All Forum Posts by: Johnathan Le

Quote from @Johnathan Le:

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Quote from @Johnathan Le:

Hey BP,

I've been eager to enter the real estate market for a while now and have been a dedicated fan of BiggerPockets for years.

I visited a 1-bedroom condo in Ballston yesterday, and it has a small den.

After researching comparable rental prices, I believe I can rent it out for $2,700, with the lowest comp being $2,400. This would be after I’ve lived in it for a year.

Considering the current interest rate, my monthly payment would likely be $4,200 with a 5% down payment.

Another option would be to put 20% down instead making my payment $3,500.

Should I rely on the expectation of interest rates decreasing, property appreciation, and rising rental rates? This area typically sees rent increases.

I’ve been analyzing property numbers in my area, and it doesn’t appear to be cash-flow positive at the moment.

Your problem is your leverage being at 95% down. You should expect any property that highly leveraged will be cash flow negative. 

 If I were to put 20% down, it would still be a bit negative possibly $700. Is negative cashflow something that should always be avoided?

With current interest rates youll nees to be about 47% down to break even in the DC area.

@Johnathan Le keep in mind that nothing is cashflowing right now.  That's the correct expectation to have. 

Quote from @Johnathan Le:

Quote from @Jack Seiden:

Quote from @Johnathan Le:

Hey BP,

I've been eager to enter the real estate market for a while now and have been a dedicated fan of BiggerPockets for years.

I visited a 1-bedroom condo in Ballston yesterday, and it has a small den.

After researching comparable rental prices, I believe I can rent it out for $2,700, with the lowest comp being $2,400. This would be after I’ve lived in it for a year.

Considering the current interest rate, my monthly payment would likely be $4,200 with a 5% down payment.

Another option would be to put 20% down instead making my payment $3,500.

Should I rely on the expectation of interest rates decreasing, property appreciation, and rising rental rates? This area typically sees rent increases.

I’ve been analyzing property numbers in my area, and it doesn’t appear to be cash-flow positive at the moment.

 To answer your questions I would not necessarily “ expect” any of those options to change in a big enough way to make up a $1500 gap anytime soon, rates might come down a little but that’s likely to still be well in into the 6’s, they could also go higher, sure the property could go up in value and rent but likely not enough to off set a 1500 a month or on the appreciation side 18k loss vs renting. If I was intent on buying right now I’d have three criteria (one of which is gonna be extremely hard to find in nova and hard but maybe slightly easier in dc, pg and parts of moco) 1. It needs to be “only” $500-700 negative cash flow that’s a range where when you factor in some limited principle paydown, mortgage interest deduction and some rent appreciation you can kind of talk yourself into buying. 2nd make sure it wasn’t “house poor” 3rd and this is most important make sure it’s a place you are willing to live in for 5+ years if need be, time heals everything in real estate but it might be longer than people think, I know a number of people who bought thinking they’d only be there for a year and now want out, but it’s hard to move after one or two years with closing costs and limited equity. 

Also, when you say $500-700 negative cash flow, are you taking into consideration cap ex and repairs or is that just PITI?

Tbh it really depends on the property/area, in general on a condo I wouldn’t want to be proably more than $500 or so including vacancy and repair (through keep in mind your repair costs are gonna be quite low on a condo because you are only responsible for your unit) just because as many other people have mentioned there’s growing hoa fees (though this is really dependent on building, some can be relatively stable others can skyrocket) relatively limited rent growth, and relatively limited price growth. However it would really depend on the location/unit for all the  numbers running it’s really gonna come down to some sense of feel. Again is this an investment or just a place you want to live and plan to stay for at least a few years (are you likely to outgrow a 1bd condo soon?) are you getting a deal on the purchase price? I showed a condo in admo a few weeks ago, It was built in 2016 with a decent hoa, and I suspect at the time with a little negotiation we could have gotten in the mid-high 300’s which was basically a price that you would have paid nearly a decade ago, I thought that possibly justified my client eating a little more of a loss vs renting than if he was paying top dollar for the asset. Tldr without knowing the exact asset/your personal situation it would be hard for me to give you an exact number, but I generally wouldn’t overspend by much on condo because tbh renting is a pretty good value right now especially on apartments.

@Johnathan Le 

House hacking is tough to cashflow in year one (with current house price run-ups and interest rates) for a couple reasons:

1. You are living in one of the rentable units

2. You are only putting 5% down so your loan amount is much larger and therefore your mortgage payment.

I would consider your net worth ROI. What I mean by this is considering how much your down payment returns to your net worth (appreciation, loan paydown, tax benefits, AND rent avoidance). Don't forget to include rent avoidance in your numbers! You have to live somewhere.

You may need to lower your return or cashflow expectations so you can get into a house hack that will allow you to avoid throwing rent money away every month. You know this, but don't forget all the other ways real estate makes you money. Paying down your mortgage and owning an asset that will appreciate over the long term.

Quote from @Johnathan Le:

Hey BP,

I've been eager to enter the real estate market for a while now and have been a dedicated fan of BiggerPockets for years.

I visited a 1-bedroom condo in Ballston yesterday, and it has a small den.

After researching comparable rental prices, I believe I can rent it out for $2,700, with the lowest comp being $2,400. This would be after I’ve lived in it for a year.

