All Forum Posts by: Chris Calabrese

I think the expenses and vacancy are why they only use 75% to begin with. I know my lender shows the 75% rent as income, and the PITI plus HOA fee as the payment. They also allow us to use the income as soon as we rent it, i.e. there is no seasoning period or anything. You will just have to show a valid lease agreement. Therefore a good cash-flowing rental can actually help you qualify for your next loan, or at least be neutral to a lender.

If you're trying to cash-out refi, you will probably need some sort of seasoning, but it's not set in stone either. The more properties you acquire, and the better your relationship with the lender, the more flexible they will be.

Wow, $60k seems crazy for those improvements. You could build a new SF house for less than that.

How much is the property worth in its current condition? That's important to know to judge whether you could put that money to better use somewhere else. If you could only sell for $50k, maybe it's better to keep it and make only the necessary repairs.

Sounds like an interesting business, definitely high maintenance, but interesting and apparently profitable. Do you have any kind of analysis of how much more you make compared to renting the entire house out?

Also, any issues with local laws or code enforcement? I'm thinking back to college housing where I had friends living in attics divided into 3 spaces by shower curtains. There were always landlords getting in trouble for having too many people under one roof.

Jimmy, I'm in SC and own rentals and flip houses in 3 counties - Charleston, Dorchester, and Berkeley. In all 3, I find the investor taxes to be about 2.5 times the owner-occupied. They assess investor houses at 6% of value instead of 4% and owner-occupants don't pay the portion that goes towards the school board. I always find this odd that the residents don't pay for the schools.

As a flipper, there's an interesting benefit to this. Taxes are paid in arrears in SC, and the pro-rating at closing is based on the buyer. So if I buy a house on October 1, the seller credits me for 9 months of taxes at the investor rate. But then if I sell it November 1 to an owner-occupant, I credit the buyer for 10 months at the lower rate, which is much less. I did 5 flips last year, and my cumulative property taxes were negative!

Jeff, it sounds like you've proven the 50% rule, over time. That's why it's a good starting point for analyzing a long-term rental, but you still need to project major capital expenses based on the remaining life of each item. Clearly, over time, the number can vary. You must have had some very good years to still average out to 50%.

It's kind of like how poker players remember their bad beats, but not the hands where they got lucky.

This is a great point. You can put your offers in ahead of time, and either be first in line on "investor day", or keep them in as backup. We've bought about half our deals from other deals falling through due to financing. That's when the banks are even more excited to see a cash offer.

Some other banks are starting to do this as well, and it is definitely frustrating. It wastes a lot of time too, because we always feel like we have to look at them anyway to be ready to put in offers on day 16, and then hope they're still available.

Since we're out there looking at these anyway and putting together estimates, we've thought about trying to find some OO buyers and helping them find these houses and then running their renovations for them before they move in (kind of like that show "Property Brothers"). The thought is that we would make a little less money than buying and flipping, but not take on the risk of holding the property. The roadblock seems to be financing, especially the renovation part, with mostly first-time buyers. Has anyone else considered or tried doing this?

Albert, can I ask what your LTV was on this one?

After my first year of self-employment, I have found out that the interest rate on underpayments is currently only 3%. Does anyone intentionally not pay quarterlies, knowing that they can invest that money and make more than the 3% during the year? Obviously, you would need to plan even more carefully to ensure that you could afford the whole payment next April. What other considerations are there? I've never heard this discussed, which means that it's either a dumb idea and thus no one does it or it's obvious and everyone does it.

Not sure what type of business you're starting, but here's a few as a flipper:

1. Business licenses in the various towns where we work
2. Increased fees for vehicle registrations in business name
3. Large security deposits required by utilities for commercial accounts