All Forum Posts by: Greg Gaudet

Originally posted by @Gilbert Dominguez:

@Greg Gaudet,

Please understand that I am asking in the interest of other people understanding this because I have seen this question in the exact form or some version of it on many other posts. Thank you for your contribution.

Gotcha! I misunderstood you; It's still early here in Hawaii and I hadn't had my coffee yet lol 

Originally posted by @Gilbert Dominguez:

So is the idea then to earn 12% per year on leveraged deald which should be a higher value than my cash on cash earnings.

let us say we purchase a house with an all in out of pocket to me for $120K but I borrow to buy the property. Then if I cash flow positive $1,500.00 per month I would be earning $1,500.00 X 12 = $18,000.00/yr that would be a 15% earning cash on cash but overall if I earn 1% of a total cost of $400K for the property I should be earning $48,000.00 per year, Is this right?

1% of $400K would be $4,000.00 per month so if the rental income is lower than $4,000.00 this would not be a good deal to get into ?

Or is the 1% based on my total monthly outlay. Let us say my total monthly expenses including debt service, insurance, property taxes, maintenance reserve plus accounting for and allowing for no occupancy then taking the expected earnings per month and subtracting my total monthly expenses should I then realize 1% over and above all of that on a per month basis ?

Gilbert I'm not sure if I understand your question correctly; but I think you're getting the 1% rule a little mixed up. The 1% rule states that your gross monthly rent (not NOI or cash flow) should be 1% of the purchase price. So if you buy a house for 120k, regardless of how much you finance or what your expenses are, the gross rent should be $1,200 per month.

Again this is just a preliminary "quick calculation"... for example, when I see a property for 120k that rents for $700 a month I just move on, I don't spend any time analyzing the deal because there's no way it will work. But if it rents for 1,200 a month then I dig further, because there's a good chance it will cash flow, depending on what the expenses/repairs/other issues are. 

@Lindsey Thomspon First off you should consider living in it for 2 years so that you don’t have to pay capital gains if you sell it within 5 years. Also, I love getting a big list of problems (as long as they sound bad, but aren’t actually a big deal lol) because I use them to get a price reduction now that I already have the seller committed to selling to me! Get quotes for all of the repairs from professionals and then send them to the seller and ask for that amount to be taken off the sales price. You could get a $10,000 price reduction!!! I got a $5,000 price reduction on my last purchase because of extensive mold, and it didn’t actually cost me anything more during my rehab. In fact I did the entire rehab for $2,200. I don’t say that to brag, but to prove the point that if you really work hard at it you can solve many problems without spending a ton. And finally- I am a mold remediation technician, I work for a Restoration company. PM me, I’d be glad to offer some suggestions on how you can deal with this issue without spending a fortune. Good luck, sounds like a good deal to me, assumIng Its not in a war zone!

@Robert Raffalo Correct. The 1% rule doesn’t mean the property is a good deal. For me it is ONLY the very first quick calculation I do to get an idea of whether I want to dig further I to the deal. A property could be a .7 and still be a great deal.. it just depends. Maybe the expenses are super low, etc. You should check out the calculators on BP, the rental property calculator can help you determine whether this property produces enough cash flow to go through with. Also watch some of @Brandon Turner webinars/YouTube videos on how to analyze a rental property to help you decide how good of a deal this is. I think Brandon says that he looks for at least a $200 cash flow after all expenses including capex, maintenance, vacancies, and management. I would agree with that, I prefer to be closer to $350-450, but good deals are getting harder to find.

@Daniel Beaulieu

I don't know how this relates to tax liens, but what I do know for a fact is that In Hawaii the bank is responsible for back owed taxes and the buyer is responsible for 6 months worth of HOA dues (bc we have a lot of condos). I've won foreclosure Auctions and had to pay 6 months worth of HOAs but no taxes (I'm assuming this is a foreclosure because you bought it on Hubzu; actually probably alredy an REO)

My escrow company knows all the laws because they have to know how much they can legally charge me on my buyers statement. I’m assuming it works the same in your state, but call and ask them. 

So I recommend calling your local title/escrow companies and see if they can provide definitive answers (if you have escrow companies in your state?)

Look forward to hearing how it goes!!!

I'll be there!

And Chai even if you don't purchase the book, you should be listening to the "best real estate investing advice ever" podcast! I wouldn't own rental properties today if I hadn't started listening to @Joe Fairless and Theo. Can't wait to be a guest on the show one day... 

Originally posted by @Dan H.:

Originally posted by @Matt Crusinberry:

@Kristian A moreno, If you're just starting out, and you want the biggest bang for your [investment] buck... I suggest you house hack. You will get both of the same world. Look for duplexes, triplexes, or quad-plexes as your first investment, and later on as they are putting money into your pocket you can refinance that property into a full time rental. This will also be beneficial in many different aspects of real estate (i.e. managing rental properties). It's a win win for you, and give you time to save up extra money. Good luck and I hope this helps. 

.

