All Forum Posts by: Jim D.

Do owner occupied if you can. The ROI you can achieve by doing owner-occupied purchases (house hacking) is astronomical, mostly because it requires so little of your own money. The long-term stock market average is about 12% annual ROI. Take a look at the numbers on my middle of the road $300,000 house hack on a property that needed no rehab:

Money invested for down payment and closing costs: ($20,000)

Monthly cash flow after ALL expenses including repairs: $300 (that's $3,600/year, or an 18% return on my money)
Mortgage paid down every year: $6,000 (that's an additional 30% return on my money)
Appreciation of 2%/year: $6,000 (that's an additional 30% return on my money)

People will run and hide if you tell them you can consistently get 70-100% returns, because it sounds like a scam. But you can!

I have built the majority of my small portfolio by house hacking for the last five years, and one result of that is that I am now spooked by anything other than the low interest, 30-year fixed rate terms I've grown accustomed to. My average rate is below 4% fixed, and I feel like I should be able to ride right through a recession.

I'm getting to the point where I want to start looking at 5+ unit properties, but am having a hard time stomaching the commercial loan terms. The variable interest rates bother me, but the balloon payments sound like a recipe for disaster. I've met people who owned small apartment buildings with commercial loans, had never missed a payment, and were still in the black on a monthly basis, but had the misfortune of having their balloon payments come due in 2009 and were left standing hat in hand (lost their properties even though they had never missed a payment!).

For those of you who frequently use these loans, how do you mitigate the risk of needing to refinance in 5-7 years, but not having any idea what interest rates or credit availability will be like at that time? 

Asking for a friend (really). 

A friend of mine purchased an 4-plex about a year ago with a 5% down owner-occupied conventional loan (HomePossible). He purchase the property in his personal name, but after the purchase he created an LLC and put the property in there. He has done a lot of rehabbing, and between that and some new comps on the same street, it looks like he could pretty easily appraise at 80% LTV. He wants to have the bank re-appraise the value to try and drop the PMI.

Question: when the lender re-visits his file, how likely is it that they will notice/care that the title is now held by the LLC? I hear so much talk about the potential for loans getting called due when they're transferred to LLC's, but have never actually heard of it happening. 

Thanks in advance for your thoughts.

If you do decide to pull some equity out, I'd strongly consider doing either a 2nd fixed mortgage or a HELOC, so that you can keep your existing 1st mortgage as-is. Reason being that if you do a full refi and pull cash out, the interest rate on your 1st mortgage will likely take a substantial increase.

Nice analysis. I agree that with the current price points, a plateau seems like a necessity in Salt Lake. I had noticed quite a few price drops last time I glanced at the MLS there, and assumed it was a combination of the rising rates (which have a big impact on a $400,000 purchase) and the seasonality. Also agree that the market fundamentals there are boding very well for the next 20 years.

Great resource called Google can give you a wealth of knowledge on that one :)

Did you purchase your rental property as an owner-occupied purchase? (did you tell the bank you would move in?) If so, that is what you need to do to avoid committing fraud. 

If you just bought it as a rental, then you have options. It sounds like you might be able to make a few hundred dollars more per month by renting it out and then finding somewhere cheaper to rent for yourselves. Personally, if it were under $300/month savings, I would just live in my own unit to save the hassle of dealing with another tenant and also being someone else's tenant. It's nice to live on site when you need to take care of things, and you'll take great care of the unit.

If you plan to move there anyway next year, I would strongly suggest just waiting until you're there to buy property, especially if it will be your first time buying any property. There is a lot to learn, and you'll want to see it in person and meet the people you'll be working with in person.

You are correct. The city I lived in during the Great Recession actually saw almost no dip in prices for multi-family properties, because the rental market became really strong during those years and rents actually went up in that city. The property's monthly income is the main determining factor in the price someone will pay for it, so things that affect its income are what will predict the cycle (for example, if a certain area's economy slumps and the rental market sags, your value is going to drop as well. Or higher interest rates which result in less income would also decrease demand for the property.)

One other note is that while buyers will value 2-4 unit properties based on their income potential, from the bank's perspective 2-4 unit properties still have to be appraised using the sold comparables, while 5+ unit properties are valued using their income.

For conventional loans, which generally have the most attractive terms, the first four are the easiest to get. Loans 5-9 require at least 20-25% down payment. After loan 10, I believe you max out your conventional loans and have to look somewhere else like portfolio loans or commercial, of which there is no limit as long as you are qualified in the bank's eyes.

Note that if you are married, you can gain a large advantage by only putting the houses and loans in one spouse's name. My properties are either in my name or my wife's only, so we can qualify for 10 conventional loans each (assuming our DTI etc. works out).