All Forum Posts by: Marc Estepa

Very interesting.  I’m intrigued.  What percentage of rent would you charge for your PM fees?  

@Michael Thach, thanks for your thoughts! My larger property is a case study in everything that could go wrong with real estate that did.  

It was purchased in 2008 as the market crashed.  Property values dropped.  Also around this time, deployments were heavy.  As a result, Soldiers were returning from war with lots of money in their pockets and buying houses.  

My property was built in the supposedly “exclusive” area of the community.  In order to meet the demand of homes from Soldiers, the builders cleared out the land behind me and built cheaper homes.  This dropped property values in the “exclusive” area of the community even further.

Clearly my properties are not cash flow properties.  They weren’t meant to be cash flow properties when they were purchased as I was NOT an investor then and I definitely did not know what the hell I was doing then.  The mind of a young Lieutenant at that point in my life was to buy property instead of renting, live beneath my means and ensure the mortgage was below my Basic Allowance for Housing (BAH).  

 As time has gone on, I assumed that both properties would be easy to rent as I would target other officers living in those areas who’s BAH would naturally cover my mortgage.  Boy was I wrong.  Turns out the BAH rate is higher than the median rate for rent and I would be targeting a small demographic.

Both mortgages were purchased through a VA loan and this is simply how the numbers ended up. In the end, my bottom line was that I was living below my means. I wish BP was around then.

I definitely gotta look at the numbers deeper and make a decision.  Had I known about the 1% rule and other rules of thumb then, I would’ve applied it for sure.  Again, didn’t know this stuff in 2005.  I’ll crunch these numbers further and share with the group!  

@Kevin Hunter.  Yup yup!  JBLM is it.  We were there previously from 2013-2016 so I know the area well.  Wish I would’ve purchased them looking at homes jumping up in price now!  

Talk to me about VAIRRL.  Never heard about it.  This is for EVERYONE’s education reading this!  Although I’m probably the least knowledgeable here.  I’m just trying to brainstorm ideas to be in a better position than I am now. I’m making it and surviving, but I’m blessed to have a job in these times, have a roof over my head, my health and my family.  

As for house hacking, hell yeah.  My family and I have already discussed this.  My daughter is a little weirded out by it, but we are 100% looking for a home with the right layout that we can purchase.  

My situation is a bit more complex because we would be in the process of buying as we speak.  When CoVID hit, I put my properties in forbearance in an effort to aggressively invest and add to my savings for a 20% down on a home in the future.  As a result, I can’t apply for a loan until it clears.  Based off the stipulations for clearing the forbearance, I can either pay it all now, or keep it invested and clear it after a few months of getting caught up.  That will happen in January.  

So I’m debating between the rent to own option, or simply renting to stick it out for 6 months and truly take my time to do some analysis and number crunching to do this right.  Right now, my hair is on fire, I’m drinking from a fire hose and trying to do it all NOW!  The truth is, had I not stumbled across bigger pockets, I’d still be dumb and blind to everything and continuing on with the slow death from a million paper cuts.  At least no one is getting shot right now.  I’ve got time to slow down, assess, evaluate and act.  I’m definitely not a smart guy so I need everyone’s help to get it through my thick skull

But I’m loving the learning right now and discussion thanks to all of you.  Keep throwing ideas my way, I’m all ears!

@Joyce Hall, god I feel you so much on that.  I’m living it now.  All we can do is live and learn and learn from our mistakes.  Hindsight is obviously 20/20 because now that I somewhat know what I know, I obviously would’ve done a deal analysis on a different home and looked at this completely different.  No use in saying, “shoulda, coulda, woulda...”

Of course Bigger Pockets didn’t even exist then. I think the cool thing back then was “Friendster or MySpace”.  Some of you all know exactly what I’m talking about.  😉 

You’re 100% right about absolutes, life just isn’t that way.  We adjust as needed based off the information we have at that time.  I’m learning a HUGE amount now, so I’m analyzing and making very large changes and course correcting now!  That’s just life!

@Lisa Kennedy, as you know - yes they are.  I spoke with Wells Fargo and it will not clear until at least January.  I know I can’t do this now, but I’m trying to crunch numbers so I have a plan moving forward.  

This whole thing has been a real awakening for me and I’m analyzing everything I see.  I have been busy analyzing all these deals and I finally took a deep breath and said, “Stop.  Slow down and analyze your own situation first and improve it before rushing off to try and buy the world?”

So, I’m trying to do a makeover on my finances and plan ahead so I have a strong plan moving forward once it’s cleared.

Anyway, this is what I’ve been wrestling with and opening up for discussion.  I did a deal analysis on my own properties and I see that I’m bleeding roughly $1266 a month for both properties in operating costs.  Over the course of many years, the math is even uglier.  

Should I cut my losses and start over or is refinancing and consolidating this a better way out?

@Lisa Kennedy, what do you think?!  

