All Forum Posts by: Patsy Waldron

Depends on a couple of things... 

1. What is the interest rate on the mortgage(s)? It is Unlikely to be higher than 7%, so you would be losing money by transferring the money to pay off the mortgage.

2. What are your long-term plans in real estate? If you would like to acquire more rentals, it seems like the 25K and monthly savings would be put to better use in acquiring another property. 

I chose to invest where I would like to live and where I think my family may/will eventually end up. I do not particularly like where we are living right now (temporarily), so it was an easy decision, lol. I researched my target areas extensively, so I feel I have enough knowledge to choose well. I picked areas with strong demographic and economic trends and that are within easy driving distance. I don't think we should limit ourselves to our immediate vicinity if there are better opportunities (especially for scaling up) in other areas.

I personally would choose the multi if I could find one within my price range and a location where I wouldn't mind living for a year or a few years. Here's why: Since you're an owner-occupant, you'll get favorable loan terms. Your tenants in the other 1, 2 or 3 units will probably pay your entire mortgage, or close to it. In the meantime, you can save what you *would*be paying in rent or mortgage and use that towards your next down payment. Then, when you buy your next property (another multi or SFH with another owner-occupant loan), you now get 100% cash-flow from the unit you used to occupy. You can keep it forever, and still enjoy the great loan terms. In a live-in flip, the mortgage comes out of your pocket during the reno. Once you sell, you get the difference from your initial investment, which you can use as down payment for the next property, but no income from the first property after that. So the multi is the clear winner in my book.

It depends. If the infrastructure is there and the upgrade won't be too complex or expensive and you can get higher rents, then go for it! For example, if the house already has a furnace and ductwork, then adding central air won't be as expensive as installing a whole new HVAC system if the house curently has a boiler. You may want to find out how rents compare between properties with vs. without central air, then calculate how long it would take to recoup your investment. Example- you pay $6,000 to install new HVAC system or central air, and get $75 extra rent vs. properties without central air. It would take 40 months (3 1/3 yrs) to recoup the investment. That's not counting possible maintenance in that period. If you decide to sell the house, it may be easier to sell or sell for a higher price because of the upgrade. 

Doesn't seem like much of a dilemma here.... The numbers all point to keeping it and renting it out! If you have enough for a down payment on your next home or the HELOC/ refi will give you enough for any other investments you may want to get into, it's really a no-brainer. :)

Planning on attending. Quick suggestion- the long tables side by side really limit one's ability to talk to anyone except those who directly next to or across from you. Would it be possible, instead, to set up the tables in the middle of the room so that they are in a square, so that we could potentially talk to more people? 

@Aaron I.

I've wondered the same thing too! This is what I have concluded after reading up on it:

1) There are ALWAYS people looking to rent, no matter what time of year it is. It may take a little longer for you to find the right tenant, but chances are, your rental won't sit empty until spring or summer.

2) Advertising plays a BIG role in how quickly you rent. If you are advertising in the right places (everyone seems to agree that Craigslist and Zillow are the bare minimum), you WILL get tenants.

3) Screening still matters. Don't rent your unit out to the first person who applies just out of desperation!

4) Worse comes to worst, you can lower rent. You can rent for $50 or $100 less than you would ideally, but keep the lease short (to take you to the next spring) and then advertise at market rate.

Interesting approach! I love data-based analysis. Two thoughts, both of which have to do with using quantitative vs. qualitative data:

Numbers are good for discerning patterns and making high-level comparisons, but don't (can't) really tell the on-the-ground story. @Account Closed discusses one dimension that matters to investors/landlords- business environment. This information can only be gained by making connections with locals. 

Another one is the trends in quality of employment. You may want to look into who the biggest employers are and who is hiring. It's a very different investment outlook if it is Wal-Mart or fast-food chains vs. a factory or a large service firm. This data is readily available from online sources. 

In short, while your data can provide a first cut at analyzing, I would make my decision by including other/different factors- and those factors might end up playing a bigger role than these.

It sounds like you may not have enough of a down payment or income to qualify to buy something in an area that you would find desirable. That is a problem that many first-time homeowners and investors face. There are 2 solutions to this problem:

1) Ask family, friends or other personal connections to lend you money so you have enough for the down payment. But you would still need to show the bank loan officer that you have stable employment and adequate monthly income to cover mortgage payments. If you buy a duplex, they can count part of the estimated rent from the other side as income to cover the mortgage payment; this does not work for more than a duplex, I believe.

2) Buy in a slightly less desirable area that you ARE able to afford without others' help. Very few of us start out living or investing in the home/ area of our dreams. We start somewhere near the bottom, build up income and wealth, and slowly move up in the quality of locations and buildings we buy. You might be surprised how many investors started out investing in terrible areas, then as they saved up the cash flow from their properties, were able to afford to buy in nicer locations. 

In both cases, the FHA loan is the most accessible because it only requires you to come up with 3.5% of the purchase price to put down. This does increase your monthly payments, though, because of private mortgage insurance (PMI). So it's a trade-off.

Good luck!

@Ryan Arth

Great points. I need to chat with you at the next meet-up and learn more about investing in Cleveland!