Rental Inheritance/Investing Advice

11 Replies

Hello everyone, I am new to BP and new to real estate (sort of). My name is Nicole Brodahl (my profile is incorrect - not sure how to fix.)

I have a very long winded statement/question. Looking for any tips, advice, resources that anyone is willing to offer. I have what may or may not be a unique situation.

I am currently 6% partner of an LLC that owns rental properties inherited from family. That partnership is coming to an end where I will be come 100% owner of a new LLC overseeing a triplex and a single family home in the Seattle, Wa area (Snohomish county). - They are old and will probably need a good amount of work however the properties are 100% paid for. However my mom was also a partner and I will essentially be buying her portion of the partnership. (She doesn't care how much the payments are or how much time or if she even gets paid at all.)

My significant other whom I live with has owns his home. I believe he owes 200,000 ish on it and homes in the area are comping around 450-500,000. It was a fixer upper house and still is. Lots of work needs to be done.

We also own a Motorhome that we are in the process of sprucing up.

I would like to get involved in the BRRRR method. Have good credit (740). I work full time for the courts. Out of my personal pocket I don't make a bunch of extra money outside of expenses and just wondering what the ideas are out there on the best approach and which direction to go. I currently have a goal set to own 10 properties over the next five years.

The only connections I currently have are a very good contractor and an insurance agent.

@Nicole Brodahl congratulations on assuming ownership of those properties! You're on the right track - I think House Hacking is the #1 best strategy for beginning real estate investors, and BRRRR is a close #2. If I were in your shoes again as a new investors I'd focus on two things:

1. learn your numbers - you need to know the returns, expenses, financing, etc numbers that make a deal work for you. You can waste a lot of time looking at bad properties if you don't have a good handle on your calculations.

2. find your competitive advantage- Snohomish and King County are full of investors, and to stand out you're going to need to play to your strengths. Do you have cash, great financing or a w-2 that makes lending a breeze? Do you have the temperament and flexibility to do a house hack or a live-in renovation? Are you a great manager and have a phone full of reasonably priced labor and contractors for rehabs? Are you a systems guy ready to tackle property management? Do you love learning zoning and RRIO code and excel at building out extra dwelling units or renting existing units creatively to maximize rents?

Once you have these two things figured out its time to pull the trigger!

We're in Seattle, feel PM me anytime if you'd like to grab a coffee and talk more about investing in this region. Cheers!

congratulations on receiving that windfall.   If managed right it will set you up for life.

First thing - make sure the insurance you have on the properties is landlords' insurance. Regular homeowner insurance will NOT cover non owner occupied, non SFR rentals.

You are fortunate to be in the pacific northwest - but NOT within city of seattle boundaries.  Nonetheless,  many laws are changing regionally and statewide.   Make sure you are up to date with things like fair housing standards statewide and in snoCo, notification periods for rent increases, rental agreement terminations, and (likely coming soon) legal reasons for eviction statewide.

Join a rental housing association.  RHA (rental housing association, https://www.rhawa.org) is most active in seattle and urban areas,   but there are other groups such as washington landlords association (https://www.walandlord.org) statewide.  Figure out which has the best presence/most active in your area and join.   These groups provide education, support, advocacy, forms, services,  etc. for a very reasonable cost of membership.

Review your tenant's rental agreements and make sure they are written, match best practices,  don't have any out of date or illegal clauses,  etc.   If they are month to month you can correct problems with proper notice.   I had to do this when I acquired a 4-plex where the one-page rental agreements had been written up by the prior owners 20 years earlier for example.   In that case while they were initially apprehensive all the tenants agreed to sign new MtM rental agreements (I told them I was not re-screening anybody, they would remain MtM,  and I laid out clearly what rent increases were coming the next 2 years)

It sounds like you have been at least tangentially aware/involved in operating rentals for a while,  but if you are at all uncomfortable with the prospect of managing tenants and the occasional need to be firm or make hard decisions,  hire a property management firm.   Your properties are paid off,  so you can afford the cost.

