All Forum Posts by: Dan K.

Originally posted by @Account Closed:

The condo fee is very low which is good.  

 I don't want to sound pessimistic, but don't forget that you don't solely control the expenses for the condo. So for instance, if there is a leak roof on a 3-family you could decide to patch it and then make a full repair in a year or two. Same thing with painting, etc. With a condo, the choice isn't solely yours.

The converse is also true. Resident owners might not care that the building has peeling paint and that the carpets are gross. However your renters might care.

Finally, if it's a small association, there might be some internal political issues when you rent. At meetings they might not take your opinions as seriously.

I think @Michael Pallotta hit the nail on the head.

What do you want? Obviously the rental income isn't going to be very exciting. Some years it will be "nice" and other years after HOA fees you'll be wondering what you're doing.

That being said, I assume you're locked in on a owner occupant mortgage. You also know the market, know the property very well and are comfortable with the investment.

If you cash out, you need to determine how you'll invest those proceeds. If you're going to go "all in" with REI have you identified any properties? Have you talked to lenders? Do you know areas within secondary markets where you're interested? I'm bringing up these issues because I don't want to see your cash sitting on the sideline and suffering from inflation.

Given your budget and location, I would focus on Essex County. A few things to consider:

- What types of tenants to you want to target?

- How do you balance property quality versus rents?

- What class of neighborhoods do you want to target?

- Do you want a value add property or something that is already rented?

- Parking. Do you need to have a lot that gives residents a place to park.

Since this is your first property you should consider being an owner occupant. It is important to realize that your bank will probably only consider your income and not the potential rental income when underwriting the loan.

As others have said, the 2% rule is a quick screening rule that is applicable in many markets. There is not way you are going to meet the 2% rule in the Boston / Cambridge area.

That being said, I have a multifamily in Cambridge that is around .8% and it cash flows nicely.

Additionally, the 50% rule can be way off in our area. However, while it won't be 50% a year, you will have huge expenses in chunks. In the Boston area you aren't going to replace a water heater for $400 or a furnace for $1,000. You need to have a big cushion for capital expenses. 

Hi Haley,

Assuming you can get zoning and permits is a big assumption. That being said, I do have a permits guy and zoning guy I could connect you with. First do some research in your target areas. You need to understand whether their are FAR requirements and minimum lot sizes. For example, in a C-1 district in Cambridge you need at least 1,500 square feet of lot for each dwelling unit. You might be able to get a variance but don't count on it unless you have really figured everything out.

As for the actual building logistics, remember you need two points of egress for each unit. This means you might need to build exterior steps. In many areas around Boston heat and hot water are included so I wouldn't worry about breaking up the heating system. Of course it depends how the building is heated. If there is one boiler, breaking up the heating makes no financial sense. Separating the electrical is crucial. I have done that a couple of time. Expect that you may have to fully redo the electrical because of old wiring. In addition, you'll likely need to add hard wired / communicating smoke alarms once you redo a certain percentage of the electrical. The amount I paid for electrical rewiring would be completely anecdotal so I don't even want to say. 

Long story short, there is no way to come up with a per unit price without specifics. Unfortunately in our area we are dealing with very unique and often old buildings.

Hi Dan, I had luck with going the IKEA route. The cabinets look great and you can design them in the store or at home. They recently had a promotion for free shipping with purchases more than $300. I then had my handyman do the install. My only caution with IKEA is that for plumbing items the sizing of connections can be strange because the company is European.

Great that you have some specific goals. Firstly, the lender you work with for investments likely won't be the lender you use for your home because your investment lender will likely be located out of state. A local CA lender does . not have the resources to lend out of state.

You want hands off, no need to visit and cash flowing... That makes me think turnkey as well. I have never invested with one but obviously management is important. In your post you say you want to manage remotely and never need to visit the property. I think what you need is a turnkey with management... You do need to investigate the turnkey seller / management team. Talk to as many customers as possible. Maybe even ask the turnkey company to let you talk to a cranky customer to find out what aches and pains to expect. Some customers will be annoyed that the management company didn't get 10 quotes for a water heater replacement and could have save $200 (however that's the small stuff you shouldn't worry about).

You say you want to get bigger and bigger.... Scale is important. Maybe starting with a few single family turnkeys will teach you a ton and then give you the confidence to buy either a residential multi-family (4-plex or less) or commercial multi (more than 5 units). In those deals you would be hiring a management company and managing the management company.

As @Mike D'Arrigosaid, neighborhoods are also important. I invest where people want to live, not where they have to live. Evictions get a lot of ink because they are expensive, but tenants who don't care about a unit are also extremely costly.

My suggestions:

1. Pictures should be great quality. Floor plan is also very helpful. If pictures show the unit furnished that would be even better.

2. This time of year is tough. Cutting the price by $30 isn't going to really help. Instead maybe offer 50% off the first month.

3. Relist on craigslist every few hours.

4. Loved your postcard / referral fee idea to current residents.

5. You posting is pretty wordy. I would get to the point. Tenants aren't going to care about your owens corning insulation, instead say that the unit has been renovated with an attention to details, including added insulation and sound insulation.. etc.

6. Pets with a pet fee and/or an additional security deposit for pet could make a lot of sense.

7. Don't do a year least, have the lease end at a better rental period for you market.

I'd reconsider the plan a bit... Unless you have the capital to pay cash for a duplex you are going to have a difficult (zero chance) time at obtaining a loan.

Since you what to home hack, stay away from private lenders. If you have income and a decent credit score, obtain a traditional 30 year fixed rate mortgage. A hard money lender would want to see a full payout in a short period of time -- certainly not 30 years!

Here are the FHA loan limits for Norfolk county:

                       Single        2-family   3-Family    4-Family

NORFOLK

$598,000

$765,550

$925,350

$1,150,000

In your message to me you mentioned changing a 2-family to a 3-4 family. There are many hurdles to clear. The cost of construction in the Boston area is very high. Additionally, there are zoning consideration along with needing two points of egress. In addition, don't forget about the neighbors... Neighbors might oppose a house changing from a 2-family to a 4-family and this opposition could completely sink your plans.

All of this being said, in the Boston area, even if you are feeding your house hack several hundred dollars a month you are doing okay. Don't forget, you are paying rent to yourself. So long as the money that you are paying is below comparable apartments in the area you are ahead of the game and building equity.

You also mentioned that you aren't thrilled with your Realtor. In my opinion, if you aren't 100% comfortable with your Realtor move on to somebody else. I know it feels like you owe the Realtor something since they've spent the time driving you around, showing you places, etc., however that is just part of the job.