All Forum Posts by: Alvin Uy

@Pankaj Sharma i just recently read J.Scotts book Recession Proof Real Estate Investing. Its a great read about market cycles and best practices/strategies for each part of cycle. I highly recommend it. Most newbies investors are very shortsighted about what they invest in

In my opinion, it depends on the market. In Los Angeles, the market where I invest, this is a common scenario. I've had a lot of success with this strategy... sometimes even buying with 25% down. If its an appreciating market and if the rent increases every year then its not a terrible thing to leave some money in. If the market dips, you won't lose your shirt. You can't always based ROI on initial cash flow. RE investing is a long term play. You should factor other things like whether it appreciates, does rent increase, what's the vacancy rate, etc... and most importantly does it have multiple exits when the time comes?!?

Here's an example based on one of my rentals in Los Angeles. I have a 4/2 SFR in Eagle Rock, Los Angeles that I purchased in 2013... with 20% down. It was distressed so I got a good deal. I rehabbed it after purchase with quality finishings and material as if it were a flip so I can rent at top market rate... and get good quality A/B tenants. It might have been slightly negative the first year or two... but that was ok since my equity was there. 3yrs ago it rented for $2,900/mo... then raised it 4% to $3016/mo the following year...Last year it was $3136/mo. Went vacant during early summer this year. In most markets, this is when landlords freak out... For my wife and I, we were jumping for joy. Reason is... market rent in this area is now at $4k+/mo for this neighborhood. Because supply and demand is real in my market!! We put it back up on the rental market after just some deep cleaning, paint refresh... and listed it back up at $4100/mo just to see what happens. We received more than 10 calls the first day... and got 4 solid applications within 3days (mind you, these are A/B applicants who were voluntarily providing bank statements to show proof of funds). In hindsight, I think I should have listed it higher. LOL!! At any case... That's almost a $1000K/mo rent increase in a year!!! Im now netting $2k+ per month in cashflow. All the while, my property value jumped up due to appreciation! I bought it for $466K... and it just appraised for $930K. How's that for ROI?

By the way because of appreciation, I decided to get a refi because my LTV went down less than 30%. My Rate and Term Refi for low LTV on "non-owner occupied" was 3.75% at par rate. Its a no brainer move. This has additionally increased my cashflow even more... plus now I am available to tap on built-up equity (HELOC) to do some serious damage and play with the big boys.

@Lukas Zupan

Regarding my thoughts on OOS investing.... Nothing wrong with it. Its just not for me and does not play into my ling term plans at the moment.

The short answer to your question about what I would do differently is that I would do exactly what Im doing now. Im investing in my own backyard where I have more control over the entire process. Ive built a team locally. Im buying distressed and rehabbing (also now building ground-ups) and have been property managing all my investments with my wife. Full control in the market i know intimately... in very targeted areas of Los Angeles.

I'll need to speak to my CPA about income from primary residence not qualifying as income. Thanks for bringing it to my attention. It makes me wonder how this affects how lenders see AirBnB / STR income.

Yes, Im aware of this. But I was not speaking of home office deduction... rather, I was speaking of write-offs under my biz.   I should have clarified that.  Only a portion of the house is dedicated to offices and deductions are based on sqft like you mentioned --- I actually have 2 rooms (out of 6) in the house that are dedicated exclusively for my 2 other biz.  I even have part-time employees that work in my house during the day. 

Not exactly. There are some tax savings involved... but either way, being a wash isn't necessarily a bad thing. Remember, my main goal with this was to get favorable financing and reduce the personal DTI creatively. Having my biz cover some of the expenses will greatly reduces my personal debt responsibilities. One of my goals in life is to always find creative ways to write-off everything somehow. Also, having my primary home generate some rental income in the eyes of the bank is a positive thing.

I bought my first house in Los Angeles that I "house-hacked" before the term was even coined back in 2003 (way before the crash).  My wife (girl friend at the time) and I live in one room... and rented out the other rooms to friends.  We discovered RE investing by accident.  Read a few books and attended seminars which led both of us to pursue getting into RE investing.  Started saving up to buy more.... while my wife focused on getting her Realtor license.

Fast forward to 2006, we finally had saved enough to invest. We drank the Kool-aid and bought some OOS turnkey condos in FL (through a seminar and guru Marshall Reddick RE Network).   That was a big mistake buying into these so called "Armchair Investing" OOS.   I will reserve my thoughts and comments on OOS investing, but lets just say... I have not invested OOS ever since.  Lots of lessons learned which I wont get into now.

In 2006, the climate at the time was terrible for rentals because vacancy was extremely high. This is due to the fact that anyone can qualify for a loan to buy properties... So no one was renting!!! Our 2 condos were vacant for 6mos...which we carried at a huge negative before we decided to list them. Then comes 2007...BOOM!!!! Needless to say... it was the most stressful time I've ever experienced. Fortunately, we had a new buyer already locked-in right at the beginning of crash.. and it was a cash buyer that wanted to buy both condos. Luckily, we were able to salvage the sale in time without going through short-sale. Lost over 15%... because we sold both for our loan balance (thankfully, we had the foresight to always put 20% down... because we didn't like PMI). It could have been way worse. We were one of the lucky ones in retrospect.

In 2008-2009... It was extremely difficult to get financing and even more difficult to save more money as we were both self employed. Luckily, my other business ventures started picking up... and some of our rentals were doing better and broke even. Rents were rising as more are more were renting. There was so much inventory... It was a fire sale!!! That's when my wife and I started looking into buying up REO's and Short Sales... and when I learned to rehab properties. The rest is history. .

Only regret is, I wished I had invested and scaled up my RE portfolio after 2009.... instead of building other businesses.  Its one of those "If I knew then what I know now" moments...

Here's another idea that I have been using as additional income to offset my DTI... while also able to write-off some of my other expenses....

In my primary home, I have a dedicated office space where I run my other businesses. I have been "renting" out the room to my businesses. The rent amount is equivalent to my mortgages. Also, some of my utilities (phone lines, internet , cellphone bills, etc... even my car payments) are also directly paid by my business... and All are a huge biz write-offs. This significantly reduces my DTI... while also, showing a bigger cashflow. Win-win

@Shiloh Lundahl

Most Lenders require to see 2 years of W2... plus 2 mos of recent paystubs. So spouse may need to be employed more than just a few months.

Regarding the Trust account showing monthly income....Very Interesting strategy. How will you show this as income? Would you have needed to have reported this on previous tax return for banks underwriters to consider this?

I noticed your signature says Burbank CA... and You mentioned Lease Option.  Are your properties with Lease Option tenants in SoCal?    Reason I asked is that im considering doing a lease option for this new property (in SoCal)  i just acquired instead of flipping it to make my numbers work.   I would love to get a copy of the lease option contract you used If possible.