All Forum Posts by: Jon Kelly

@Nathan Gesner Haven't watched it yet, but sounds interesting. Netflix should interview you and make a mini series based on your tenant horror stories!  

@Mike Lettko Your head is spinning now. Slow down. You're in a great position and really can't go wrong. You have 3 options in the near-term: (1) Sell your home and roll equity into your new home, (2) Rent your current home, (3) Sell your home and keep proceeds in savings / invest (we'll consider options for this money later)... 

(1) Roll equity into new home - This is the safest play. This comes down to the age old question, "Should I pay down my mortgage or invest my money elsewhere?" This is a personal choice. However, if you're borrowing money very cheap at 3.5% on your new home why would you want to pay it off faster? Can you earn more than 3.5% if you put your money somewhere else? Most likely. 

(2) Rent your current home - Decent option. Gets you into the real estate investing game and may produce a little bit of monthly cash flow. However, I would encourage you to run the numbers on your current home as a rental. Rent is 0.6% of purchase price... it doesn't come close to the 1% rule. The good thing is you know the property intimately and are aware of upcoming repairs. After expenses and reserves for vacancy, repairs and CAPEX I assume your cashflow will be minimal...
(3) Sell your home and keep proceeds in savings / invest - This is my favorite option. This is the real estate investors dream. You worked your butt off to pay down your mortgage, got a little lucky with appreciation due to market timing, and now have $235k+ in built up equity. Let's assume closing costs on the sale are 10% ($35k). You will walk away with $200k after the sale ($350k - $115k - $35k). Assuming 25% down on investment property(ies) you can buy up to $800k worth of real estate investment property(ies). This is your chance to get into the game. You're in a great market and I'm sure you can find plenty of options near you. Take the plunge. 

@Joe S. I completely understand your point of view and this is a common issue for people performing substantial rehab on a property. Ultimately, the appraiser needs to know the purchase price and they will find it one way or another. Either they will look it up (which they should do unless they're lazy) or they ask the lender/owner. 

@Account Closed provided great advice and it's what I like to do when I'm refinancing. Provide an itemized list of repairs and ~3 comps to make the appraisers job easier and more accurate. 

The itemized list of repairs shouldn't be exhaustive. Keep it to 3-10 key things you did. You can always have a catch-all category called "Miscellaneous" or "Other." 

@Jason Sinclair a lot of really good feedback on this thread already. Tax advantages are wildly different from a fully rehabbed turn-key property vs. a distress property. If you buy a distressed property and use your capital to fix it up you should have a loss in year 1 and likely subsequent years. 

However, having consistent losses usually isn't a good sign :) 

@Paul Sandhu Host a party! It's disrespectful to throw away such a nice gift from your guests/tenants. 

@Keith Aiello A lot of other people have done it. Why not you? 

As others have mentioned it's not necessary to get your real estate license... as a buyer you don't pay agent commissions. 

It's probably a better idea if you rely on an agent that knows the area very well and the renting requirements. 

@Becky Smith How thin are your margins and reserves if a primary residence is dependent upon 2 months of rent??? Seems like you might be overextending yourself here. 

BUT, if this is truly your dream home there has to be a way to get it done. I would suggest reaching out to other lenders just in case this lender doesn't approve you. Other lenders may have slightly more relaxed requirements. They should be able to rely on 2021 income. 

Can you get a loan from someone to pay more down? A lower LTV should also relax the lender's requirements.

@Greg R. If you find a great deal then buy it! If you don't find a great deal then wait until you find one! 

@David Kimball You're trying to spend $140k to free up $2k per month of cashflow. Do you know how crazy that sounds? It will take you 6+ years to save $140k from your $2k/mo in cashflow. 

Another way to look at your situation is to analyze your current home as if you were buying it as a rental property. Would you buy a property for $420k that rents for $2k? Run the numbers in the BP calculator. It doesn't meet the 0.5% rule let alone the 1% rule. 

My proposed option 3 of selling your home and buying another home for $400k will leave you with ~$250k in cash. You can purchase investment property(ies) up to $1M assuming 25% down. 

@David Kimball Do you want to invest in real estate or not? How long do you have to start living your dreams? It sounds like option 1 will take 5-10 years until you can buy an investment property. Then, what happens when you have other expenses chewing into the $2k/mo in cashflow (roof, floors, car, college fund, necklace for your wife, etc...). 

Your mortgage is $140k at 2.75%... 2.75%! That's extremely cheap. Can you earn more than 2.75% on a new real estate investment property? Most likely. Buy the investment property today. 

A third option is to (1) sell your current house to take advantage of the equity build up. You'll walk away with at least $240k... $420k (sale price) - $140k (mortgage) - $40k (selling expenses). (2) Buy a primary residence for around $400k. You'll put $100k down. Now you have an extra $140k from selling + $150k you already have. (3) Buy an investment property. If you put up to $250k down you can look for properties worth up to $1M.