroy the value of the Stock. Or I can learn how to trade Futures and be a Daytrader and maybe make $500 to $1000 each morning like my partner does. It sounds like you want to learn how to make money and the money you want to make is Buy and Hold investing in something that takes care of itself. PM will not do that for you with just one Duplex in Tampa. Rental Properties are not Stocks or Bonds. They don't take care of themselves and when the toilet plugs up or the AC breaks or the roof leaks the PM will not be out there when the tenant starts screaming at you over the phone that they will not pay the rent until you get there at midnight on Sunday to fix the problem. This is my standard message for Newbie's to RE investing and members of BP.
@Michael Haynes Thank you for the response. I have done my research in regards to paying off my student loans first, but they are at a 3.2% interest rate and I still think it is more beneficial financially to invest now while I am relatively young. I can pay them off now but it makes sense to have the liquid to invest. I am not sure where you came up with the $100 a month in cash flow for a Duplex. The deals I am looking at will cash flow $800-1200 with all of the numbers ran and homework done, ie. electric company sub-metered, sanitation, and water. This is also with the PM calculated in. Granted there can be something I miss but I am willing to take the risk in investing in a MFH. Thank you for your standard message for newbies. I am looking forward to learning as much as possible. I do appreciate your response and honesty.
@Kyle Murphy, Hello again, I am saying that I have had rentals in S. Tampa, Florida for 30 years along with a farm and rentals that I built in Rio de Janeiro, Brazil. When you say that you have run the numbers and you can cash flow $800-$1200 for each apartment in a Duplex here in Tampa, do you mean that this is Gross Rents per unit? I can agree with the low number, but, not the high one, even in the Palma Ceia area where I had to Duplexes that I had to Short Sell after the 2008 Economic Collapse. The main question is, "What is your Net?" My point is that each apartment will probably not make you $100 a month, Net Rents. You are talking about buying Retail. I rented the Duplexes for 20 years and at the end, per apartment, the 2/1, 700 sq. foot apartments, with off street parking and side yards, Central AC, all fixed up, etc. were rented for $800 each. We didn't build a lot of duplex or triplexes in S. Tampa because houses after WWII was targeted towards the Military families from the MacDill AFBase. I bought 3 of them when I started 30 years ago. For that reason I got my girlfriend to buy a property with two 1920 farm houses near downtown to have a multi-family rental that gave us around $200 per house, per month in Net Rents, that I personally managed. We just sold that property for $110,000 Profit after holding it for 10 years. My half of the profit is tax-free because I have accumulated $260,000 worth of Deductions since the 2008 Crash. We have paid off all of our Debt and now can get on to the next Deal. We could have sold for more in 2008, but, our tax situation at that time did not make us as much profit. I do not think, going forward, that you can expect that kind of Appreciation for long term rental property. After the Crash things got really crazy here. Tampa did not build 4 bedroom homes. We are a town trying to be a city. I own another house in a bad area next to the I275 Hwy. I am negotiating with my friend to buy his two old houses next door, in order to have another multi-family rental. The front, 1200 sq. foot, 3/1 front house can rent for $1200 and the 2/1 back house can rent for $900. Both have their own driveways with off street parking, fenced in back and side yards, Central AC, W/D hookups, extra storage, all fixed up. The problem is the highway noise from I275. I can personally manage them and make around $500 Net Rents per month. My Profit, up front, at the current price with my friend, could be $50,000. My house next door is a break even deal at the moment. After a months work to raise the rent, change the Home Owners Insurance company, get an Appraisal and maybe pay down a little on the mortgage to remove the Mortgage Insurance, I should be able to show up to $300 a month Net Rent. But, I continue to be the Landlord and do most of the repairs or the Sweat Equity. Real Estate investing is one of many ways to make money, but, if you are not in the Sales side of it, you face a lot of negatives in order to make long term profits. If you take the lessons from Dave Ramsey, then, you know that being in Debt is the worst thing in this world to be in. If you read the Bible, you know that we are warned that Usury is a Sin. The Banksters are in the business of getting everyone into Debt and having us Owe, Them. You say your Student Loan is "only" 3.2%. The current lending rate at Lending Tree for a 15yr. loan is 2.65%. Granted the judicious use of Credit is a way to make Money, but, when you are just starting out and you have to borrow to buy, why would you buy anything that but, your own Home and live in it? As your Residence, in two years you get to sell it tax-free. When starting out, I gave you examples of what you can do to make a little money, but, you can never count on Long Term Appreciation of Real Properties because of the Economic Cycles. The Biggest Risk Factor is Overnight Risk or in counting on long term Appreciation with real estate. So, it does not make any sense to me, to buy an essentially breakeven, rental property at Retail prices to hold on to for the Hope that it will go up in value over the long term as if it were a Stock or Mutual Fund. I have been a Newbie, BP follower for a couple of months and I have not seen any single house Deal that was better than this and most of the numbers that I see for properties that are offered, are losers. I am a gold miner and even from the California Gold Rush days, they have been saying that "the way to make money gold mining is to not to mine the gold, but, to mine the gold miners."
