We bought our 1st home & found out we hate living in the suburbs!

Involved In Real Estate · Austin, TX · Member since 2014 · 41 posts · 6 votes

11y

Hi -

I'm not sure what lender you used, but the one that I have says you don't need to have a year of time invested before you move. They do ask for some equity (30% which can be a combo of money paid and appreciation) in the home.

Also the lender I use can use the income from the house you are currently in, if it is rented with a lease agreement before closing of a new home.

I'd suggest moving and transferring your current home into a rental.

Let me know if you have any other questions.

Eric

0 Reply

Kevin Wood

Investor · Houston, TX · Member since 2013 · 471 posts · 267 votes

11y

Originally posted by @Alexandra E Aponte:

Hello BP!

I'm pretty new to BP forums, and so far have just posted in the "Welcome to BP section".

Thanks for all who welcomed me by the way!

Here's our situation:

My husband and I just purchased our first home (in south Austin). We purchased this house bc we know its in a good area with high potential for appreciation. Since Austin is a high priced market, our plan was to OO homes and move out so we can rent them out and build our portfolio that way.

So now we are in the SFH 3/2.5 in the suburbs....and we are BORED!! Granted, its not the worst situation, our house is nice and we are 20 mins away from DT Austin. However, it just doesn't suit what we're used to (city living). Anyway, here's are my questions:

1) Once we have been here for a year, we've been told we are allowed to rent it out without breaking any lender rules. (We got 4.75% @ 95/5 conventional financing no MI 253K purchase price). Homes are pretty new (build 2009) and we can rent this place out at approx 2K. Once we are ready, should we put this home in an LLC? and if so, how do we do that?

2) We want to move closer to downtown Austin into a new-build in an up and coming area. We estimate the new build will be mid 400s (still waiting on pricing). We would stay in this place for a while and invest outside of Austin--thinking SA since it's more affordable). Is this smart if this place has great potential for appreciation? (rentals in the same area are going 2500++ for apartments!!) The new build will be a town home at least 3/2 but we are still waiting on floorplans.

3) I've got a total of approx 25K in savings that is just sitting there...the reason I've got his saved is bc I've been told that we need an "emergency fund" just in case something terrible were to happen (i.e. I lost my job)... but I am ITCHING to do something with it, since its only making like 1% in an "high interest" savings account. Should we find somewhere to invest it or just keep saving??

This is getting long, so hoping someone can give us some perspective on how we can continue to move towards our goals (passive income for retirement with buy and holds).

Thanks so much BP!!

1) Is the 95/5 an FHA loan? It will be hard to cash flow with this high of a loan amount I would think, so make sure you either do your own rental calculator or use the BP one. You definitely want to ensure that were you are doing makes fiscal sense. I am guessing it will come down to either selling at a loss or break even vs. renting out. Take the NPV of the two scenarios to see which one makes financial sense. Happiness is most important so if you hate it move, and mitigate any loss.

You should not form an LLC for one house in my opinion. I have an LLC, but it is because I have a partner so it helps us keep track of things. For your purposes, if you are worried about liability just get an umbrella policy (they are relatively cheap).

2) Buying a new property in my opinion is not investing. Buying for appreciation is much more risky. You are buying a house that you like take this as a cost. If you were making a financial decision you would most likely rent or try to house hack a duplex/fourplex. I don't own in Austin, but follow the rental market in the Austin area. The rents are still lower then one would expect for the home prices because there is high demand for ownership. Austin has committed to easing this demand by building a lot more housing in the short term (see austin business journal).

3) Calculate your 6 month expense needs and maintain that. I feel that this is more necessary the more commitments you have (children, home, car payments, etc.). When I was single I needed maybe 2 months now that I have a child I would say 6 months is probably more accurate. To invest in real estate you really need to be able to put 25% down. If this is something you want to get in to then I recommend starting with the bigger pockets intro and learning. I personally read 25+ books, listened to the podcast, read the forums, and farmed my area for 3 months before pulling the trigger. I now own 19 units including multifamily and SFR in the Houston area. Even if you want to just house hack your way to a portfolio do your research. There are BP podcast, webinars, and books specifically targeted at this strategy.

1 Reply

Alexandra E Aponte

OP

Health professional · Austin, TX · Member since 2015 · 14 posts · 1 vote

11y

Thanks so much for taking the time to respond Kevin and Eric. The loan we got was not an FHA so there's no PMI. If we rent out at 2K we would be cash flowing around 200 per month depending on maintenance expenses. Not a ton, I know, but we bought in an area where there's rapid growth and have seen houses sell around us for around 260+ just within 2 months we've been here. I know they say appreciation is speculation, but either way rents would cover our mortgage. As far as having 25% down, that's tough in this Austin market, but maybe possible in SA.

