All Forum Posts by: Rick Albert

 So I'm not a financial advisor or credit expert, but wouldn't it make the most sense to sell, pay off the debt, rent for even a year, sign up for a credit reporting company that shows positive rent payments, and then keep the remaining $90K in a high interest savings account to recoup the money so when you do buy you will have better credit, with some of your money back (but really you only need about $50K for down payment and closing costs for a $1M home). 

I know moving a lot isn't easy, especially with kids, but it could make sense. 

Another consideration is what kind of debt is the $30K? Is it credit card debt where today it is $30K but next month it is $36K? Or is it fixed?

Have you spoken with a loan officer to see what you would qualify for assuming you do have better credit? Also are you saying your score is 550 or did that come from a lender? Lenders use a different scoring system that might be in your favor.

Hey Victor,

Some context would be helpful:

1. Can you go FHA? Minimum 580 credit score and you can have a higher Debt to Income (DTI) ratio. Keep in mind you don't have to be a first time home buyer to take advantage of the FHA loan. I did the FHA 203(k) for my second house hack.

2. In theory, if you use the $120K to pay off debt, wouldn't that solve both issues? Then from there it is just saving up to buy the next property. 

3. How far are you from work currently? Does it make sense to sell versus staying put? Owning is better than renting.

4. Does it make sense to rent out the property? Basically rent it out and then rent closer to work until you are in a better position.

5. Why do you have a bad credit score? It is so common for people just to say "I need to improve my score" or "pay off debt" without context of how you got in that position. Once you know how you got into that position, you can learn how to not let history repeat itself.

It really depends on your goals. So house hacking is really about lowering your cost of living because owning is better than renting in the long run.

Keep in mind that if the numbers worked at 3.5% down, an investor putting 20%-30% down would obviously buy it and could likely pay more.

I don't know the New Bedford market but here are a couple of things I would look at and has helped me with my two house hacks:

1. Just outside a desirable area: As desirable areas get priced out, that's where your property will come in. It's a way to have built in appreciation. 

2. Adding value: This could be adding bedrooms by enclosing dining rooms or converting a garage to livable space (often referred as Accessory Dwelling Units). 

3. What strategy are you considering? Rent by the room? Rent by the full unit like a duplex? Mid-term? Other? That will help.

Good luck!
 

Hello!

I'm analyzing properties and wholesalers are bringing me deals. The challenge I have is it appears to be so much risk tied to it, especially for an out of state investor. Here are some concerns I have:

1. There isn't a "due diligence phase." I can't lock up the property and go through the loan process, inspections, etc. Basically I lock it up and have to buy it.

2. How do I verify this is a legit transaction? These are people with no license, etc. with no fiduciary responsibility to anyone, so how would I know this is actually a legit transaction? Can I choose the closing company that I trust?

3. How do disclosures work? The Sellers typically have to disclose any material facts about the property, but you are flying blind is my understanding?

Obviously I have some bias being a Realtor in my market, but if I'm spending my cash I want to know it is somewhat protected.

Any assistance would be appreciated.

Thank you!

1. You don't know that the agent set the price. I can't tell you how many times I've had Sellers want to list higher than recommended. 

2. With that said, I've seen and listed properties higher than I thought the market would accept and still got the price or higher. For example I had a Seller who wanted to list her home $100,000 higher than what I recommended and what the comps showed. I ended up getting her that price plus another $25,000. 

3. There is no recourse on the agent for "wasting time." I could argue the Seller should have pushed the agent to lower the price earlier on. It's on the Seller just as much as the agent.

4. If the Seller feels like the agent didn't perform to the level they expected, then cancel the agreement and list with another agent.

5. I would also want to know all the marketing efforts the agent did. Open houses? Professional photography? Easy access for showings? Provided honest feedback?

6. No equity was lost. You don't know and you can't define the number. 

It sounds like this Seller is very close to you but selling a property is actually a partnership between the Seller and the agent. Both need to make efforts to get the property sold. Both bear responsibility. 

Congrats on jumping in!

I haven't invested in new construction but when I have done research to consider it here is what I found:

1. Appreciation is slow in the beginning. You are paying a premium for new systems but then each year the systems get older, thus losing value.

2. Texas is a tough market to invest in right now because there is an oversaturation of properties available. Texas has done a great job keeping up with demand, but that also means with oversupply, you have to compete on price.

3. The main upside to investing in new construction is your repairs and capital expenditures should be low. Plus you can get it rented right away. Tenants might pay a slight premium for a nice property, but they don't care as much about the systems since you are responsible for it anyways.

4. I would compare the numbers to an older home to see if the rents are that much cheaper. My hunch is a 4 bedroom rental is a 4 bedroom rental, regardless if it is new construction or not. But you are paying a large premium for new construction.

With any product or service, there are two reasons why something does sell/get rented out: the marketing or the price. 

You have this posted in the Short-Term section, are you trying to do STR? If you are in the City of LA and the property is subject to RSO, you can't. Just an FYI. Otherwise it has to be your primary residence, etc.

If you send over the link I can take a quick look. Right now the market is slow across the country, so don't beat yourself over it.

If you sell, have you considered the tax implications? 

If you do a traditional cash out, the money is tax free and your tenants are paying it down.

If you sell, you can do a 1031 exchange into a new property, but then that doesn't necessarily free up the cash, unless...

You take the net proceeds and buy a new property cash. Maybe something that doesn't have an HOA so you net more each month. Then after the closing you take out a loan on the new property, again, tax free and your tenants are paying.

I would talk to a CPA and 1031 Exchange Accommodator to get clarity.

 So funny enough, last night we got the unit rented and the other isn't online quite yet. So I guess I will have to test the theory another day!

Keep in mind single family home values are very different. There is an emotional aspect. That means a "retail" buyer is going to pay more than what you can offer. That is the issue across California.

Are you planning on renting out the house to one tenant or rent by the room? 

I would actually consider Turlock, where Cal State Stanislaus is. That's where I went to college. Student population, there is tenant demand because there is no Greek housing (Fraternities and Sororities) and you can rent by the room. I would compare rents there to Merced and see which one makes more sense.

The main advantage to new construction is you can starting renting it out on day one. Many investors think that you should buy fixers. Although there is a valid argument for it, you are losing opportunity costs because the house is uninhabitable. There is also an argument that your Cap Ex and repair costs are low with new construction, so it could be easier to manage.

The main downside to new construction is slower appreciation in the beginning. You buy brand new construction and pay the premium for it, but yet every year the systems get older and you lose that premium value. Therefore you are banking on land appreciation until things settle itself out.