All Forum Posts by: Arlen Chou

@Joel G. thanks, but that picture was taken WAY after 29...hahaha.  

I don't actually look for such high LTV on my refinancing. I only pull out what I need to reach my goals. With that being said, my 2013 purchases basically doubled in appraised value, so I did not need to go to 80% LTV to get my cash back out. There are 2 reasons that I don't push for the max value out: to keep my monthly payments down so I can cash flow, and secondly I don't really have a good place to park my money until I find another deal. If I had too much cash sitting around I would probably do something stupid like buy a new car or go on some expensive vacations...hahaha. I have a pretty tight criteria on the type and max price for my target properties. In my plan, once I have acquired a certain number of my current property type, I will go up a step and target a higher/larger asset class.

The logic behind my financial strategy, generally speaking, is to have a balance between cash flow/equity/cash on hand. Once my cash flow and equity have reached a target point I plan to shift to higher cash on hand to re-balance. My belief is that this should then allow me to reach that next asset class. From a personal growth strategy stand point, buying into MFR right now allows me to test my skills and learn about renovations and property management. I strongly believe that having a basis of hands on knowledge will allow me to better manage from a distance. Once I get to a target number of doors, I plan to off load all PM and maintenance/renovation duties to others and get fat laying on beach while sipping on fruity drinks. I hope that is enough for you to open up a beer for dinner tonight ;-)

-Arlen

@Michael Delpier it is definitely possible to cash flow in BA, but it does take a lot of work pre and post purchase to get the cash going.  However, once it starts to flow the tight rental market here turns the trickle into a good size stream pretty quickly.  My purchases in 2013 started with rents at $900/month but are now around $1800/month.  I closed on a property in February that started out at $600/month and plan to start stabilizing at $1250/month by the end of the year.

I travel to Texas for my W2 job quite a bit.  I have often thought about investing in North Dallas or Austin, but for various reasons I never made the jump.  I think forcing appreciation is just easier when it is local.

Regards,

Arlen

@Joel G. sorry for my typo error, it should have said refinancing strategy.  Basically, I build up cash and then make cash offers.  It seems like the only way to win in this market right now.  If I win, I then start the renovations and increase rents and then refinance my money out and get ready for the next property.  As the property appreciates, I refinance again to get more cash out.  I am paying interest, but rates are low.  The best part of this strategy for me is that money I am getting out is tax free! Getting the snowball rolling is the hard part, but once you do get it going it starts to pick up speed... at least that is my thought on the subject.  

As for the picture, it is smalls so it hides the battle scars of age!  I am closer to 50 than 40, but luckily I don't feel any different...hahaha!

Good hunting to you!

-Arlen

@Joel G. I am in my 40's and just started seriously getting into REI recently, but I had been planning for a long time. When I say planning, it was not just reading books and listening to pod-casts. I started with "house hacking" and building up cash for a very long time. I used the appreciation in my primary residence and dove deep once I had the financial strength to make a meaningful purchase.

Replacing $200k of income is pretty large gap to fill.  Not sure if you are considering NET or Gross income as the $200k target, but both are achievable.  My intent is also to get to a point where I can travel and enjoy life.  For me, that means not being active, but collecting passive income = buy and hold strategy.  For others it might be a different strategy.  

Cash flow is the key to reaching a passive REI business... This then leads to the debate of cash flow vs appreciation. In principle I think real estate investors all seek cash flow, but how we each get to that cash flow is really core of debate. For many it is to go out of state and look for cash flow right away. Personally, I believe the limitation of that strategy is that ability to accumulate assets is limited by your access to cash. Meaning you either need to either work your W2 or go looking for investors to build up cash to buy additional properties. I feel that by investing in a strong market, you can take advantage of both cash flow and appreciation and accumulate assets at a faster rate. The barrier to entry is much higher, but once you get past that barrier, I believe that appreciation can give you the cash freedom needed to purchase more properties.

Please note, I invest locally and trade my time for sweat equity in forcing appreciation.  I don't do turn key purchases because I believe that the lost appreciation is too expensive.  There are couple of threads on BP about the appreciation I have seen over the past 10 years along with my referencing strategy.

This is an active strategy for me so I really cannot say what I would have done different yet.  Perhaps the only thing I would have liked to have done was taken the leap at a younger age.  But there are many things that I wish I had done when I was younger...hahaha!

Good luck!

-Arlen

Hello Guys, thanks for all of the great feed back on my purchases.  I really do believe that there are deals to be found if you look hard enough and you are willing to work through the unique issues of each deal.

@Jeff Tang, I am sure if you look hard enough you will find a good deal. I don't go looking for home runs on every deal, but if you look at enough options you will find deals that have the potential!

@Andrew Helen, sounds like you found a gem of your own in So Cal!  Great job!

@Anne Chiramberro, normally people suggest that you get through the "seasoning" period before refinancing.  This allows you to potentially get a higher valuation on the property and potentially get more money out.  I don't like to over leverage.  Therefore, I was not that concerned about getting the maximum out after purchase.  My intent was to get enough cash out to replenish my "war chest" so I could continue to look for other properties.  Therefore, my first financing happened within 12 months of initial purchase.  

