All Forum Posts by: Leo R.

Awesome @Phyo Ko  --that's the spirit. 

...just remember: things will go wrong as you manage the property (it's unavoidable), but what matters is that you learn from those things. With grit and determination, five or ten years from now, you might look back on this as the turning point that led to you building a multi-million dollar portfolio!

Tell us how it's going as you start working on managing it...there are plenty of experienced PM's and self-managers on the forums who are happy to answer your questions, and if you bring your experiences to the forums, it will help inform others.

Good luck!

@Antonio Cardenas  I'm a SLC investor, and what @Nathan Gesner said is 10000% correct (I'd suggest reading his post again, because it could end up saving you an enormous amount of cash and headache).

Right now is an extremely risky time to be flipping houses (even for experienced pros). Unfortunately, there are a lot of flippers out there who aren't hitting their ARVs--in which case, they'd better have another exit plan, or they'll lose their shirt. You do NOT want to be the guy who's on the hook 550k for a house that you can't sell for 475k.

Personally, I wouldn't get anywhere near a flip right now (even though I have the experience to do one) ...not unless it was the absolute deal of the century.

I'd suggest studying up on strategies that are less risky, and more beginner-friendly (like house hacking).

I've completed many house hacks in Salt Lake City--it's how I got my start, and how I built the foundation of my portfolio.

Regardless of what you do, make sure you thoroughly understand the SLC market--it has areas that are very strong appreciation plays that are recession resistant (e.g.; the most desirable A and B neighborhoods near the city center and the East side like Sugarhouse, the Aves, E. Millcreek), but it also has areas that, IMO, are very vulnerable to a market downturn right now (e.g.; the less desirable neighborhoods on the West side). Location, location, location--the most fundamental rule in RE. 

Good luck out there!

@Amy Frisella welcome to Utah! As you probably know, Provo and SLC are very different in many ways. You mentioned STRs--STRs are illegal in many parts of SLC (but I don't know about their status in Provo), and it's probably pretty likely that most apartment complexes have anti-STR arbitrage clauses in their leases (though, that's just an assumption).

I'd suggest connecting with an experienced investor-friendly agent who knows the market, and also a good mortgage broker who can advise you on your financing options (I work with an excellent agent & mortgage broker in SLC--DM me if you'd like their contact info).

IMO, house hacking is the best way for new investors to get their start for a long list of reasons. I've done many HH's in SLC; happy to share my experience if you're interested.

Good luck!

@Mei Li I'd be looking for what's "hiding" underneath the new rehab work.

For instance, is there new drywall in the basement covering up old galvanized steel plumbing, outdated wiring or asbestos? Are there new materials covering up signs of settling? etc.

New work can sometimes cover up a lot of problems, and there are no shortage of "lipsticked pigs" out there. 

Unfortunately, it's not always possible to tell what's being covered up--which is one reason I rarely buy newly rehabbed properties, and I especially don't buy properties with newly finished basements (if the basement is unfinished, you can see a lot more of the plumbing, wiring, and you can also spot signs of settling or other structural integrity problems...but, if the basement is finished, you can't tell what's underneath the new finishings)  ...in fact, I'd say the basement/crawlspace is one of the areas I inspect the most thoroughly, because you can gain so much knowledge about the condition of the property by carefully looking around down there...

Good luck out there!

@Steven Moore you'll want to weigh the pros/cons of taking on the extra debt from the cashout, and also the pros/cons of the cashout versuses other strategies. 

For instance, what is the current rate and payment on the mortgage, and what will the new rate and payment be? What will the property's cashflow look like after you have the extra debt and probably the higher rate/payment of the cashout? Are you 100% sure you need the cash right now? If you do the cashout, but you're not able to use that cash right now, how much of a hit will it take from inflation? What will the new debt from the cashout do to your DTI and ability to qualify for other mortgages? What are the pros/cons of doing a cashout versus opening a HELOC? Are there other ways to accomplish whatever you're trying to do without a cashout?

...these are the types of questions I'd be asking myself when considering a cashout.

Good luck out there!

@Jason Carrillo you mentioned old houses, and it sounds like you're suggesting that old houses automatically come with more risk/headaches.

