All Forum Posts by: Bill Thompson

@Cassie Sherie Thanks for the suggestions.  I'm not familiar with RUBS so that's something to look into. 

Regarding laundry equipment, I actually prefer to own the equipment.  I have a mix of 2-family and 3-family buildings so its not like there will be exorbitant "wear and tear" on the equipment.  I definitely foresee squeezing 10-15 years out of these machines so I think I will make out better financially with the ownership model in the long run.  The depreciation expense on the equipment sweetens the pot even more.  I also like having a "cash business" as opposed to getting a receipt to show me (and the government) how much I made, if you know what I mean :)

If you have an older multifamily, an inexpensive way to increase NOI is to install low-flow water fixtures, especially toilets and showerheads. I've had really look luck with American Standard champion 4 toilets, which are inexpensive at big box stores and they never clog. I also really like High Sierra 1.5 shower head (available via amazon) because it works well if you have low water pressure and it's simple with no option to switch to higher output water setting. The savings are dramatic... I had low-flow in my rentals from the "get-go" but not in my house. I noticed the water bill for my rentals was much lower and assumed my family was being wasteful (damn teenagers!) until I replaced the toilets and shower heads... this cut my water bill in half!

I also put coin-op washers and dryers in the basement of each of my buildings. The setup is designed to achieve low operating costs... it includes two high efficiency front load machines, two gas dryers, and a tankless water heater. The capital investment costs $5,000+ but it returns $120 - $180 in coins per month. I figure it takes about 3-4 years for each installation to pay for itself. I'm past that point for three out of four buildings (with virtually no repairs needed) so the $500 in coins per month feels like an annuity. That laundry money pays for a really nice annual vacation for me and the missus.

@Matthew Catanzariti Congrats for having a decent paying job and no debt.  That's a great start.  You will also need good credit and some savings.  You should continue to educate yourself and begin to formulate a strategy... we are dealing with a frothy RE market in Massachusetts, so finding a multi family in desirable area that you can afford will be a challenge.  Being a landlord is real work... it's a small business!  Expect some headaches and a learning curve, that's par for the course.

Take whatever your family says with a grain of salt.  Never let anyone impose limitations on your aspirations!  Have faith in yourself and be persistent.  As with any goal, you must commit yourself and begin to take action, even if its just "baby steps".  I stumbled on the following quote years ago that sums up the power of initiative... it changed my life!

Concerning all acts of initiative (and creation), there is one elementary truth that ignorance of which kills countless ideas and splendid plans: that the moment one definitely commits oneself, then Providence moves too. All sorts of things occur to help one that would never otherwise have occurred. A whole stream of events issues from the decision, raising in one's favor all manner of unforeseen incidents and meetings and material assistance, which no man could have dreamed would have come his way. Whatever you can do, or dream you can do, begin it. Boldness has genius, power, and magic in it. Begin it now."  Goethe

At the risk of beating a dead horse, I will add my two cents...

Great conversation but a couple points still need clarification. 

First, there seems to be consensus that ALL (not just 401k) debt service is usually paid with after tax dollars.  Notice I said debt service and didn't make a blanket statement about loan repayment.  Why?  Because a lot of investors, myself included, use 401k loans as short-term bridge money.  When I acquire a property, I typically borrow the max ($50k) from my 401k in lieu of an equivalent amount of hard money debt.  The savings on this transaction amounts to thousands... no points vs. 2% points, 3.5% interest rate vs 12% interest rate, $75 fee vs 1,000 - 2,000 in legal.  During the construction and lease-up phase (usually 6 - 9 months), I make my periodic payments (via payroll deduction) on the 401k loan.  When that phase is over I refinance to payoff all debt, including the 401k loan, therefore no payroll taxes are involved on this portion of the transaction.  This would be true for a "regular" heloc or construction loan as well.  401k loans can be a VALUABLE source of short-term bridge financing.

Second, nobody talks about the timeline for repaying these loans. The typical loan term for non-owner occupied transactions is 5 years. If you borrowed $50,000 at 3.5% that would be a $910 monthly payment. What a cash flow killer! This is another reason most folks should consider using this a short-term bridge money as opposed to a permanent source of capital in their deal. HOWEVER, if you are looking to house hack you have found your golden goose. The loan term for owner occupied properties is up to 30 years!. The interest rate would probably be 3.5%. So there... you found down payment money for that multi you've been spying. You want the low down payment feature of FHA but don't want to pay 3.5 PMI for the life of the loan? Why not borrow from your 401K for your down payment and get a conventional loan?

Finally, keep in mind what @Cory Tuck said about the real negative impact of the 401k being long term oriented.  It's true.  Only you can decide if the opportunity cost is worth it.  The point is with the 401k loan ya got options!  Be careful though.

@Steven Maduro Thank you for posting this thread... Your business model represents a more enlightened approach to investing in a C neighborhood.  It's great that you put effort into making thoughtful and cost effective upgrades to add value for your tenants.  The key is finding the right balance between form, function, durability and cost.  

What a lot of the number crunchers don't realize is immediate lease-up, low turnover, and lower maintenance cost more than offset the cost of the upgrades.  I totally agree that better quality rental units = better and expanded pool of potential renters.  There are responsible people at all income levels that desire nice things and are willing to take care of them.  My rentals are also in a C area and all of my tenants show tremendous pride in their apartment.

By the way, I love the shower head.  If you want to take your bathroom concept to the next level install a hotel shower rod... another ridiculously inexpensive upgrade that tenants love.

This is one of my favorites.  It's a rental not a flip.  

Type: 3-Fam, 4,900 s.f.
Year acquired: 2012, rehab took 5 months
Cost: $200,000
Rehab: $215,000
Monthly rent: $4,700 (below market)
Montly CF: $1,400
Appraised value (11/15): $660,000

The house was a hot mess!  Had to do everything over top to bottom.... heating, electrical, plumbing, windows, de-leading, porches, 3 new kitchens, 3 existing bathrooms, 2 new bathrooms, etc.

Before pics are top left, after pics are bottom right...

Interesting discussion.  I agree with the other comments regarding local zoning being a big constraining factor.  It seems like "as of right" development is the way to go unless you have infinite patience.

That being said, I like a challenge. I recently considered purchasing a 20,000 sf lot in Boston that was zoned for 2-3 unit multifamily.  I wasn't wild about the location so I didn't move forward.  However, if I did my game plan would have been to treat it as a phased development.  For this to work, the deal would have needed to pencil-out as a sole 3-family property.  I would have used modular construction, made it super "green" and aesthetically pleasing with an efficient site plan that could be adapted for future development.  After the initial house was completed (and cash flowing) I would have pursued the necessary zoning variances for future development, on the basis of the sterling building that had been already completed.  The additional development would represent upside since I would be covered even if the necessary variances were not approved.  Of course, this strategy would have hinged on acquiring the lot at a low price so the deal would pencil-out with just one structure being built.

@Nate Wightman Great article on shipping containers.  I have been looking into building with shipping containers for awhile... this would be perfect for a port city like Boston.  Unfortunately, I doubt the "powers that be" in our building department will let something like that be built in my lifetime.

@Waverly Rennie To find a good GC for modular you should identify some modular factories that service your area and ask them for recommendations.  Modular construction is still a fairly young industry so the factories work with a relatively small group of GCs that specialize in this type of work.

For those of you interested in modular check out these "set day" pictures...

This is the site at 9:00 am on set day.... nothing there but foundation

This is delivery in progress..

This is the end of that same day... instant gratification!

This is an example of what the inside looks like immediately after set.. level 5 finish on the walls, primed, windows and doors installed with trim... notice even the door handles and outlet covers are installed