All Forum Posts by: Greg Scott

There is a ton of new product being built in that area.  I expect rents to be under pressure.

Cap Rate is very important in commercial real estate because properties are valued based on the income approach.  Net Operating Income divided by the prevailing cap rate gives you an estimated value of the property.  

In the example you have, the dollar amounts are so low, it appears you are applying it to single family. As you know, valuation in single family are based on comps. Therefore cap rate has no meaningful purpose in single family. 

I've seen people on this forum brag about their single family cap rate.  Then you find out they paid $50K more than appraised value for the property. Unless they hold a very long time, they are going to lose money.

In single family, focusing on cap rate is dangerous and dumb.

Does the commercial loan require you to send a rent roll from time to time?

If not, how is the lender going to know if you moved into one of the units?

Honestly, they probably won't care if the mortgage is getting paid. If you are worried, check the mortgage for the clause that specifies remedies. 

Let's start over.

Let's say you have house worth $200K, with no mortgage, and did an 80% cash-out refi.  Ignoring closing costs, you have converted $160K of equity into cash.  The remaining $40K of equity is still in the house.  If you sold the house, ignoring closing costs, you would get the remaining $40K as cash.

I 100% agree, and would add one thing.

You really can't invest IN a 401K, you invest THROUGH a 401K.  Unfortunately, the things you can invest in through your 401K are typically mutual funds.  Mutual funds will have costs and fees, not all of which must be disclosed.  As a result, Wall Street takes a big portion of your potential profit.

When I finally figured real estate out, I had most of my money tied up in a 401K. I could not get at it for real estate investing unless I quit my job.   If I had not been so diligent about funding my 401K retirement account, I could have retired much earlier.

passivepockets.com

I've bought, owned, and sold properties that I've never seen and all have made me good money.

My mental model is this.  If I give somebody the opportunity to cheat me, they just might.  

With that in mind, I NEVER used an inspector, property manager, or other professional recommended by someone else in the purchase process that might be able to work together to put me at a disadvantage.  I found my own inspectors (and would pay them extra to take 3x the amount of photographs.)  I found my own property manager who would also come by and take a look to tell me what they thought I needed to do. I found my own financing and they hired an independent appraiser, one that did not have a relationship with the seller.

If you have enough independant eyes on the deal, it is much harder to get cheated as a buyer.

A HELOC will hurt your DTI. Borrowing from your 401K won't. You can borrow $40K from your 401K. You have to pay back the loan but the payments and interest go to your 401K.

If you move into it and get a 3.5% down FHA loan, I presume that might be enough to make it work.

Is your 401K with your current employer?  If so, getting more out is hard.  Sometimes you can withdraw matching funds.  A more complex and expensive way is to complete a QDRO and move a portion to your wife's name.

This was a backward looking exercise, not an estimation of future appreciation.  If you are considering selling you already know the exact amount of appreciation that has happened.