All Forum Posts by: Greg Scott

Follow the money.  Your lender only gets paid when he gets you to execute the refi, so he is highly incentivized to convince you now is a good time to refi.

If the math says not to do it, I wouldn't do it.  However, I'm not sure you are doing the math correctly.  Taxes and insurance payments are escrowed, and sometimes the first month mortgage payment. Escrow is not a separate thing.  Also, you are going to have to pay taxes and insurance regardless what you do, so they should not be taken out of the calculation.  Actual closing costs should be about 2-3%.

This is a common money-grab by government. In some areas you have to fight your taxes every year or you will pay much more than you should.

Find a local attorney that fights property tax assessments in your county and have a conversation with them.

I disagree the premise of your post.  Liquidating your holdings before death may reduce some headaches amongst the heirs, but it creates a different problem.  Liquidating early will create a massive tax bill that could have been avoided.  If you die owning real estate, your heirs get the real estate at a stepped-up basis.

It seems the real problem in your example was poor estate planning.  If they had handed off management to a professional management company and had clear instructions that the properties were to be sold at the end of each active lease, most of those problems could have been avoided while also avoiding onerous taxes.

It looks like you have a Net Worth sufficient to do a $300K loan, although the lender may also want to see some more liquidity too.

To go bigger, you may need to get a partner that can be a guarantor on the note.  

The size loans you are looking at are likely too small for agency debt so you would be looking to banks and credit unions anyway.  Do some networking in your area and find out what lenders like that sort of product.  Then ask them.

All the data you have is good. I'm curious why you didn't stop at 4 units.

At 4 units, valuation is based on comps. At 5 units, you have entered commercial multifamily and valuation is based on income. You really should have a calculation for NOI and then add in an assumed cap rate.

That fifth unit changes a lot of things.

I've seen great opportunities in San Antonio every time I look. (I don't look in Austin.)

Timing the market is difficult to do, even for people who study it.  As a wholesaler, I'm sure you've seen great deals in both strong and weak markets.  If you are buying at a good discount, who cares where the market goes in the next couple of years?

Wow, you haven't provided quite enough to analyze this so I'm making assumptions.
If you think this house is a solid comp, now you have an ARV.
Zillow thinks that house would rent for $1,600

If you could buy that house for $115 and it needs $45K in rehab, a hard money lender would probably lend you up to $175K which means, you could buy this house for nearly $0 out of pocket after closing costs and holding costs, assuming you have a good, ethical GC that can do this repair for you.

I don't have full information, but it looks like your total loan payment (PITI) would be around $1,300 per month. This means you could generate a positive $300 per month when this property is leased. Assuming your rehab budget fixes EVERYTHING that is broken or might break soon, this is what you could expect in the first 12 months.

With all this in mind, I like this as a long term rental.  Hold for a year or two, then sell, pay long-term capital gains and move on.  For a flip, the short-term gains are punitive.

The IRS does not require you to organize your log by property, activity type, mileage, etc.  The only requirement is that it be Material Participation and you have to record the time.  That is two fields 1) A description and 2) Amount of time.   Example:

Repaired leaky toilet at 123 Main Street. Hours include drive time:                    2.5 hours

Filled out insurance application for 123 Maple Street and discussed with broker:   1 hour

A lined sheet of paper could accomplish this.  If you want to have an electronic form, iphone's Notes or Google Sheet would do.

I think you are having trouble because you are asking an unusual question. Most investment calculators won't answer your question.  I think I have a simple solution to your question, but before I give that, I have a question for you.

How did you get to this plan?  It feels inflexible and rigid.  It might not make sense to hold any specific property 20 years. What if the neighborhood starts turning south?  Focusing on paying down the principal, means you are building equity in the property and every bit of equity you gain, that equity decreases the total return the equity is providing you.  Some times it makes sense to pull that cash out and re-deploy it in more profitable investments.  Finally, selling the portfolio is going to generate a massive tax bill.  There are plenty of ways to generate cash with real estate without selling.  And, if you die holding a lot of real estate, that tax bill largely gets eliminated, so your heirs will thank you.  You might want to think about this plan more.

So, the simplistic way to answer your question is if interest rates come down, do the math on how much your mortgage payment will go down if you refinance.  Then, look at how much principal you are paying before the refi.  If you are saving more than the principal payment by refinancing, you can always overpay your mortgage to keep reducing the principal at the same rate as the old loan.  If you look at an amortization table, and use a refi calculator you can generate another table to find the interest rate at which the savings matches the principal paydown.  

Again this is what you could do, but to improve your returns, maybe not what you should do.  

All else equal, I wouldn't want a pool. 

I've had pools in single family rentals and all our large apartments have one.  With single family we hired a company to come in weekly and care for the pool.  If there was any damage, we knew the family was responsible.  

On our apartments, our maintenance staff takes care of the pool day-to-day.  It is a big PIA to manage those things at an apartment.  Kids pee in the pool, idiots jump the fence at night, all kinds of things.  The insurance industry calls them an attractive nuisance and they add a lot of liability.

With a 4-plex, it seems you have the worst of both worlds.  Your property isn't big enough to have someone dedicated care for it, and if something gets damaged you wont know who caused the problem, and you'll probably have a lot of non-residents using your pool, adding cost and liability.

Plus, if you are from Kansas, you get to use the pool maybe 4 months.  Its not worth it.