I am a big fan of house hacking but to add the icing to the cake the house hack should have a value add.  Some things to consider:

• if you buy an SFR and owner occupy by state law you can add an ADU (any city and jurisdiction).
• if you purchase a duplex to quad that is thrashed, a simple rehab is a value add. 
• The value add may allow you to extract much of your investment to leverage elsewhere.
• The value add may increase your cash flow. SFR purchased at retail in San Diego without a value add will not produce positive cash flow when accounting for all expenses. It is possible, but not easy, to find duplexes to quads that will have initial positive cash flow. It is also possible to purchase at wholesale. However, the easiest way to obtain positive initial cash flow is to have a value add.
• Robert Kiyosaki (rich dad poor dad) indicates your home is not an asset (I would have chose the word investment) and I do not think that he is necessarily incorrect about it not being an asset if you were in a low/no appreciation market. In San Diego, historically your home has produced outstanding return especially if leveraged. Use an FHA to purchase a home in San diego last year at 95% LTV and your return on investment would be in excess of 100%. You can pick any number of years backwards and a leveraged home in San Diego would have produced fair to great return.

@Greg Gaudet I do not know if Kahului has detached multiplexes but where I invest there are detached multiplexes that look like SFR. They typically have their own yard (often fenced), entrance, gas meter, electric meter. Typically the only way to tell that they are a multiplex is that they typically share a single water meter. Maybe your fiancé would consider the detached multiplex option.

Good luck

Hey Dan, 

Yep, SFHs with "ohanas" are the norm here. Typically many of the SFHs here have a 500-600 sq ft 2/1 or 1/1 cottage (called an Ohana because I guess they used to be for family to visit - but now everyone rents them because of the high cost of living). 

My plan for a long time was to live in an Ohana and rent out the main house, until whenever I needed to bigger house, then switch and rent out the Ohana. But my fiancé had long time plans to move her parents here and live together. So we bought a half acre lot and built 2 SFHs, one for us and one for her parents, we're moving in 2 weeks. The lot is zoned R-3, which allows us to have 2 SFHs and an Ohana, so of course that's what I wanted because the Ohana would've cost us $750 a month if we financed the whole thing (because we already paid for the land) and it would rent out for $2,000+, so it would have provided over $1,200 in cash flow - half of our mortgage! But her parents are  "coming here to retire and don't want tenants living with them". I'm hopeful that after living here a couple years they will realize that this is just how everyone lives here... Maui is expensive and if you want to live in paradise you have to find ways to offset the expenses. 

Originally posted by @Jason Malabute:

Originally posted by @Greg Gaudet:

Originally posted by @Jason Malabute:

Originally posted by @Michael Noto:

@Jason Malabute More important than anything with a BRRRR make sure you have a refinance lender lined up before purchase so you know the timetable you will be working with from a seasoning perspective, LTV amount, etc. going into the project.

 Even if you are not going refinance until 6 months-1 year later? What if you're currently

 trying to find a new job while you purchase so you are sure you actually qualify for refi?

Also, if you are a long distance investor does the. lender have to be located in market you are investing in?

Jason changing jobs can make things tricky... if you are staying in the same industry/type of job then it shouldn't be a problem. But if you go from being a teacher to a salesman then the bank will probably not give a mortgage until you've been at your new job for 2 years. 

If you're investing out of state you will typically need a lender in the state that you are purchasing in. Some lenders are licensed in multiple states. 

Again, this is all just based on my experience getting mortgages... you should definitely sit down with a lender and go through everything and takes notes so there aren't any surprises when you're ready to do a deal. I've had issues with lenders assuming that I know all their secret little rules lol like on my last deal, I brought a third loan to my lender (I purchase long term rental BRRRR condos here on Maui) and he said "oh sorry, we don't give more than 2 loans in a given condo building". The funny thing about this was that he had just given me a prequal letter to purchase two units as a package deal... so if he wouldn't fund another unit, then why did he give me a prequal letter saying that he would fund 2 more!? lol So make sure you ask them everything!

 Thank you.  So assuming I'm going from a CPA  job to a higher paying CPA job how long should I have this  job before I refinance?

I believe it depends on your pay structure. Since you're not changing careers you should be able to use your past income to qualify; and I'm pretty sure that if your new higher pay is a salary then you should be able to start using that amount to qualify right away... but double check this with a lender. I don't believe they need the 2 years of seasoning to count a pay increase when you didn't change industries. Unless you went from salary to commission. 

And regarding the 43% DTI, that's kind of the general rule as far as I know. Again, double check all of this with a lender. I'd ask a few local investors who's the most investor friendly lender, get 3-4 of them and schedule meetings with a few so you can find out exactly how much and when you can qualify for and how you need to structure your deals.

And keep in mind, if you have too much debt, or otherwise just can't qualify for what you need, you could always partner with someone that maybe can qualify for more, but doesn't have the money. I'm about to partner with someone because I have a deal and I know how to do it but I don't have the cash. She has the cash, but doesn't know how to, or want to, do the work involved in the deal.

@Kristian A moreno House hack! Wish my fiancé wasn’t forcing me to buy a SFH for us, preventing me from house hacking lol at least she’s letting me airbnb our guest room.