Hello my friends. Welcome to another episode of Passive Real Estate Investing and another episode of Ask Marco. I apologize for missing last week’s episode. I’ve been traveling a whole heck of a lot lately. Things have been crazy this year in terms of business and business growth with the different ventures that I’m involved with and travel comes as a part of that. So as much as I do like to travel, it becomes very, very tiring. Anyway, it’s another day and another episode and I’ll see if I can record a catch up episode here in the near future. I’m looking to do a market update, if you will, on the economy and the housing and everything else related to that. So I’ll do that probably later this week. So let’s grab some questions here from listeners. Some of these are very recent, as in like the last 12 hours and some of these date back about a month and a half ago.
And I apologize for the late ones, but that’s just what happens.
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The first one, I’m not sure who this came from, the email has got more than one name in it, so I’m not sure if it’s Bob or John <laugh>, but it’s a very short question. So let’s just begin with that. So Bob says, I have a property that I rented and depreciated for 24 out of the 27 and a half years. The property wasn’t rented for four years. I have it rented again now, and my question is, can I deduct to the remaining three and a half years of depreciation or did I lose that? Well, Bob, the good news is, is you never lose the depreciation. If you have residential real estate, which means it’s a 1, 2, 3, or 4 unit property, you can depreciate it for the full 27 and a half years that you own it, which means that the improvements, the structures on, on the ground, meaning everything but the dirt can be depreciated for the 27 and a half years.
It does not matter whether it is leased or not, that’s irrelevant. You can leave it vacant the entire time and still depreciated for 27 and a half years. It does not need to be leased. That is not a condition, this is just an IRS rule and they allow you to depreciate the structure, the improvements over that period of time. So you didn’t lose any time here and whatever you’re referring to as remaining years of depreciation have always been there. So just continue to depreciate it the way you have, talk to your accountant or tax professional if you have missed anything or if you have other questions about it. But no, it’s still there and certainly take advantage of it if you didn’t have the income coming in from it. Well, you know, that’s an unfortunate loss. You can’t rewind the clock and go back in time to get the income that you missed out on, but there’s always today and tomorrow and the future.
So I, I suggest you just work on that. Alright, well thanks for the short and simple question because some of these other questions are a little bit wordy in a good way.
The next question comes from Natalia. I believe this is one of those slightly older questions, so I do apologize for that. But she writes in and says, hi Marco. Thank you for taking the time to read my email and for the amazing content you deliver through your podcast. I started listening to your podcast two years ago while driving to get radiation therapy for breast cancer. Your podcast was very inspiring and opened the door to a new area. I had no prior knowledge. In 2022, I decided to take the next step and I got in contact with Melissa who’s one of our investment counselors here, who was awesome and guided me through my first single family property in Birmingham, Alabama.
My initial goal was to acquire 10 properties in 10 years, but I am now way ahead of that goal. I got a HELOC on my house and I used the $100,000 to purchase another single family home in Memphis, Tennessee and put the down payment on a new construction in Ocala, Florida. I’m currently a high earning single mom and not worried about much cash flow but focus more on appreciation and some tax savings. My next goal is to invest on a short-term rental on the beach and I’m looking into ways to get my down payment. One option is to increase my savings by lowering my house mortgage payment. Currently I have a 15 year fixed rate at 2.35%. Wow. With a monthly payment of $2,900 and the balance is $312,000 with 13 years left. My question is, should I refinance into a 30 year loan with three times the interest rate or so based on current rates, but get a lower monthly payment and save about $600 per month? Any insights are appreciated. Thank you Natalia.
Natalia, thanks for the question. Sorry about the radiation therapy. I hope everything is going well. I assume so. I wish you well, of course. So this is an interesting scenario and a good question. It’s a very short answer, simple answer. I believe even though you’ve been very detailed, wonderfully detailed in your scenario, in my opinion the short answer is no, do not refinance. And I say that for two simple reasons. One, you’re locked into a unicorn interest rate 2.35% on a 15 year fixed mortgage is amazing. That lasted for a short period of time. And if you were able to get it lock into that like you did, fantastic. I mean that’s worth a lot <laugh>, let’s just say that. So the idea of refinancing into a 30 year fixed at a rate that’s gonna be in the upper six or in the 7% range depending on where you live and your credit score and the loan amount is kind of crazy because you’re gonna three x your interest rate, which means that you’re gonna balloon your interest payments and the total amount of interest paid over the life of that mortgage and even if it’s your principal residence.