One of the biggest misconceptions by inexperienced investors is that new houses are inherently less costly, and less headache to maintain than older houses. This is true sometimes, but in some scenarios, brand new properties end up producing significantly MORE maintenance/repair headaches than older properties.

The reasons are:

1) Some building techniques/materials are far superior to those used in the past, but some are not, and some are unproven. For instance, I'm very doubtful that pex will have a longer service life than copper plumbing. The trend toward flat roofs is just silly in most areas (bc it causes water diversion problems, which then cause a myriad of other problems). Etc.

2) A new house hasn't gone through its "growing pains" phase. All sorts of problems can emerge in the first few years. For instance, inadequate/improperly designed water diversion systems can cause major problems (e.g.; rot, masonry degradation, foundation settling) that won't emerge for several years. I personally know people who bought brand new, multi-million dollar, beautiful luxury homes, only to have serious foundation settling over the first 5-10 years of ownership (and the repair bill was in the hundreds of thousands!).

On the other hand, an older house has been around so long that these types of problems have either been addressed by previous owners, or they're often plainly visible. For instance, if there's an unresolved settling issue, you can probably see cracks in the foundation, buckling, un-level floors, un-plumb doors, etc. ...but, if everything is solid now on an old house, it'll probably remain pretty solid for the foreseeable future. As my GC says: "if it's stood straight and true for the last 100 years, it'll probably make it at least another 25".

Don't get me wrong; there are plenty of issues/problems/quirks that old houses have that new houses don't, and an old house can obviously have hidden problems and big repair/maintenance bills too...but, the point is: a brand new house is not a foolproof solution to repairs/maintenance (and in some cases, a brand new house can be a much bigger gamble than an older house).

This is a particularly important lesson for inexperienced investors, who tend to be the most prone to "shiny object syndrome" (the tendency to let nice aesthetics distract from real, underlying issues). There are no shortage of lipsticked pig properties out there, and learning to spot them is essential for successful RE investing...we're all susceptible to "shiny object syndrome", but being aware of it is the first step to avoiding it!

Good luck out there!

@Justin Mabry why put 20% down when you can get a 30 yr fixed mortgage with excellent terms for 5% or even 3% down? Do that on a single fam or small multifam property, house hack it (the best strategy for beginning investors), find a way to force cashflow and appreciation, rinse and repeat until you've hit the limit for owner occupant mortgages, and you'll be sitting pretty!

Good luck out there!

@Andrew Pettit you'll definitely want to study up on private lending (there are plenty of resources on this topic) before borrowing from family. There are all sorts of precautions you'll want to educate yourself on before borrowing.

A very general good rule of thumb: don't use other peoples' money to try to do something you haven't already done yourself many times before, and don't use other peoples' money on speculative activities.

If you're planning to borrow money from a private party, AND also getting financing from a bank (for instance, borrowing money from a family member to pay the downpayment on a new mortgage), you'll need to talk with an experienced mortgage broker about it beforehand--because if you borrow money from a family member, the bank will usually count that debt against your DTI, which affects how much mortgage you can get.

Good luck out there!

@Easton Hill the world would probably be a better place if more people took the time to carefully consider, and answer, this question.

@Nicholas Aramouni

A cashout is more "final" in the sense it that once it's done, it's done, and you're indebted to pay it back, whereas you can open a HELOC and use as little or as much of it as you'd like (or never use it at all, if you don't need the money). Think of the cashout as a loan you take out, and think of the HELOC as a credit card that you open that you can use (or not use) at your discretion. It's not uncommon for an investor to have multiple open HELOCs that just sit there for years, that they never use...personally, I have a lot of open HELOCs that I rarely use--they're just sitting there as safety nets in case I need to quickly borrow a lot of cash...so, in that regard, a HELOC is much more "flexible" than a cashout--you can use it, not use it, or use as much as you want (up to your HELOC limit).

Also, a cashout will usually come with a fixed interest rate, but HELOC debt is typically variable rate.

Also, a cashout will often have a lower rate, but a HELOC will often have a higher rate.

Also, it can be difficult (though not impossible) to find lenders willing to do HELOCs on rental properties.

Also, a cashout will often have fees that have to be paid to the mortgage broker, but a HELOC can often be opened without any such fees (or relatively minimal fees).

Those are some of the main differences...talk to an experienced lending pro in your area, and they'll be able to walk you through all the differences... 

Good luck out there!