All Forum Posts by: Jim D.

@Jameson Hooton don't mind the cranky folks on here. This is how some of them welcome newcomers.

Your question is spot on. I used to compare my returns in real estate to what I would have earned if I had just thrown the money in an index fund and let it ride over the same time period, and it felt great to see that I had beat the stock market by a nice margin. However, if my real estate earned me an additional $80k compared to the stock market, I would then need to figure:

$80,000 / number of hours actively spent working = hourly rate

This number matters A LOT. If it's close to or lower than the rate you can earn at your day job, you're not beating the stock market at all, and going to a lot of trouble to do so. Some days landlording really put the a** in passive income.

If I'm reading correctly, she has already paid April rent, would move out at the end of April, and just offered to give you her $2,000 deposit as an early termination fee. You could start looking for a new renter immediately. I usually fill my units in a week or two... worst case scenario 2 months. 

Honestly, compared to how some renters break a lease early (wait until they're behind on rent, move out without cleaning, little notice, etc.) I'd say that's a pretty great situation for you. If it were me I would take her offer, get it listed for rent right away, and move forward.

You may have already checked this, but try looking at your areas on this map. Some neighborhoods are exempt from the income limits on HomePossible loans. You can try different parts of your city to see what limits there are; looks like Madison as a whole has a limit of $91k.

http://www.freddiemac.com/homepossible/eligibility.html

The first thing you need to check is whether that clause in your lease is enforceable in Texas. If you have something in a lease that is contrary to the landlord-tenant laws of your area, it can't be enforced anyway, even if you both signed the lease.

If your laws are OK with it, then you are good to negotiate an early termination fee with the tenant as you state here.

It looks like your lease actually says in 17A that she has to pay the entire balance of the rent for the entire lease if she abandons it. That's the strongest lease I've ever seen in the landlord's favor, and pretty unnecessary in my opinion. 

So assuming it's legal in Texas to have that in your lease, which you should check, then it looks like yes you would be within your rights to keep her deposit. Or you could just have her pay rent until you find a replacement and everyone will end up happy.

Side note: you shouldn't have a problem buying that farmhouse with a low down payment even if you've done a few rentals first. Single family homes can typically be purchased with 5% down conventional if you are owner occupying. 

Use up your conventional HomePossible loans first before going to FHA; they accomplish the same thing and have better terms.

I don't see an early termination clause in your lease, at lease that you posted. Most leases have them.

Court is a major PITA and I would avoid it unless absolutely necessary. Even if this isn't written in your lease, I would tell her nicely that you are happy to find another renter to take her place, but that she will be responsible for the rent until the new renter is in place. Some renters will honor that and some won't. 

I am doing about a dozen flips/BRRRs this year and looking for ways to improve my liquidity. One idea I had was the following:

1. Purchase property for $100k cash (property is dated but habitable)
2. Immediately open HELOC for $75k
3. Rehab and then refinance into conventional loan at 6 month mark

This would just be the basic BRRR method, but with the addition of opening up the HELOC while rehabbing in order to get most of the cash out sooner. I have HELOCs on other rental properties that go up to 75% LTV, but I am having a hard time finding a lender willing to do this HELOC before 6 months. Has anyone ever done something like this?

I've house hacked five times and recommend it to everyone who will listen. I would second the recommendation to use the 5% down HomePossible conventional loan, and put the rest of your funds towards another investment. 

In my opinion, there's enough to learn with your first purchase that it's generally better to buy something relatively turnkey. You won't get a screaming deal on it, but if it cash flows and gets you in the game (and pretty much living for free), it's a great way to get started. It's so much less stress and headache if you'll be living there, and there will be many years to buy fixer uppers and value adds down the road. I'd find a good investment minded agent and look primarily on the MLS.

Good luck getting started!

On the last three comparison I ran, the conventional MI was less than half of what the FHA ones were. The FHA has both up-front MI and also monthly MI, while the conventional only has one. And yes the MI is dropped on multifamily conventional once you hit 78%; I dropped it on one of my own properties just two months ago.

FHA loans made after 2013 and with less than a 10% down payment have MI for the life of the loan: https://themortgagereports.com/7570/fha-mip-cancel