So what the fact that you have interest that is tax deductible, yes, is a bit of a savings, but it doesn’t measure up to the amount you’re gonna save over the life of that loan even if you pay it off sooner at 2.35%. So that’s one reason why to me it doesn’t make sense to refinance at an an interest rate that’s three times as high on a 30 year fixed. Number two is if you’ve done the math and you’re saving $600 a month, you know, just think about that for a minute. That is 7,200 if I did the math right, $7,200 per year. Now yeah, that’s a sizable chunk, but if you’re saving 7,200 a year, it’s gonna take you a number of years to save up a down payment that you’re gonna use towards another property by itself, not including other income you have coming in bonuses or chunks of cash or the sale of assets to make up the down payment that you’re gonna need for another property.
So if you are saving $7,200 a month, that’s great, but it’s not going to be enough or maybe not enough fast enough to get you to the down payment for that next property. Now you did mention you’re a high earning single mom, so if you are able to just save in other ways to make up that 7,200 that you would’ve had from refinancing, do that because it sounds like you’re not suffering for cash or cash flow and you mentioned that yourself, but you’ve got a high income paying job, you can probably find ways to save that seven or $8,000 a year just in that alone. And then look for other ways to build up that capital, that chunk of cash you need for the down payment, whether it’s selling other assets, a side hustle, a small business, whatever it may be. I’m sure you, if you stop and think about it, you can find other ways better ways than ballooning the interest payments that you’re gonna be making on your principal residence.
Maybe that’s not what you wanted to hear, but in my opinion, and it’s only my opinion, I just don’t think it’s worth refinancing your principal residence mortgage into a 30 year just for the $600 a month. So anyway, that’s just my 2 cents. But I think if you just sit down and get creative and stretch and think about ways that you could do, do this other ways, I think you can and I think you should. So congratulations on your success so far and keep up that momentum.
Next question from George. George says, hi Marco. I read the Norada Real Estate Investment Report regularly. I assume he’s referring to one of the many, many blog posts on our website and we keep refreshing and updating many of them, especially the market spotlights. He said, I’m impressed with how knowledgeable you are about investing in real estate. Well, thank you.
I’m considering buying a residential short-term investment property in, I’m not sure if I’m gonna pronounce this correctly, Navarre Navarre, Florida or Gulf Shores, Alabama. I’ll have a property management company handle all of the management responsibilities. I’m semi-retired and would use the property six weeks out of the year to relax and enjoy the beach. Do you have any data on how Navarre and Gulf Shores are trending right now? I understand that there are several factors that determine a successful investment. I already own a few properties, however the real estate market has changed. Interest rates are relatively high supply of inventory is low and homeowner insurance is much more expensive. What are your thoughts? I appreciate your input. Thank you George.
George, well you have two questions in here. The question is, do I have data on how these two markets are trending right now? Not in handed, not in front of me, but I can certainly dig it up and I know you can too. So you can certainly do enough research in five or 10 minutes online with Google or whatnot to find housing market information on these two or any other markets that you’re looking for information on. There’s a lot of free information out there. There’s a ton of articles that will provide you that information that comes from other reliable sources and paid sources. So you don’t even need to spend any money even though there are subscription and paid websites that you can do that on. So I would imagine that given that this is Florida and Alabama, that these markets are probably doing well and will continue to do well and probably have a lot of stability. But without doing my own research and due diligence, I can’t tell you definitively, but I would assume that these two markets are gonna do well and they’re probably very healthy.
In regards to your comments, yes, the real estate market is always changing. This is why I say that real estate investing is not a question of when to invest, but where to invest. So there’s always opportunity and it’s always a good time to invest in real estate even if interest rates are up or higher. And yes, interest rates are relatively high, but again, the key and operative word you’ve used there is relatively speaking, yes, rates are now in the you know, the sixes and 7% range, but you know, there was a time when we thought 9% interest was a good rate because it came down from the 10% or double digit rate of interest area. So when it dropped below 10%, we were in the nines. We thought geez, that’s a great time to refinance, let’s, you know, get a mortgage loan. And then it went into the eights and then the sevens and you know, we’ve been kind of spoiled over the last decade or so.
So everything’s relative. But again, real estate investing has a lot to do with maths. So you run the numbers based on the current cost of capital, meaning the interest rates at the time to see if that property can service the debt. And if it does and leaves money left over cashflow, great, you’ve got some positive cashflow, but you’ve got an asset that will appreciate and generate equity and net worth over time while it’s generating income. And then as time goes on, you can reposition your portfolio and increase your cashflow and now you have passive income that can support you and your lifestyle and your family. So yeah, the market has changed. Interest rates are relatively high supply of inventory is low, still is no question. It seems like everybody and their dog know this now. And yeah, homeowner insurance has changed especially in places like Florida, you know, where there have been issues and insurance companies tend to take a step back and become more conservative or increase their rates just to cover losses that they have incurred or they anticipate incurring or both.