Considering the current interest rate, my monthly payment would likely be $4,200 with a 5% down payment.

Another option would be to put 20% down instead making my payment $3,500.

Should I rely on the expectation of interest rates decreasing, property appreciation, and rising rental rates? This area typically sees rent increases.

I’ve been analyzing property numbers in my area, and it doesn’t appear to be cash-flow positive at the moment.

 How much are the condo fees? That can sometimes be the difference between the 500-700 negative cash flow and breaking even. Although I know it's not feasible to get into a single family home in the same price range. At best you might break even if you increase your down payment, but it's very rare to find a cash flowing condo when you're highly leveraged, even before rates went up. 

Quote from @Johnathan Le:

Hey BP,

I've been eager to enter the real estate market for a while now and have been a dedicated fan of BiggerPockets for years.

I visited a 1-bedroom condo in Ballston yesterday, and it has a small den.

After researching comparable rental prices, I believe I can rent it out for $2,700, with the lowest comp being $2,400. This would be after I’ve lived in it for a year.

Considering the current interest rate, my monthly payment would likely be $4,200 with a 5% down payment.

Another option would be to put 20% down instead making my payment $3,500.

Should I rely on the expectation of interest rates decreasing, property appreciation, and rising rental rates? This area typically sees rent increases.

I’ve been analyzing property numbers in my area, and it doesn’t appear to be cash-flow positive at the moment.

 To answer your questions I would not necessarily “ expect” any of those options to change in a big enough way to make up a $1500 gap anytime soon, rates might come down a little but that’s likely to still be well in into the 6’s, they could also go higher, sure the property could go up in value and rent but likely not enough to off set a 1500 a month or on the appreciation side 18k loss vs renting. If I was intent on buying right now I’d have three criteria (one of which is gonna be extremely hard to find in nova and hard but maybe slightly easier in dc, pg and parts of moco) 1. It needs to be “only” $500-700 negative cash flow that’s a range where when you factor in some limited principle paydown, mortgage interest deduction and some rent appreciation you can kind of talk yourself into buying. 2nd make sure it wasn’t “house poor” 3rd and this is most important make sure it’s a place you are willing to live in for 5+ years if need be, time heals everything in real estate but it might be longer than people think, I know a number of people who bought thinking they’d only be there for a year and now want out, but it’s hard to move after one or two years with closing costs and limited equity. 

Quote from @Johnathan Le:

Hey BP,

I've been eager to enter the real estate market for a while now and have been a dedicated fan of BiggerPockets for years.

I visited a 1-bedroom condo in Ballston yesterday, and it has a small den.

After researching comparable rental prices, I believe I can rent it out for $2,700, with the lowest comp being $2,400. This would be after I’ve lived in it for a year.

Considering the current interest rate, my monthly payment would likely be $4,200 with a 5% down payment.

Another option would be to put 20% down instead making my payment $3,500.

Should I rely on the expectation of interest rates decreasing, property appreciation, and rising rental rates? This area typically sees rent increases.

I’ve been analyzing property numbers in my area, and it doesn’t appear to be cash-flow positive at the moment.

Your problem is your leverage being at 95% down. You should expect any property that highly leveraged will be cash flow negative. 

Quote from @Johnathan Le:

Hey BP,

I've been eager to enter the real estate market for a while now and have been a dedicated fan of BiggerPockets for years.

I visited a 1-bedroom condo in Ballston yesterday, and it has a small den.

After researching comparable rental prices, I believe I can rent it out for $2,700, with the lowest comp being $2,400. This would be after I’ve lived in it for a year.

Considering the current interest rate, my monthly payment would likely be $4,200 with a 5% down payment.

Another option would be to put 20% down instead making my payment $3,500.

Should I rely on the expectation of interest rates decreasing, property appreciation, and rising rental rates? This area typically sees rent increases.

I’ve been analyzing property numbers in my area, and it doesn’t appear to be cash-flow positive at the moment.

 To answer your questions I would not necessarily “ expect” any of those options to change in a big enough way to make up a $1500 gap anytime soon, rates might come down a little but that’s likely to still be well in into the 6’s, they could also go higher, sure the property could go up in value and rent but likely not enough to off set a 1500 a month or on the appreciation side 18k loss vs renting. If I was intent on buying right now I’d have three criteria (one of which is gonna be extremely hard to find in nova and hard but maybe slightly easier in dc, pg and parts of moco) 1. It needs to be “only” $500-700 negative cash flow that’s a range where when you factor in some limited principle paydown, mortgage interest deduction and some rent appreciation you can kind of talk yourself into buying. 2nd make sure it wasn’t “house poor” 3rd and this is most important make sure it’s a place you are willing to live in for 5+ years if need be, time heals everything in real estate but it might be longer than people think, I know a number of people who bought thinking they’d only be there for a year and now want out, but it’s hard to move after one or two years with closing costs and limited equity. 

@Johnathan Le - Your debt service is just a component of what its going to cost to carry that condo; if your rent won't cover that alone it really wouldn't qualify as a rental property. If this is the only option in your area in comparison to a SFH or MFH, adding some value while your living there and ultimately selling the condo once you move on is likely the best option. Once you've sold it you can use the funds towards better cash flowing options.