All Forum Posts by: Andres Martin

You have plenty of ways to analyze the deal. The first three that come to mind (but are most definitely not the only ones) are:

1) Cashflow: 

- Getting cash-flowing properties nowadays is a bit more difficult because of how the rents seem to have flattened and the interest rates that increase your monthly PITI payment being where they are. The more money you pay, the less you make.

- For the most part, there is a good rule called the 1% rule, which all it does is establish that a property's monthly rent must be equal to or no less than 1% of the purchase price. So, if you buy a property for $100K, you would like the rent to be at least $1K (1%). 

- Properties that follow this rule are by no means guaranteed to cashflow positively since many things can affect cashflow negatively, but it does serve as a good starting point to analyze a rental deal super quick to determine if it's worth a deeper look

2) Appreciation:

- Some properties are not cash-flowing but could be appreciated well over the years. For example, the average appreciation rate in the city of Indianapolis by the end of 2023 is believed to be close to 3%. This means that just by owning that property for all of 2023, you increased your estimated net worth by 3%. 

- For example, a property you bought for $100K in January 2023, by December 2023 will be valued at $103K. That $3K difference in valuation is yours when you sell, and the lender has nothing to claim on that appreciation. If that property was cash-flowing negatively at a rate of $200/month, then you can consider that the property generated $1,800/year (3k appreciation - 1.2k negative cash flow).

- Appreciation is one of the biggest ways to generate wealth. However, I recommend only analyzing a property for appreciation if you KNOW you have/make enough money to take care of the PITI payment if the property remains empty. That will probably go against what many others will tell you, and maybe they are right in taking more risks. Still, everyone has their own way of analyzing deals, and I usually tend to be a bit more conservative with my approach when investing myself and when looking for properties for my clients.

3) Flips:

- Flipping a house is usually not an easy feat (don't believe everything you see on TV), but it is also one of the best ways to gain money in real estate. 

- House flipping involves purchasing real estate at a low price, often distressed properties, then improving the property to add value, and finally selling it for a higher price. Flippers typically look for undervalued properties, such as foreclosures or homes in less desirable neighborhoods, and use their skills or resources to renovate them cost-effectively.

- One thing to consider is that you or someone in your team need to be able to accurately determine rehab costs and ARV (after repair value) for the homes you are trying to flip. If any of those are off by just a bit, you could lose a lot of time and money.

Based on the numbers you shared, we can discard cashflow and Flip, and I would only consider that deal for appreciation if you can afford the PITI payment (principal, interest, taxes, and insurance) if the property does not rent.

Alternative ways to minimize your risk would be opting in for a downpayment assistance program(if you are eligible) where they help you with the downpayment and sometimes, depending on the program, you don't have to pay the money back (based on certain conditions) and moving into one side of the duplex (house hacking). This would work for you, especially if you are currently paying rent similar to or higher than what you would get in rent for one or both of the units in the duplex. Again, I cannot stress this enough: ONLY if your current income allows you to still pay for the PITI payment on the loan. I emphasize this to avoid you getting into a deal where something goes wrong with the tenant, and you cannot afford to pay the loan, therefore getting your house foreclosed with all the bad implications that brings for you.

If you want to talk about it, you can always reach out to me via DM, and we can hop on a call at any time to see if I can be of further assistance.

It's all going to depend on your capabilities and what strategy you want to do with it. 

For example, at a glance, the cost of $355k with a rent income of only $2,200/month is most likely going to cashflow negatively for you (assuming you are putting a downpayment of 20% or less). This is all good as long as you can afford to keep making the monthly PITI payments to your lender and wish to go the Appreciation route and either refinance/sell in the future once you have gained enough equity to do so in order to get into other deals.

The same applies for the minor renovation. Depending on how much money it will cost you, it may or may not be worth it so that you can get that extra $400/month increase in rent. I would suggest putting all the numbers in the BP Rental Property calculator, remembering to take into account other expenses such as cap ex, property management (which you would waive if you are house hacking in one of the duplex units), vacancy, etc, etc.

Hope this helps a bit. Feel free to contact me via DM if I can further assist.

Thank you so much for your reply Polo! I will be visiting the bank next week to try and set everything up.

My wife and I are getting ready to take the next step and buy our first rental in Indiana. Her credit score is really good, but mine is just decent since I have been trying to build it up for just over 4 years when I came to this country. 

My main residence is completely paid off and watching some videos on the BiggerPockets YouTube channel I found out something called a HELOC.

The main strategy I'm looking to use is the BRRRR and my plan would be as follows:

- Get a HELOC on my main residence.

- Use it to buy a fixer-upper.

- Fix it, rent it, refinance it.

- Cover the HELOC with the refinancing and get ready to use the same HELOC again for a second rental.

Now I get a little confused by the refinancing part. The way I understand it refinancing is for properties where a mortgage was used to finance its original purchase, but in my case, I would be making a cash purchase for all intents and purposes. 

Some questions that arise are: 

1) During the refinancing step, can I actually get a regular mortgage on the rental once it has been improved and has an active tenant or will I need to try and get another HELOC on it (if that is even an option) to pay for the HELOC on my main residence?

2) Who should I talk to to get either a HELOC or refinancing? Is a bank better than a private lender? Will my credit score affect my chances of getting either the HELOC or the refinancing?

Please note that my questions stem from my inexperience with credit/loan strategies, since where I come from for the most part the culture is to mainly pay cash, so my understanding as to how these strategies work is new completely new to me.