Table of Contents
If you have $10,000,000 to spend on REI - what asset type & class would you put it?
Axel: I would buy 50/50 built-to-rent SFR in Florida and Texas with 80/20 financing, on this scale probably with private money or institutional money for the loans.
Which is better: Buy a second home or an investment property?
(Hi everyone. I am just starting out with my 1st rental property in Hawaii but am wondering which one is more beneficial: 2nd home that’s a house hack vs. investment property. Per the lender I’m using right now, she said I can pre-qualify for more purchase price power with an investment property mortgage than a 2nd home mortgage.
I would put 10% down with the 2nd home vs. 20% with the investment property, but would have to use a HELOC to fund the extra 10% down payment, increasing my DTI. She also mentioned that Freddie/Fannie is changing things for 2nd homes, so it might be more beneficial to do an investment loan.
What are the pros and cons to each mortgage, as well as the tax advantages/disadvantages for both? Any other information would be greatly appreciated!! Thank you!)
Axel: Several people here already stated that more details would help give better feedback. One of the big things to answer your question has to do with the goal or purpose of the purchase.
Let’s assume you could have a second home in Hawaii even if you already live there (maybe each island could count separately), you would still want to determine what you will use it for.
To stay within the rules, you would be limited to short-term rental use so you could maintain the claim that it is a second home.
If generating cash flow from short-term rental income is your goal you would be better off doing that but keep in mind rules change on April 1st, 2022 (see the article I posted above) and make second home financing much more expensive on a monthly cost basis.
If your goal is to develop a passive portfolio that benefits from rental income and appreciation and does not require a lot of your time, you might be better off with an investment property.
Be aware that the investment property could be acquired turnkey and would not have to be in Hawaii, which could mean your 20% downpayment, let’s say in Ohio, is equal to a 10% downpayment of a vacation home in Hawaii. You would have to run the numbers but avoid the HELOC use (not recommended when you are just starting out).
Making sure you have identified what the goals are and then find the best performing approach to meet your goals has proven to be a path to success. In my mentoring, I use the approach shown in the image below to test/check goals for viability and completeness.
Do you need to transfer property to a LLC name?
(Hi, I have two rentals I own right out. one is a house with land and the other is a mobile home on leased land in a very good location. I just created an LLC for these properties per my accountant's recommendation he also suggested I transfer the properties from my personal name to the LLC name. I had really just created the LLC for tax purposes and to keep my personal finances apart from my business finances. Do you really need to transfer to LLC name? I’m located in SC if that helps )
Axel: You can have a Series LLC in another state and then report the “Mother” in your state as a foreign entity.
I am not smart enough for all the things I have learned but I know that learning and finding great experts is super-helpful for me and my mentoring clients.