All Forum Posts by: Dan Schwartz

Michelle Watt, talk to a lender. Depending on their guidelines, they may be able to count the rental property income (after a haircut) against the rental property debt. Some lenders will require you to have two years of experience before allowing this, some won't. Just ask.

You did well. Some people shine brightest when staring up from the depths of their position. You showed a great amount of care for your customer while still protecting your own interests. Bravo.

There will houses to buy when these are paid off. There will be mortgages available to fund those houses. Both the houses and the mortgages will be priced differently than they are in 2015, but so were they differently priced in 2010, 2005, 2000, 1995, 1990, and so on..... If you want to buy again in the future, you'll have enough experience to buy wisely and make money, just as successful REIs have in every single market. What keeps you up at night is generally "risk." And risk isn't mitigated by following the too-typical BP mantra of equity stripping, using every dollar of cash flow to reinvest in RE, and buying houses like they are going out of style. None of us are going to know your internal risk tolerance. Find a path that has you sleeping well at night, and stick to it for a year. Then ask yourself this same question again. Good luck.

What is LSR?

Your neighbor is hurting property values more than your tax re-assessment.

@Jonathan Sanchez based on what you shared, yes, you probably can get a loan. Maybe one of the brokers here would help you. If you have 5% saved up $10,000), then I suggest looking at conventional loans. FHA loans have very expensive mortgage insurance attached to them. Look at conventional and FHA side by side to see what's better for you.

If you have no other debts, the DTI I am familiar with for conventional is 43%. That's $1075/mo available for the debt service on your income. A $190,000 loan at 4.5% has a payment of $962.70. You'd have $112.30 left over for taxes, insurance, and PMI. That's probably not enough. You'll have to get a smaller loan.

But seriously, sit down with a banker or mortgage broker and ask them to prequalify you. Before I owned any property, I too thought it was impossible for me to get a mortgage. My dad told me to "just go talk to someone."  I did, and I got qualified. I would have never known if I didn't ask someone. 

Note: don't take the max loan someone is willing to offer you. Take what you can afford. No more. 

I buy them and deliver them to the house. For our first tenant, I was coming in to install them every three months. It was a good way to check on the condition of the house and do some needed maintenance. After a while he said, "don't worry about installing them,we'll take care of it."  There was enough trust at that point that I was fine with it, and they did take care of it. In other units, I continued to deliver and install them. 

If she bought at the bottom and is going to make money on the sale....but is also facing foreclosure on Friday....is there anything you can work out with the bank? Buy the mortgage? Just thinking outloud....

@Dave Foster's plan is the best one   Just be sure to work with the CPA who will file your tax return FAR in advance of this transaction. Not any CPA, but the one who is going to sign the return. You don't want to go through this transaction only to find out - for some odd reason - that you will not be able to take the 121 exclusion. Because if that were to be the case, you would have turned $500K in tax-free gains into $500K of tax-deferred gains. Big difference. Seriously, map out the appropriate IRS forms and make sure that everyone is on board with what you want to do. Then do it and enjoy the gains!!

@Michael E.  you articulated your goals pretty clearly: 1-3 properties paid off by the time you are 50.  We don't know your financial position, but this should be doable as planned. 

In your plan, the tenants will be buying your investment for you, and you want as little of their money going to the bank as possible. Get the 15-year loan - which should come at a decent interest rate discount over the 30-year loan - and work your well-articulated plan. Don't forget that paying a 4% rate on a 15-year loan vs 4.5% rate on a 30-year loan is 10% less interest per year to the bank. You don't get that advantage when paying a 30-year loan on a 15-year schedule. Your spread may differ from this example, and might result in even more savings. 

You plan is, however, capital-intensive. You will need substantial down payments to purchase these 1-3 SFHs, and you will have to generate all of the down payment through income other than the rental cash flow, since you are giving that up by taking the 15-year loan. You will also need to generate and set aside your reserves from other income sources, for the same reason. Lastly, you need to plan for annual income taxes. On this plan, if there is little-to-no cash flow, your (cash flow + loan pay down) - (depreciation taken) is going to be greater than zero, and will result in taxes due. That money needs to come from somewhere, too. 

As for properties, isn't Maryland one of the most expensive and highly-(property) taxed states in the country?  Have you considered buying turnkey in a lower-cost, lower-tax state?  Sounds like you are more interested in buying a future yield than actually operating a rental business (nothing wrong with that).  But don't buy too little property if you are counting on this funding your retirement at 50. Three paid-off houses in flyover states may or may not give you the wealth and income you are striving for by then....especially if you will remain in a high-cost state after retiring. 

Within Maryland, I've heard grumblings from family there that the "second wave" of foreclosures is about to hit. People whose unsustainable loans were modified during the crisis are again finding them to be unsustainable. This is Montgomery County. Check it out for yourself; I have no market knowledge there, but agree with the principle. 

Good luck, and find a way to work your plan - or make an educated decision not to - before the BP mantra of cash-flow-is-King changes your mind for you.