All Forum Posts by: Steve K.

Undiscounted Payout (pay back) can be calculated on various %leverage:

@Malcolm Lawson , you're not getting a stellar ROI, because you're contemplating using no leverage. The condo itself has rent as 1.5% of purchase (not bad; although you do have an HOA fee). The condo itself has 8.68% cap rate (if purchased for all cash). Using 75% leverage would boost that to 16.58%. If you could somehow swing 100% financing....the ROI would be infinite.....since it still cashflows $130/mo with 100% financing.

@Ralph R. , that's an interesting observation....that it takes 10.1 years to get your money back.....but I wouldn't call this "interest free". Malcolm would get exactly 8.68% yield on his $60,000 investment.(neglecting future inflation)

@Michael Vialpando , inspiring to hear that a young couple is disciplined and dedicated to financial freedom; that will serve you well!

I"ve been married 36 years....and never considered house hacking in those early married years. I never contemplated moving into a lessor house for the future good....but your "delayed gratification" trait will also serve you well.

When I got into REI just 5 years ago, I asked some of your same questions, but in reverse order.

I ask: where can I buy a home with unfinished basement and make a profit in finishing it? You ask: I have an unfinished basement, is it a good investment to finish it and rent?

I ask: where can I buy a fixxer-upper....that updating kitchen/bath/trim makes me a "flip" profit. You ask: I have this, should I keep going?

I say, I'm going to stay in my primary residence....moving is off limits. Where should I invest in fix/flip or fix/hold? You ask: should I forgo my current residence and move "down" and house hack a 4-plex?

If it helps, I'm guessing your $2000 mortgage goes with around a $400k home with 5% down. If $5k more trim makes it rentable.....do you like a $405k property that rents for $2500 to $3000. First idea is this is 0.62% to 0.74% of purchase price....not likely a stellar deal for your setting. (might be the best you can do in Denver now). With other costs included, $3000 gross rent, and $2000 mortgage many not be that stellar of net cash flow. I would think your 5 acres is adding to the cost, but not helping the rent. Same with your unfinished basement.

If a $40k basement finish yields $1400 rent....that increment sounds like 3.5% of cost....a home run!

But, I'd ask, what does a 5BR/2ba home on 5 acres ARV with an extra 1100sf finished? Can I sell it for that? (if yes, fix/flip value added by finishing the basement.

In Denver, I wouldn't be able to put in a separate basement apartment (full kitchen) unless I'm zoned for a duplex; you should check that for your location. Otherwise, you might get a basement with a "wet bar"....but not a full kitchen, if up to "code". But, when you go to sell, who wants an up/down duplex on your 5 acres????? is it an asset or liability? What does your neighborhood allow? Is Airbnb allowed in Monument?

As for how to finance, keep talking to banks and credit unions....you might be able to get a home equity loan for your remodel? Are you sure your $400k(?) home hasnt' appreciated in 2 years.....are you sure you only have 8% equity from the loan paydown alone?

Read about the BRRRR strategy; after remodeling your basement, and finishing the upstairs, could you ask for a new appraisal and cash out refi on the new ARV?

Your $2000 mortgage, against your $160k income is only 15% debt/income. You can likely qualify for more. You may be able to qualify for another $2000 mortgage on a separate rental property today (provided you have 20% down). Have you two been socking away a bunch of savings in the past 2 years with that nice income?

Best wishes.

@William Bauer , welcome.....and congrats on your success to date (including med school!). Being a full time professional, family man and part-time REI will be challenging.

Not to be critical, but you've been a landlord for 9 years. I'm curious, why are you on such a slow path to your dream/success? Your story struck me oddly; forgive me if my free advice is too bold.

Get calibrated on what's a good deal today, and go buy another rental! If you're like me (part-time investor; demanding professional day-job), your time in finding/analyzing a deal is valuable. Why go through the brain damage of finding that deal and then taking a small percentage of it in your partnership? Why wait for 12 months and partners to slow you down? If you're looking at out of state investing....aren't the price tags small enough that your $50k down could be $200k (with 25% down) per year on your own? 