@Michael Haynes too funny I totally get you.. If I just held the 2 homes I owned in BArron Park they would have made me more in appreciation than 20 years of cash flow almost anywhere else for the same dollars invested.. X 10 .. I was buying foreclosures in East PA in the early 80's for 5 to 15k a door LOL... how many do I still have Zero !!!
@Ralph C. and Jay Hinrichs, Hello there. Thanks guys. Someone seems to see my point about how to buy a rental property with a profit up front that actually makes you at least $100 a month in positive income. I have been a hands on Landlord who built his own rentals in Brazil while I was buying duplexes here in S. Tampa for 30 years. Jay, the last house I grew up in was a block off of University Ave. on the corner of W. Crescent, near where the overpass went to East Palo Alto, the most dangerous area in Palo Alto. You were buying East PA when I was living on a yacht in the Virgin Islands and still looking for a better place to live. I left PA during the Vietnam War. I freaked out and just started hitch hiking around the world for a few years. I fault parents and school councelors for not being able to give the children real Life Path Guidance because they do not know, themselves! I had the money and the desire to get into a business when I was 19 and I could have been in real estate investing when I was just out of High School. I could have had it made if there had been some adult who knew what the Path to Success is. I micro-scalp Futures and we say that you need to find a chart and a way to trade it, that matches your Personality. Same thing with Real Estate investing. A lot of it has to do with the Time Frame to hold. You need to be able to see the Big Picture and list of the consequences. The reality that Sales is where the Money is at and all the different ways to make Money with RE. Another reality in Trading Futures is why would you listen to anyone who does not already have a million dollars on his own? The most amount of millionaires in the US, have made their million with Real Estate. But, that does not mean that they worked for it. A majority of these millionaires inherited their Old Money. The best way to learn how to make Money is to find a Mentor who will take the time to outline your Path to Success and be available to prompt you on the way. Jay, I'll bet you could take a Newbie who is willing and able to work at it and show them The Way and make it relatively easy for them to get there, because you have, "been there and done that!" My original RE Agent, Bill Davidson, found me my duplexes from the MLS by noticing that they were all mis-advertised. The Listing stated that there were two Duplexes or a Duplex and a House on that property, but, the picture only showed One Building and apparently, everyone ignored it. My Offer was accepted and I financed two of them by the owner at 9% with $10,000 down because No Money Down Deals were too hard to find and work out. I made my money to buy the 8 properties in my rental portfolio, while I was working on the oil tankers because I studied how to make Money with Mutual Funds and the Market Cycle was in an Uptrend. I made $100,000 in ten years and bought my rentals, at discounts with owner financing, at going rates and later refied. It's the 2008 Crash that kept me from making double the money with the long term Buy and Hold, but, I had a cushion when I bought the properties at a discount. I also made out with my Monthly Cash Flow from the rents. Right now I am fixing up a 3/1 that I have near the AFBase in S. Tampa with parts that I took out of the two houses downtown that we just sold. I hope to sell it next week to a lady who grew up in that area and I will make around $30,000 for a ten year holding period. It produced more than $300 a month in positive rents during this whole time. And it will be tax-free profit because I get to use my Deductions that have accumulated since the 2008 Crash. "That's the way to do it...money for nothing and your girls for free."
@Michael Haynes, thank you again for the wealth of knowledge. You have been in this game long enough to see the trends. Sorry you got burned back in 2008. Some family friends lost big in that year. Do you have any more properties in S. Tampa proper any longer? Most of the doors I did my homework on are in Pinellas and some in North Tampa. @Jay Thank you for the respose as well.
