All Forum Posts by: Christopher D.

Thanks for the reply @Jeff B. .  

I'm looking at markets outside of CA, and plan on hiring a professional property manager.  The benefit of bringing on my brother as a partner is that he knows the area well - which neighborhoods are better than others, which property management companies are good, which are bad, etc.

Yes, there are definitely some draw-backs to renting to college students, but the vacancies and move-out / rehab costs are the main reasons I'm planning on hiring a professional PM to deal with all that.  That is one of the benefits of College town #2 - the rents are high enough to soften the blow of potential vacancies, move out costs, etc.

I own two condos in Southern CA, which have appreciated well, but have low / no cash flow, so I'm looking at other markets out of the area - two college towns in particular - where I can get some higher cash flow.

College town #1: Looks like I can get returns there around 15-20% Cash-on-Cash ROI. My brother has lived there for 5 years, and has offered to help me scout out properties, property managers, etc. He knows the area and rental market well, but is not active in real estate and doesn't have any cash to bring to the table. In addition, he will not be able to manage the properties, as he works a full time job, lives 90 minutes away on the weekends, and will be moving at the end of the year. So what he is bringing the to the table here is strictly local knowledge (and a lot of energy).

College town #2:  I have no prior knowledge of this area, but looking at some of the listings and rents, it looks like returns could range anywhere from 20-48%.  It will take significantly more work to build a network there, and I have limited time to travel there, due to a full time job in CA.

Are the potentially much higher returns in College Town #2 worth forgoing the pre-existing local knowledge and network via my brother in College Town #1?  Would appreciate advice from anyone with experience!  Thanks!!

-CD

@ChanceCooper

Chance,

First of all, nice job thinking like an investor, as a lot of people in the military don't think to invest at all.

I'm in the military as well (13 yrs), have a Roth IRA, Roth TSP, a couple investment properties in San Diego, and am currently looking to buy more.

A couple things to be aware of:

- I believe the new rules for active duty REQUIRE you to open a TSP account and make a minimum of 1% of base pay in contributions. This can be adjusted in mypay on the DFAS website. This is probably why your superiors are telling you that you have to open it. This is the military "looking out" for its people, despite themselves. For those of us who are savvy investors and would rather put their money elsewhere, this is frustrating, but understandable.

- Good job maxing out your Roth IRA before investing in the TSP. While the Roth IRA annual contribution limit is much lower than the Roth TSP's, you can always take out your contributions (what you put into it) from a Roth IRA penalty free, if you ever want to put that money to better use.

- With the TSP (Roth or conventional), you can take out a low-interest loan for the purchsae of a first property, but it is a loan - you have to pay it back. There is no way that I know of to take the money out, even contributions, free and clear until you're of retirement age.

- As you probably already know, if you're going to put money into the TSP, Roth IRA and Roth TSP make more sense for military than a conventional IRA or TSP, since our tax rates are so low (BAH is not taxed, since it is an allowance not a pay), especially if you are overseas in a tax free zone a lot. If you put tax free pay into your Roth IRA or Roth TSP, that pay AND its earnings will NEVER be taxed, which is awesome. Doesn't make sense to invest in conventional TSP or IRA if you are getting tax free pay - the prime benefit of those investment vehicles is tax deferral, and if you have no taxes to defer, why lock up that money? You're better off putting it in something more liquid.

- Also, DoD doesn't do matching TSP contributions for uniformed service members, so the Roth TSP is a better investment than the regular TSP (tax-deferred), just like a Roth IRA is better than a 401K that doesn't match contributions.

My strategy, for what it's worth: Like you, I contributed significantly to my Roth IRA and Roth TSP during the first 10 years of my career. Now that I'm turning my focus to real estate investing, I'm not contributing very much at all to those, and even plan to take some of my contributions out of my Roth IRA to invest in additional properties (there is a way to invest in real estate w/in your Roth IRA, but I don't want my investment earnings trapped in there until age 59 1/2, even if it is tax-free, because I want to retire sooner).

Taking money out of my Roth IRA kind of sketches me out, but if I could also take money out of my Roth TSP to put into real estate I would. But since it's stuck there, knowing it's there makes me feel better about taking money out of the Roth IRA.

Hope this was helpful.

I am looking for options to put as little as possible down on investment properties (not owner-occupied). I want to stretch my dollars out as much as possible, to max out my ROI.

So far, the FNMA HomeStyle rehab loan seems to be the way to go, with as little as 10% down required.  Anyone know of any other low downpayment options for purchasing an investment property?

@Ryan Murphy I'm looking into low down payment options for investment properties and came across HomeStyle loans.  This post is perfect - it really cleared up a lot of questions.  Thanks!

Anyone know of any other low down payment options for investment properties (SFHs)?  My mortgage broker is telling me most banks want to see 25% down for rentals these days.

My wife and I bought our second condo in the spring of 2013 in Pacific Beach. We knew the market was starting to make a comeback from the bottom, and was getting ultra-competitive as big investors were making all-cash offers and inventory was limited. Opportunities for positive cashflow with any sort of ROI were slim to none.

After months of searching with our realtor, and another long, discouraging day of looking at over-valued properties, we came back home and saw a listing for a 3bd/3.5bth condo that posted that day. It seemed like a good deal - I ran the numbers, and could not believe it. With the $53K downpayment we were willing to drop, a 30 year fixed mortgage, and typical rents in the area, the property would generate a positive cashflow of about $500 a month (about 11% ROI - unheard of for San Diego)! At first, I thought maybe my spreadsheet was wrong, but it wasn't.

 We looked at the property the next morning, and made an offer at the asking price on the spot. Another investor came in with a slightly higher offer the same day. Thankfully, since our offer was first, the selling realtor gave us the opportunity to match the other bid.  I immediately agreed, and the condo was ours.  After 2 years of owning it, not only has it generated a steady stream of positive cash flow, but we have applicants bending over backwards to rent it out, and it has increased in value by $200K!  If we can find another good deal, we will refinance this property and use the equity to buy another place.  I don't think I will ever find a deal that good again in PB though!

What I learned: "You make your money when you buy a property."  Be patient, unemotional, and trust the MATH when you are shopping for investment properties.   Then, when an opportunity presents itself trust the numbers and jump on it!

My wife and I own two rental properties and are looking to acquire more, in order to generate passive income. I've been in San Diego for 12 years, am most familiar with the market in Pacific Beach.  I jointed BiggerPockets to network with fellow real estate investors in the area, and also seek out expert advisors (accountant, real estate attorney, etc.).