All Forum Posts by: Wes Brand

@Nick B. For one, they're not leveraged.

Two, cap rates only matter if they're buying an apartment complex or office building. If cap rates go from 3% to 6% they lost 50%, but what would they have lost in their home country? For example, Venezuela's official inflation rate for 2015 was 141% -- estimates from sources not controlled by their government are higher. Further, market cap rates going from 3% to 6% is a pretty huge drop if you're buying into the markets they're buying into. 

But now treasury bonds...valid, but the returns are much lower. "Real Yield" 30 year treasury bonds return ~0.8% nowadays (non-inflation adjusted is ~2.5%). In general property values track inflation in almost every US market; some markets beat inflation. There are a few losers, but no one is buying into Detroit for wealth preservation purposes. The cashflow is secondary to the asset.

 I assumed it was owner-occupy because of this: "The problem I'm running into is the FHA loan limits"...FHA only does owner occupied loans.

@Heather Shannon

If you buy a 900k 3-unit property and put 20% down you're financing 720k, yes, but that puts you into "jumbo loan" territory not "needs PMI" territory. It means that the loan will probably be serviced in house and not resold in the short term. You shouldn't have any problems getting one as long as your income can support the mortgage debt and you have 20%(for owner occ) down.

The FHA/low down payment loans require PMI because they're being backed by Fannie Mae / Freddie Mac and those are their requirements. Banks can offer loans with low % down and no PMI if they wanted to, they just won't be able to resell them. You *may* be able to finance 10% of your down payment and put 10% down with a piggyback loan, assuming you have 10% down. You'll want to talk to some(5+, since you're doing something fancy) mortgage brokers in Chicago about your plans and what resources you have available. Concentrate on credit unions and local banks -- big banks likely won't be able to help you out much.

Also, you might want to check out Sofi

 Yes, that's exactly what I'm saying--you're coming out of pocket so it's cashflow negative, but some of that is due to principle pay down so isn't actually lost. If you're coming out of pocket on the costs not including principle for less than market rent you'll still be ahead by purchasing the duplex. But you need to factor in market rent unless you have appreciation goals.

 You use a strange definition of investing. I don't agree. You need to expect it to make you money eventually, I suppose, but what I'm getting here is you're saying  'it's not investing unless it cash flows' which I'd say is just plain wrong. Does a house stop being an invesfment because there's a vacancy? What about if you're doing repairs and caused the vacancy? 

It's still an investment even if it's not cashflowing on day 1, or will only cashflow once the mortgage is paid off if you're living in one half. 

 That's cashflow negative while you're living in it once you factor in repair reserves, which is exactly my point...it's not really possible to house hack a duplex and come out ahead on cashflow in most markets. You could probably get that to positive if you took on a roommate, though...

 This doesn't make sense. 

The question is "what's market rent?" and "how much am I negative?" If you're negative by less than or equal to market rent you're actually coming out ahead by purchasing. If you're negative by more than market rent, you might want to reconsider, but there are still times where it'd be a good investment despite the negative cashflow (rent appreciation, appreciation, etc). 

The reason it's tied to market rent here is because you need to live somewhere. Expecting a duplex to pay for both halves by renting one half is only possible in certain (depressed) markets. You can do better if you have a 4plex or larger, since you only need to make up a 25%(or less) shortfall with the other rents.

See Chris' response -- you're living in one half, you need to live somewhere, so how does the amount you're paying compare to market rents? 

Additionally, you're building equity with some % of your payment, you need to account for that before you say it's negative cashflow.

One more question: Why is it swampy? I know of at least one vacant lot that was swampy because someone directed their runoff (from a parking lot) to the vacant land; it was empty land so no one complained at the time, even though the parking lot was supposed to have a better drainage system. A simple ditch dug around the property to drain the runoff properly cured the swamp problem.

@Account Closed you might want to revisit your screening process and do a bit of research on proper screening -- always having problems with a tenant leaving without letting you know(or being evicted), and actually damaging the property makes it sound like a problem somewhere in your process.