All Forum Posts by: Dan Schwartz

@Mike Dymski what are some other ways to fight inflation besides deflationary measures?

@Jeremy D. Flood is that a DSCR of 1.00? $6000 income, $5999 expenses. I would have expected a need for expenses to be limited to $5000.

@Karan More while you are logically looking at the homes sequentially (this is my 1st, this is my 2nd), those monikers can mean different things to people who aren't in your head.  A "second home" is very different from "my new primary."  Just a head's up.

Where does the HELOC come into play? Do you need the HELOC to fund your down payment on the new primary? Can you delay securing the HELOC if it's not as important as getting the new primary?

Here’s one of theirs I followed in Sun City West.  They bought it already rehabbed in 2/2022 for $442k and relisted it two weeks later for $490k. 

It sold in September for $410k.  It sat there and did nothing at all for months.  

https://www.zillow.com/homedet...

@Kuron McGraw is he a willing seller or are you trying to talk him into selling?

@John Lindley I think you asked an investing 101 question and got a lot of Masters/PhD level answers.  Doesn't make them wrong (it's generally sound advice), but it goes way beyond where you may be in this journey.

I don't know your exact numbers or whole situation, but I would strongly consider getting a 5% down conventional mortgage on the new house (since you were looking to do 3.5% down for FHA) and renting out the old house for a maximum of two years.  Know going into this move that you are going to sell old place after two years of renting and before three years has elapsed since moving out.

While it may not be the best investment you can make, and while it might not be the property you'd choose if the world were your oyster, you know your current home.  You know the state of the systems.  You know how close (or far) you are from needing to replace the roof or HVAC.  You seem like someone who has kept it well-maintained, which should minimize the need for excessive repairs and allow you to set aside more of that 50% rule money towards future cash reserves.

It sounds like it's in a good, rentable neighborhood.  You've penciled out that it will cashflow.  Maybe it's cash flowing because of the low LTV on the appreciated value.  Who cares?  It's your first rental and it cash flows.  You'd be farther than 90+% of the people who "want" to do this.

You rent for two years only so you can sell it prior to your Section 121 exclusion expiring (live in it for 2 of the last 5 years).  Take the profits tax free, and, having now been a landlord for two years, you'll have a chunk of cash as a down payment on a replacement rental property.  With two years of landlord experience, you'll be treated better by the conventional lenders with regards to counting rental income towards the new purchase. 

Might the home decrease in value between now and 2025?  Yes.  Might you be able to make more if you start from scratch and buy a different property?  It's possible.  Find me a situation that doesn't have a potentially adverse opportunity cost.

And if you decide in those two years that you hate the whole idea, sell the house anyway, take your tax-free gains anyway, and move on knowing you pursued an opportunity when you were in a good place to do so.  

Good luck!

@Josh Boyd I think you’ll find that the mortgage - even multiple mortgages - don’t knock your credit score much beyond the initial hit for any type of new debt.  Also, I think most pricing tiers for conventional loans top out at 740+, meaning that 741 and 810 will get you the same pricing.  Ask a lender you might work with to find out for sure. 

@Josh Boyd LLC functions vary by state. I can answer your question according to Arizona procedures, which might be illustrative to you but are in no way exactly what you can or should do in Georgia.

1) Your LLC doesn't have to purchase your house. You can contribute it as a business asset by deeding it to the LLC. I know that in some states this triggers a stamp tax or some other transaction cost. In Arizona, the deed recording is $15 or so + the cost of someone writing up the deed if you choose to engage someone to do that. You've contributed the asset to the LLC no different than if you capitalized it with cash.

2) See above. Your LLC doesn't have to put anything down. BUT, there will likely be a discussion of the validity of your existing mortgage as it relates to the LLC. There are two considerations: 1) due on sale clause, and 2) piercing the corporate veil. #1 has been mitigated in many cases since Fannie Mae allows their the property securing their loans to be transferred into a Single-Member LLC. You may or may not have a Fannie Mae loan, and your original lender may or may not permit this to happen without triggering the due on sale clause. But Fannie Mae's decision makes it a more widely-accepted practice. Check your own situation to the extent that it gives you comfort. #2 generates a lot of discussion. I've yet to see someone cite a case in which the corporate veil of an LLC has been pierced solely because the mortgage was originally written to the person and not the LLC, but theoretically it's possible. Running your operation like a true arm's-length business with it's own accounts and accounting procedures, not co-mingling funds, taking proper draws when you need funds to pay personal expenses (as opposed to writing a check from the business account), all strengthen the separation between you and your LLC. As for the mortgage, I can't provide any cases where this has been argued, but I argue that many of my non-real estate business debts (credit cards, lines of credit with personal guarantees, etc) are as much based on my personal credit and are personal liabilities as the mortgage that was also secured personally...and is now deemed permissible by Fannie Mae. That's my view and the view of the counsel I've sought. You need to seek your own.

3) Not sure exactly what you are trying to do (pull the 229?), but if you need cash, you might consider securing a line of credit on the house while it's still your primary residence. That will be a LOT easier than after it's become non-owner occupied, and especially if it's non-owner occupied in an LLC. It seems to me that the lender's recourse if they don't like your having converted it to a rental after closing the LOC, is to pull the line. Oh well. You might be charged an early-closure fee, but that's all. My feeling is that they'll do nothing and not care so long as the line is being paid. But you have to decide what you want to do.

4) The answer to #2 was no, so this is moot.

Again, that's all perspective from my experiences in Arizona.  LLCs are are state law entities, and courts in each state may handle them differently.  As always, check with local counsel for important questions.

Good luck!

Two different events.  Patrick/this post is advertising a subgroup, not the main meeting.  

Michael, no, I admitted that I had no data access, though it could certainly be researched and proven/disproven.  We looked at a lot of these places, though.  In 2015 we sold a 4-plex that we had moved farther away from and was getting cumbersome to manage.  We were very interested in trading it for a multiplex in North Tempe/South Scottsdale.  The contemporaneous price increase from West Phoenix to North Tempe/South Scottsdale was a bit of a stretch for us, but we were still fairly new.

In 2016, Arizona passed the law that banned cities from putting any restrictions on Airbnbs.  Not saying that's direct causation, but it provides a bit more context for the time period.

In 2017 were were trading another property, and this time were specifically looking for something to Airbnb.  The same friend and agent who helped us in 2015 had (I don't remember exactly when, but he's generally ahead of the curve on these things) converted his South Scottsdale 10-plex to 1- and 2-bedroom Airbnbs.  

We wanted, and bought, a single family home that we could Airbnb while still having numbers that worked for LTR.  But for fun we looked at the pockets 4-plexes we had looked at 2 years prior and the asking prices had literally doubled.

Yes, we've been in a high appreciation area.  But a house we have in an undesirable-for-Airbnb location appreciated about 10% over the 2015-2017 time period and 50% from 2020 until the market turned.  

Bottom line is that, yes, there can be (and has been) distortion of housing markets due to Airbnbs.  In this area, I think they've been largely papered over because of the huge runups in both home prices and rental rates, but there was a specific time where that wasn't the case. The airbnb premium/distortion was talked about a lot.  And it may be present now or later in other markets, so I'm giving a different perspective.