All Forum Posts by: Michael Rutkowski

I would really watch your step right now with a renovation, as your ROI may just not be as high as you think. Maybe you can charge more in rents, but that is all based on what the property is making before you renovate it. The reason I say to watch out is the cost of EVERYTHING is crazy right now. Lumber, concrete, steel, oil. All the things which make up the things homes are made of, are skyrocketing. So run those numbers now, and add 10% for the future when you are ready to actually start renovating in a few months. Supply chains are messed up do to tariffs, mostly but other things too.

But to answer your question, if your loan to values are good, a lender shouldn't have any trouble tacking on an extra principle amount to your principle amount. You would probably need a track record of remodeling or building to do that. When I started out, I would max out a credit card, then transfer that to another card with a 0% promo fee, and eat the finance charge, then pay that off before the offer ended. Worked well for me.

That's not crazy at all. Rates have actually gone up, as the Fed is trying to keep inflation at or above 2% right now. Fannie and Freddie were just told to LIMIT their loans:https://www.cnbc.com/2020/08/1...

You need to be watching them very closely. Make any move based on what they are predicting and saying. So inflation is actually what you want to see as a REI, since your fixed rate loan doesn't change, but rents do right? So maybe rerun your calculations based on that new rate, and then see if it is worth it for the cash out. From the looks of it, this won't be going down any time soon.

What's your best estimate on utilities and insurance? Need to get all the costs of ownership to derive a CAP rate. Also, if you sell it, figure in 6% commission. Oregon is pretty hot though, how long have you owned this property? You could be looking at 4-5% equity growth each year. CoreLogic has told me that Oregon is top 10 in US states with highest equity growth.

Anyway, my best CAP rate estimate for you, assuming tenants cover electric/gas/internet, and you pay around $200/mth in water/sewer/trash, $180/mth insurance, your operating expenses for the year are $15,780 bare bones, and making your net rental income $6420. So your CAP rate is like 1.83%. That's not very good, and it's your property tax and HOA which is killing you, but being so high, I've got to wonder, what your appreciation must be, as it seems like a good area you are in.

If you've owned this property for 2 years or so, you could have seen up to a 10% gain in equity, so if you figure: 350k + 35k = 385k x 0.06 = $23,100 in commissions, so you could net almost $12k off the sale of this property and walk with $8k after tax, or roll it into a 1031 for something more profitable. Also, this doesn't factor in any losses or deductions, and a CPA will tell you if you have any liabilities to pay during a 1031. Better to go with a CPA with some experience with 1031's, and always use a real estate lawyer to set all that up. Also... find a property before you sell, the window to buy during a 1031 can be extended to 180 days max, and inventory is almost non-existent.

But where are you going to find something for $362k which is going to make ANY money? You will quickly find that any hot market in this country right now, has got no inventory... I would just buy land right now, no zoning, no covenants, wait for these ridiculous lumber and steel prices to sober up, and build. MF's will be in very high demand after eviction forbearance is gone. Or subdivide, and sell that, then buy more, and THEN build something. Sorry but $362k in Oregon won't go too far these days.

Plan on getting into some fixed rate loan, maybe start out doing construction to conventional, as cash will lose due to inflation in 2022. Real estate is a very safe bet, but stick with MF residential for sure, built by you, for maximum equity growth. You don't want to be holding cash in the near future.

You can definitely get no PMI on less than 20% down. But, you need to be a veteran. VA loans are 0 down, no PMI. Don't pay for PMI... If you have to sell a car or something, do that instead. PMI is a drag, and many times will throw your Loan to Value ratio out of whack, unqualifying you. You can get more property if you just put 20-25% down. Sell all your junk, sell your vehicles, borrow cash off the books, whatever, just don't pay that PMI!

Hi Brice! Welcome to BP. Your strategy is good, but may be tough in our market. I would suggest buying land and building at this point to maximize equity. In the long term, prices in our area still have room to grow, but with rates on the rise, inventory may increase, keeping prices level. Who knows though, real estate tends to do its own thing. Personally, I think our market will continue to appreciate until it gets near our market cap, and then start mirroring national trends. Traditionally, Bozeman pre-2010's, was always about 1-2 years behind national trends and never as extreme as what was happening across the country. Now with more connectivity both physical and digital to the rest of our economy, we are starting to see the same trends happening quicker.