0 Reply

Dawn AnastasiPro Member

Rental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes

11y

If you have a mortgage in your own names, you may not be ABLE to transfer the title into an LLC without violating the due on sale clause on your mortgage.

Podcast Guest on Show #29

3 Reply

Wayne Brooks

Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes

11y

Don't know jut How much you hate the 'burbs, but realize that if you live there for 2 years, then rent it out for not more than 3 years before you sell, All the cap gain from the sale will be tax free (you'll have a little recapture tax). Could be a good chunk saved.

1 Reply

Alexandra E Aponte

OP

Health professional · Austin, TX · Member since 2015 · 14 posts · 1 vote

11y

Originally posted by @Alexandra E Aponte:

Thanks so much for taking the time to respond Kevin and Eric. The loan we got was not an FHA so there's no PMI. If we rent out at 2K we would be cash flowing around 200 per month depending on maintenance expenses. Not a ton, I know, but we bought in an area where there's rapid growth and have seen houses sell around us for around 260+ just within 2 months we've been here. I know they say appreciation is speculation, but either way rents would cover our mortgage. As far as having 25% down, that's tough in this Austin market, but maybe possible in SA.

0 Reply

Alexandra E Aponte

OP

Health professional · Austin, TX · Member since 2015 · 14 posts · 1 vote

11y

We knew about the 2 year tax benefit, but we can always move back within those 5 years if need bse (once kids come, and we need better schools, etc).

0 Reply

Lucas Kendrick

Investor · MontgomeryCounty, MD · Member since 2015 · 17 posts · 5 votes

11y

Congrats @Alexandra E Aponte for starting the process and being on BP. Both will help you out! Now to answer your questions.

1) Go find a real estate lawyer that deals in just real estate (search BP), and ask them about LLCs, and Trusts.

2) This was more of a statement and not a question, but I'll get back to this one at the end.

3) Keep saving it because of what you said in #2 ^.

Please slow down, and take a deep breath. Attend a few local BP investor meetings, get some contacts, talk about "investing" vs "being a home owner". You keep using the word speculation and appreciation, and that makes me nervous. Investors use the words cash flow, CAP rates, ROI, etc. If you do go out and buy a 400k house/apt, and only put down 5%,you will use the rest of your cushion. If something was to happen, you could be sunk.

So now for some GOOD NEWS. It is a 2009, house so it should have very little maintenance on in for several more years. Have you though about, making your house a duplex? or adding a room mate? Is there some way to squeeze out more cash flow?

BP has some great resources that could help. Please keep us posted, I would love to hear what you do. And remember, worse case... down town is only 20min away :D

0 Reply

Ryan Shaw

Investor · Winchester, VA · Member since 2015 · 21 posts · 14 votes

11y

My wife and I are in the process of closing on our third property, all of which have been bought as owner occupied single family homes. We lived in the first for 2 years, and will be leaving the second after just under 1 year.

In our experience there was no trouble from the banks holding the mortgages on houses 1 and 2 when we decided to move out and put a tenant in. However, as Dawn suggests, they did both have a issue with trying to pass the properties into an LLC because of the DOS clause. The biggest obstacle was getting a bank that would accept a signed lease as part of our debt to income ratio so that we could qualify for the next house. Wells Fargo is actually doing this for us this time around.

For us we were willing to take on the extra burden of moving multiple times in order to start a rental portfolio into which we put down 5% or less (0% for the first house via USDA loan). Large down payments make your cash flow look better but they don't actually make you any more money (other than the reduced interest on the smaller loan amount). Provided the property still cash flowed, I'm sure just about everyone would buy with 100% financing if they could find it.

Direct responses to OP's questions:

1) Transfer of a property that has a mortgage into a new (no liquid assests) LLC runs a legitimate risk of triggering the due-on-sale clause with no way of responding short of fire selling the property. If you have a strong written lease and only the one rental property, there's relatively little benefit to the LLC

2) Jumping 150k+ up in price point only to then count on additional appreciation seems a bit too optimistic. I've never counted on appreciation (or, to be fair, depreciation) in any of my real-estate scheming, most primarily because I plan on a long term buy and hold strategy. Aside from avoiding full scale D & F neighborhoods, cash flow has been my primary diagnostic measure.

3. I certainly understand the itch to put your liquid assets to work. My only caution is that you can only spend the money once, so don't go buying the first opportunity that comes up just because you're motivated.

