All Forum Posts by: Dave White

Robert, thanks for the insight. It would seem that I am exactly NOT the right person to hold property with no cash flow and/or losses, for the reasons you mentioned ;)

One thing that might be worth mentioning is that the cash flow of a buy-and-hold rental could be really hurt by the HOA. This may be intuitive to many, but I see that HOAs tend to increase each year at a rate that is usually above inflation, which will hurt the profitability over time. I mean, there are some condos in Cheeseman Park that have $700/mo+ HOAs, just because the building is old. Also, since many of the residents have probably paid off their loans, they tolerate such insane HOA, but that's basically a rent check! Looking at the HOA in that way, the profitability of a condo may be somewhat correlated with how old the building is, because in the beginning the management company will probably start at the current allowable market rate for an HOA, then steadily increase from there. Right now I expect an HOA to increase in the 3-5%/yr range, but the grounds and common areas are not getting any cleaner! While the general upkeep of the place may be lower than a house, condo owners still typically have a furnace, boiler, and all of the major appliances, which represent large capex they may have in their future. In all, I see this as a major reason to unload the condo now. [anti-HOA tirade over]

@Chris Lopez so I wrote up a little worksheet and then did the cash flow, cash-on-cash, and cap rate calculations. Those numbers for my condo are: $115/mo, 1.7%/yr, and 4.67%/yr. Not really the kind of numbers to get excited about. Damn.

I bet Charles' analysis on the home price vs. interest rate is very compelling, but I would be shocked if it really takes a 10% interest rate to hurt home prices. I personally think it takes a lot less than that, because loan size is really determined by the maximum monthly payment a family can afford; that is, their income. And for this discussion, people’s income is really a fixed quantity. So if the interest rate goes up, the monthly payments change but since a person's wages are more or less fixed, the purchase price of the home comes down. To compare, my current loan at $425k with 20% down, 3.75%/yr is about $1570/mo P&I. If $1570/mo is all that I could afford, with a higher interest rate, say 4.5%, the maximum home price I could afford would be $387k. And at 10%, $1573/mo will only get you $225k of house! So while increasing rates may not cause an literal “crash” in the market, I think that the recent changes will nonetheless exert negative pressure on home prices. (https://www.zillow.com/mortgage-calculator/)

I really do like @Kevin Grinstead's idea to go out of state. I think my money would go a lot longer and the numbers will be better than Denver. I started poking around Kansas City and Omaha, which are affordable, and can be reached in a short, direct flight. Some realtors out there claim cap rates above 7%, and I've heard it's hard to find much above 6% around here, now. That said, I don't think I'll be out of this house in time to sell by June. But a man can dream!

Hi Jared, thanks a lot, this is really a lot of good information in one place! It's good to know that I can just do 5% down on a new place, which would let me unlock a bunch of money for investing if I sold the condo. Getting out from the HOA today would subsidize the PMI, and I think I would still be able to bank some reserve cash for big repairs.

One thing: I feel like a lot of people are averse to accepting offers from buyers who don't put a lot of money down... But if you have a loan approval letter, and the bank is paying anyway, why should they care?

Jared,

Thanks for your input! I think you're right on about what to do, mainly because it's not the best use of the money. I like your idea of not putting all of the money down on the new place. Unsure that I would be comfortable putting only 3-5% down, but I had considered doing 10% down and paying the PMI, in lieu of the HOA (~$170 vs $400/mo), with the plan to get up to 20% equity soon. That could free up enough for a 20-25% down payment on something to get me started as an investor.

Just curious, what allows a person to buy single-family home for 3-5% down? I don't think I was qualified for anything like this when I bought the condo.

Thanks,
Dave

I really loved this podcast. I fully agree with Charles' stance on investing, his aversion to fix-and-flip deals (speculation), and his emphasis on holding rentals for the long term. I don't completely agree with the previous comment, mostly because I think Charles' emphasis was not on seeking "deals" but on identifying and buying properties that are profitable from day one. He explained why in the podcast: they just weren't the best at flipping houses, and there were other ways to make money. He explained that he prospered through the mundane: understanding and exploiting the financing structure of his purchase. Evidently spreadsheets aren't sexy, but his business is one I'd love to model, and it's refreshing to hear from someone whose philosophy runs contrary to the consumerist junk they push on HGTV. Kudos!