So I guess long story short, just invest prudently, invest wisely, use your head, run the numbers, invest where it makes sense. And if living in the property for six weeks out of the year to relax and enjoy the beach is something you can do with that property, consider that a bonus. But don’t let that be the driving factor. It can be a criteria, but don’t let it be the driving factor. Alright, George, I don’t know what else to tell you, but I appreciate you submitting your question and taking the time.
All right, next question is from Rose. Long email. I’m gonna narrow this down or cut it down a bit for this recording. And Rose writes in and says, hi Marco, love your show. It’s been accompanying me since I became a real estate investor four years ago. Thank you. This is my second time contacting you a while ago. You answered my question on the podcast and I was hoping you could do that again. So I’m gonna try and abbreviate some of the stuff here. I’m writing to you today because my investment property has suffered a fire over the weekend. Fortunately, nobody had gotten hurt and tenants managed to escape the building safely though the property was insured. I’m facing a tough road ahead of me since dealing with the insurance company and getting the claim paid might take months and rebuilding and renovating is a full-time job requiring a very difficult involvement from me. I live in New York City and my property is in Massachusetts, which is not a landlord friendly state. I have already started losing tenants and the Massachusetts law requires landlords to return the security deposit and the last month rent if tenants can’t go back to their apartment, which is the case for me.
Meanwhile, the mortgage is still due every month. My insurance policy has the loss of rent value provision, so it might be covered at the end, but again, the resolution is a lengthy process. I hired a public adjuster who will be dealing with the insurance company on my behalf. There is a lot to think about. No kidding.
Well, Rose sorry about that. That is a pretty rare scenario, but it does happen and I feel bad that it did happen to you. Hopefully you had the right insurance coverage and the the right amount. She goes on to say, my question for you is this, what’s your take on keeping and renovating the property versus selling it as is this town in Massachusetts doesn’t have enough inventory and according to a realtor, even in the current condition, I will have multiple offers based on that comment. It sounds like it, your fire wasn’t overly destructive, it just rendered your property in a habitable, but clearly, you know, it can be renovated and put back into operation and I would assume probably in a relatively quick amount of time with the red tape aside.
So she goes on to say, on the other hand, as the realtor put it, keeping it and dealing with the contractors, I would be eaten alive since I live outta state and have a full-time job and can’t be there to manage the rebuild process. I’ve been researching the topic and though there is tons of materials available on internet, I’d love to hear what you have to say. I look forward to hearing your thoughts on that. Thank you Marco. And keep up the good work. Best Rose.
Okay, rose. Well, I think everything being equal, always keep the property. Don’t sell it as is because you have a rental, you know, it can be leased, you bought it for whatever reason, so you’ve probably done your due diligence. You like the property and the location, so why would you not want it just because there was a fire? If you have insurance to cover it, have the insurance company pay for the repairs and bring it back into safe, clean, functional conditions so you can lease it maybe for more than you had at least before. And continue having it managed by a full service professional property management company. ’cause That’s really the thing you wanna do as a long distance or out-of-state real estate investor. So I think if it were me, my goal would be to get it back into operating condition. In other words, stabilized and just have the work done that needs to be done. Now your concern about, or well actually the comment that your realtor mentioned about eaten alive by contractors could potentially be a little biased because the realtor would love to have that as a listing to sell in that as is condition because he knows it’s just inventory for him or her.
So they, you know, just have more inventory to sell and that means another commission for them. So it, there may be a bit of bias in that as a realtor telling you about that. I’ve dealt with many, many, many contractors over the years from California as far as Florida and Michigan. And yeah, there are some unsavory not so ethical contractors out there, but there are a lot of great ones too. So I don’t buy into the whole thing of you getting eaten alive. I think if you just find the right general contractor or contractor team or company that does the renovation work, I think you’re gonna be fine. Just have good regular communication with them. And that’s two ways you with them and them with you. And that’s one of my criteria is just make sure that whoever you’re working with provides you regular clear communication and is is transparent and upfront with you and is showing you documentation and photos of everything that’s going on.
And that can be done online over your phone. The technology’s there, there’s, there’s really no reason why you can’t get this done relatively painlessly. If you need referrals for that, I wouldn’t be the one to give you one in Massachusetts, but you can certainly ask around even the insurance company, you know, they clearly work with different contractors and renovators and there’s a lot of websites and tools out there online where you can find contractors and vet them, you know, check their licensing, the condition of their licensing, reviews, all that stuff. Believe me, there’s a lot of information out there that you can get your hands on to find the people to work with. So by boiling this down to your question of whether to keep it or renovate it, if it were me, I would definitely wanna renovate it, have the insurance company cover those costs less your deductible, and just bring that back into safe, clean, functional condition and release it maybe for more than what you had at least four before.