1 Reply

Alexandra E Aponte

OP

Health professional · Austin, TX · Member since 2015 · 14 posts · 1 vote

11y

Originally posted by @Ryan Shaw:

My wife and I are in the process of closing on our third property, all of which have been bought as owner occupied single family homes. We lived in the first for 2 years, and will be leaving the second after just under 1 year.

In our experience there was no trouble from the banks holding the mortgages on houses 1 and 2 when we decided to move out and put a tenant in. However, as Dawn suggests, they did both have a issue with trying to pass the properties into an LLC because of the DOS clause. The biggest obstacle was getting a bank that would accept a signed lease as part of our debt to income ratio so that we could qualify for the next house. Wells Fargo is actually doing this for us this time around.

For us we were willing to take on the extra burden of moving multiple times in order to start a rental portfolio into which we put down 5% or less (0% for the first house via USDA loan). Large down payments make your cash flow look better but they don't actually make you any more money (other than the reduced interest on the smaller loan amount). Provided the property still cash flowed, I'm sure just about everyone would buy with 100% financing if they could find it.

Direct responses to OP's questions:

1) Transfer of a property that has a mortgage into a new (no liquid assests) LLC runs a legitimate risk of triggering the due-on-sale clause with no way of responding short of fire selling the property. If you have a strong written lease and only the one rental property, there's relatively little benefit to the LLC

2) Jumping 150k+ up in price point only to then count on additional appreciation seems a bit too optimistic. I've never counted on appreciation (or, to be fair, depreciation) in any of my real-estate scheming, most primarily because I plan on a long term buy and hold strategy. Aside from avoiding full scale D & F neighborhoods, cash flow has been my primary diagnostic measure.

3. I certainly understand the itch to put your liquid assets to work. My only caution is that you can only spend the money once, so don't go buying the first opportunity that comes up just because you're motivated.

@Ryan, this was exactly our plan when we moved out here. Congrats on your new property! I have a few more questions if you don't mind.

1) How long did you all have to be landlords before Wells Fargo accepted the rental income to qualify for the new home and what did the cash flow look like? Did Wells Fargo loan to your LLC?

2) how did you all time your move to be able to show the rental agreement start date?

3) do you all manage your own properties, and are all 3 in the same city?

Good to know there shouldn't be any trouble after moving out in a little less than a year. I have listened to a lot of the podcasts and have been reading blogs and know that appreciation is not something to bank on. Since we are long term buy and hold, our thoughts were to use any CF and put it towards the mortgage to pay it down and snowball our way to passive income after paying off mortgages. We're in it for the long haul.

Thanks again for the responses, love BP!

0 Reply

Cal C.

Investor · Peachtree Corners, GA · Member since 2014 · 1k+ posts · 1k+ votes

11y

Ever heard of Uber? Just think about it for the thousands extra you pay a year to live downtown, you could pay for a heck of a lot uber rides. Lets assume the new place costs $200K more than your current house. At 4.75% that would be about $1,045 more a month in just p&I. Taxes and insurance would be more. The new place is also likely to have higher HOA/condo fees.

0 Reply

Ryan Shaw

Investor · Winchester, VA · Member since 2015 · 21 posts · 14 votes

11y

Alexandra,

1) No LLC for us as it would have put us in danger of the DOS clause to a level we weren't comfortable with. We had been landlords for 10 months when we first approached Wells Fargo. House #1 basically neutral in terms of cast flow when you consider any real maintenance/capex allowance but we had/have an excellent tenant in place who has a signed lease well into 2017. House #2 also has a signed lease as part of Wells Fargo's approval for House #3. For the record WF was the 3rd or 4th bank I had a sit down discussion with and they were the first willing to do the loan.

2) I'll explain how we structured the change over from OO to the first tenant for our current move as an illustration of the process we've had success with. We are scheduled to close on house #3 on/before October 14th. Therefore we signed the tenants lease for house #2 into effect on November 1st with the standard first months rent and security deposit due on signing (which was done in late September). At the same time we also signed the first addenda to the lease which detailed the proration of October's rent as contingent on the exact move in day. The prorated amount of October rent is due November 1st. Because November's rent was already paid, the tenant isn't burdened with a double rent payment and we don't have to deal with refunding/chasing down more money because we guessed wrong on the October proration. Basically we get November (first full month) early but October (the prorated month) late.

3) We self manage both rentals (we will be living in house #3). The properties are all in the Winchester VA area.

0 Reply

We bought our 1st home & found out we hate living in the suburbs!

We bought our 1st home & found out we hate living in the suburbs!

Most Popular Reply

12 Replies