All Forum Posts by: Kevin S.
Kevin S. has started 24 posts and replied 394 times.
Few weeks ago I attended a webinar from Padsplit. After that webinar, of course now I get emails from them about homes on Padsplit on sale with cap rate of around 10% and COC around 12%. Any experience on these properties? Any advise? Thanks.
All excellent pointers. Appreciate your input. Thank you, Wale.
Thanks for your advice. Your post was engaging and I would like to engage further as you have made good points.
First, what is WAG and what is the 50% rule?
The $500 negative cash flow is for PITIA, not capex, not vacancy. Since calculation failed the PITIA test I did not even go there!
I agree with you about purchasing at max leverage. Question is what to do when market doesn't favor max leverage? Do I keep waiting for the tide to turn or get in the market with 'lower' return but just GET IN as they say. Lower return or higher DP, but get in. One can always cash out/refi when condition improves. True or false?
It took me more than one reading about the money comparison paragraph, trying to analyze it. About money market of 5.3%, that percentage will change as interest rate lowers so that number won't apply for 13.3 or 45.5 years. Is it a fair comparison? The rent likely will increase over 13.3 yrs.
With the part about 45.5 yrs to re-coup $80K, I am little confused. You are trying to say "Do not put up additional $80K but instead put in MM @ 5.3% ($4240/yr) therefore limiting my annual loss to $1760 instead of $6000/yr. In conclusion, I am not re-couping $80K but rather figuring out how long $80 will take to LOSE. That time period is 45.5 yrs. Am I correct? If that is the case then the conclusion is "Buy the property with only $80K (20% DP) instead of $160K (40% DP) and put the $80K in MM to limit the loss to $1760/yr. In return the rent will go up in 45.5 yrs and appreciate by x times in 45.5 yrs ( the time to loose the $80K)!!" I assume this was your message?
For this was what the lender was suggesting. And you concluded that you agree with my lender.
I appreciate your engaging comments and look forward for more if there is anything 'more'. Thanks again!
Quote from @Rudy Avila:
Here in Cali people do that for the reason that they plan to build an ADU or multiple ADUs on there property. The value add is the ADU you have control over that. Just gotta make sure they check with city first and have enough room to do it. The value goes up tremendously. But, If I would to ever take on negative cashflow, I would make sure my other properties cashflow pays for that new propertys negative cashflow, not me. So if something happens where I dont build the ADUs, at least im not the one paying for the negative cashflow.
Thanks Rudy. Point well taken. I am new so I don't know for sure but in Florida I don't think adding ADU is a common practice. Also, I don't have an affinity for things that involve constructions.
I am relying on my agent to send me MLS listing and personally looking at Realtor.com and Zillow. I'll take your suggestions. Thanks.
Unfortunately I am not able to house hack. All my life and all my investments are in the market(wall street). Thinking it's time to diversify. After all, the next time market goes south (35-40%) at least my tenants will keep paying the same rent, not 35-40% less. Trying to pick a starting point in REI. Thanks for your input.
@Scott Johnson. If you are not a fan of appreciation then where are you getting your wealth building from REI? Unless you are paying cash to buy properties aren't typical duplex/quadplexes with mortgage give out few hundred (not few thousands) bucks per door? Am I missing something?
Quote from @Ophelia Wilson:
Quote from @Mike K.:
Quote from @Kevin S.:
Hi BP members,
I am looking to invest in a SFH that cost about $400,000. With 20% down the property will negative cash flow $500/mo. It breaks even @40% down. One lender advised me it's better to negative cash flow if I can afford it and still do 20% instead of 40%.
Reason : the additional 20% or $80,000 is better spent towards down for another property (provided of course I can afford twice the negative cash flow) because the annual appreciation @ 5% (which is likely in Florida) will be greater than the negative cash flow per year. That is $6000 negative cash flow for $20,000 appreciation in return. That is still a 17.5% return(capex not included). I don't discount the possibility that the lender gets to finance 2 properties instead of just one but the proposition does make sense on paper and in theory. Does anyone refute this or agree with it? Am I missing anything? Thanks in advance.
What happens to your plan if the home price trend turns negative? With 40% down how can you walk away? Relying on perpetual home appreciation seems like a risky plan
Why: I would want to keep my cash/ capital. If the property does indeed appreciate annually by 5% then you have a 20K increase. That additional 80K you have on hand can be used to purchase another investment property = another stream of income + portfolio expansion. Do a budget and see if you are able to manage that extra $500 each month
I am able to cover the negative cash flow. But just because I can doesn't mean I should is why I am seeking BP member's different take on this. Thanks.
Quote from @Colleen F.:
@Kevin S. you pay $6000 a year IF nothing needs to be fixed. Your first repair could increase that substantially. A turnover, an eviction you are in a hole. I would do neither. The gap is too much and unless your rent is undermarket and you are somewhere where you can raise it you get into a bad situation.
Thanks Colleen. I agree. Does a few hundred a month cash flow on a duplex really offset repair or replacement of appliances/HVAC/roof/eviction etc? In your mind how much cash flow should a property have for you to buy it? Typical 6-7% cap rate on a duplex isn't enough to cover that which you listed. That's the best we have where I am at.
Quote from @Scott Johnson:
Quote from @Kevin S.:
Hi BP members,
I am looking to invest in a SFH that cost about $400,000. With 20% down the property will negative cash flow $500/mo. It breaks even @40% down. One lender advised me it's better to negative cash flow if I can afford it and still do 20% instead of 40%.
Reason : the additional 20% or $80,000 is better spent towards down for another property (provided of course I can afford twice the negative cash flow) because the annual appreciation @ 5% (which is likely in Florida) will be greater than the negative cash flow per year. That is $6000 negative cash flow for $20,000 appreciation in return. That is still a 17.5% return(capex not included). I don't discount the possibility that the lender gets to finance 2 properties instead of just one but the proposition does make sense on paper and in theory. Does anyone refute this or agree with it? Am I missing anything? Thanks in advance.
How many negative cash flow properties can you buy before you go bankrupt? Unless I'm missing something, the property(ies) you are purchasing is a liability, not an asset. Assets put money in your pocket and liabilities take money out of your pocket.
I am not a fan of appreciation, and in my opinion it should never take the place of positive cash flow. That's because I have zero control over it. Consider that any proposed sale price (Comparative Market Analysis) or value opinion (Appraisal) is calculated using comparables sales for similar single-family home. How much control do I have over how much those comparable sales sold for? None. They were separate people making their own separate decisions.
If your lender is recommending that you buy multiple properties that have negative cash flow then you either have a ton of cash flows that you need to offset for tax purposes or he's an idiot and isn't taking into consideration your needs and goals. I certainly hope you didn't find them on bigger pockets if the latter is true…
Hope this helps!
I did in fact find the lender from "Find a Lender" on this platform.