All Forum Posts by: CK Hwang

Hey Dustan, like you, I've been hunting for deals for the last 2-3 years in a rising market. It's not easy but there are way to do it. Something which really helped was for me to figure out what strengths I could bring to the table, and I found my ability was access to cheap, ready cash from investors. As such I focused a great deal on certain deals that required ready cash ie, short sales, which other investors were not as keen about since HMLs were costly given the lengthy negotiations of a short sale. So perhaps if you find some angle, that might help in a rising market.  

Hey @Melissa Ewbank, what a coincidence, I just moved into one of my flips that i fell in love with. However, personally speaking, if I was just starting out in the world of flipping, I would not move into your first flip, the reason being as follows

1. Unless your world currently fits into a suitcase, the cost of moving is very expensive. 

2. when it comes time to sell in 1 year, perhaps the market has moved up, you'll sell and make a profit, but the problem is that if you buy another residence but in a higher market, that profit essentially disappears so you're back at square one. 

3. If you do want to live in the house, i would look at living in it for 2 years instead to get exemption of capital gains up to 250 or 500K depending on if you are married.

4. If you want to get into flipping, finding deals based on needing to live in it isnt a sustainable model.

5. I don't know how much capital you have, but essentially by moving in this house, you've committed a certain amount of capital for at least 1 year. for a flipper, that is a fairly long time to tie up capital. of course this all depends on your business model as well.      

Personally, I would pass and move on to the next deal. Hope this helps. 

Hi Alex, my family has owned a few vacation rentals in the past. What i learned form all of that is more than the property itself, research, research, research the management company by talking to existing owners in the resort. There are the good ones, the medium ones (that bring in cash but have high fees), then the downright evil ones. 

Here's one example one of my friends is currently wrestling with. Beachfront condo in South Carolina, fairly large project, i think something like 250 units. Management company owner has a second company that buys and owns units in same condo. What is their play? Fill their own units first, then the other owners, as a result a few owners are unable to make their loan payment due to the awful cash flow, then second company swoops in and buys these condos at a discount, rinse and repeat. Second company now owns so many units they are HOA majority. So guess who sits on board of HOA chair? CEO of management company. Guess whose management company gets the contract every year by sheer number of proxy votes? you guessed right.

Point is that there is lots of this sort of nonsense going on so be really careful.  

Matt, honestly speaking, I have never heard of a bank calling a loan due unless the borrower did something to trigger it, ie default on a payment etc so that was never really a concern for me. 

I've spoken to my banker friends before about this and all of them have said it wouldn't make sense for a bank to call due on a loan that is performing especially not if it a long term loan like a 30 year loan. I am guessing the people you're talking about borrowed on an ARM or a balloon loan, both of which I consider to be tricky debt instruments to use and generally I wouldn't use something like that unless I have checked and verified my exit strategy a hundred times.

For me the biggest concern in a crash was vacancy. I did have reserves to cover it so that help me sleep at night. 

I think the thing that kept me safe thus far is they type of loan ie fixed and a high quality asset in high demand. It's this combo that help to hedge my risk. Of course for me the downside is that my cash flow/returns are isn't great, but I'm also doing a capital appreciation play on these pieces or property so if the rent pays costs and principal, I'm a happy camper.  

Hey Matt, ok, I'll volunteer, i did have rentals through the crash, I didn't lose it but neither did i come out ahead. After the market crashed I diluted about 50%, made a profit of about $50K, so nothing to write home about. The remaining 50%, I'm still holding on. The thing that I do love about these properties is that they are luxury housing. Probably the worst thing one could be holding onto during a crash, but I've never had a problem renting them out. Why? because at the end of the day, no matter how crappy things get, there will always be someone lusting after a beachfront house, steps away from the water etc. My friends that did more mainstream stuff, have had higher vacancies and a little more insecurity. 

I know my investing is extremely counter to everything that is preached here, but it works for me because it's a market I kind of understand. 

So I guess what is one way to be safe? besides making sure the numbers work, you probably want to keep an eye on the quality and location of the collateral as well. Cash flow in some inner city or small town is all fine and good but god forbid the day the neighborhood should ever turn against you or a major employer moves out of town. 

If you are planning on selling the house again, ie if it is a flip, I would talk to realtors that you are considering using to sell the house. see what they think about the area, what problems are in the area etc. The good ones will know the neighborhoods inside out and would be happy to key you in on the issues. 

Yup, exactly why I don't work with partners. What would I do next? I'll look towards finding a place of your own. Seriously. Of all people in the world to share a house with, it would never be my business partner....if i had one.

Next, I would find a project, say costing $700K (or whatever market sector you were targeting). 

Your uncle says he'll fund 50%? ok, $350K in the bank within 24 hours if he is really in it and has the gunpowder, he will pony up, otherwise it's the proverbial "money talks, ******** walks." 

From this you'll know if he can perform or is just full of BS. If he can perform and you want to keep working with him (i personally wouldn't), I'd restructure it to be more disassociated, ie maybe let him have the business and consult for him and get a percent share..if you trust that he will pay you. 

But given your grouses, at this point, I really wont be signing anything. Unless you're super madly in love with your business name, it's really no issue who ends up with the business since it's so new and hasn't grossed any income.  

Personally, I don't think the decision needs to be mutually exclusive between debt and debt free. There is quite a lot of difference being 100K in debt and 10m in debt. How the debt is structured, the terms etc makes a ton of difference. I know you're trying to find a simply answer, but I think that why this question of debt and no debt can never really be answered.

For myself, I started out with no debt, but found it a real slow way to make money, so I upped the ante to the point where I couldn't sleep at night anymore, then i know I had gone too far, and I scaled back. That's when I realized it's not only being comfortable or not with debt but also how much.

The other aspect of debt I've found over the years is that it's like a tool and like any tool, one must use it often in order to get comfortable with it. My first home loan took me months of agonizing, the subsequent ones, not so much as I became more adept to using debt, planning for it etc.  In summary, if you're trying to find an answer, it's hard if you've never taken on debt. I would say, try a small loan, see how you feel about it and slowly scale up till you reach the limit of your comfort, then decide if you like it or not. 

Glenn, if it makes you feel any better, I don't see rates rising significantly anytime soon, but I'm not Janet Yellen so..... But if you are worried about keeping your home, personally, the way i would play it would be to do a lease to own, then do a cash out loan on the rental and use the cash out to pay off the loan on your house. Who knows, you might never have to realize a loss and maybe even end up profiting from this property. 

Hey Glen, have you thought about a lease to own option for a renter? By doing so, they generally take care of the house better. But if your house is lower priced, I would offer at option to purchase at the back end of the deal rather than the front end of the deal. Just my thoughts, but honestly speaking I've never actually dealt with houses in a war zone, so I'm not sure what your tenants responses are like.