All Forum Posts by: Patrick Chafe

Hi Everyone,

I recently bought a new SFR that i will be moving into. My plan ever since buying my first SFR was to eventually rent it out. I have already done a cash out Refi for $40k+ and still have equity left in it. Based on the market (even during this Covid market) it seems i could sell it and stand to make another $65k-$75k net profit. I never thought i would be able to sell it for as much as i am being told, however based on what i could make i am thinking about selling and using that money to try and buy a multi family soon or in the upcoming recession. However, $75k sounds like a lot, but where i am from, $75k likely wouldn't even be enough for a down payment on a multi. If i were to rent it out, i could refinance to a lower rate, and could make $400 - $600 cash flow per month depending on what i could get for rent in this economy. My LTV on the house is about 75%. With the cash out Refi i got back all the money i invested and then some so the CoCROI is infinite. My fear is that if i do sell and have that money, i wouldnt be able to find anything that would cash flow as well and ultimately be throwing away a great investment because i got blinded by the big $$ signs. The way i see it, i have (3) options:

1) Sell now and hold money for upcoming investment

2) Rent for (2) years and then sell to avoid capital gains tax

3) Rent it out for a long period of time and pull HELOC for future investments

My ultimate goal is to become financially independent asap and this is the first real step into investing and i want to make sure its the right one. Any advice you have or metrics i could use to help calculate for this would be immensely helpful.

Thanks!

Hi Everyone,

I recently bought a new SFR that i will be moving into. My plan ever since buying my first SFR was to eventually rent it out. I have already done a cash out Refi for $40k+ and still have equity left in it. Based on the market (even during this Covid market) it seems i could sell it and stand to make another $65k-$75k net profit. I never thought i would be able to sell it for as much as i am being told, however based on what i could make i am thinking about selling and using that money to try and buy a multi family soon or in the upcoming recession. However, $75k sounds like a lot, but where i am from, $75k likely wouldn't even be enough for a down payment on a multi. If i were to rent it out, i could refinance to a lower rate, and could make $400 - $600 cash flow per month depending on what i could get for rent in this economy. My LTV on the house is about 75%. With the cash out Refi i got back all the money i invested and then some so the CoCROI is infinite. My fear is that if i do sell and have that money, i wouldnt be able to find anything that would cash flow as well and ultimately be throwing away a great investment because i got blinded by the big $$ signs. The way i see it, i have (3) options:

1) Sell now and hold money for upcoming investment

2) Rent for (2) years and then sell to avoid capital gains tax 

3) Rent it out for a long period of time and pull HELOC for future investments

My ultimate goal is to become financially independent asap and this is the first real step into investing and i want to make sure its the right one. Any advice you have or metrics i could use to help calculate for this would be immensely helpful. 

Thanks!

Hey @Tyler Palermo,

Glad to see your interest in REI! I am new to it myself, but i have been house hacking a SFR for a few years now and am trying to break into the multi family market. Recently i posted about debt to income issues in MA with the high cost to entry and got some good feedback about how to finance good deals, feel free to take a look! Without bringing in a business partner or seeking additional/separate loans to cover the rehab, i think one of the best options is to build in sweat equity.

You could search for properties that need substantial rehab, and use a 203k mortgage (either limited, or standard depending on extent of rehab needed) to finance the construction. That way you could hopefully get a property cheaper and only have to come up with cash for the 3.5% down payment! This will help to achieve a good CoCROI, but remember to be careful accurately predicting cash flow, and making sure its worth it due to a higher mortgage with only putting 3.5% down. I just recently found out that FHA 203k's can be used for "cash only offers", as long as the bank owns the property ( in a foreclosure).

A recent webinar i watched that @Brandon Turner hosted, mentioned that a good ROI benchmark will be minimum $100/unit(cash flow) and around 12% CoCROI.

Feel free to reach out to discuss more or get some info on how i started!

-Pat

Thanks @Alex Bekeza ! That is a huge help! I'll have to look into those programs

@Oliver Carey Thanks Oliver! Still working on finding some private money lenders, i have a couple leads i'd like to pursue, but nothing yet. Thanks for the advice though!

@DJ Richmond Thanks DJ! That's really helpful! On that one, I did not do a 203k but i did do everything myself besides the blueboard/plaster and refinishing the wood floors, which helped the budget. However it did take me about 4 months to do it all.  

@Jaysen Medhurst Thanks for the advice Jaysen!

@DJ Richmond Thanks DJ! The house is in Peabody and was a private sale for $250k, the house is quite small but a great starter home or someone looking to downsize. I renovated the whole property, did a cash out refi, paid off my schools loans, and now have a mortgage of $278k so the property should cash flow $485/mn if i can get $2500/mn which i think is doable as i am just finishing updating the kitchen. I got the property through an FHA so it was a very small down payment (3.5%). If i can achieve that rent i should have a CoCROI of 20.4%. Even if i could only get $2300/mn it will still cash flow 13% return.

Original Reno: $20k

Closing costs: $7k

Kitchen updates: $1500

Figuring 2% vacancy, 5% repairs, 5% CapEx

Approx Equity(If sold for $340k): 18%

Let me know what you think!

Hi Everyone,

I am running into a problem with DTI. I live in Massachusetts and the cost of real estate is quite high. There are still a lot of good deals that will cash flow, however the barrier to entry is a significant amount of debt. I currently own a home(primary residence) that i rent out bedrooms in. I am looking to get another property, either SFR or multi, and rent out my current house but my mortgage lender is already talking about being maxed out for DTI with the next property purchase(SFR). It may differ if my next purchase is a multi, but it got me thinking/worried about maxing out DTI this early/new to REI.

Just want to make sure i take the right steps now to not get bound up in the future.

Any advice or experiences with overcoming DTI would be a great help.

Thanks,

@Ann Bellamy Thanks for the recommendation Ann! Also, would love to hear more about the meet up in Burlington in Feb!