This just hit my brain right now....what if I refinanced the homes and threw them all into one loan freeing up my VA Entitlement? Is this more advantageous to me even though it resets my clock, but gives me more cash flow in the short term? My intent would be to use that money to continue aggressively paying down the loan so I can set it and forget it.

I’m about 8 years into the single family home with a remaining balance of $202k at 3.75%.  The condo is about 12 years in with a remaining balance of $83K at 5.5%.

Thoughts?!

@Joe Villeneuve, appreciate all your analogies.  They seriously simplify complex thoughts and numbers.  So your vote is to sell? 

If I literally do nothing but continue on the glide path I’m going - I am not paying anything extra toward the principal of these homes. I simply can’t afford to.  My renters are paying my mortgages and chipping away at the principal slowly.  I’m sorry if I didn’t make that clear, I’m barely breaking even with these homes and paying more out of pocket for operating costs and repairs.  The rent I charge literally covers just the cost of my mortgages and property management.  There’s nothing else I’m getting and there’s nothing else I’m able to put in.  Again, my math was simple when I purchased the homes.  It was simply to live below my Basic Allowance for Housing.  That’s it.  

Because My mortgages are in line with the higher end of the rates for the rents for comparable homes within these areas, I’m not cash flowing them.  I’m barely breaking even.  

@Kevin Hunter, interested in your thoughts and Analysis forreal!  I’m heading to Washington State!  What do you think i should do?  

@Joe Villeneuve, thanks so much for that analysis.  That’s very clear.  I wish I had known this when I initially purchased these properties, my calculus would have been much more different.  I’m absolutely plugging this in to my next property purchase.

When I initially bought these homes my thought process was simple, it was just to keep myself from renting and ensure I purchased something modest and within my means and my Basic Allowance for Housing.  I figured it would be easy to rent out from there using that math.  I definitely didn’t look at or know back then what my total operating costs would be, and I didn’t buy or analyze the deal using that metric.  

As for the second home, I decided to go a little bit larger because I have a pretty specialized job that keeps me tied to Fort Bragg, NC that I assumed would keep me there forever.  I was single then and constantly deploying, so I lived there alone and assumed I would grow into it and raise a family and everything.  Holy **** was I ever wrong. 

I can afford it now, but it’s painful and I’m constantly bleeding from them, especially if they aren’t being rented.  So this is where I’m at a crossroad - is it better to sell one or both of the properties, or refinance in your opinion?  

Refinancing will restart my clock and I’ll end up paying more in interest initially again.  But it will increase my cash flow in which I could try to use that extra flow to put toward the principal of the loan or something every month (after paying my expenses of course).  

Or should I just cut my losses and sell them altogether to use the money toward a better investment?  What are your thoughts?

What do the rest of you guys think?  how do I do that analysis to figure out what I’d need to pay if I started over before I was more profitable?  Should I just clump it all into one more loan and pay off the other one?  How do I run these numbers?  
 

@Jody Sperling, trust me you’re more of an expert than I am.  I’m literally like a month into this journey and overwhelming myself with info.  My wife is about done listening to every podcast whenever she gets in the car.  

You're right, the properties are bleeding me. Of course when I initially bought them as a young CPT, I just figured I was "Adulting" and it's was the next phase of growing up. By no means during that time did I know how to do the analysis on turning them into investment properties later on. I've kinda just fallen into real estate by accident. My thought process then was very simple - buying is better than renting, and make sure the mortgage is within your means. It was. Being that I was relatively young, my focus then was building my cash reserves, so I didn't have a lot to put down, so instead I used my VA loan for both properties as a tool. Now both of the properties have tied up my entitlement. This is partially why I have debating on refinancing into a conventional loan to free it up. But you're right - it'll restart my freaking clock and I'll have to pay years aggressively to chip away at it again while paying the bank.

 I can’t even begin to write about the drama I’ve dealt with in terms of property managers.  See a recent post I put out about it.  I’m about to go through the 5th one, and my initial PM bled me of money for years.  That’s a whole other ordeal.  As a result, Real Estate has actually put a very sour taste in my mouth over the years.  I’ve rented for the past 7 years as a result, and was on the verge of selling everything a few years ago for a loss, just to get rid of the headaches.  But the math is right.  Even with property tax and insurance added, it just puts me further into the red.  

Like you said, the only saving grace Ive has with this is to keep plugging away and to have faith that in due time, I’ll have paid them off or I’ll have will have more equity to play with.  But until then, I look at these properties and they feel like a burden more than anything.  But I’m learning a ton more now and I’m definitely interested in learning more.  

I’ve always been a fan of Dave Ramsey but now that I’ve come across BP, it’s a whole other ballgame and Im now thinking a lot more creatively than I had in the past.  

As for Velocity Banking.  Dude, never heard of it before.  Please spill the beans and teach me and all of us MORE.  I’m curious.