All Forum Posts by: Jim D.

Using as many 5% down, low fixed-rate 30 year mortgages as possible has probably made me more money than anything else in real estate investing. I have never paid one penny of interest; my renters pay for all of it. The interest expense is greatly outweighed by the following benefits:

Ability to buy more properties faster, rather than saving up cash for each one
ROI is heavily amplified by having leverage
Ability to deduct interest on taxes 
Time value of money

Regarding early payment of loan: if you have $10,000 sitting around, and decide to put it towards paying down extra principle on one of your loans at 5%, it will save you exactly $500/year. It is literally identical to investing that money into a 5% fixed-return investment. If you want a fixed 5% illiquid return, then this makes sense, but you can earn far higher returns by investing the $10,000 elsewhere.

It's more expensive than conventional for the reasons listed above, but pretty awesome to get into a property with so little cash invested. 

There is a similar conventional loan that has better terms, the conventional HomePossible. It's 5% down for owner occupied 2-4 unit properties. In many areas you have to be below the median income to qualify, and may have restrictions if you own other property, but I would check and see if you qualify. It has way lower PMI than FHA loans, and the PMI can be dropped off when you reach 78% LTV.

I don't have any hard data to support my opinion, but I would never skip staging the houses I flip. I spend about $850 for staging, and I would estimate that it gets me around $5,000 more in sales price. Here's one I just finished:

https://www.zillow.com/homes/2731-32nd-St-SE-Kentwood,-MI,-49512_rb/23864963_zpid/?mmlb=g,2https://www.zillow.com/homes/2731-32nd-St-SE-Kentwood,-MI,-49512_rb/23864963_zpid/?mmlb=g,2

If accidentally having to pay $500 in closing costs again is your definition of getting screwed, I'd hate to be around when you get surprised by a bedbug infestation, a $10k sewer line replacement, or someone intentionally burning down the rehab you just finished.

That's just a small sample of my last 12 months rehabbing.

So you accidentally closed your HELOC. Can't you just re-apply to open a HELOC again?

I have been investing since 2012, and have had someone tell me that we are nearing a peak every year since. If you can buy a solid cash flowing deal with fixed rate debt, go for it. When there is a downturn, you can just ride it through whether it comes next year or in 5 years. You’ll collect cash flow, pay down principle, and gain a lot of valuable experience in the meantime. 

I also hear people say there aren't cash flowing deals in GR anymore. Also not true, even on the MLS.

I am doing a lot of BRRR projects right now, and have been consistently dealing with extremely low appraisals. Low to the point of laughter when I show them to other agents. The subject property is always brand new remodel with nice material, and the appraisers keep picking the bottom of the barrel comps that haven't been updated in 30 years, while passing over perfectly reasonable remodeled comps right there on the list.

I go back to them after the appraisal and try to get them into include more accurate comps, but they usually just add one or two comps on and keep their crappy ones. I have an appraisal today and had the thought that maybe I could email them a list of potential comps that I have personally been in that I think are good matches. However, I don't want to be condescending--I could see that annoying them, a customer trying to tell them how to do their job. 

Anyone think this is a good/bad idea?

Make sure you get an OK on this method from a lender before using it. We tried this last year and never found a lender that would count the rehab costs as part of the value, even though we had them on the HUD and they were dispersed directly to contractors. Contacted over 20 lenders and none would do it, ended up just having to wait the 6 months anyway.

Consider the impact on your DTI ratio as well. If I had gone with 15 year mortgages, the higher monthly payments would have pushed my DTI high enough that I wouldn't be able to qualify for any more purchase loans. With the 30 year, my DTI stays low enough that I can keep buying.

In the area and price range I flip in (ARV between $140k-200k) no one would ever care about matching brands as long as they had matching colors.

I imagine higher price points may have stronger preferences.