All Forum Posts by: Greg R.

I must preface this with the risk though. If you have vacancy or need to evict someone you are going to have to carry the note until that's resolved and you get new tenants in. However, in my experience, you are going to have higher quality tenants in more expensive rentals. Usually they are going to be high wage earners and have good credit. The thought of getting an eviction on their record and a huge negative mark on their credit is usually enough to deter them from not paying rent. But what others have said is true, something like a 4 plex does carry less risk, but depending on the units/ price you might be dealing with lower quality tenants that are prone to damage property, not pay rent, etc. Plus, a nice 4 plex is going to cost you a lot more than a SFH and you have to put down 25% minimum.

Austin is red hot, and has been for a while. My understanding is that there's a lot of highly paid tech professionals in Austin. I just did a quick search on Zillow for available homes for rent in Austin, and some are very high. I saw one in Galindo that's asking $6,800 for a 3/2 just over 2,00 sqft. Looks like homes in the neighborhood are selling between 800k-1m-ish. You would definitely need to do a deep analysis, but I don't think you'd have a hard time keeping your place rented in Austin w/ quality tenants. Again, with prices and rates where they currently are, you prob won't cash flow much (if at all), off the bat. But if you have a strategy to systematically increase rents yearly, you could have nice cash flow a few years down the road. I think that appreciation will be very nice in Austin as well.

Sounds to me like you're looking for somewhere to park your money. Not necessarily an immediate home run/ high cash flowing deal. If that's the case, you're on the right track considering a single family home that's near you in a good area. You have enough money to put down 20% for NOO/ investment. You likely won't cash flow a lot off the bat, but that's not really your goal. In general the higher cash flowing deals are going to require a lot of work/ renovations, etc.

What area are you in, CA?

Let's say you put down $20% on a million dollar home (or so) in a desirable area. Over the next 10 years, you'll probably realize a significant amount of equity. Buying a turn-key home and getting a thorough inspection should result in you not needing to worry about a lot of repairs/ renovations.

If you're like me, you're thinking about retirement. If you buy and hold even one nice property, you'll have a very nice retirement nest egg. Further, even if you aren't cash flowing immediately, rents improve yearly - therefore after sometime your cash flow will increase. Compare rents now to rents 10 years ago... now, think of what rents will look like in 10 or 15 years from now.

If you're in it for the long game, parking your money in a single family home in a desirable area is a good strategy.

I just purchased a SFH 2 months ago for STR purposes. All of the 15% down options that I saw were not worth it. Rates were very high and a ton of fees/ upfront expenses. If your lender isn't giving you terms that you feel are fair, go shop around. I know it's a pain in the butt to go through the process with a new lender, but don't feel like you're stuck. I've come across certain lenders who are offering awful terms. On the contrary, I've worked with amazing lenders who provide excellent rates and low fees.
In my opinion you should be wary of the expensive lenders who ask you to rate shop and then come back to them after another lender gets you a great deal. They're basically saying that they're not willing to give you a good deal on their own, but they're happy to let another lender work to get you great terms and then take the loan from them.
I've had luck w/ brokers. In my experience they get me the better rates and less overlays. The direct lenders have always had higher rates and more fees.

In my experience if your new lender already ordered an appraisal and it came back low, you're basically screwed. I doubt they will throw that one away and accept a higher appraisal from a previous lender. I did however have luck disputing a low appraisal. Didn't get the full value I was seeking, but I did get a 25k adjustment upward. Just a lot of BS going back and forth with appraisal management company.

@Chris Mason I just read the Malaysia study (very interesting), however there were two main things I took away. First, this study looks at data from 10-20 years ago. Further, I'm not sure how Malaysia relates to the US and what we're doing here. I am not an expert on the Malaysian economy, currency, loan regulations, bond market, lending/ qualification requirements, and all the other factors that are relevant. However, I've never heard of anyone using Malaysia as a point of reference for US economics. One sentence in the article states "The results are insignificant to explain the U.S. real estate boom occurred in the mid-2000s."

You're probably right regarding the gas, maybe they're aren't a ton of people who changed jobs because of gas prices. However, I do know one who is looking (my dad), as he currently drives 100 miles a day and can't take it any more w/ gas prices.

Regarding causality, I understand your point. But if you're unable to determine causality then I would argue that you're also unable to rule out that "x" factor from not being the cause. So basically, you can't prove or disprove causality. 

But let's just forget all the academics for now, can we agree that higher rates = less buying ability? If someone can qualify for 800K w/ 10% down when rates are 3.25, their ability to buy at 800k disappears when rates shoot up a point +. Maybe when the rates climb over a point they can only qualify for $760k (or whatever lower amount). I don't think we can understate that truth since a vast majority of buyers use traditional financing.

And if that's true, what evidence do we have that prices will stay where they currently are? The more reasonable prediction is that prices will have to dip some (maybe not crash), to get within the borrowing range of the buyers.

@Chris Mason thanks for taking the time, what a thoughtful and detailed response.

I don't know if I agree with your statement regarding people not driving less. People in my circle are absolutely driving less when given the choice. We used to frequent the beach/ boardwalk which is about 20 miles away, now we're hanging out by home and almost never drive that far unless we have to. This sentiment seems to be universal amongst people I know with the primary reason being the $6 per gallon gas.