@Kyle Murphy, Hello, the reality from the bottom of the well, is that you can get a JOB and save some money and then start to buy rentals, but, at some point you run out of down payment money and have to learn how to Creatively Finance to buy more rentals in order to make it a Business, you have to have more than just one or follow the rotating Sale of your Residence Plan that I have outlined. This means that you have to learn how to use Other People's Money and using Hard Money is a bad idea for a long term Buy and Hold property. Just buying one multi-family rental is not going to make anybody rich and the Monthly Cash Flow is miniscule compared to other ways to make money with money. I see how the acquisition of a portfolio of good rental properties can be an attractive alternative to learning how to make money with Stocks. But, it is a lot of work and I would not recommend being an Absentee Owner. The farther away that you live from your rentals, the more it costs you to get there and take care of all the problems that will occur. You can try and calculate how many rentals you would have to acquire in order to replace your Monthly Earnings. Say that you take home $3000 a month for a start. How many rentals that produce positive Monthly Income do you have to acquire to replace this amount and do you have the down payment funds to buy that many rentals? I am not talking about the Pros who are able to buy many rentals in each State and somehow keep them going without losing their shirts in the Downtrends. The other way to Plan this for the guy just starting out is to find a way to buy five rentals that produce positive enough Monthly rents. Then, buy another five and hold them for ten years. Then, take the worst five and fix them up to sell. Take that money which could be quite a lot if you had low interest, 15 year mortgages and fix up the last five rentals which should be worth a million dollars and make you $3000 positive Monthly rents. After that its a numbers game, like raising cattle or planting an orange grove. The positive rents give you a way to finance with Other People's Money, more and more rentals. I have a friend who has acquired 90 trailers. Some are lots with a single or double wide trailer and he has a few small trailer parks. You have to learn how to use Leverage and the bigger you are the harder you can fall. I had eight duplexes and houses and met my girlfriend at our investment Club. We used her Credit to buy two more properties that were producing at least a few hundred in positive Cash Flow each month and one home for her to retire with later on. I currently have two residential houses, one is in S. Tampa near the AFBase and I may have a buyer for that. I also have a half acre on a corner zoned CG with a 2/1 rented for $1000 a month. It is almost on the main highway and a few blocks from the AFBase. An agent called me today and she has two clients who need a place to build a small factory. If I get my price, I can clear more than $100K for another ten year hold and use it as a 1031 Exchange to buy my friends two houses on one lot next to the I275 Highway, where I am rehabbing my other house. I can clear $500 a month in positive rents from those two houses and delay paying taxes on the sale of the commercial property, to live in the front house later on for 2 years and then sell, tax-free as my Residence...and do it again. My friend is rehabbing them at the moment and if we keep our original agreement for the sale, I can buy them with as much as a $50,000 discount to the retail value after I do a little more work on them. The thing about S. Tampa is that the East side of Dale Mabry Hwy. was the target for tear down and build out from Kennedy Blvd. down to the Base. Because the values have gone up to $175K for a simple house on a normal lot to tear down to build the 2 story homes with garages that everybody wants near the Base, the builders are now building on the West side of Dale Mabry. That makes my house and commercial property on the West side, worth a lot more. So, the time is right to sell. You also asked about N. Tampa and the question is how far North? On the East or West side of I275? Over by Carrollwood or out by Lutz? The houses and duplexes I have targeted in S. Tampa were all renting for $1000 or less per house or apartment. There are a lot of small houses in North Tampa, but, there are also a lot of newer homes that don't work for good rentals. My Plan from here is to end up with one Residence and one Rental and get back to my houses in Brazil to fix them up to sell, one at a time and move to the North of Brazil where it is desert like with two seasons. Wet and Dry or Spring and Summer. I trade Futures online and the most important thing for my Residence is to have a fast internet connection for my Daily Cash Flow from my trading. Much easier than being a Landlord.
Thanks again @Michael Haynes. I am leaning toward investing out here in central CA for my first few investments. The hurricanes and flood insurance seems like too much of a headache from afar. I like your suggestions on the 15 year mortgage. Good luck on your endeavors in Brazil. I do appreciate your honestly in regards to the buy and hold game.
