All Forum Posts by: Nicholas L.

Hi @Rafael Gomez when you calculate the potential cash flow of a rental property, you need to be sure to include all costs associated with buying, holding, maintaining, etc, like vacancy, costs to show and rent, capex, repairs, property management, etc.  You have a lot of ratios listed in your list, which is fine, but those ratios will only provide value if the numbers they're based on are accurate and realistic.

Hi @Misa N. this will only work if you factor in the true cost of buying, holding, and refinancing, and you will not be able to pull out all of the cash you put in unless you can drive the value of the condo up somehow.  You'll pay closing costs when you buy - even if you're buying with all cash - and you'll pay closing costs again when you refinance.  And when you refinance, you'll only be able to pull out some percentage of the value depending on the lender.  To use simple numbers: if you buy for $100K, you will not be able to simply pull $100K out a year later.

(1) is it pretty easy to refinance a rental condo? 

If it's an investment property, rates may not be as favorable as on owner occupied.  Get multiple quotes from lenders to see what they'll offer you.

(2) Are the rates comparable to if I had financed the condo in the first place for the purchase?

It depends.

(3) will I be able to deduct the interest from the refinanced loan from taxes? 

Interest on a loan is part of your operating expenses. So if your rent is $1000 a month and your PITI is $600, your net income is $400 a month (I'm excluding real, important costs like repairs and vacancy here to make this example simple - do not exclude these costs when running actual rental scenarios). Then, when you file your taxes you can include depreciation on the property as an expense to further reduce any taxable income you might have. But you need to run all these numbers in advance to make sure this makes sense for you.

 

Hi @Robert Johnson I have never heard of a surplus that large, but maybe you have a large mortgage and that is proportional.  Depending on your bank, you may be able to take your T&I out of escrow and pay it yourself (if you want to).  I pay my taxes and insurance with a credit card so I get points / miles on the spend.  But if you need them to stay in escrow to be able to budget properly, then leave them in.

Hi @Johnny Lasek I think it will be difficult to find "an almost turnkey property...at quite below market value." If it's below market value, it probably needs work, and therefore is a better candidate for BRRRR. An optimal BRRRR really requires that you purchase with cash (or something cash-like) and not conventional financing. That increases the chance that you'll be able to pull most or all of your cash out when you refinance. You might be eligible for a low money down loan if you intend to live there, but you need to run the numbers.

Turn key is obviously a lot less hands on, but your cash flow may be lower.  Especially if you finance.

Hi @Charles Holder are you working with a real estate agent?  They can help you with ARVs.  You're looking for comps based on the property after the rehab.

Hi @Calvin Wellington understood, but why can't you be the landlord just like you would if you owned it?  That's the nature of property management.  There's nothing stopping you from doing that - you could pay yourself a property management fee, and pay your wife's brother some amount of the profit leftover after your management fee.  But let me know if there is something I'm missing.

You also mentioned the tenant "has until July to buy" - is this in a written agreement, or just a verbal option the tenant was given?

Hi @Calvin Wellington do you have enough cash to purchase with cash?  If your wife already owns it, what's the advantage to you buying it from her?  You'll pay transaction costs to do so no matter how you buy (closing costs, holding costs during rehab, etc.)  Why not let her hold, since she already owns, and you manage?

Hi @Brock Correa follow all applicable laws, and if they don't meet your screening criteria, say so.  There are tons of great threads on BP about how to do this, how to pick among multiple qualified applicants, and what message you should use to deny an applicant.

Hi @Matt Bailey I think the answer is - sort of.  The 1% rule is just a screening rule of thumb, to let you move on from properties that aren't capable of meeting it and zero in on properties that might be. It also doesn't help you determine what the ARV is, since that has to be based on comps and experience, nor with predicting cash flow - that would need to be done based on a detailed calculation as well.

For example - you might have a property that doesn't meet the 1% rule, but that you're able to self manage (so no property management) and that you get a great refinance rate on.  Conversely, you might find a property that appears to meet the 1% rule, but is in an area where you'll need property management and that is going to experience high turnover, and that needs lot of repairs from deferred maintenance.

Hope this helps.  It's a screening tool.  All deals have to stand on their own based on your specific plan for them.

Hi @Jeremy England great question.  I don't think it will mean an excess of housing, since new home construction is still way down from pre-crash levels.  And fewer buyers means more demand for rentals.

https://www.pewresearch.org/fact-tank/2017/07/19/more-u-s-households-are-renting-than-at-any-point-in-50-years/