Your reading of 75 books (and time on podcasts/forums) is admirable....but isn't that enough to say "you've graduated" and now go succeed!

You're new to BP, and wouldn't have likely seen three of my favorite inspirational threads. Check these out if you care to. These are some real life case histories of what @Joshua D. , @William Collins and @Austin Fruechting did in 5, 2.5 years and 7 years, respectively, buy using BRRRR fix & hold rental strategy.

https://www.biggerpockets.com/forums/223/topics/459415-500k-net-worth-in-5-years-im-30-today?page=1

https://www.biggerpockets.com/forums/48/topics/429980-officially-financially-free-at-32----exciting-day

https://www.biggerpockets.com/forums/223/topics/445367-full-time-employee-multiple-brrrr-side-hustle-2875-to-goal

Doc, while you were reading 75 books and dreaming of processes and systems to fine tune the machine, these young entrepreneurs are showing the rest of us the fast-track....

Best wishes to you and your family.

@Shade Cromer, 

As you're reading more in books, and these forums/podcasts, look for a new concept that you may be a candidate for: "house hacking".

It may be the easiest way for you to launch from "renting" to "owning" your first property. If you're considering "flipping", read and see if you'd like holding rental properties. These take 20% to 25% down payment as a landlord....but if you're the owner occupant, you can qualify for a mortgage with just 3.5% or 5% down payment. The "hacking" is to have other tenants subsidizing your rent or mortgage, so that you're "living free" or heavily subsidized, so that you have more to save/invest in other REI.

Most often, Hackers look for a duplex/triplex/quad-plex wherein you live in one unit and rent the others. Sometimes, if you need the initial property to be more modest , you can consider a single family home and take on room mates (either a bedroom, or a basement MIL apartment.

Also read about the BRRRR method of growing your wealth....it might be for you.

Good luck.

@Matt Romano ,

I'll give you my advice on leverage. I used to be on the bandwagon of pay off the mortgage early. I've rethunk it!

When interest rates were 8 to 12% APR 30 yrs ago, it wasn't such a sacrifice to accelerate mortgage payoff instead of an 8 to 10% expectation elsewhere in stock market, mutual funds. It felt safe to not be in debt, even if it was a slightly conservative yield on my money (and tax effects to boot). Now, I'm trying for 10 to 20% IRR on my real estate investments. Why would I put excess share of my precious capital in a mortgage to save 4% APR, when I could buy another rental and earn way more?

There is a continuum of perspectives on this. On the conservative end, I know of a widow in Denver that put her life savings into buying a $250k duplex for cash. She's thrilled that she has no mortgage payment and the entire rent (less expenses) is her net cash flow. She has benefited in Denver appreciating nearly 10%/yr for the last 8 years or so. So, her duplex may be worth $400k now.

However, a different REI could have taken that same $250k cash, and used it to put 25% down payments on 4 such properties. In our appreciating market, this person has $250k equity in $1 million of property. (75% loans/leverage). They could gain appreciation of value to 4x $400k each....now owning $1.6 million of property. Four tenants are also paying off 4 mortgages over the next 30 years. (granted, in the early days, the monthly cash flow is way less, due to 4 mortgage payments. So, you see, this investor is growing wealth faster with the leverage.

Have you read about the BRRRR strategy, that allows you even more leverage? What if a third investor took the same $250k cash, and used it to put 25% down on 4 duplexes that needed renovations....they can be bought and renovated for $250k, but they're really worth $350k ARV. (A fix/hold strategy of trying to buy at 70% of ARV). Because they did the rehab work, and gained $100k per property in the rehab stage, they own $1 million in property (at cost) that appraises for $1.4 million (or $350k each). Then, perhaps after 6 months "seasoning", this investor refinances all 4 properties to 4 new 75% LTV mortgages and get's to have a $262k mortgage on each. It more than pays for $250k each costs....so this investor extracts his original $250k, able to "repeat" and buy four more in the next year....and could actually have $50k extra profit in his pocket. If this is repeated in year 2, 3 and 4....after 4 years, the BRRR investor could have 16 rental duplexes, control $5.6 million in real estate, and have their original $250k back in their pocket. 32 tenants are paying off the mortgages. If 10% appreciation continued....it could be $560k extra equity per year.