@Kyle Murphy, Hello, I just talked with my brother in San Jose and he said that the big earthquake is scheduled for this week. I have seen that online with news services recently. So, it's hurricanes and sinkholes in Florida, tornadoes from Texas to Chicago in Tornado Alley, earthquakes in California, the Santana Winds in L.A. and then the mudslides when it rains...endless things to plan for if you are a Real Estate Investor. If I were going to move back to Miami in order to be near the airport to fly out on my trips, I would have an apartment with nothing in it that I would worry about. Insure it to the max. Live with my laptop and not worry when the Big Bad Wolf comes to blow my house down.
You will definitely need a solid job to qualify for a loan. So if you're are planning to quit your jobs, you want to get the loan before you do that. It will be extremely difficult otherwise. The other thing is, that you didn't mention as much, the numbers. For sure buying a MFR in SF is going to cost you a fortune, and the return you are going to get on monthly cash flow will be very negative. All you will be able to hope for is massive appreciation to see any profit off of that. It's likely to happen in SF, but it won't be right away and you will be paying out a lot each month while you wait. Similar issue in FL, but on a smaller scale. Prices are better in FL but you will still be in the negative every month. There are some areas where FL SFRs can be slightly doable, but that's the best you're going to get.
Be sure with any property you are looking at, you understand the numbers-
Thank you for the response @Ali Boone. Sorry for not specifying on the location in CA. I am looking into investing in Fresno/Sac/Bakersfield. It makes more sense to invest my first property somewhere close to me. As of right now we both have solid incomes to qualify for a loan, but they seem to only be good for 90 days. Which is giving us some trouble due to the length of our trip, and time off work. I greatly appreciate your response.
Shortly before my wife and I bought our first home (primary residence), she took 6 months off and we traveled. I work a 3 week on, 3 week off rotation so was able to travel while employed. She found a new professional job before we applied for the mortgage, but Wells Fargo would only count my salary when they were figuring out our debt : income ratio because she had not been "continuously employed for the past 6 months". We explained to them that she was unemployed by design - and could show that we had actually saved money over the past 6 months, not moved backwards but they still wouldn't count her income at all.
@Greg Cyr Congrats on the traveling, where did you two go? Six months isn't as bad as I have been hearing to be able to qualify for a loan (heard 1.5 years at same job is the norm). Happy to hear it is still possible even if we have to wait a bit upon getting back from the hiatus. Did you guys shop around or just go with Wells Fargo right away? @Ali Boone Where do you invest, if you don't mind me asking?
"At the same job / working in the same industry" is different than "continuously employed". I remember them asking me how long I had been working in my current profession and even though I had switched employers shortly before the mortgage application, it wasn't a big deal because I had been working in the same profession for years. My wife, however, had not been "continuously employed" so they counted none of her income.
Ironically, they ended up approving us for roughly double what we comfortable spending with the assumption we only earned half of what we actually did. So much for tighter lending criteria :)
I would definitely shop around. We looked at Wells, BofA, and a local credit union. The "cost" of getting the loan done was not the same at the different lenders I shopped.
@Greg Cyr Very interesting, thank you for the fast response. I have been in the same profession for almost 10 years so hopefully I won't have issues getting approved when I get back. I will definitely be doing my homework on different lenders.
My properties are in Atlanta, but I don't recommend investing there anymore. I bought when it was an investor's paradise there, and it's far from that now. There are higher returns elsewhere in less saturated markets. Right now I'm working with buyers mostly in Indy and Chicago, and then KC and Philly are still strong too. Those are ones I work in, and then outside of those I know people are still buying in the TX cities and Birmingham, Ohio, etc.
Question @Ali Boone Why wouldn't you consider Atlanta anymore? I have a few leads there as we speak. Although I do agree the crop is not nearly as lucrative as it once was, I am still hearing opportunities where I am trying to fly out to check the spots as we speak. I respect hearing your reasoning because I take all opinions into account. Thanks
The returns are a lot lower there than they used to be, and there are just a lot of other markets with higher returns. Inventory is minimal there, of course. Prices have gone very high and the appreciation wave already happened--versus other markets that are more infant in their growth cycles. But then more than all of that, even if I wasn't too stressed about all of those things, the saturation in general there has gotten pretty high and it has caused my vacancy times to be longer than they used to be. Just too many options for renters now because of how much investment action went on there.
There are just other markets with higher returns and less stress. In my opinion.
