All Forum Posts by: Derek Daun

I would buy a rental grade SFH at 20% down, and a primary residence at 5-10% down. The rest of the money could be used for improvements, or possibly a second rental grade SFH depending on how much you spend on the primary.

The nice thing about a quality live in flip is the potential tax savings if you're in it for more than two years.

The other option is of course live in multi family, but they are hard to find in the right price range around here.

Is it a good idea to comp a tenant a small rental discount for minor inconveniences, or does it set a bad precedence?

I rent out a garden apartment in my house that shares the laundry room with us. We upgraded our washer and dryer in order to move the old washer and dryer to a recently upgraded rental. The problem is that the washer came damaged so a new one had to be back ordered from Samsung (One week delay). The dryer was hooked up and it seemed to run fine. A week later a new washer came, we did a load of wash, and the dryer shut down after five minutes. It's likely a bad heat sensor causing it to shut down and not power back on for 30 minutes. Since it was over 48 hours since the dyer was delivered, the seller considered it a warranty issue, and not a purchase issue, so now we have to wait for a warranty repair from Samsung.

It seems likely it will end up being about two weeks without a washer and dryer. The "do no evil" landlord part of me says to comp the tenant $25 bucks for the inconvenience just as a gesture of goodwill, not because I'm required too. However, I'm wondering if this sets a bad precedent, and could cause the tenant to later expect a discount anytime something goes wrong.

It's already under market rate ($1000/month) in an A neighborhood, and includes all utilities and internet. 

The numbers above look about right. You definitely don't want to consider appreciation when calculating if you can afford to keep the property, and it looks like cash flow shouldn't be an issue in the short term. In the long term, maintenance might eat up a good chunk of the cash flow. So the question is, where will you make money?

1. You only keep it for a couple of years, and sell before maintenance becomes an issue. ~$200/month for five years = $12k in cash, which will be approximately the agent fees when selling. If it hasn't appreciated, you haven't made any money.
2. Hold for the long term, and maintenance eats up cash: roof, AC, appliances, kitchen. If it hasn't appreciated, you haven't made much money, other than your principle payments. That is one way of doing it, but it's a slow way.

So even though you don't want to consider appreciation when calculating the holding costs, you'll want a conservative estimate to see if you'll make any money. This property isn't investment grade at 0% appreciation. At 3% average annual appreciation though, it brings in approximately $500/month extra.

If the banks won't touch you, and you don't have a network of family friends and you don't have $5k available credit on your credit cards, try a peer-2-peer lending site. 

Prosper.com

Lendingclub.com

You'll probably end up with >25% interest though. Take out enough so you have extra to pay of the principle for the next three months. At this interest rate, you do not want to keep this debt. This is just a stop gap to allow you to sell the house at a good price. 

My CPA is also my real estate agent. I give him enough business either through me or through referrals that he does my taxes for free.

@Taye N., I don't have enough experience negotiating cash deals to know how competitive the pricing is, so I won't guess at suggesting an offer price.

I will say that the list price works for my business model though

To prove Joe's point, there are even MLS deals out there without the trouble of door knocking.

This just popped up this afternoon, cash only. If I wasn't in the middle of a project I'd probably be putting an offer in instead of posting it:

https://www.redfin.com/CA/Sacramento/3440-42nd-St-...

I'm wrapping up my third BRRR, which puts me at four total mortgages including my primary residence. I'm looking ahead towards property number five, and trying to figure out how that fifth mortgage might work out. Based on what I've read on the forums the two main things that will change are:

1. Any broker using Fannie Mae / Freddie Mac guidelines will have a tougher underwriting process. Some banks won't do the 5th mortgage period, others will likely charge higher interest rates. 
2. I won't be able to do a cash out refinance on any mortgages after I take out the fifth. 

The second bullet point is what I need more clarification on to adjust my business model. Up till now, I've been buying with a conventional mortgage, and later cashing out with a conventional cash out refinance. That won't work based on what I've read, which is fine, I was planning on switching to buying with cash to get better deals anyway. But I need to know if buying with cash will enable me to get a cash out mortgage on that 5th property? Is that type of mortgage different and allowable compared to a cashout refinance on a property originally purchased with a mortgage. If that's not the case, is BRRR only applicable to four properties?

If you are looking for strict cash flow, with hopes of getting $100/door, then you're right, Sacramento might not be the place for you. You're going to pay 3-4 times per door in Sacramento relative to a similar property in the midwest, but still only get that $100.

Another concept people like is building wealth in real estate through long term principle payments. From that angle, Sacramento looks more appealing. For a similar amount of cash invested, you only have one roof, one furnace, one kitchen, and one tenant, compared to four of each; plus it's all local. This makes the investment more appealing with this model. Plus, if you buy in the right neighborhood, you can increase your likely future equity even more. 

Originally posted by @Russell Brazil:

Originally posted by @Derek Daun:

Originally posted by @Russell Brazil:

This might be hard to pull off with all the doors and windows boarded up.....but when I'm trying to sell a house that is next to an abandoned or distressed property, which happens a lot in DC, I put up a ladder against the house, and usually get a tarp and some tools out....so it looks like a contractor is working on the property.

 That's a creative way of doing it. Although unlikely, would doing this potentially violate your duty of full disclosure if the buyer eventually found out?

 I have no duty to disclose things about other properties, only about the property I am selling.

 Ahh, that must be how it is in Maryland. In California you must disclose anything that could affect the desirability of the property. Other states vary somewhere in between, often having clauses regarding things that aren't readily visible.