Real Estate Agent · Denver, CO · Member since 2019 · 45 posts · 44 votes
I'm expecting to inherit a $400k+ property in Hawaii sometime this year, owned outright. Would you sell and invest the cash? Or keep as a rental and leverage a HELOC. I live in Denver so that market comes first to mind. In either scenario, how would you invest that capital?
@John Mayer Excellent, not sure how capital gains taxes work with inherited properties, but selling it would get you a good chunk of cash to invest, and you could probably achieve your goal a lot sooner!
Assuming that you have to pay taxes, closing costs, realtor fees, etc, and you are left with 300K to invest, here's how I would invest it in the Denver market to achieve your goals:
I would buy three large single family homes (6+ bedrooms, 3+ bathrooms) with basement apartments with separate entrances that cost between 400-450K with 20% downpayments in Westminster, Lakewood, Englewood, Thornton, or Northglenn, also, these houses would ideally be separated from the top and bottom (ex. 3 bedrooms 2 bathrooms upstairs, 3 bedrooms 1 bathroom downstairs), so you could rent by the room for a premium on the top rooms, and rent by the room on the bottom rooms or rent out the whole bottom unit to a family. That way you have multiple options while still achieving your goals.
Here are the inputs:
Purchase Price: $400-450K per property
Downpayment + Closing Costs: $90-100K per property
Total Monthly Rental Income renting out all the rooms (6 bedrooms x $700 rent per room on avg): $4,200
Total Monthly Rental Income renting out all the top rooms (3 x 700) and renting the bottom unit to a family ($1,700): $3,800 Total Net Rental Income Before Utilities/Maintenance/Reserves/Capex: Low: $1,600, High: $2,000
Utilities: ~$400 assuming that you pay for everything, internet, heat, electric, gas, water, storm drainage
Maintenance/Reserves/Capex: $400 to have enough to cover any items that could need repair, maintenance, etc and accounting for age of house and more wear and tear
Total Net Cash Flow Per Month: Low: $800/month High: $1,200/month, Middle: $1,000/month
Also, I didn't include you adding any extra rental income for for adding utilities to rent/garage spots rent/etc, so these cash flow numbers are very conservative but realistic.
By self-managing these properties, you will receive $3K/month in cash flow which would be that much closer to your goal!
With a property manager, you are looking at $2.3K/month in cash flow.
Either way, you will be much closer to your goal, and if you combine it with house hacking a couple of times, you and your wife will hit your FI $5K goal much sooner, probably in 2-3 years!
@John Mayer Congrats! That's awesome, you should definitely sell or get a HELOC, you could easily buy few condos with 20% on each making a much higher ROI than leaving all the equity in the Hawaii property.
What are you goals? Highest ROI? Highest cash flow? Highest appreciation?
Agree, I'm definitely leaning towards selling it. Unless someone can make a compelling argument for the HELOC.
Cashflow would be the focus. My goal is FI in the next 5 years. My wife and I can bring our living expenses down to 2K a month, so 5k in cashflow + 100k in the bank would mean freedom & choices.
For me it's where and how to leverage all of that capital. A handful of SFR? Enter into MultiFam? Buy a business (laundromat, car wash, etc)?
@John Mayer If you're looking for cash flow and you have 5ish hours a week free (usually less, 1-2 hours typically), I would recommend a laundromat. I own a couple and the cash flow is tough to beat. I have the top blog post on the Member Blogs page for this month arguing that if you're looking for cash flow, real estate is not the optimal vehicle (although I am a real estate investor and am buying real estate, as well). With a laundromat you can expect 25-35% cash on cash returns unleveraged, and more if you leverage.
Let me know if you have any questions about it I can answer. I also have website for laundromat owners and prospective owners that has a ton of information on it for free if you're interested. DM for the link if you want.
First off, I'd delete this post since your profile has your full name. Too many crazies on the internet.
I'd sell Hawaii and buy a property a a year as a primary with 5-10% down. You'll have to talk to your wife, but house hacking might not be in the cards for you. Just make sure the rental figures work and treat it like a business.