Assuming you haven't already,   arrange to meet every tenant/occupant and inspect every unit.   You can explain there was an ownership change and take pictures/etc to document current condition.

Once your current properties are stable, THEN consider BRRR or other strategies to grow your portfolio. One obvious one would be sell the SFR, and use those proceeds for a down payment on a larger MF. Depending on its value and where it is, it should provide a solid down payment for a 4-plex at minimum.

Good luck.


   

@Nicole Brodahl Welcome! You are in the perfect spot. So it sounds like your ultimate goal is 10 units in 5 years. Are you working with your significant other, as in partnering to take down deals together? Additionally, does the triplex and SFH count already towards your goal of 10 units or starting fresh? Can you utilize the equity in the SFH of your significant other?

Ok with what we know, First, capital. 

1. As the triplex and SFH are 100% paid for, take a Home Equity Line of Credit on the properties. This will require you to transfer the properties to a personal name. However, this will get you access to EQUITY.  There are a number of Banks who do residential HELOCs on investment properties, just search in BP posts such as this. DM me if you need help.

Next Repair.

2. Use the HELOC funds to now renovate the triplex and SFH.

Now Rent.

3. Rent properties to new or existing tenants at market rents with new renovations.

Next Refinance.

4. At this point, do a Cash-out Refinance into residential loans for each property. Ensure the expenses(repairs/vacancy/capex(large repairs)) + PITI (Mortgage principal, Interest, taxes, insurance) allow the property to cash flow.

So if properties appraise for $500,000 and $500,000. You take loan for $350,000 and $350,000 for each, normal 70% of value usually on a bank loan. Now with a payment on a $350,000 loan, simply check overall expenses to ensure you will cashflow. You can use the BRRRR calculator to help.

If the $350,000 loan does not cash flow, simply cash-out refi at a lower amount $300,000, etc. You are in a great place owning the property entirely and have options to have more cash flow or have more cash pulled out for next deal.

5. With new cash-refi, pay off your Heloc. You should now have two cashflowing properties, new capital as well as two Helocs in reserve.

6. Lastly, open a Umbrella policy for the properties to protect on liability as they are now in your personal name. This kind of policy is adequate instead of an llc starting out. 

You can always switch them back to an LLC, as well. Some are concerned with the trigger of whats called the Due on Sale Clause, basically allows bank to call loan due, however this is very common practice for investors and even no longer an issue in some cases for Fannie Mae loans (see this interesting find on the topic on BP.)

Now Repeat.

If BRRRR is your strategy, and its a good one. Check out the Buy, Rehab, Rent, Refinance, Repeat by David Greene, also on Amazon. 

My biggest advice would be pick the strategy, align your goals, take action despite any setback and you will be at 10 units in under your set 5 year mark. 

@Michael Haas thank you very much for all the information. I definitely want to get established into being a landlord in the first year. I will have a good amount of money to reinvest however I am definitely considering re investing in multiple properties in a different area since my money can go a lot further. Looking to potentially buy multiple properties within close distance of one another preferably multi family homes or ones that can be converted and hire a property management company. Somewhere where mortgages are low. Rent is high. Property taxes are low, economy is on the rise. It's a lot to ask for but I got a good year to do all the necessary research.

Thank you for reaching out !

Nicole
Congrats on taking over the properties. Below is a past post I did that may give you some insurance info you need going forward. Insurance rules/laws are state specific. I would recommend contacting several Independent agents that insure rental properties in your area. They should be able to tell you any state specific coverage issues.

'Here are some things to look for from an Insurance prospective:

1.Any in-ground tanks (active or inactive)

2.Any Knob & Tube or Aluminum Wiring

3.If built before 1978, does the building have Lead Safe certifications

4.Any wood stoves or secondary heating units. If so, were permits pulled & were they installed by a professional

5.Are any of the homes rented to students

6.Is there a flat roof

7.are there asbestos shingles

The Year that the following were updated (either partially or fully) would be good to know:

- Heating systems

- Roof

- Plumbing

- electrical

Some companies will not write properties with systems that have not been updated.

