All Forum Posts by: Rick Albert

This is a lender and personal question.

Lenders look at your monthly Debt-to-Income Ratio. The more monthly debt you have, the lower the purchasing power.

You also don't have much for savings, there are often surprises when owning a property that you should have some reserves for.

I'm not a financial advisor, but on the surface, I would sell the car for $15K, put $7K towards the credit card and the rest into savings.

Also, with the $7K in credit card debt, you need to ask yourself "why do I have this debt?" Then make sure you put personal best practices in place to not put yourself in this position in the future.

This forum is bias towards real estate so take it all with a grain of salt.

I'm always weary of financial advisers wanting to put money into the market. The first question I always ask is "how do you get paid?" Many of these financial advisors make money based on the portfolio and/or trades made. That's why I work with a fee only advisor. 

With that said, you own 7 other rentals, what does that look like? Are they almost paid off? If so, then the risk is mitigated if you decide to buy this fourplex.

If your goal is to retire in 10 years, where are you now? Could you retire now? How far are you from achieving that goal? If you are behind and this would be your last property to ever buy, I actually would consider getting the fourplex and then put the net profits into another investment (simple as high interest savings or even into the market). Especially because in 10 years, if you need cash, you could consider a cash out refi, the tenants pay the mortgage, and you just got money tax free. 

I would also consult a CPA to get their thoughts on what makes sense in the long run. There are different tax consequences for each. 

Welcome to the community!

To make the most out of this, I recommend posting what your goals are and see if anyone has any insight that can help point you in the right direction. I've learned a lot from here.

As far as California goes, it will depend. Unfortunately this is very open ended. You need a buy box (what are you looking for to better hone in). For example with this cash I could easily find cash flowing condos if you put enough money down, but that might not satisfy your 1031 exchange requirements. Conversely, you may have multifamily up and down the state, but then you need consider property management, etc. which eats into your cash flow. Are you also open to rehabs/value adds? That can play a role as well.

For some reason this just came up on my feed. Hopefully it is not too late. Otherwise, hopefully people can learn from it.

This is a great question to ask, because you have flexibility. I'm a 2x House Hacker in Los Angeles (case study in the BP book The House Hacking Strategy) and I'm going to be direct so that you can incorporate it into your analysis. 

What you are hoping to accomplish is every house hacker's dream: Live for free. However we are in a market with higher interest rates and prices haven't really come down. The experts are saying rates MAY drop middle of the year, but then that just stirs competition and potential rising prices.

If you are looking to put low money down and you can live for free, why wouldn't an investor putting 20%-30% down snatch it up? There needs to be realistic expectations.

I recommend talking to a lender to see what your options are. It sounds like you will have to qualify based on the wife's income, plus the 75% of current/appraised (if vacant) rents. 

I would also consult a CPA because there are going to be a lot of write offs with it not only being a primary residence, but also collecting rental income. The CPA will likely say, "it depends," but your wife could adjust your W2 tax withholdings so you get more of her paycheck every month.

If you are really wanting to live for free with a low down payment, California probably isn't for you. The same applies to Oregon and Seattle. Plus each of these markets have some level of rent control, which will make it difficult to raise rents on existing tenants. I tell all my clients how important it is to buy with vacant units.

If you only have $100K and living for free is an absolute must, then your best bet is to look in markets like Birmingham (I own a triplex there) or others in similar price points. A fourplex might be around $250K, where even if you put little down and you pay the difference, you still have cash left over to buy more rental properties. They may not be in the neighborhoods you want, but keep in mind most multifamily are clumped together. 

Now, if your goal is to build a nice net worth, then I would explore more expensive markets like Southern California, Seattle, etc. With the higher price points, you get higher dollar appreciation, bigger loan buy down, and higher dollar cash flow when raising rents. Buy putting 3.5% down and use the rest towards future investments.

Happy to discuss further if you would like.

It's not that simple.

1) You are going to have to pay relocation fees. It all depends on the circumstances as to how much.

2) Even then, tenants in Los Angeles have free legal services. This may take months at best to get them out.

3) In the long run, economist has done studies that shows rent controlled markets show massive increase in rents. 

People have done very well in rent controlled markets, but it isn't for everyone. I recommend doing massive due diligence if you are taking on the risk of trying remove a tenant and move in. Things have changed since COVID.

If there is one thing I've learned about real estate, it is that time is on your side.

 The age of the properties is a misconception and doesn't always have a bearing on the condition of a home. A place can be completely gutted and remodeled, but because it wasn't torn down it still shows the original build date. For example, a house built in 1920 with new HVAC, new roof, and a new electrical panel might be a better buy than a house built in 1950 with original systems.

For the gardener services, why have a line item for it if you are handling it? Also, is it a good use of your time? Are there higher income producing activities that would be a better use and could make you more than what could be $25 a week to cut grass? For example if it takes you 30 minutes to cut the grass, how many deals could you have analyzed during that time to expand your portfolio? Your time is valuable. Only do it if it brings you joy, otherwise delegate. 

You know your market better than anyone else.

Regarding vacancy, check out comps on Zillow and when yo scroll down after the description, they give you a snapshot as to the activity. That will give you a sense of vacancy.

Every property is different so 10% for CapEx might be high or you can redo some of the major systems upfront in order to lower that percentage.

How much is a gardener there? Here in Los Angeles I pay $110/month. You could also look into doing drought tolerant/low maintenance landscaping to help with these bills. 

I have house hacked twice here in Los Angeles and used the FHA 203(k) loan.

You have to keep in mind you make money in real estate in four ways:

1. Cash Flow: In house hacking, any cash coming in is good.

2. Appreciation: Keep in mind if you buy a $1M asset with 3.5% down, you are building appreciation on the $1M, not the $35K. An argument can be made that you will build wealth and your net worth faster than if you invest in lower price points. I do both by the way (invest in lower price points and high).

3. Loan Buy Down: It isn't a bad idea to calculate this into your unrealized cash flow. With higher price points, you have bigger principal buy down.

4. Tax Benefits: Talk to your CPA as you will have tax benefits both as a primary homeowner and on the rental income. Plus, because of the high appreciation dollar, when you go to sell, you will likely net more tax free cash assuming you lived there 2 of the last 5 years.

There are some opportunities here in the Los Angeles area if you are willing to do some rehabs and hold it for the long run.