I bought a primary residence (owner occupied) home in June of 2019 and got a 4.25% rate, which was ok at the time. Not the best, but not bad. Fast forward to June of 2021 the average rate was below 3%. I don't understand how we can argue that the low rates weren't a primary cause of increased values. Certainly not the only cause, inventory is/ was a major factor as well. However, people are only able to qualify for a certain amount. 

On a 500k loan @ 3%, P&I is $2,108. On a 500k loan @ 6%, P&I is $2,998. That's a 42% increase. If someone's DTI will only allow them to borrow up to a $2,108 payment every month, then at 6% the most they can borrow is 352,000. They can't just say that they're cool with the rate and borrow anyway. They are limited by their DTI and other qualifying factors.

Depending on the area, homes purchased by traditional financing range between 75-90%. There are not enough cash buyers alone to keep values over inflated. I just got a rate quote yesterday for a 5.25% , I cannot qualify for as much now as I could have a few months ago. With that, sellers now have a choice, they can meet the buyers where they're at & what they're able to qualify for, or they can hold out and hope for one of the few cash offers to come their way.

I think it will take some time for this to start showing, but in my mind it's pretty clear. Borrowing power is starting to decline, borrowers are not able to borrow as much. Maybe the market doesn't crash per se, but I don't see how it wouldn't at a bare minimum stabilize.

@Daniel Han great news that you still have enough entitlement on your VA for a second purchase. Property tax in TX is what it is. It used to be offset by lower home values, but that has pretty much disappeared.

Quote from @John Patterson:

@Matt M.

Hi fellow contractor.

I’ll throw my 2 ¢ in ( make it 4¢ because of inflation) that homes will drop, but only regionally because of the interest rates .

If people don’t take a cash offers then they have to sell to a qualified buyer with a conventional loan . These loans are base on appraisals and monthly payments. If interest rates go up…. Then monthly payments go up ….then not qualified.

Ps. The banks may push for 40 year loans , and all bets are off . Heck, I’ll sell my house.

 Thanks @John Patterson. This truth seems to be evading a lot of people. at least 75-80% of home sales are through traditional financing. There is not enough cash buyers to keep values from declining. Further, I expect the cash sales to slow down. I'm assuming a lot of them in the last 1-2 years were from people who cashed out and had the flexibility to work remote because of covid. Seems logical to me that these type of cash sales will slow as a big wave of people who were intending to do this have already done so.

However, inventory levels are a different story. But regardless, buyers who are using financing are only able to qualify for a certain amount. Whatever that amount is, it will lower as rates increase. As rates move into the 5's and maybe even higher the amount that people will be able to qualify for will be significantly lower.

Quote from @Dan H.:

Quote from @Steven Foster Wilson:

Quote from @Greg R.:

Quote from @Steven Foster Wilson:

Quote from @Greg R.:

I'm going to preface this with what I've said on other posts... I understand that no one has a crystal ball.

I'm going to be moving to Plano/ Rockwall TX in July/ August (can't move earlier due to kids in school). I'm planning on making offers on a principal residence around late May/ June.

According to every projection I've seen, rates are going to be (at least) 4.5+ on a 30 year fixed.

Is there a consensus that prices will have to drop if that's the case? Or will the insane prices continue no matter high the rates go? I'm not sure if we're in a period of time where in the next 6 months we'll see a market correction based on high rates and buyers not being able to qualify for as much.

I feel like I'm about to buy right at the peak of the 2008 bubble. Would it be better to rent for a year?

Any thoughts would be appreciated.

 Have you considered trying to call off market for these different properties? That can help you find a property for an affordable price. Honestly my wife and I have also went door knocking before and asked if people were willing to sell. We were able to buy down our rate with the bank. I wonder if you could contact different lenders and compare rates or ask them if there’s a way to buy it down.

Thanks @Steven Foster Wilson. Unfortunately I'm out of state and don't have the ability to go door to door. I definitely plan to buy down the rate. There was a guy here on BP who said he knows a lender that does 90 day locks, so that might be an option for me to lock something in around the mid 4s before they climb higher. 

Yeah, that sounds like a good idea. Always shop around and see if anyone is willing to negotiate. It never hurts to ask!

 I have a mortgage broker that I am very happy with but I once got tempted by a mortgage broker that was advertising better terms.   We decided to try the new mortgage broker on 2 refinances.  We quickly got her all the documentation.  No indication of any issues.   At the 11th hour we were told she could not get us the loan.  She had another loan option with terms far worse than our existing mortgage broker had indicated.  He had always got us the loan and therefore never had to switch us to a loan with worse terms.  We switch to using our trusted/reliable mortgage broker.  Unfortunately rates had increased. 

Today I do not even look elsewhere as our mortgage broker provides a level of service far exceeding expectations, has always got us the loan, has never made the terms worse. 

Moral of the story, sometimes the discount loans are presented just to get you to commit to their services.   Many people after submitting all documentation are reluctant to change mortgage brokers.  Moral of the story 2, if you have someone on your team that is providing great service it is Ok if they may not be the lowest price. 

I have only a few members of our team that I consider forever members.  Our mortgage broker is very close to being in this elite group.  

Good luck

 Thanks for that @Dan H.. I am working with a new lender at the moment and yesterday she quoted me 5.25% on a jumbo loan!!! wow. Couldn't believe it. I know rates are up, but this seemed over the top. Talking to a few different lenders now. But you're right, on my last deal I hooked up with a broker who got me an amazing rate. However, the loan fell apart, the guy was the most unreliable person in the world. There seems to be a tradeoff - higher rates for better customer service/ availability/ and the ability to get loans done.