All Forum Posts by: Ali Boone

Welcome to California, the land of no cash flow. It does suck, but it's not just you--it's the reality of California. I'm impressed you found a couple that cash flow. Remember though too, it gets worse--even if you find at least minimal positive cash flow, you're also in one of the most tenant-friendly states in the country, which means one bad tenant-- that cash flow is gone. A lot of California investors, myself included, buy out-of-state for these reasons. You'd be hard-pressed to find another state that does worse than California for cash flow. A lot of other states don't cash flow either, but plenty do. If you buy the single-family home, what would your plan for a profit be? Would that be a primary residence for you or something you rent out rooms or something?

Originally posted by @Aliz Raksi:

Update: turns out the application was a non-issue, their income is only 1.5x the rent and so could not accept them based on that. I'm guessing they hoped that persistence and expressing desperation might give them a chance.

I'm also in Los Angeles and landlord a duplex in Venice. I learned very quickly to not fret over a single interested person until I have an application in hand. I had had rental properties for years but they were/are all out-of-state with property managers, so I never had to do the tenant thing myself. So it took me a minute to figure this out, but so many people would come see the property and go on about how much they loved it...all while I'm nearly panicking thinking I can't bear to deal with these people on a regular basis...but so far I've yet to have had someone that annoying whose application didn't give me some very easy and legal way to reject them. Most people who rave about the property never actually get an application in, but if they do, I can usually find something wrong with it. One trick I was told when I started, which I haven't had to use but it's in my back pocket for if I need it, is to let all prospective applicants know that applications are reviewed in the order they're received. So, it may be as simple as someone just beat them to the punch *wink*. But generally, don't worry about anyone unless you have a completely qualified application and have to figure out how to legally deny it. Chances are, it won't get that far. 

Originally posted by @Rumen Mladenov:

@Daniel Blake Have you looked into BRRR? If you buy a distressed property and rehab it, and then it appraises high enough that a 75% cash out refi gives you all your money back, you get cash flow at essentially 0 net investment, which gives you infinite ROI. I make it work in north Delaware where according to @Ali Boone there is hardly any cash flow, so it is definitely possible :)

Disclaimer: I manage the rehabs and properties myself, so no PM fees and no GC cost. 

There's a possibility of making a property work in any market. I was speaking more about the market(s) as a whole. And like you say, you're doing only distressed properties and you don't even have to pay a GC to work on them. Most people don't have that option. A lot of people who do know how to make it work like you do will hop on here and talk about how much cash flow and possibility there is, saying it to the masses, while never clarifying how unique or intensive it is to make that happen. It can accidentally be misleading to people. Not saying you did that.. you're one of the few who actually clarified it. So yeah, absolutely, something can work anywhere. Was just speaking as a whole.

A lot of others have already given input, but thought I'd throw some things into the mix.
- Take emotions out of it by learning the facts of the strategy you want to do: how to run the numbers, what are the specific risk factors, what are the specific risk mitigations for those risks, and what constitutes a successful investment? All of that information is fact-based, no emotions involved. Doesn't mean you can't have the fear while you gather it, but the fear can stay in the backseat.
- Then assess any potential investments against those facts.
- Look at what your true potential loss is. If you put $30,000 down on a $100,000 property, for example, and the bottom of the world fell out-- you'd literally only lose $30,000 and have a hiccup on your credit score. That's it. Literally, that's it. That's easy to overcome, you didn't die, and no one got hurt. The only reason someone could get hurt in that scenario is if $30,000 was literally the last penny you owned and now you can't feed your family... in that case, you shouldn't do the deal. So before doing a deal, find out what is the true worst-case scenario. Most often, it's nothing like as bad as you think it is. 
- Start with an easier strategy-- don't dive into the complicated stuff or risky stuff right way. Start with something that has a better likelihood of success. Confidence is like a muscle-- you build it over time. Start easier, put less at risk, build confidence, move up. Baby steps. You shouldn't be trying to conquer the REI world right out of the gate.
- Messing up is okay! We all do it, it's part of this lovely industry.
- Lastly, and sorry to bring in emotions on this one: chances are, if your fear of failure is that severe to the point of years' worth of paralysis, the fear isn't about losing money. It's about what your perception of what losing the money means. Would it mean you are a failure? Would your spouse or family not love you anymore if you 'sucked that bad'? What does the inside part of your psyche think a failure would mean? Just understanding that, and allowing yourself to tell that part of you that that's not accurate, could be the game-changer.
Reach out anytime if I can be of any help. I have a book launching July 15th that breaks a lot of the beginner stuff down-- mindset-wise, not in a how-to for different strategies way like most REI books are.