And that’s it. So Rose, I hope that helps and good luck with that. Let’s do one more quick question, hopefully a quick, now I’m not sure the name here. This person is International, Amri, I believe it is. I, I’m not sure if that’s how it’s pronounced.
Hello, Marco and the team. I love your podcast and been listening to it for the past 10 months or so. Thank you for all the important information and the insights you’ve been sharing with us. Listeners, I am 40 years old based in Israel and made some way in the Israeli real estate market, but the very high prices and taxes in Israel made investing in real estate unattractive for me. I’m looking for new possibilities and really into investing in the US housing market, even with the high inflation, and I’m not sure what this abbreviation is IR interest rates, there you go.
In the next 12 months, I’m looking to liquidate my properties in Israel, estimated around $700,000 us and my vision is to invest in the US long-term rental housing market, accumulating enough properties to get a significant monthly cash flow for financial freedom. Currently, I have $65,000 US in savings and want to invest in the near future as my first investment in the US. The main goal for me is this investment is to gain the knowledge for my next investments and preferably be positive in cash flow and appreciation. I do have a lot of questions regarding the best ways to do so, but the main question for me is how does a non-US citizen get financing on a property? I think that’s what you meant to say here. I do believe a maximum finance in order to maximize my equity. So I think what you’re saying there is the mortgage financing leverage in order to maximize your equity.
So I, I think that means just equity buildup over time. We’d love to hear your insights about that and looking forward to proceed and hear about your recommended turnkey markets and properties. I appreciate your response. Thanks Amri. Thanks for the question Amri.
Working this backwards, yeah, recommended turnkey markets and turnkey properties. Definitely connect with and talk to one of our investment counselors here because they can deep dive into that with you. So they’ll provide you more direction than i I will here because obviously we need to learn a little bit more about you and what you’re trying to achieve and we can work that into the types of markets that you should be looking at. Now, as a non-US citizen, here’s what I’ll tell you about the financing side of it. There are financing programs by various lenders out there that are referred to as non-qm, non-qualified mortgage lending or sometimes referred to as portfolio loans.
They’re basically non-government sponsored entity loans. There are many lenders out there that provide that financing, not just for non-US citizens, but also US residents and US citizens who cannot qualify for conventional financing or something that requires better credit or better income. So with these portfolio loans, and we could potentially help you with that as well through Norada Real Estate Funding. Just contact Kathy here in our office and she can talk to you a little more about the programs and the interest rates. But long story short, non-US citizen financing is available. It comes and goes. Sometimes it becomes easier and looser in terms of qualification criteria. Sometimes it tightens up, but it ebbs and flows, but it is available. Oftentimes the loan to value, meaning the amount of leverage can go up to as much as 70%. I’ve actually seen it as high as 80, but it does change 70, 75, sometimes 80% loan to value, which means your down payment can be as little as 20%, often as closer to 30%.
I don’t think I’ve ever seen it in a worst-case scenario, quote unquote a 50% down 50% financing. That to me would be a worst, worst case scenario. But the leverages out there, they will look at you as a borrower, but not under the same type of microscope as a more traditional purchaser with conventional financing. They look at you as well as the property and they take a pretty darn close look at the property as well as the financial performance of that property in different ways. One way is what they call DSCR or debt service coverage ratio, which is really just the property’s ability to cover the debt service and then some, an extra 10%, an extra 20%, maybe 25% above and beyond what that mortgage payment will be anyway, don’t need to get into the weeds of it. Point is, is that it is available out there.
Again, my suggestion is just to contact one of our investment counselors. We can talk to you about that financing as well as recommend some turnkey markets and show you, you know, however many turnkey properties you wanna look at in those different markets that will meet your investment criteria. So it’s out there, it’s available. Interest rates fluctuate. The loan to values don’t change all that much, but it’s available to you if that’s what you need. So thank you for the question, Amri. I appreciate it. I will wrap it up there.
Thank you everybody for your questions and listening today. If you have a question about real estate investing or finance and you’d like me to attempt to answer it on the show, just go to passiverealestateinvesting.com. Click the Ask Marco button, or you can just email it to askmarco@passiverealestateinvesting.com.
That is it for today. Remember to subscribe. If you haven’t done so already, share the show with your friends, family, and other like-minded people who will benefit from what we talk about on the show. And thank you for listening. I’ll see you all on our next episode.
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