Between working a W2 job, traveling for work, doing the renovations on my own and family time, it took me nearly 2 years before I pulled the trigger again.  However, when I did find something I was able to make another strong offer because I had cash in hand.  It turned out that I did not need all my cash because the seller is financing a large portion of the deal.

Now that my units have been stabilized and the work in MV is mostly done, I refinanced one of the two MV properties to replenish my "war chest".  Along with the refi on my primary, I have enough on hand for my next purchase.  I opted not to refi both MV properties, because I would have enough from the other 2 refi's to cover my next requirements.  I will do a refi on that building when I decide I need another injection of cash for another round of purchases.  

My initial 30 year fixed rates on the MV properties was 4.5%. The new rate on one of them will be about 4.25%. Not a great shift in interest rates, but what I was able to do was to take money out of the MV property and pay down the mortgage on my primary into a new conforming 30 year loan with an interest rate below 4%. I am in the process of getting a HELOC for under 3% to give myself more potential flexibility. Basically, cash flow is better now and I have cash in hand to apply to my next deal.

As for the amount of time it actually took to get the loans, my case is not typical.  I own the company that gives me my W2, and this company is a S-Corp.  Prior to 2013 we did a fairly large write down of inventory so it made my financials a little complicated.  Therefore, the bank wanted lots of documents to prove my books were clean so the whole process took over 2 months.  On this round of financing, they are being a little easier, but the whole process has still been longer than a month.  They are asking for lots of back up documentation again, but they are being a little more reasonable this go around.

Regards,

Arlen

@Adrian Chu yes the property in MV was on MLS and was brought to me by an agent. I think it was up for only a couple of days until I put the offer in and they agreed the day I made the offer. The back story is that there were actually 2 buildings for a total of 8 units that were for sale. There was lots of interest in the buildings, but everybody only wanted one building. But the owners did not want to sale the buildings to 2 different buyers. I was the first one that said yes to buying both buildings at the same time and locked the deal.

@Brandon P. I did what you just described 2 years ago in the Bay Area, bought in cash and the refinanced in less than a year.  You can refinance out before 1 year, BUT it will be based on your purchase price.  You will need wait 12 months the "season" the purchase before the bank will give you a higher appraisal value, even if you do upgrades in less time.  I did this because the market here is so hot and I want the "cash" advantage and secondly I needed to get cash to complete my renovations and pay off my private money lender.

As @Chris Kennedy has stated, if the potential property is not a highly visible target for competition, then you might have the time to get a loan in place.  However, the past 4 properties I looked at in Oakland all went to cash buyers way above asking...

-Arlen

@Rob Beland@Curtis Bidwell@Gita Faust@Beth L.@Bryan O.@Tom Spaeth

Thank you all for contributing. I did open up the LLC and S-Corp for potential liability issues. But what I am trying to understand is the actual cash movement from the properties to the S-Corp and what to call that on the taxes.

My current set up is as @Gita Faustsuggested, with a loan showing in the LLC for the purchase price of the property. The property is held within LLC's and the tenants do pay into the S-Corp.

What is not clear to me is what this money flowing into the S-Crop is considered, is it "income" for the S-Corp?  If the loan is in my name, how do you use the tax credit against interest paid?

Thanks again,

Arlen

@Steve B. what I am pointing out is that imaging money in the Bay Area can be done and that I don't believe going out of State has to be the only option.

@Manch Hon This is the property that I rehabbed in MV on my own. When I purchased the property rents were around $900/month.  Theses are all 1/1 units. I have been increasing rents consistently via turn over or 60 day notices. Most recent rent increase for a hold over tenant has taken them to $1800/month. A new tenant that moved in last month is paying $1850.

@Roxie Tong I look at REI with a long term horizon. Therefore, I go in with high up front dollars for two reasons: it knocks out of the race people who have to finance and it also artificially makes me cash flow positive. Once renovations and rent increases are done, I begin refinancing the property to pull my cash out. I match my refi to what I believe I can rent, so I always stay technically cash flow positive. My initial money came from a combination of savings, private money and the biggest chunk came from appreciation pulled out of my primary home.

So I posted a little while ago about a refi of my home, and the appreciation that I have see over 13 years of ownership.

Here is another data point for local Bay Area investors to consider before deciding to go out of State: 

I purchased a 4 plex in Mountain View in 2013 for $840k. Received my appraisal today for my cash out refi... $1.5m! This is not an A market residential area. It is more of a solid B area for young tech people.

This is not meant to be a knock on those who believe in "cash flow" and feel appreciation is just the frosting. It is just a specific data point for those people thinking about investing thousands of miles away believing that money cannot be made in post crash "hot" markets.  

I fully believe that there is something to be said about quality vs quantity... As I have said in my previous post, this strategy might not be for everybody.  It is just a glimpse into what has worked for me in my local market.

-Arlen