There's no 100% solution to rental properties. There will always be a vacancy, in some form, and there's no way to protect against that. As with just about everything, there's pros and cons to every way of doing things. Inheriting a tenant can go either way. So, two pieces of good news in this: 1. vacancy will happen, and it's certainly more frustrating when it happens so fast, but it won't change the overall potential for the property, and 2. the tenant abandoned rather than stopped paying rent in an environment where we can't evict right now! They literally just freed you of major troubles. So, make the lemonade from the lemons (sounds like there's lots of potential for great-tasting lemonade), and know that this doesn't impact the overall investment. I'm not even positive I'd take it as a lesson-learned because I don't know what you should've learned from it. Nothing was done wrong in my opinion. There's cons to buying a vacant property, too, and you can't predict what will happen with either.

Originally posted by @Alecia Williams:

Hello Ali, I read your article and you have made valid points that I have thought about. #1, living in a sketchy areas, the reason I considered house hacking is because of the 3.5% down payment, 20% on a 550-600k is a lot for me. I have a w2 job. I would love to invest out of state, there again 20% and me being a new investor, I’m very detailed and I want to be able to manage my own property. What are any other suggestions? SFH to is an liability and brings in no cashflow.

Depends where you buy it. If you buy an out-of-state SFH, depending on where you buy it, it can easily cash flow and the liability isn't much different than any other option. Math-wise, 3.5% of a $600k property is about the same as 20% of a $100k property, which is what can cash flow out-of-state (easily). In terms of liability on those, there's a lot more liability in a $600k property that isn't cash flowing than in a $100k property that is cash-flowing. So you really want to look deep into all the options and see what they bring with them. I can't help with the managing your own property part... I don't do that on my out-of-state properties, only my one local property here. I use property managers for out-of-state.

I think one of the easiest ways to help decide is to first run the numbers on all the scenarios. They're all going to be very different because you're essentially talking about three different strategies. But the numbers on each are the most clear thing to get you thinking about which option is most fitting for what it is you're wanting to accomplish. Once you see the numbers, for the options that will have the much lower numbers (returns), identify where the profit will come from, or what the specific benefit is. Like if there's negative cash flow on something but you have a major long-term plan for it or there's some forced appreciation ability, etc., then that one could still win out. But it's all about your goals. Here are two articles to give you stuff to think about, given the options you're proposing. One about buying a primary house vs. an investment property, and one with things to think about if you're going to househack.

https://www.biggerpockets.com/...

https://www.biggerpockets.com/...

I think Grass Valley is one of my favorite towns, ever. I almost moved there last year actually. Didn't, but I still love it. I have a friend who just bought a property there last year that she's fixing up- for herself, not for an investment property. All the demographics and all that are great, but I think the problem you're going to run into is that rents are surprisingly low there. At least in Grass Valley. I have no idea why they're so low because there's a major supply shortage of good rental properties to rent (I was trying to find one last year and literally found... one... in about 6 months of looking), but the property prices themselves aren't that low. So I think you're going to run into a major negative cash flow situation, even with a fixer-upper. Don't quote me on any of that, but that's definitely what I saw when I was checking it out. Although now that I re-read your post, it sounds like you already have a property identified. So I guess my advice would be to just double-check all the numbers. And then depending on how far out of town the property is from Grass Valley, if it's not right in the town, make sure to find out info on the rentability of it... make sure renters want to live where that property is. Most people are usually trying to rent more in-town.

Unfortunately you're not going to find all that desirable price ranges here, and definitely no cash flow. I wrote this article specifically after hearing a lot of people talking about househacking in LA--some things to keep in mind about househacking in general:
https://www.biggerpockets.com/...

You won't get cash flow in most A neighborhoods and with the most expensive properties, no. So you'd want to look at your goals--primarily cash flow vs. appreciation. Twana's advice isn't terrible, but it could be misleading if you just buy something nice in a nice area with no real game plan on how it's going to be profitable. I work primarily with turnkeys, so can help with those specifically, but on those I'd think about getting one of the more expensive ones-- be it a multi-family or just an overall nicer property, but those will still be under $200k. I do know of some options in more A-level neighborhoods in Chicago, if you're interested. Also, if you go higher than $200k, you can buy a property in turnkey condition, not necessarily from a turnkey provider. But that goes back to the goals--figuring out what's most important to you for that one mortgage. Another option might be a portfolio loan and you could buy more than one property under that one loan, but I don't have any experience with those to say exactly how they work. Curious how you can get the 1 loan from a US bank as a foreigner. That's great if you can, but I didn't think foreigners could. Last option is that there is private financing options available on a lot of turnkeys. Higher interest rates and down payments, but at least it's financing ability.