My family has a home in an exotic location, but you never end up using it as much as you think. Sell that place!
I've heard Denver is a crazy market. Would you be able to house hack a 4plex for a few year to start your portfolio? FHA loan is 3.5% down. The rent of the money you can buy a few SFH homes.
@John Mayer Excellent, not sure how capital gains taxes work with inherited properties, but selling it would get you a good chunk of cash to invest, and you could probably achieve your goal a lot sooner!
Assuming that you have to pay taxes, closing costs, realtor fees, etc, and you are left with 300K to invest, here's how I would invest it in the Denver market to achieve your goals:
I would buy three large single family homes (6+ bedrooms, 3+ bathrooms) with basement apartments with separate entrances that cost between 400-450K with 20% downpayments in Westminster, Lakewood, Englewood, Thornton, or Northglenn, also, these houses would ideally be separated from the top and bottom (ex. 3 bedrooms 2 bathrooms upstairs, 3 bedrooms 1 bathroom downstairs), so you could rent by the room for a premium on the top rooms, and rent by the room on the bottom rooms or rent out the whole bottom unit to a family. That way you have multiple options while still achieving your goals.
Here are the inputs:
Purchase Price: $400-450K per property
Downpayment + Closing Costs: $90-100K per property
Total Monthly Rental Income renting out all the rooms (6 bedrooms x $700 rent per room on avg): $4,200
Total Monthly Rental Income renting out all the top rooms (3 x 700) and renting the bottom unit to a family ($1,700): $3,800 Total Net Rental Income Before Utilities/Maintenance/Reserves/Capex: Low: $1,600, High: $2,000
Utilities: ~$400 assuming that you pay for everything, internet, heat, electric, gas, water, storm drainage
Maintenance/Reserves/Capex: $400 to have enough to cover any items that could need repair, maintenance, etc and accounting for age of house and more wear and tear
Total Net Cash Flow Per Month: Low: $800/month High: $1,200/month, Middle: $1,000/month
Also, I didn't include you adding any extra rental income for for adding utilities to rent/garage spots rent/etc, so these cash flow numbers are very conservative but realistic.
By self-managing these properties, you will receive $3K/month in cash flow which would be that much closer to your goal!
With a property manager, you are looking at $2.3K/month in cash flow.
Either way, you will be much closer to your goal, and if you combine it with house hacking a couple of times, you and your wife will hit your FI $5K goal much sooner, probably in 2-3 years!
That gave me a lot of confidence to hear you say that.
I’m currently under contract on a 6bd househack for around that price point and plan to rent the rooms out individually. Those are my numbers almost exactly lol
What would you expect the appreciation to be in Hawaii? Maybe refi it, rent it out for cash flow or break even for now, if you think it could have good appreciation over time?
@Jordan Berry, I typically dont see the traffic I would have though needed to be there to make that kind of money at a laundromat. I will be looking in to this for sure. Are you a wash and dryer salesman?
@Travis Harden It really depends on the location and size of the laundromat. There are definitely laundromats that net far more than that in my market, but I'm in Los Angeles, which is essentially the laundromat capital of the world haha. Many net less, but $50,000-$70,000 net is pretty common for an average sized, well-run, and unleveraged laundromat. Leveraged, the laundromat would have to bring in far more gross income, obviously.
I'm not in equipment sales. I'm a multi-store owner myself, and I run a website with a bunch of free info and resources for laundromat owners and prospective owners. Let me know if you want to take a look and I'll DM you the website. They don't like it if I post a link in the forums :)
It shouldn't be a problem finding a 4plex (or bigger) in your price range in Denver, assuming you'd be putting the minimum 25% down. They're not falling off the shelves, but they're definitely out there. I actually think a quad will make more sense than 3 SFR's, all 6/3 with basement apartments and separate entrances. That seems to be what everyone and their cousin is looking for right now and the few I've seen recently sold for more than $500k. I could be wrong but finding 3 of them for under $450k seems like it will be a challenge, plus then you've got 3 transactions/commissions/closing costs/loans/insurance policies/property taxes, 3 separate properties to manage, 3 roofs/furnaces/sewer lines/driveways etc. to replace... I'd go for an older quad in an up and coming area, like Westminster for example where it's not uncommon to see quads listed on the MLS for $600-800k. Put some work into it, make upgrades, raise rents over time, cash-out refinance in a few years or sooner if you can, and hold it forever. That's what I've been doing and it's working well!
