All Forum Posts by: Lionel Li

From my understanding, regardless if you did a cash-out refi or you mortgaged with a downpayment for this rental property (assuming it is) it's no different to the IRS from a interest tax deduction standpoint. What makes the interest 100% tax deductible is the fact that you own an income producing property, not the cash you put in or refinanced out.

If it's a mix use (househack) or 100% primary use, you might have to get some more insight from a tax professional who can tell you the new 2018-2025 tax code about the $375k/$750k limits for primary or perhaps a prorated amount for househack? 

Like most in this discussion, I side with leverage. I'm in the growth stage and I need leverage until I'm at the end of the Fannie Mae 5-10 rule (I'll keep going if they lift the rule or push it further). A dollar now is worth a lot more to me than a dollar later. In this realm of business, time is your friend, your money will not grow or compound easily without it, that's why I refused the discount points offer to lower my interest rate when I did my cash out re-fi. You can calculate it and tell me "but you could've saved 5x that amount in interest.." all the cash saved is at the end of my 30 year term..but I need it now.

Great topic!

 Unless you have the ability to create 16.5% equity within a year from forced appreciation and other creative ways to successfully refi this without putting money in, I'd take it one step at a time. If you could do all of that as a starting investor or if you just have too much cash that you can't sleep at night then I'd say seller financing would be the solution to your problem. But then again if you have all that cash we probably wouldn't be having this discussion lol so I'm probably sticking with the first sentence "take it one step at a time."

There's more to it than the interest rate, for an FHA loan you pay private mortgage insurance that alone equates to 0.5% - 1% of the loan. But I wouldn't be worried about that because the best part of the FHA loan isn't the interest rate, it's the fact that you can buy a property with 3.5% and not 20%. If your goal is to scale then your plan is to get your FHA out asap for a rate and term refi so you can use this 3.5% down again.

I don't know your income and any other details but if you can hold the monthly expenses down I'd rather have more cash on hand and less in a deal then put in 20% down and have less reserves for unforeseen events. Meaning if I were you I'd get your rooms rented, let this property get some market appreciation and do anything I can to force the appreciation up to do this R&T refi and repeat this FHA.

(I also read '4 unit' and not 4 bedroom lol)

Hey @Kenneth Cowan, definitely a good strategy using BRRR (about to complete my first) however I'd take extra precautions looking at 2-4 units in Indy. Most MFRs around the inner circle seem to be pre-war buildings, I really don't see many newer builds. On paper some of these properties look like homeruns but in reality they have outdated electrical/plumbing and things that you would prefer not to hassle with on your first OOS deal in Indy. Not to say it's a deal that's impossible to work but like many locals or pros of Indy would mention in the past, they're a very 'hands on' project and in need of experts handling these rentals with a different kind of tenant pool. Also, the BRRR strategy works better with forced appreciation with a good rehab + some decent appreciation from a good neighborhood. If your property is the best on the block but you're surrounded by 'pigs' it won't help your appraisal thus ruining your BRRR strategy.

I believe in Indy as a great rental market but I just use a different investment vehicle (SFRs). Either way I wish you luck on your investments!

I trust someone when they've earned my trust and these kinds of things that you mentioned in the OP are doing just the opposite. If you can't get to Indianapolis right now you should get someone you trust to go be your eyes and ears. If this isn't possible either you should consider making a trip there or do some more searching before you pick someone to be on your side. After all, you wouldn't start building on something until you're sure the ground below you could hold what you're trying to create. 

I trust my team over there (even though I haven't been there before) because these are the people who answered my questions and cleared my doubts when I was in my learning stage and they were not profiting from it, not until I've felt comfortable enough to send money their way. Yes I spent a long time cold calling and crunching numbers without actually 'taking action'. However, when I was ready I was taking deals down because I knew what I was looking for and if I wasn't sure I'd have my local advisors to further educate me. It's only been about 4-5 months since I started with my first rental property and I'm working to find property number 3 to put on my team's plate.

Hope you'll find your A team and invest!

@Mike Rosso Congrats! And good looking deal, does it need any work? Awesome that you still took action despite being talked out of it the first time around. Wish you further success with your investing. 

 Hey Nabeel,

I started out looking at turnkey providers in Indy as well but, I soon discovered that there's not much meat left on the bone when you buy certain turnkey properties in terms of equity gained either from finding a good deal or forced appreciation along with overly optimistic pro formas and lack of communication with the few that I contacted (not true about all TK providers, only the ones that I've dealt with). I know I wanted to do this long term and I'd have to learn somehow so I decided to take action and spent the entire first half of 2017 researching and contacting people. Closed on my first property in September and second property in November, it's possible to do it by yourself even if you want to be an out of state investor.

Best of luck!

That's a great plan..if your end goal is to own 1 rental property. If there's a "next" then not such a great plan. It's very easy to think of amortized interest as a financial opportunity that is lost to the bank..you need to get into the investor's mentality and understand IF time = money THEN 30 yr mortgage > 15 yr mortgage. Similar to the debate of spending 10% of your rent for a property management..don't nickel and dime yourself on things that don't add up instead, focus on where to make the big $. Your goal is to own 5-10 rentals..you can do that in 5-10 years..or you can do that in 20-30 years. Up to you, the price of real estate isn't going to wait for you to save up enough for your next property at $40/mo. If interest was really your main concern then you should look at Yr 1's interest paid vs principle pay down on your amort schedule..15 yr or 30 yr they'll both make you cringe.

You're already ahead with making this investment..why not boost it a little more? 

 Hey Derrick,

Awesome to see you up and chasing deals down. You'll never know if it's a low offer to the seller until you've fully understood them. What's it worth to them? Did she take pride in her house when you were looking around with her? Was it the house that her and her late husband bought together? There's no right or wrong because she could have some emotion tied to this house but you don't, you're in it to make the numbers work and if it doesn't you're not buying it.

Now when it comes down to the numbers I wouldn't like a duplex only performing 1.2% if both units were considered. I'm not familiar with the Pittsburgh market but, a SFH in a pretty nice area I invest in, I can do about 1.4%-1.6% with a light rehab included with my purchase price (not at the point where I can buy houses that need gut rehabs). My expectation for a Residential Multi would be closer to 2% especially in your case because you'll have about 75% of the actual performance for a while if you live in it. Proportionally that sounds like it would only do about 0.9% just renting out the 3/1, if you didn't account for the rehab cost in that denominator you'll be at an even lower %. You could also factor in the amount of rent you'd have to pay if you didn't buy the duplex too..but, again it really all boils down to what your goals are.

Good luck in the deal! Hope you'll find the answer you're looking for in BP.