All Forum Posts by: Jim D.

I don’t personally own anything in Baxter, but have friends who do. As with any lower quality neighborhood, it can work, but you have to budget for and expect lower quality tenants, higher chance of nonpayment/eviction, and people being harder on houses. Of course, that won’t be the case with every tenant, but on average it will.

If you’re experienced and the numbers still work after accounting for extra costs, go for it. If you’re newer, I’d strongly recommend trying a better neighborhood. The returns on paper will look skinnier, but odds are you’ll be much happier with it. You’ll have the chance to buy so many rentals in your life; I’d start with one thats already in good shape and in a good neighborhood to learn the ropes. There’s enough to learn as it is on your first deal; no need to make it harder with additional challenges.

This would be a good question to call a lender directly on, but here are some tips:

1. Conventional investment purchases (non-owner occupied) require 25% down for 2-4 unit properties.

2. If he will be an owner occupant for at least a year, there are two other possible loan options with low down payments. HomePossible is a great conventional loan with 5% down; however, he can only qualify for this if he is a first time homebuyer. In some areas you also need to be below a certain income to qualify. If you can get this loan, it's the best option I know of.

3. If you can't do HomePossible, then you could also consider using an FHA. This would be 3% down and also owner occupied. It's not as favorable as HomePossible because it has higher mortgage insurance which can never be dropped off.

4. If your partner can qualify for the loan on his own, then don't put your name on the loan application as well. You can still be partners on the property but just have him qualify for the loan. Having you on the loan will just add to your personal DTI ratio unnecessarily.

Hope that helps!

@Kevin Phu I have house hacked 5 properties in 5 years. Based on what you wrote, I would say your best bet would be to do your next one with a 3% down FHA loan (if you're buying a 2-4 unit property owner occupied), or a conventional 5% down (if you're doing a single family owner occupied).

I would see no issue with renting out the master bedroom and moving on; I've never had a problem doing that as long as you find someone who can get along with your existing roommates.

If you're holding for the long term, it's not about equity. Your LTV position isn't relevant to whether or not you can make it through a recession.

If you owe $180k on a $200k property and its value drops by $40k, then you lost $40k in value.
If you owe $100k on a $200k property and its value drops by $40k, then you lost $40k in value. 

For getting through a recession, it's cash flow that counts. Run a stress test on your portfolio and see if you could withstand a generous decrease in rent and 25% vacancy. If you can, then your equity position doesn't matter. It only matters when you go to sell.

I just bought a duplex that is 100% financed on a 4.5% fixed (was a unique one-time portfolio loan). The mortgage is $1500/month and it rents for $2750/month. If the value dropped by 30% in the next 3 years, I would be way underwater (though as noted above, I actually wouldn't have lost any more money than someone who put 30% down). However, as long as I'm able to continue holding it through the recession and at least break even on a monthly basis, I consider it a safe position. Because I'm looking to hold for 10+ years, the current LTV doesn't matter to me if the cash flow is strong enough.

@Scott Passman  There are so many different ways to make money in real estate that a good deal doesn't look the same to everyone. That could explain why you've gotten contradictory feedback from different investors. My advice would be similar to Mike D'Arrigo's above: define clearly what metrics you want to hit and be ready to act when you find something that meets that criteria. 

I would definitely still run it by a couple other investors, property managers, agents, etc., but the questions I would ask them would not be "Would you buy this? Is this a good investment?", but rather more specific things to make sure you're going to hit your metrics, like "What would you expect this unit to rent for? What type of renters will I get in this neighborhood?" etc. 

It’s usually not a big deal, as most lenders are generally competent and can get the job done. But a less competent one can kill a deal in some cases due to lack of speed, communication, or competence. 

I recently sent an offer for a client and we were countered not on price but on choice of lender. My buyer had a preapproval from a bank that is notoriously slow, and seller wouldn’t accept an offer from anyone using them. 

@Russell Brazil I've taken some basic appraisal classes taught by an appraiser, and have dealt with sold comps, cost approach, and income approach in different settings. I'm no expert, but definitely familiar with the methodology for each. Clearly I need to know more, hence me asking for advice here.

The big question is how to get them to use sold comps like they normally should for these SFRs and duplexes, instead of just adding up my costs. 

Also, just to confirm that I'm not just overly optimistic on the ARV: the second time this happened, I was unable to get the appraiser to budge from his value of $80k. I listed it for sale instead, and had an offer signed for $100k in a week.

On the last BRRR I did, I purchased for $85k (great cash discount) and spent $20k on the rehab. I had my ARV estimated between $140-150k; this is in a neighborhood I am very familiar with, and I had a good list of comps putting it in that ballpark, so I wasn't worried about the appraisal at all.

The appraiser came through and took less than 10 minutes at the property, barely looking at anything and just snapping the photos he needed. The only questions he was interested in were "So you bought this off the MLS?" and "How much total did you spend on the remodel?". The appraisal comes back, and what do you know; he independently determines that the market value just happens to be $105,000 (the exact amount I spent). I showed the property and appraisal to some other investors that work in the area and all agreed the property wouldn't have any trouble selling for close to $150k.

In the end, I appealed and got it up to $145,000, but this has happened to me twice in a row on BRRR appraisals. The appraiser just wants to add up what I spent and use that as the value. How can I get an appraiser to just use the comps and market data for valuation, instead of taking this cost approach?

Do you have documentation that the damages were not already present when these tenants moved in (property condition checklist, move in documents, etc.). You'll need those in order to prove these tenants caused the damages, of course. That should have been sent to you from the previous owner. If you don't have that, then the tenant can claim the damages were already there and you'll have to refund their deposit.

If you have that documented and document your repairs well, you shouldn't have any problem supporting the withholding.