All Forum Posts by: Mike Day

Not sure we're looking at the same MLS then! Actually after I posted that I found one listed for $90k that's currently renting at the exact rent I mentioned: https://www.realtor.com/realestateandhomes-detail/1110-N-Fri...

Clearly, the cashflow would be significantly better than my example. It's hard to tell if a property needs maintenance without seeing it in person. I never said OP should expect to sit back and collect a check without dealing with any issues. It doesn't work like that.

"Thinking you can just put 30% down on something here and start collecting rent... is insane." Well, no, it isn't. Or are you suggesting every property on the MLS has some fatal flaw? Man, get off your computer and out into the world and see some properties. It's not true.

You'd be shocked if someone would insure this for $65/mo? Then you should talk to my insurance agent. I have several places insured for approximately that and they're actually worth more than the one in my example.

Sure, excuse me, OP could buy 9 properties like the ones I described with conventional loans, as she apparently already has one (?). For the 10th-14th, when OP is already profiting to the tune of $70k+ a year, she'll have to accept lower cashflow.

There are many other viable variations to the idea I mentioned, but none of that invalidates the general concept: OP refis the place in Compton to buy out of state rentals that will have a small amount of cashflow and make her very wealthy over time.

We don't know OP's income, so how do we know she'll hit DTI limits? Sounds like she's already an established landlord so conventional lenders should be counting the income from each property she buys right away. If she doesn't have enough income, she can use DSCR loans and accept lower cashflow. The cashflow might perhaps be $0 once she runs out of income and has to start using DSCRs, but again--come on, the strategy is basically valid.

If you think this strategy sucks, don't use it. Meanwhile, I'll be over here running a profiting business. You do you.

Glad you asked.

In somewhere like Peoria, IL, OP could buy a duplex with 2br 1ba x 2 for $115k. Feel free to search the MLS and you'll find several similar places.

It should bring in the neighborhood of $1600 a month in rent. We'll deduct 15% of that to account for vacancy and maintenance--we're now at $1,360 in monthly income.

We'll need to put down 30% as it's a multifamily investment, thus the amount financed will be $80,500. Assuming a current typical interest rate of 7%, principal and interest will run $536 a month. Given that the down payment was financed on a HELOC, we need to deduct interest on that as well. I currently have a HELOC at 8.5%, so that's the figure I'm going to use. 8.5% interest on the down payment of 34,500 runs $244 a month.

Other expenses:

- Property taxes: quite high in Illinois, perhaps around $237/mo

- Property mangement: $160/mo (there may be cheaper managers, but whatever, we'll go with your 10%)

- Insurance: $65/mo

And what do you know, we're at $118/mo positive cash flow. OP also gains from appreciation and eventually recaptures principal and capital expenditures. It's hard to quantify these but let's say around $6.5k a year. So OP gains to the tune of $8k annually from each property purchased in this way. Given that they have enough down payments for around 13 such properties, a strategy like this could make OP a wealthy person. You do the math as far as what the actual annual gain is. Cashflow is likely to be better if OP does this in '25 due to lower interest rates. Or they can do it now and refinance later on.

I'm not just "telling someone it's a good idea," I actually do this. So don't go around telling people I'm giving bad advice.

I also think your idea that you have to work to pay off the HELOC is wrong. Why should you when you're cashflowing? A HELOC is not a special loan that has to be paid off ASAP. The bank will love to collect the interest payments on it and you'll love the profit.

If you think that properties in the Midwest won't be cash flowing enough to cover both HELOC and mortgage payments, maybe you should run the numbers again. I primarily invest in the Midwest and you can easily gain a little cashflow from this strategy while also benefitting from appreciation. I'd be glad to get into specifics.

I disagree with the idea that using a HELOC is smart only if you have a plan to pay it back. It's smart if you plan to hold the debt and can generate cashflow, like any other loan. I suggested a HELOC mainly because it wouldn't be necessary to pay off OP's low-interest first mortgage, and because the strategy I recommended involves investing in multiple properties over time, for which the flexibility of a HELOC is ideal.

I'm not sure what your experience is investing in LA, but there' s no cashflow to be had here (I'm here at the moment). Staying local isn't an option unless you are already wealthy and can buy properties either entirely in cash or with significant down payments. 

Interesting. I'd probably take out a HELOC and use it to invest in rentals out of state. $400k could be the down payment on eight small houses in the Midwest. This is your best cashflow option since nothing other than the situation you've lucked into is going to cashflow in California. This also allows you to keep the incredibly low-interest loan you currently have, and to only use the funds as you need them to acquire each new property.

Anyone aware of the ins and outs of how Fannie Mae-backed conventional lenders count income from Airbnbs? Specifically, my question is whether you can acquire a short-term rental, then immediately turn around and use the income from it to qualify to purchase another property. With conventional long-term rentals, if you're an established landlord, lenders will count the income from a new rental property right away, allowing you to use it to qualify to purchase another. Say you purchased a property that makes $500 a month in May 2024, and now it's August 2024 and you want the lender to count that income--they'll count $6k, not just $1500, with no need to see your taxes. Does it work that way for short-term rentals too? Or are the lenders wanting to see a full year of them on your taxes before they'll count the income?

You are going to lose major money renting it out. Your calculations don't set aside anything for vacancy and maintenance expenses. Most people advise 25% for that although in my own experience it's even higher. Anyway, let's say it's 25%. That means you'll have almost $2k a month negative cashflow. I'd highly advise getting rid of it. Alternately, if you want to manage it as a short-term rental, you could look at that.

Thanks, in order to be covered under the umbrella I still have to get some kind of insurance on the condo but that does make it easier.

It costs so much to sell a property and buy another one, and is such a hassle, that if I were in this situation I'd strongly consider just paying the special assessment and keeping a property that's otherwise great.

So I'm going to be renting out a condo in California on Airbnb. Condos are difficult and expensive to insure here. The HOA offers enough protection for the unit itself and Airbnb claims to offer $1m liability protection. What is the consensus on Airbnb's insurance? Can you trust it if somebody sues you? Does it provide protection between stays? My gut tells me I need my own liability protection--I'm in business with Airbnb but don't exactly fully trust them--but like I said, it's difficult and expensive to obtain. Thoughts?