All Forum Posts by: Randy Bloch

well, when you say take mortgage rates are higher than "usual" this is not really accurate statement. The low interest rate of last 5-10yr is an anomoly if look you back historically.  Mortgage rates in 4-7% range are much more common than 2-3%

There are two nuiance here I would say.  

1) if you take porfolio loan (based property financials) then you will not be able to fix it for very long.  This is just how those loans work

2) In US, we have traditional loans that are fixed for 30yr so it is safest way to deal with interest rate risk.  All my mortgage are locked into fixed debt for 30yrs which is good situation in high inflation environment we are in now which will likely cause rising rents

We are quite late in the real estate cycle and are now are entering a rising interest rate environment as well.  With higher interest rates and higher real estate prices, investors will be forced to take out variable short fixation period loans in order to get a low enough interest rate that will generate the cash flow they require.  This is indeed risky as you have also realized.

This usually end with people doing just as I described above then rates adjust to say 8% as you have described and they cannot make the payments and they lose the property to the bank. This is where savvy investors swoop back in and buy the property from the bank at deep discount and the cycle starts all over from the beginning. 

Your options are wait for the cycle to correct or be exteremely picky and only look for property that pencils out at higher rate.  The latter is still a bit risky as you dont know how rates will go.

Your challenge is not just in your country, this quite common practice in the US as well and even if you were to go for portfolio loan (based on property financials vs your personal financials) rates are going  5% in the US vesrsus a traditional mortgage.  I would check your assumption on rates being the usual 2-3%, rates have risen significantly in the last 90 days so not sure this is so typical anymore.

I think your options are get a job so you can get a mortgage based on personal financials, get a partner that can get a mortgage, or go with private lender. The latter two will obviously impact your ROI. I would definitely take a 2nd look at your cash flow model as if you are factoring 2-3% interest this is likely not possible. Rates will only rise more as central banks look to raise rates to tame inflation.

I agree with @Benjamin Hewitt.  Asking random stranger who only have part of the facts is dangerous.  And their opinions are usually based on what brought them success and not necessarily right for u. Having said that I have had a hard time finding fee based cfp that was right for me.

@Jon Kelly not disagreeing with the decision you took, but the tax benefits of real estate are phased out if you have a high W2 income and can not meet the “active” real estate classification requirements.  

There is definitely a case for high W2 earner in a high tax bracket to continue to contribute to their 401k beyond the match.     In my case, it is not either/or decision.  I am doing both.

@Mitch Vogatsky  I agree that paying some taxes now makes sense.  I am trying to get my money in three buckets, taxed deferred, tax advantaged and after tax.  This give maximum flexibility depending on your income, one time events and tax policy to adapt your withdrawal strategy according.

I will tell you how i am dealing with the $1.5m question.  I have figured out how much monthly income I need to live off of and am recreating that cash flow with direct real estate and syndication.  Meanwhile, I leave my 401k to grow as is.  That makes the 401k and social security like gravy when I can start withdrawing.  This is bit conservative approach, but make me feel safest to quit my high income W2 job at age 48.

I read your profile and objective, I would start with househack as asap.  Then you can move out of that have your first rental property.  This best way to get good rate and terms on mortgages.