As long as you are living there, the proper policy for a 1-4 family is a "Homeowners" policyc. If the property is solely tenant occupied you will be looking for a Dwelling/Fire Policy (may be called a Landorrd policy or similar name) or a commercial policy such as a Businessowners or Package polciy.

Most homeowers or dwelliing/fire policies include:

1. Dwelling (Building coverage)

The limit should be based on the Replacement Cost of the building (cost to rebuild with

the same kind and quality excluding the foundation)

2. Contents (Personal Property): most homeowners policies give a set % of the Building

limit for Contents. Dwelling/Fire policies requrie that you request a limit for conents.

3. Detached Structures: for other buildings on the property (ie. sheds & detached garages)

Again, there is normally an included limit of 10% of the building limit. That can be increased

if needed.

4. Loss of Use / Loss of Rents: Normally, there is a 20% included limit. Loss of use is for

your additional expenses if you can not live there due to a covered claim (ie. Fire). The

Loss of Rents is for the loss of Rental income if the tenants can not occupy the house

after a covered loss.

5. Personal Liability: For claims due to Bodily Injury or Property Damage that you become

Liable for and which is covered under the policy. Companies normally offer limits up to

$500,000 but some offer $1,000,000. Buy the max.

6. Medical Payments: Provides coverage for an injury suffered on the premises. Does not

require proof that you were at fault. Used to keep small loses into becoming lawsuits.

Normally offered up to $5,000 but check to see if higher limits are available.

7. Deductible: This is not a coverage but rather your portion of a claim. Most better policies

will not have a deductible for either the Liability or Medical payments coverage. It will

apply to the other 4 coverages. You can select the amount of the deductible, usually

ranges from $500 to $5,000. The higher the deductible the lower your overall premium

but get quotes on all the deductibles you are interested in. Sometimes the incremental

savings from $1,000 to $2,500 or from $2,500 to $5,000 are too small to make the higher

deductible worthwhile. ***depending on how far the house is from the coast, you may

also be required to have a separate Wind or Hurricane deductible. Most times, the

deductible will be 2% to 5% of the building value. That is a significant amount

(on a $500,000 building that comes to $10,000 for 2% or $25,000 for 5%). A policy

with a higher premium may be a better deal if it does not have a wind deductible.

There are many endorsements that are available on the homeowners policy. Without

knowing the details I can not suggest which would be right to add on.

Several you should

pay attention to are:

- Ordinance & Law: Provides additional building coverage to deal with rebuilding cost

Increases due to changes in Zoning or Building laws

- Personal Injury Liability: Libel, defimation of character, wrongful imprisionment, etc.

(normally recommended, especially if you are a landlord)

- Water Backup: For water damage due to the backup of Sewers or Drains.

- Personal Articles: Coverage for belongings that have a special or collectors value

such as Jewelery, Furs, Fine Arts, Collectibles, etc...

Your age should not be a factor on the pricing but, depending on the company these other factors may get you credits:

- Insurance Score (company pulls certain info out of your credit report)

It is not your credit score but generally better credit will result in a better score

- Time at your job

- Education level

- time at current residence"


Good Luck

@Grant Fosheim Hello. It’s a triplex in Mukilteo. A single family home in Marysville. And now stumbling on a small single family home in Everett Wa near the court house. It needs a tremendous amount of work and trying to decide if it would be best to remodel and rent as an office space for attorneys / small business as there are those currently on the same street or rent as a single family home.

@Chris Levarek thank you so much for all the information. I am looking to have a total of 10 properties over the next five years but sounds like I may surpass my goal. I really want to get in and try to do everything right (knowing I won’t) but focusing on education and getting the details right. Then hopefully over time I will hit much larger goals and hopefully invest out of state. Thank you !