All Forum Posts by: Brendon Woirhaye

A good return on your investment would be what makes you as the investor satisfied.  Consider what returns you can get from other very safe (paying off existing debt you carry) investments or riskier investments (eg: stock market index funds), or what you can get from a different property.  

If you are going to occupy it, you may want to look at FHA loans. You may be able to get a cheaper loan, or one with a lower down payment. A lower down payment decreases your cash flow (because you'll be paying a larger mortgage payment), but ties up less of your capital which you may be able to deploy elsewhere.

Welcome to Bigger Pockets!

Start figuring out if you can qualify for and afford a loan on the property.  Figure out what you can rent them for (:start with what they currently rent for, and look at ads for equivalents).  Estimate the costs involved.  See if the totals can support a good return on your investment.  Consider what price would support the return on investment you want - the asking price is just a starting point.  For income property, you can get good comparables based on the rents paid and costs of the property - if the seller is using an agent that agent should be able to provide those.

A lot of these costs may depend on your location.  Consider property taxes, utilities traditionally paid by the owner in that area (water, trash, electric, gas, ...), repairs, maintenance and landscaping, costs to service the loan, etc.

If your friend would become your tenant, would you be willing to raise the rent on her?  Would you evict her if she didn't pay you?

What is your plan?  Seller finance to get started then refinance shortly afterwards, or are you thinking the whole 5 years?

A 10 year amortization really helps build equity quickly, but you'll be pouring an extra thousand a month into the property during that time (rough guess, figure out all your expenses).  Make sure you can go the distance.  Although you could refinance after a little more than a year (assuming property values stay the same) into an 80% ltv loan, a lot can happen in a year (tenant moves out, roof needs to be replaced, economic downturn, etc) that you need to weather.

I think a lot of this depends on the age and construction of property, what amenities it has, and the environmental factors (geography / weather).  "interior/exterior" inspection is pretty broad, so think about what that actually entails.

Make sure you check fire suppression equipment (smoke alarms, extinguishers) as tenants love to pull those off the wall and throw them in a drawer.  Check faucets and under sinks for leaks.

If you are an over achiever, drain and flush the hot water heaters every year.  I rarely do this, but I'm not an over achiever.

Its good that you're thinking about this.

15 year loans save money in the long run, but they reduce cashflow.  I am still in an acquisition mode so I want more cashflow now so I can buy my next property every year, so I choose 30 year loans (for 4 or less units).  I also think that interest rates and inflation will likely rise in the future, so a longer term loan will benefit from that as well.

You may appreciate this article by @Scott Trench.  30 or 15

$95k seems a bit low to justify a 1031 to me, but ultimately it is about your goals, the financials, and your situation.  Consider that any taxes you pay now will be less equity to grow, but if your goal really is to reduce your rentals and pay them off, then this is a step in that direction.

Incurring more debt while debt is cheap isn't bad, in my opinion, but the deal needs to make sense.  In many markets property is really expensive these days.

There is a discussion on this.  https://www.biggerpockets.com/forums/616/topics/596656-los-angeles-county-rent-control

I created a form similar to an application.  

Name, age, ssn, phone, email, length of time they have lived there, prior address, how long at the last address, employer, job title, income, how long at that employer, other source of income, and emergency contact.  I have this repeated for each adult tenant, then a list of children (name, age, relationship to the main tenant).  

I then have general questions:

- does anyone in the household smoke in the home

- are there any circumstances which may interrupt your income or ability to pay rent?  explain.

- do you own water-filled furniture?

- do you own any type of pet or animal?  if so, list type, breed, gender, age, neutered or not, and license #

It then has a section for automotive information (make, model, year, license #), and lastly a section for bank references.  I have each 18+ year old tenant sign and date the document.

Thanks for the article.  Nothing earth shattering in it, but it does resonate with me - I have been starting to look out of state and no longer consider local properties to add to our business.

Actual text of the motion:

Interim Ordinance to Temporarily Limit Rent Increases 

Los Angeles County (County) rents are continuing to rise as the stock of affordable and available housing diminishes. According to the California Housing Partnership Corporation (CHPC), the County needs 568,255 additional affordable homes that would house lower-income individuals and families in order to meet current needs. 

