One couple, two incomes. Live on one, save the other. Buy first 4plex FHA. Live in one unit, accelerating savings. Accumulate downpayment for building #2. Buy building #2 with 25% down. Resist temptation to increase spending; saving accelerates due to income from building #2. Buy building #3. Rinse. Repeat. Assuming we’re talking about 4plexes that … Continue reading “An effective wealth building strategy”
Category: Debt
The difference between a loan broker and a direct lender
In our business, we frequently have clients come to us with pre-approvals from direct lenders like Bank of America, Wells, etc. The clients love the banks because they promise high loan amounts and low interest rates. And, on simple deals where there are no real issues with the borrower or the property, the direct lenders … Continue reading “The difference between a loan broker and a direct lender”
When to lever up, and when not to
Regular readers know that I’m not a fan of using lots of debt. Debt (“leverage”) magnifies outcomes… so if you’re highly levered and the deal goes well, you do REALLY well, but if it goes badly, you get crushed. There are, however, some nuances to my view and it has to do with where you … Continue reading “When to lever up, and when not to”
Unsafe leverage building up (again!)
Here’s an interesting piece re the systemic risk being created by FHA loans. For those just joining us: FHA is a program through which the federal government insures banks against losses on loans for 1-4 unit properties, allowing banks to make loans up to 97.5% of the purchase price and to people with beat-up credit. … Continue reading “Unsafe leverage building up (again!)”
The relationship between foreclosure and the availability of credit
As a result of the huge number of foreclosures across the country over the past five years, numerous states and the federal government have created all kinds of road-blocks to foreclosing on a delinquent borrower. This is feel-good stuff… no one likes to hear about families being kicked out of their homes and politicians absolutely … Continue reading “The relationship between foreclosure and the availability of credit”
What’s the best way to buy with a small downpayment?
Today’s NY Times has an interesting comparison of 5% down FHA and conventional loans. (For more about the basics of FHA loans, read this.) It turns out that the increased mortgage insurance premiums currently demanded by FHA make FHA loans a worse deal than 5% down conventional. If you’re considering buying with little money down … Continue reading “What’s the best way to buy with a small downpayment?”
Debt yield explained
Was at a conference on syndication yesterday and came across an interesting idea: debt yield. Debt yield is yet another test lenders use to determine whether or not they should make a loan on a 5+ unit deal. The math looks like this: Divide the building’s NOI by the proposed loan amount. The resulting quotient … Continue reading “Debt yield explained”
Why more sellers should be carrying back
One of the things that bothers me about today’s real estate market is the relative scarcity of sellers willing to carry back mortgages. To understand why I think it’s weird, we first need to understand what seller carry back financing is. Simply put, seller carry back financing is when the seller of a property provides … Continue reading “Why more sellers should be carrying back”
Is it too late to buy?
A lot of people are wondering whether it’s already too late in the cycle to buy. After all, prices have bounced back up off the floor of 2009-10. For context: I sold a bunch of totally renovated buildings in 2011-12 for 10-10.5x the rents. I would get 11x all day right now, and possibly more. … Continue reading “Is it too late to buy?”
Are you an investor or a speculator?
Market prices are up across the entire city. Where you could once buy stuff for 10x GRM, almost everything is now 12x+. If you’re looking at deals now, it’s important not to get caught up in thinking about buildings relative to each other. At any time, I can tell you what the best thing to … Continue reading “Are you an investor or a speculator?”