All Forum Posts by: Jon Schwartz

I see myself making the move to commercial multifamily at some point, but I'm in no rush. Residential interest rates are so low right now, and the mortgage is fixed for 30 years. I mean, it's amazing. Commercial lending means refinancing every 5 to 7 years -- it's much more active.

Plus, I invest in LA, where you can find $4M duplexes! So it's not a question of pricing out of residential. It's just a question of goals.

Good luck!

Elizabeth, where are your properties? Where mine are located, appreciation is a bet worth making.

And where do you get $250K as an upper limit for financed cashflow? I find cashflowing properties, and I'm not looking at anything under $1M (though I'm only looking at multifamilies).

David, Socal is expensive, but low-down-payment FHA loans make househacking a smart move.

What strategy are you hoping to pursue?

Law, as a Californian who was looking at out-of-state markets, I considered both Cleveland and Columbus, and going on the metrics (growth, job growth, median income growth), I greatly prefer Columbus.

Columbus also has an extraordinary agent for out-of-state investors in @Remington Lyman.

Best,

Jon 

I don't think home affordability will be changing in CA anytime soon. After a decade of these new ADU law, maybe.

I guess my larger point is that anecdotal evidence needs to be explored before it's taken as gospel. Like I said, net out migration to other states in 2018 was 118K, which accounted for about three tenths of a percent of CA's population.

To answer your question, though, TX has been booming. I think Austin's a smart move. I think you also need to look at MSAs, not states. For example, the Rogers-Springdale-Fayetteville MSA in northwest Arkansas is a great market; it's like the Austin of Arkansas. But as a state, Arkansas is not a hot spot. I'd invest in Rogers, but I wouldn't invest anywhere else in AR.

Christopher,

I'm a househacker in LA and would love to help you work through these numbers...

I'm not sure you're approaching this analysis in the most beneficial way, so let me just shoot you some observations, and then we'll discuss how to move forward...

Firstly, VA loans do cover multifamilies. If you're having trouble finding a lender who will make the loan, I have some mortgage brokers I can recommend.

If you can't go VA, FHA is going to be tough because of the price of the building. FHA loans have a borrowing limit of $1,472,550 on fourplexes, so you'd have to put $127,500. Is that manageable?

On the income side, you're right to use current rents instead of market because you're stuck with the current tenants until they elect to move (or you come to a "cash for keys" agreement with any). However, you'll be living in one unit, so you have to remove one unit's rent.

On the expenses side, some portion of the expenses can be removed because they're for your home. If you're househacking, you're probably planning to self-manage (or should!), so you don't need to account for the management fee. I'm also a little puzzled by these expenses. In Socal, it's typical for landlords to pay for water and trash and tenants to pay the remaining utilities. Is the current owner paying gas and electrical? And $618/month for maintenance is quite high!

When assessing a househack in Socal, it's more important to tally up how much the building will cost, subtract from that the amount of rent you'll collect, and then contemplate the difference. For example, I live in a duplex in an expensive part of LA. My monthly out-of-pocket is about $4025, and with that, I get about $2160 of principal paydown. For where I live, that's a steal! My tenants pay significantly more, and I'm in the better unit!

So it's less a question of percent rules and cash-on-cash and more a holistic look at how much the househack lowers your cost of living and builds equity at the same time.

Is this helpful? Let me know!

Best,

Jon

Jack, your first order of business should be reaching out to mortgage brokers and finding one who can count your rental income toward DTI. There are definitely lenders who will do this even without the two years of seasoning. What state are you in? I can recommend a broker.

Secondly, if your savings are growing, have you looked into paying down some principal in order to lower your mortgage payment? That'll improve your DTI, though it might not be worth it. You don't want to give up your down-payment money in order to get a good DTI ratio -- you obviously need both!

Thirdly -- and this will admittedly take a few months -- but what if you moved out, rented a place for yourself, and fully rented your property? The rent you pay isn't considered debt, but the rent you collect will be consider income by some lenders. This'll significantly up your income while keeping your debt at the same level.

Let me know what you pursue! I'm a househacker, too, and I'm interested in how this turns out for you! 

Ray, your home is absolutely not a bad investment. Property in Marina Del Ray right now? Uhhhh, that's obviously a good investment.

One thing that bites my chaps about real estate know-it-alls is their propensity for generalization. I mean, if all real estate is local, how can you make any pronouncement like "Owning a primary residence is a bad investment" or "You must follow the 1% rule" or "Appreciation is speculation."

I bought my first house in Echo Park, a gentrifying neighborhood in Los Angeles, in 2009 with $80K down. In 2015, I traded up, and in 2019, I moved out of Echo Park with $800K in my pocket. Two primary residences 10x'ed my capital in ten years.

In other markets, maybe owning a primary residence isn't as smart as renting and investing the difference. But in an extremely high-rent and high-appreciation area like coastal Los Angeles, the math is just isn't the same.

Congrats on your investment!

 Californian here to defend my state!

It seems like Californians are flooding out of CA into Texas, etc., because there are SO MANY OF US! For example, anecdotally, Boise, ID is overrun with Californians. Do you know how big Boise is? 229K people! California's population is 39.5M. So a few Californians moving to Boise make it feel (to residents of Boise) like an exodus.

Another fun fact to illustrate my point: in 2018, 118K Californians left the state for other states. But 188K people moved into California from other countries (source: https://calmatters.org/explainers/california-population-migration-census-demographics-immigration/)

@Zachary Lee, I was in your exact same situation last year, but with a single two-year-old, not three kids.

What worked for me was finding a duplex in the neighborhood my wife loved. She was sending me Redfin links to homes we couldn’t afford in a neighborhood here called Hancock Park. Eventually, I noticed that there were some gorgeous 1920s duplexes nestled amongst the gorgeous 1920s mansions. I started talking to my wife about finding a duplex in Hancock Park — sure, we’d have a neighbor downstairs (these are all top/bottom duplexes in this neighborhood), but we already heard our neighbors all the time living in a house, and with a duplex, we could actually afford to live in Hancock Park!

That got my wife interested. We started looking at duplexes, and after a few months, we found the perfect one.

So, actionable steps:

Take the neighborhoods your wife really loves, and find the closest multifamily areas. In LA, we have a great online GIS system that maps out all the zoning; I just found the multifamily-zones areas in and around Hancock Park. I’m sure you can do the same in Cumberland; google your municipality or county and “GIS”.

The ideal setup for your family is a large side-by-duplex with separate yards. How many bedrooms do you need? 3? 4? If you could find a side-by-duplex of 4-bed units in a neighborhood your wife likes, your job will be a lot easier.

What also sold my wife was a graph I made in Excel showing the huge financial benefit over time of living in a duplex for just five years. Our daughter’s college is basically paid!

Good luck! Keep me posted, please!