Housing unaffordability harms renters, their families, and the regional economy. In May of 2018, CHPC found that more than 800,000 County renter households would qualify for affordable housing, were it available. But fewer than 300,000 units are available across the entire County at rents that would be affordable to these residents. Additionally, housing prices in the County have grown four times faster than incomes since 2010. Inflation-adjusted median rent in Los Angeles County grew by nearly 25% between 2000 and 2012, while inflation adjusted incomes declined by 9%, according to CHPC. The effect of rising rents, coupled with decreasing income, has generated an increase in “rent-burdened” households. Rent burdened households are households that pay more than 30% of their income on rent. Many households earning less than half the median income, spend more than 70% of their income on rent, leaving little money for essential needs like food and healthcare. 

This year’s Homeless Count revealed a startling 22% jump in people 62 years and older experiencing homelessness. Many studies have demonstrated that rent stabilization is especially helpful for longtime renters who are disproportionately likely to be older adults. 

The Board of Supervisors (Board) has taken action, beginning with the creation of the Affordable Housing Coordinating Committee and the Affordable Housing Budget Unit in October of 2015 and the passage of Measure H in March 2017, to stem the tide of the housing affordability crisis, but more must be done. 

Therefore, on May 16, 2017, the Board, recognizing the need to preserve existing tenancies, explore methods to protect tenants from displacement and afford them stability in their homes, directed the Chief Executive Officer to convene a Tenant Protections Working Group (Working Group). On August 15, 2018, the Working Group submitted a report to the Board with recommendations for potential tenant protection measures, including a rent stabilization program. 

While the Board reviews the Working Group's recommendations, rents continue to spiral upward, making it necessary for us to take action to protect tenants from unreasonable rent increases and evictions without just cause before we have had the opportunity to fully deliberate on and adopt permanent tenant protection policies, such as a rent stabilization program. Some jurisdictions contemplating the adoption of a rent stabilization program have chosen to temporarily limit rent increases above a designated threshold amount while evaluating the issues. This can be accomplished through adoption of an interim ordinance to limit rent increases for certain types of dwelling units for a limited period of time. Most recently, temporary moratoriums have been imposed in jurisdictions considering rent stabilization, such as the cities of Alameda, Santa Cruz, and Santa Rosa. 

WE, THEREFORE, MOVE that the Board of Supervisors, also acting as the Board of Commissioners for the Community Development Commission, take the following actions: 

1. Instruct the Executive Director of the Community Development Commission (CDC) and the Interim Director of the Department of Consumer and Business Affairs (DCBA), in consultation with the Chief Executive Officer (CEO) and County Counsel, to return to the Board in 60 days with an interim ordinance to place a temporary limit on rent level increases and evictions without just cause. This ordinance should at a minimum: 

a. Establish a maximum rent increase amount of 3% annually for rental properties in the unincorporated areas of Los Angeles County, except for those properties that are statutorily exempt from rent control; 

b. Have a term of 6 months from the date of adoption with options to extend the interim ordinance as necessary; 

c. Provide due process to ensure that property owners are entitled to a fair and reasonable return on their property; 

d. Establish as base rent, rent levels as they exist on September 11, 2018, for purposes of determining a fair and reasonable return; 

e. Include a provision requiring just cause for tenant evictions; 

f. Define “small property owner” to mean a person or entity with common ownership of 50 rental units or fewer within the County; and 

g. Permit small property owners to pass through to their tenants the direct cost of the Measure W parcel tax, as applicable, should such parcel tax be approved by the voters. This means the cost of the parcel tax would not be counted as part of rent for purposes of determining a small property owner's compliance with the interim rent increase limitation ordinance. 

2. Instruct the Executive Director of CDC and the Interim Director of DCBA, in consultation with the CEO and County Counsel, to report back to the Board in writing in 60 days with recommendations for an interim administrative structure, including a cost estimate, for a temporary rent limitations program and an analysis on how these recommendations may help form the creation of a permanent administrative structure for permanent tenant protections programs that the Board may wish to adopt in the future. 

3. Instruct the CEO, in consultation with the Executive Director of CDC and the Interim Director of DCBA, to identify available funding for the preparation of the ordinance referenced in item 1 above. 

4. Instruct the Director of the Department of Beaches and Harbors, in consultation with County Counsel, to return to the Board in 120 days with recommendations regarding how rental units located on County-owned property in Marina del Rey should be addressed in a permanent rent stabilization ordinance, should such an ordinance be adopted at a future date.