Not having a W9 is nice, especially if you have a family! But when you are starting out in investing in real estate, make sure to leverage that W9 paycheck for easier qualifications. Might as well start an LLC now, get some property into it, and start cashflowing on it, so that when the time comes to acquiring and qualifying for loans through your business, it becomes easier to jump through those hoops.

If you ever want to discuss some more strategies more in depth, let me know. I'm local, and have been around a bit in our market in many different roles, but always as an investor. 

As a property manager, I have been tasked with this before on a few occasions. Once, I sold a multi-family property to a client, and they asked me about my services. It was tough. This one unit had a lady with 3 kids, one of which was down syndrome. The father was around, but I never met him, maybe because he had always been at work... The unit though was a mess. The mom was clearly overwhelmed and at the end of her rope. The kids had pretty much destroyed it, putting holes in the walls, dropping water everywhere. So the floors, walls, and plumbing needed fixing. If we were living in a warmer climate, the whole place would have to have been fumigated. It was borderline ready to be condemned, so the new owner asked me to kick them out. I said I would need to charge them $1000 for that. I gave the tenants 45 days, and connected them with a case worker at my local Human Resources and section 8. They didn't qualify for section 8, but I did their paperwork for them anyway, with their permission of course. They didn't seem like the kind of people who knew much about the legal and bureaucratic ways in which housing and government assistance works, so I tried my hardest to get them a new place to live. I did get them placed in a better situation through HRDC, closer to the dad's work, and out in the country with a ton of open space. I felt good about it, but, like you, I felt even more grateful for what I have. I will not do that again, as it would be impossible, in my market conditions to place them in new housing in a reasonable time frame, within 45 miles of our town. Back then, there were still places available for a decent price.

If I were you, and it sounds like you are starting out, I would put in a modest rent escalation clause in the new lease, of about $50/calendar year. That may seem like a pittance to you, but after a few years, they may just be ready to find a new place. It will give them a lot of time, and be easy on your conscience. Worst comes to worst, sign up with a PM company and have them do the dirty work, but you will most likely be stuck with them for a year.  Good luck!

I have always added left digits first, working my way to the right. I do this with multiplication as well. Sometimes with larger numbers, I break off the tens, hundreds, or thousands, add those, then add the smaller numbers to that. I think it works well for me, and I see some others on this thread which do that, so that's cool! I guess I'm not that unique of a snowflake after all.

If you can manage it, do it! Instant equity, of at least 30% out there. I got started in NY not far from you in the late 90's and I remember big costs out there was labor. Also finding decent labor, but you guys do have a huge pool of trades, as compared to where I am at. No matter what, you will need to be good at managing people. I have family in Dutchess County, a few hours from you, doing a pole build this spring. 

Right now, steel is slightly cheaper than lumber, but wow, both are expensive these days. In the past two years, lumber has gone a little crazy. Steel has seen a recent sharp spike in price, but like I said, this spring from what I hear from metal building suppliers, they seem to feel as if steel will crash, and that would make those types of buildings more affordable. But I follow this story, and am not so sure, as you can read about here: https://www.reuters.com/articl...

So then we've got concrete... Concrete has also been going up in price, I got hit with an $800 bill for 5 yards a few weeks ago, which seemed outrageous to me, because we handled all the work, and this was just material cost. So this will most be affected by the price of diesel fuel. And I do believe that the price of diesel will go up UNLESS there is some sort of electric vehicle subsidy. Why? well supply and demand. If most drivers switch to electric because of subsidies, then there will be an excess of oil on the market which can be made into machine fuel (diesel). So that will affect the price of all building materials, but especially concrete, because concrete is heavy, and labor intensive, and so machines pick up the slack there.