Denver is gonna be (if not close about now) what you see in California. Denver has only so much space..and running out of space.....new construction cannot be built on mountains, national parks etc to sustain the growth of Denver. Prices are gonna skyrocket because of no space just like LA OR NY
Tourist destination!
Mix between middle and high class
3% (or so) unemployment rate!
4% or so home price increase
Students, military
No big bang for buck but was suggested to maybe look at condos ;)
@John Mayer - If your goal is cash flow, then I would suggest purchasing some single family properties and renting by the room. Far and away the best cash flowing strategy in the Denver metro area. That is the only way I have seen properties in Denver hit the 1% rule.
Also, there are a lot of other advantages to single family homes. The fact that they are easiest to sell, tend to appreciate the quickest, and can also serve as a place for you and your family to live are all bonuses.
@Jordan Berry Interested in your laundromat info. I own high end residential real estate and one commercial property. Just did a cash out refi on the commercial deal so have cash for another deal or business. Own a general contracting company now, but tired of the grind.
@Michele King Laundromats would definitely be much less work than running a general contracting company, haha. I'll DM a link to my website that has a bunch of free information and resources for laundromat owners and prospective owners. That should get you started determining if you think it's a good fit for you or not. I would be glad to answer any questions you have about them, too.
@John Mayer - If your goal is cash flow, then I would suggest purchasing some single family properties and renting by the room. Far and away the best cash flowing strategy in the Denver metro area. That is the only way I have seen properties in Denver hit the 1% rule.
Also, there are a lot of other advantages to single family homes. The fact that they are easiest to sell, tend to appreciate the quickest, and can also serve as a place for you and your family to live are all bonuses.
This is an interesting strategy for sure. A little bit counter-intuitive as generally MF properties cash flow better than SFRs IME. I see how renting by the room really boosts the cash flow but that strategy has it's pros and cons. I think it's an awesome entry-level move and in fact I started with a large house hack myself: 8 roommates and 4 dogs in a 4/2 lol. Nothing beats an FHA loan and copious amounts of roommates if you're starting with limited capital. But I never really considered it as a strategy to scale. I got burnt out doing it pretty quickly personally, as renting by the room tends to attract transient-types and has high turnover, although it was great in the beginning when I was living there with friends and was in my early 20's before wife and kids. Seeing as OP is already capitalized to a point where he should qualify for up to a 12 plex in parts of Denver, I'd skip right to a MF personally. The challenge I think he will face going with several 6/3's over a MF is that renting by the room is management-intensive, hard to scale, some areas have occupancy limits, and the biggest challenge which contributes to the scalability is probably that there seems to be extremely limited inventory of 6+/3+'s or even 5/2's with basement apartments for under $500k anywhere in Denver metro (correct me if I'm wrong Craig!).
Different strokes for different folks. Anyway good conversation! I love seeing the different strategies that are working for people in the "difficult" Denver market. I actually don't find this market that difficult, I'm seeing a lot of MF properties that meet or exceed the 1% rule. They typically trade off market though and have a high barrier to entry due to pricing. It's easy to get in with the right people who are making these deals, just buy one and they find you!
I feel like this is much more complex. Not too many people know but Hawaii has something called HARPTA which is Hawaii Real Property Tax Act. If you are a non Hawaii resident selling a property, the buyer needs to withhold, deduct 5% of sales price. There are instances where you could get a exemption with proper documents.
As far as return on your investment I think when you compare prices of the properties and rents you can do much better in other markets. But it is always nice to own property in Hawaii. Average appreciation for past 30 years on property is at 4.3%. If you're interested to learn more about Hawaii's market, please contact me at any time.