All Forum Posts by: Randall Alan

@Matt Wan

You would want to get with your lender or title company.  They are really the only ones that can give you an accurate answer to your specific situation. Perhaps others can chime in.   

Randy

@Matt Wan

The key to understanding being “in person” is that you can be “in person” anywhere there is a notary or other person who can certify your signature… typically.  Some documents require “wet” signatures… meaning hand signed.  But when people are out of town / out of state the title company can hire a mobile notary near you and they will fedex the documents to your local area to sign.  There is usually extra charges on closing to pay for that service… but it is minimal.

All the best!

Randy

 @Raul Velazquez

I would suffix what others wrote by saying that you need to understand that real estate really is a longer term wealth strategy - even though that is what you say you don't want due to your age / starting point.  You will make more money on appreciation when you sell your property than you likely will from the monthly cash flow.  Natural appreciation usually takes holding the property for at least a few years (just depending on what the RE market does going forward).  You can force appreciation by rehabbing and such - so that might be a shorter term way to go?  We saw huge appreciation in the 2018-2022 inflation run up, but that has significantly slowed these days in my opinion.

From a rental perspective your monthly income per unit after all expenses with a typical 20% down payment is likely $100-300 when you find a property that will cash flow. (And I would tell you to not buy a property that doesn't cash flow unless you have significant resources behind you that could absorb anything that could come at you - like replacing a $5,000 AC one month followed by replacing a $1,000 hot water heater the next).    The $100-$300/month amount is just a generalization - but the point is, on a monthly basis you don't see a huge income per property - and you also have to absorb repair expenses and such as well.   

Time overcomes low cash flow to some degree... rents go up while your mortgage stays the same and your tenant pays down your mortgage.  That helps some...but your variable expenses also go up too - property insurance & taxes - so a lot of your rent increases go to offset rising variable expenses.

I started at the age of 47 in 2018 and we bought properties fast and furious - 12 the first year, 10 the next, and 9 in 2021 and currently have 38 properties.  Because of the relationship between lower housing prices back in those years, and how rents have increased since, we have good cash flow on our portfolio.  But the thing to know is it is that is not easy to duplicate in todays market.  Very little cash flows at 7% interest with houses that have doubled in price over the last 5 years.    

Wishing you all the best - but wanting you going in with your eyes wide open!

Randy

@Lee / Lisa Colon

The biggest secret is to figure out how to start and not just keep sitting on the fence.  To buy a property you need at least 3.5% down if it is a property you are going to live in (be it your own house, or a duplex, triplex, etc).  So you start by saying, "Do I have this money?"  If yes, you may be ready to start right now... if no, you figure out how you are going to get that money.

There is now a program where you can put down as little as 5% on a multi-family property even if you don't live in it.  This is WAY better than what used to be the minimum of 15-25% required down on an investment property.'

My suggestion would be to go to an independent mortgage broker (someone that has access to multiple lenders - not like a single bank like Bank of America, etc, where they just offer their own loan product).  Tell them your objective, and let them more or less pre-qualify you - telling you what you would need, or need to do credit wise to be ready to take your next step to buy your first property.  

From there it's a matter of finding the property that you qualify for and that will hopefully cash-flow each month as well.  My personal opinion is that it only makes sense to buy a property that cash flows today.  You will hear others say that isn't necessarily a requirement (ie. future rent appreciation, forced appreciation, lower future interest rates, etc).  But at the end of the day you have to be able to afford to pay the mortgage each month - and if you are upside down on the income side of the property that can be difficult at times.  Think of possible complications - like your tenant quits paying the rent and it takes 3 months to get them out of the house... can you afford to carry the payment if something like that happens?  This probably leads to a discussion of having adequate reserves in your bank account.  Keep in mind when things break, you have to fix them.  It might be an $800 water heater, or a $5,000 air conditioner.  We had a 2 month run where we had to replace 7 air conditioners in those 2 months (we own 37 units).  We maintain maintenance reserves - but that was still a strain even budgeting monthly for those expenses.  With just 1-2 properties you aren't going to run into something that extreme - but just realize that it is your responsibility to fix the things that break and you need to have reserves in place to do that.

As soon as you have "deal one" done -  you will be ready to look for your next deal - but realize that the banks / lenders have a lot of measurements they judge you by - like Debt to Income ratio.  They will often require you to have a year or two's income from a property before they will let you count the rental income to offset the debt the property generates.  But, in short, you start saving up to buy property number two and your lender will let you know what it takes to make the second one happen. 

Hope it helps!

Randy

@Dwayne Rowe

We did a consolidation loan through a commercial banker (basically a multi-property DSCR loan) where we took out one loan that paid off 5 higher interest rate properties, and took out cash as well at the same time.
Pretty much any regular bank / lender is going to require themselves to be in first position on all the properties... so I don't think a HELOC type solution is going to work across multiple properties with multiple lenders. Individually a HELOC could possibly work if there is enough equity where it made sense.

Randy

@Geoff McFarlane

You have 5 years to be able to take advantage of the ~$500,000 gain exemption.  This would let you rent out the house for the next 3 years if you wanted and still get to take the gain.  In that time if you are netting $1,500/month - that is $54,000 worth of rental income you would make over the next 3 years.  Realistically you would expect the house to continue to appreciate during that time as well... even if at 3.33% appreciation - that is another $50,000 in appreciation you would make in the 3 years - give or take.  So I would continue to hold the property - but I would be sure not to miss the ability to exempt the gain - so be sure to sell within 5 years.  This would likely take coordination with a tenant at some point - (ie - plenty of notice to them that they must vacate in order for you to sell the property)

Since your current home is free and clear -  you could do a cash out refi or take out a new mortgage on the new house to be able to buy your paren't house and pay off the mortgage.  If they have a good interest rate it might be worth looking to see if you could assume their loan to take advantage of the lower rate.  