Of course, admittedly, nice appreciation on the large portfolio works both ways....you could be subject to losing 10% of the larger portfolio if there was a down turn in your market or nationwide. And other BP investors would caution against having maximum leverage. Many BP investors love to have their rentals paid off early. But, the 75% leverage grows your wealth faster. The BRRRR is the fastest path to wealth.

@Kent Slawson , when I was in your shoes (awaiting my license), I made an offer on a SFH by making the showing appointment with the listing agent, telling him I was representing myself (as a knowledgeable REI (not as a soon to be agent), that I wouldn't be using a Buyer's Agent, and that I expected to save 2.8% on my purchase). It worked.

Sounds like you only used the listing agent....there was never any talk about a Buyer's agent. As @Wayne Brooks said, your soon to be managing broker will be your best idea.

@Ryan Turian, depending upon your market, your "house hacking" strategy can work to heavily subsidize your own cost of housing, and in an ideal case, you "live free"....allowing you to invest the rent/mortgage you would have been paying in other REI. (Yes, I like the BRRRR strategy too).

Note that on BP, some markets are getting 2% of purchase price per month in gross rents, while others are lucky to get 1%, and still more expensive (like my Denver market; many rentals on MLS only let you achieve 0.7% of purchase in monthly gross rent.)

So, that renter in a "2%" market, is likely paying in rent about 3 to 3.5 times what their mortgage payment could have been....very favorable to the landlord (you!). Here, one half of duplex might rent for enough to pay the mortgage on both halves, and allow for budgeted managment fees, maintenance, vacancy%, capital expenses, etc.....to where you live free.

In the 0.7% market, it's likely 1.4x what his mortgage would have been. So, it might take 2 or 3 renters to pay the mortgage and expenses on 3 or 4 units, to where you live free.

I'd encourage you to search on posts by @Billie Miller ; she has a blog on her successful house hacking of a Denver Duplex. (look for the link to her persona website).

And, yes, you should budget all of your expenses/capex/vacancy for your entire duplex/triplex. Set them aside in a savings/checking account; then, if the 1 or 2 tenants don't pay for the full "land lord budget", you're living heavily subsidized....but not quite "free". You can think of your ROI two ways. I'm making ROI of "X", but I'm living rent free in a $1000 half-duplex, or I'm making ROI of "Y" when I (tenant) pay myself (landlord) $1000/mo rent.

See also, this "BRRRR Success story" from CT, wherein @William Collins was using the BRRR method.

https://www.biggerpockets.com/forums/223/topics/445367-full-time-employee-multiple-brrrr-side-hustle-2875-to-goal

You might gleen some helpful comparable fix/hold numbers from his market.

Good luck.

@Aaron Barrett , as @Craig Curelop said, you are in the same position that @Austin Fruechting seemed to be in; now retired in 7 years.

Get inspired by his success in the BRRRR rental method:

https://www.biggerpockets.com/forums/48/topics/429980-officially-financially-free-at-32----exciting-day

He was recently featured in a podcast:

https://www.biggerpockets.com/renewsblog/biggerpockets-podcast-239-achieving-financial-freedom-age-32-austin-fruechting/

@Sarah Lorenz , I see from your profile that you're already are experienced REI. I'd encourage you not to use the vocabulary "....I might lose the house".

While you're likely inheriting a house with a mortgage....aren't you still inheriting the aunt's equity? I like to acquire fix/hold rentals....after the BRRR method, I have a rental with zero money down, and a 75% LTV. My first thought is, that may be what you're inheriting. (or maybe there's more equity....a 50% LTV?)

So, don't think of it going into foreclosure.....losing it.....think of selling it to extract the equity, or keep it as a rental if it will cash flow, and grow your wealth. 

Hope you hear of an easy way to keep the existing mortgage. I've never done a "subject to.." acquisition...but don't those REI's love this type of "assumed loan"?