So I can't edit my post. Also not quite the first post I was hoping for. Anyway, here it is formatted to be a little easier on the eyes:

First, I want to say how happy I am to have found such an active community concerned with real estate investing. It's rather unfortunate that I didn't know about BP when I bought my condo, but oh well, you don't know what you don't know... So here's the deal. In late 2015 I bought a condo in cap hill for $425k. I love the condo, and at the time, I was certainly not looking at it through the lens of an investor. It has since appreciated to the 475-495 range, which is nice, however if I were to rent it out, the HOA plus mortgage amounts to about $2350. As for rent, it seems that the rent is in the $2300-2500 range, but there's a huge luxury apartment building coming up next door, as well as other buildings in the Golden Triangle area coming in. In general, it looks like the place would be cash flow neutral before considering any tax breaks, and rent durability may be affected in the future. Further adding to my confusion is the expectation that the housing market will cool off as interest rates are hiked, and much of the appreciation I've seen over the past 2.5 years could be wiped out if I wait too long to sell it. In short, I am sort of anxious to get rid of it.

I am getting married this summer and would like to move to Lakewood, Golden, or Wheatridge. We’re busy and my fiancé works a night schedule, so she doesn’t want to move until after the wedding, but it seems that June 2018 would be the ideal time to unload. 

Here’s what I want to do: I want to get a house. Then I want to start buying rental properties, probably SFRs, but maybe duplexes and quads. Buy and hold over fix and flip. My reservation with keeping the condo is that I did not really understand how to analyze a property as an investment when I got into it, and now when I look at it, it doesn’t seem that it is really a solid investment. Rather, it is a nice place to live, so the likely market for it is the homebuyer who doesn’t care about the economics, but enjoys the location, granite countertops, et cetera. Beyond that, the condo is tying up all my credit, and if it goes vacant, I will quickly become destitute ;) 

Given everything I have shared please help me tease out a couple things: are my concerns about the market unrealistic, maybe do I have more time than I think? Is there a way I could make this condo cash flow positive? $200/mo doesn’t seem like a very big carrot for holding such a large liability. Are there things I am not considering? What would you do if you were a 30-something looking to start generating passive income to the tune of several thousand per month? 

I acknowledge that my case is just another riff on a familiar story. Regardless, I really appreciate your feedback, and I look forward to being able to give back to the forum as my experience grows. Thank you. 

Dave

It appears all of the formatting was removed from my post... sorry in advance for that! I’ll fix it when I get to a computer.

First, I want to say how happy I am to have found such an active community concerned with real estate investing. It’s rather unfortunate that I didn’t know about BP when I bought my condo, but oh well, you don’t know what you don’t know... So here’s the deal. In late 2015 I bought a condo in cap hill for $425k. I love the condo, and at the time, I was certainly not looking at it through the lens of an investor. It has since appreciated to the 475-495 range, which is nice, however if I were to rent it out, the HOA plus mortgage amounts to about $2350. As for rent, it seems that the rent is in the $2300-2500 range, but there’s a huge luxury apartment building coming up next door, as well as other buildings in the Golden Triangle area coming in. In general, it looks like the place would be cash flow neutral before considering any tax breaks, and rent durability may be affected in the future. Further adding to my confusion is the expectation that the housing market will cool off as interest rates are hiked, and much of the appreciation I’ve seen over the past 2.5 years could be wiped out if I wait too long to sell it. In short, I am sort of anxious to get rid of it. I am getting married this summer and would like to move to Lakewood, Golden, or Wheatridge. We’re busy and my fiancé works a night schedule, so she doesn’t want to move until after the wedding, but it seems that June 2018 would be the ideal time to unload. Here’s what I want to do: I want to get a house. Then I want to start buying rental properties, probably SFRs, but maybe duplexes and quads. Buy and hold over fix and flip. My reservation with keeping the condo is that I did not really understand how to analyze a property as an investment when I got into it, and now when I look at it, it doesn’t seem that it is really a solid investment. Rather, it is a nice place to live, so the likely market for it is the homebuyer who doesn’t care about the economics, but enjoys the location, granite countertops, et cetera. Beyond that, the condo is tying up all my credit, and if it goes vacant, I will quickly become destitute ;) Given everything I have shared please help me tease out a couple things: are my concerns about the market unrealistic, maybe do I have more time than I think? Is there a way I could make this condo cash flow positive? $200/mo doesn’t seem like a very big carrot for holding such a large liability. Are there things I am not considering? What would you do if you were a 30-something looking to start generating passive income to the tune of several thousand per month? I acknowledge that my case is just another riff on a familiar story. Regardless, I really appreciate your feedback, and I look forward to being able to give back to the forum as my experience grows. Thank you. Dave