My 2 cents.

Randy

@Gregory Schwartz

Then there is this on privatizing Fannie & Freddie:

"Trump may renew a housing fight that could rattle mortgage rates":

https://www.cnn.com/2024/12/02/economy/fannie-mae-freddie-ma...

The gist of the article is that without the government backstopping mortgages, rates could realistically go up!  

"In a 2016 paper, Mark Zandi, chief economist at Moody’s Analytics, estimated that full privatization of Fannie and Freddie would cost the typical American taking out a new mortgage $1,200 annually. Taking into account home prices and interest rates in 2024, that added cost today would be between $1,800 and $2,800 per year for a typical mortgage holder, Zandi told CNN after updating his original paper’s calculations. Zandi said the added cost would be even greater for Americans with lower incomes or credit scores."

All the best!

Randy

@Marc Shin

I don't have as much an authoritative answer for you as just a basic suggestion...  Given that the difference in the two is often only $150 or so (just bought a new washer dryer pair for myself at Home Depot)... I would base your answer on buying the bigger one (within reason) that will fit in your space that fits your budget.  I can tell you we bought one that was on the larger capacity side of what was offered and it's awesome.  If there is a need to scrimp... then do it.  Otherwise make it a nice add on to your rental and give them something descent to work with (within you allowable budget).  The extra $150 will be long forgotten the month after you buy it!

Nice amenities are appreciated by your tenants!  While a washing machine may seem a menial one... people do notice nicer options.

All the best!

Ready

@Greg P.

Given your objectives, if you extrapolate your numbers it would take 97 rentals earning $300/month to return $350,000 per year.

One thing to keep in mind is that not wanting to invest locally and self manage, you will also have significant property management expenses.  If you call that 10% of gross rents you will spend $116,000 a year on property management if you were earning $1,000/month/rental (about 1/3 of your gross profit on 97 rentals.)  And having a property manager does not mean that you’re not directly involved with a lot of issues with your properties.

Given your situation I might rather suggest a REIT investment where you get exposure to the category, but not have to deal with such a large portfolio, or just get your feet wet and see if you like being a landlord by buying a couple of properties

Randy 

 @Greg P.

There are a lot of unknowns in your proposition.  The first one that comes to mind is do you plan to keep working while building your real estate empire?  And how much money are you making in your current job that you would want to replace with your real estate income?  Those are probably the biggest questions someone needs to know to determine the feasibility of your ask.  Also - what part of the country do you live in... California where expenses are really high, versus like Ohio (etc), where expenses are really low.

Using leverage is always going to make your buying power go further. So yes to that one. Flipping / BRRRR comes with a lot of work required... who is going to do that work? If it's not you - you are going to be paying contractors (most likely) retail repair rates - and with the prices of housing (even dilapidated housing) pretty high right now - I would say that flipping is not the easiest "in" to the market. Flipping remotely is even a worse idea - you have no control over the scene and will likely be exploited because of it. Flipping comes with a pretty large learning curve. Simple mistakes can be very costly. As an example, we decided to replace the windows in a house we were renovating and ended up costing us $50,000 extra because we got into issues with permitting and suddenly found ourselves having to hire an architect, speciality contractors, etc. We had to remove the windows we had already installed in a 1925 house and reframe the openings to bring them to 2023 building code. Major nightmare! So just know that you don't know what you don't know... and with flips - that can get expensive really quick! (Had we rebuilt the original windows we would have been fine and wouldn't have had to bring them to current code.) LESSON LEARNED!

Rental properties come in several flavors... short term, long term, etc.  Short term will make you more money, but require a lot more management (new tenant every 3 days, turn over, cleaning, etc).  Long term tenants are much easier.  Turn over is usually measured in years.

I'm not a fan of mobile home parks.  They do not appreciate like actual real estate and your caliber of tenant can be lower which can bring with it its own problems. 

Rental portfolios would be a quicker way in - as you could possibly buy numerous properties in one transaction.  

Like the saying goes - much is about location, location, location.  In the midwest, prices are lower.  Rentals boil down to how much do you net after paying principle, interest, taxes, insurance, and a maintenance reserve.  In todays market $300/door / month is probably a pretty good net if you can even find that (at least where I live in Florida.)  Depending on where you buy, you would want to take the average priced house and figure you have to put 20% down to buy it with financing.  From there you divide that down payment into $750,000 (your nest egg) and it will tell you how many rentals you could possibly finance.   You then multiply that by your anticipated net profit per month per rental to determine a monthly income and see if you can live on that.  That will start to tell you if rentals are a feasible option for you.

(Keep in mind there are Fannie Mae maximums on the number of personal loans you can have - which is 10 per person. If you are married - put each one in a single name and you can then have 20 - there are higher qualifications the more you have though. If you go with commercial financing you can put them in LLC names and you won't have those restrictions - but will have crappier financing terms - like 5 year locks instead of 30 year.)

We bought 12 houses in 2018, 10 in 2019, and 9 in 2020 before prices went skyrocketing. (We switched to commercial financing when we ran out of loan slots with Fannie Mae.)  Once we got to about 20 rentals we quit our full time corporate jobs and now manage our rentals full time.  Since 2018 the value of our portfolio has probably tripled!  Can't beat that part - but it likely won't come back around anytime soon.  Realize that today you are looking to buy into the real estate market towards its recent peak.  Not that prices will likely decline anytime soon - but it's much harder today to find value like a few years ago.  Areas like Ohio seem to be mentioned quite a bit on the message boards for better affordability.  We haven't bought anything in the past couple of years locally because the value proposition compared to what we already own just isn't there.  (That's not to say you can't find cash flow - it's just much more difficult in today's market).

Hope it helps! 

Randy