Another material I've been watching is CLT's, or cross laminated timbers. Now these are a lumber derivative. But the savings doesn't come from the material, but the labor. They can be used in the place of concrete, steel, and you can even circumvent some fire codes, as they are highly fire resistant. They are easy to work with using saws and drills, and look good, eliminating the need for drywall, in my opinion (some won't agree with me on this and that's their opinion). Insulation on those is usually just a radiant barrier in the south, and some foam and siding in the north. I am thinking really hard about using this material in a future project, using it for stairwells, elevator shafts, and the entire structure. I like wood the best out of all materials.

Another unique material, highly dependent on the price of oil is SIP panels, and those are pretty cool. Again you are saving on labor, because they don't require insulation, since they are insulation by nature, and have some good structure to them. If you are doing a single story, these can be the ticket. They even come pre-channeled for plumbing and electric. I would love to find a modular home builder (who can deliver to my area) that builds, strong, efficient, and modularized structures, utilizing these.

For foundations, especially in the north country, we need to get way down, like almost 5' deep for a footer + stem wall. If you have ever done a concrete wall, you will know it is a ton of labor. Labor is a huge cost too, besides the material. You've got to dig, using diesel, build footer forms which use lumber and labor, move the forms with a knuckle boom (unless you're the Hulk) which uses more diesel, then build steel rebar cages which uses material, diesel, and labor. THEN you are ready for concrete (in 2 pours), which is very diesel and material intensive. This is how it is traditionally done... So I've got a better way of course!

If you could combine a modularized material, plus a helical pile, now you can really save on labor, and materials. These are drilled into the earth well below frost line, and can hold a lot of weight. In my opinion, they are superior to all other foundation forms for smaller buildings, up to a single family SFH. I believe in this technology so much, that I almost purchased a franchise for my area with one of the major suppliers of the machines and piers. In my main niche, land and cabins for STR, you just can't get a concrete truck up on the mountain, or way the heck out, they will just say "no thanks" to your business... So this would save a lot of money, if I owned the machines and helical piles, plus some side business installing for others.

Then another way to save on materials is the ancient method of pole building. There is so much out there on pole building, I don't want to even touch on it. But you can google barndominiums, and get started there. Basically the biggest caveat here is not materials or labor, which are quick and easy with this method but bank financing. Banks are going to want some comparable data, make sure the building has a foundation in some cases (eliminating the whole purpose of building like this), and so the best way to build out this way is with cash. While some of these buildings fails in high winds and huge snowloads, that's more of a function of engineering. Basically, don't cheap out on trusses, keeping them to a max of 4' apart, no matter what the pole builder says. But these buildings can provide a huge interior space for a minimal amount of materials and labor. The Amish can build a shell in 3 days, I've seen a time lapse video of it. If you think about it, these are excellent set ups for multi-family buildings, limiting the surface area, and therefore the maintenance, needed on your structure. 

I hope that helped a bit. Sorry for the essay, I stay up at nights looking at different ways to build, and saving money.

Yes labor and materials are very high right now in my area. But rents are even higher. We have had a crazy increase in our median home values, and a historically tight market. Median home prices have hit $700k last December, and are slightly down this past month (it is winter). So all that equates to high labor costs. Lumber is high across the country, as you will see if you are trying to build. I had to do a double take when at the big box store as I saw a 2x4x8' stick which was $11. Makes me want to buy a mobile lumber mill...

I have been building, and bought most of my lumber a year ago, so I am good. I am using a mixture of my own labor, my family, and some independent contractors to get my project done. I'm trying to avoid a general contractor right now. I am also looking to build on a high density residential lot, with a modular 4 plex. So I'll be saving on labor, but materials will always be high.

I manage SFH's, but do not build those. You'd be looking at between $200-$300/sqft for a nice custom home in my area. Why not go modular if you can for a rental? Also, keep an eye on the price of steel this spring. Prices will go down, as cheap Chinese steel will hit the US markets. I have heard from steel manufacturers and distributors, that they are terrified of the tariffs expiring, as they will flood the market. I would wait a bit, maybe find some commercial lots, and then put some metal building kits on them. So in this situation, you'd be saving on materials, but not labor. I'm not aware of being able to save on both, unless you can do some of the work yourself.