All Forum Posts by: Dan H.

Do you know if the sealing of the vents was done by a licensed contractor? If yes, can you determine the contractor?  In my jurisdiction permits are either “owner builder” or contractor and contractor name and license is listed.

In my jurisdiction contractor work is often warranted for 10 years (plumbing and electrical is less).  If a licensed contractor closed the vents, in my jurisdiction this likely is covered for 10 years.

If it was “owner builder”, you are likely SOL.   

Good luck

Quote from @Nir Heifetz:

Sustained Maintenance/cap ex is off by over a factor of 2.  Where is vacancy?   You have first hand experience on why vacancy needs to be accounted for.   Where is PM?  Even if self managing you should include pm if your time/effort has any value.

The COC is only as good as good as the inputs. Reality is this is negative cash flow even at a 5% vacancy rate which I suspect is too low for that market.

It is critical to do accurate and conservative underwriting.

As for two tenants in the first year…. How long was the initial lease?   Did tenant terminate lease early?   If so, did you charge the tenant for the vacancy period?

Neighborhoodscout shows good appreciation for the last year and ok appreciation for this century.   Are you sure your property has not appreciated? It looks like the market has decent appreciation outlook.  Because of this I would likely keep the property.

 https://api.locationinc.com/ga/stockbridge/real-estate

Good luck

Some thoughts:

- If it is hard to place tenants I. The fall and winter, do not have leases end when it would have you renting in these slow periods.   My rentals are in mild San Diego but I still have all leases end in spring or early summer.

- not allowing command strips fr the walls is excessive.  Do any of your tenants not hang stuff on the walls?  I think tenant can claim reasonable number of holes is reasonable and cannot be charged for.   Also what would you charge?   My crew can fill 100 nail holes in less than a couple of hours.

- she sounds like a PIA.   I deal with PIAs but charging above market rent to compensate for dealing with the PIA.  This has the advantage that you are compensated for dealing with the PIA or the tenant provides notice.   This alleviates any tenant claims that the tenant may claim if you were to terminate the lease.  This is the approach I would use.  A couple/few hundred above market rent could compensate for this level of PIA.

Good luck

Single family are valued on comps and not NOI. If you want an accurate value, obtain the value of each individual SFH via appropriate comps. Sum up their values. Then recognize that to sell them in bulk would require a discount.

Note if they were Valued on NOI, the cap rate would be area specific. you would need to calculate the cap rate for each area and apply it to each property and sum up their values values.

Good luck

 What was the plan when you purchased? I doubt it was to lose money every month.   I suspect if you believe your cash flow is negative $300/month, when properly allocating for sustained maintenance/cap ex, vacancy, etc you are likely much more negative than $300/month.

Are the other 2 units near market rent?   What is market rent on the unit getting $900?   Is there a local rent control ordinance or is it only AB1482

If it is ab1482, do you have close family that can move into the unit for a year?  If not, could the unit benefit from a rehab?

Selling and buying a different place has costs.   Prices have increased in the last 2 years. I personally believe a 2 year hold in Los Angeles is likely to produce a negative return.   The negative cash flow and buying/selling costs will be greater than the appreciation.  In your case add a refinance cost.

Good luck

Do you know if the work you sited that was done during the previous ownership was done by licensed contractors?   I fear it likely was not.   Owner builder (work done by the owner) has risk that the owner did not know what they are doing.  If they believe their work was done correctly, even if it was not, then in most areas they are not required to disclose (some jurisdictions have requirements to disclose owner builder work).

If the work was done by a licensed contractor, which I suspect it was not, then you likely have more recourse.

I suspect the work was done owner builder and the owner believed the work was done correctly.   If so, you will likely find it difficult to collect anything.

good luck

 Unfortunately, in my market the risk is higher than even a hippopotamus attack.   The free legal combined with judges that tilt tenant friendly means if you simply discard their stuff you may have over 10% chance of being sued.  Why not, the tenant’s legal fees are covered by the local government.

With this said, I have been doing this a while (family has had rentals 50 years) but at a volume a fraction of your volume (I have likely had less tenants total than you have in a single year).   My total tenant count most would consider high (but low compared to you) and I have never been sued for RE.   But I also do not do things like disposing of tenant possessions or other items that can result in getting sued (I.e. unlawful rent increases, illegal deposit with holding, not meeting basic housing requirements, illegal evictions, etc).

Even with me abiding by the rules, I get threatened for law suit regularly.   Maybe average half dozen threats a year (again probably a fraction of the times you are threatened with being sued).  The threats have no merit, i know the laws better than the tenants (I have had a few that believed smoking was a protected class because it is legal), I do not waver even a bit, and they never sue.  If they did sue, they would lose as virtually every threat is meritless (a couple have had some grounds but not enough to likely win) and I have documentation.  

I suspect if I was in Ohio, I would share your view on just dispose of the tenant items.   In my market, I follow the rules and have no fear of being sued (as well as I have an adequate umbrella policy who would take on any case that involved significant money).

I suspect neither of us are scared of being sued.

Good luck

 I suspect you are right in Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH.   In my market tenants have access to government paid legal assistance.   The risk is higher here than in Ohio.

The stuff is worthless.   I think the way to handle this is as a lease violation.   In my market give the tenant a 3 day notice to remove their stuff from common areas.  Start eviction process if the items are not removed in 3 days.   Charge tenant for any legal expenses.   Virtually always this will light a fire under their a$$ and items will start to be removed from the common areas.  This also puts the effort to remove their stuff items on the tenant.

good luck

In general on this I agree with @James Hamling however I calculate the break even duration meaning the amount of times the savings equals the buy down.   A few years ago this calculation always resulted in me not deciding to buy down the loan.   However, my last loan qualification I made a different decision.   This is because the break even duration was much shorter than in the past.   Especially if the loan has an early termination fee and the break even is prior to the early termination fee expiration then buying the loan down could be a smart decision.

In my market there are advantages to long holds.   I regularly have refinanced my properties to optimize leverage, but if I had not and needed investment funds I could refinance to extract capital for other investments.  Selling in 7 or 10 years is not a necessity if you properly allocate for sustained expenses.

Good luck

@Noah Mac

House hacking in ca can have some cash flow if you use alternative to traditional LTR tenant. STR, MTR, rent by room. What do these have in common besides the potential for increased revenue over LTR? They each take more time than LTR.

For a move-in ready purchase off the mls using traditional LTR with standard financing, it will initially have negative cash flow when properly allocating for all sustained expenses.  The cash flow will improve most years (possibly not 2025 due to high insurance increases on rental properties in CA).

For traditional move-in ready purchase off mls to LTR my view is a 10 year hold is almost guaranteed to produce a good return.  Holds of less than 5 years typically will not produce a return worth the effort.  The 5 to 10 years is the sometimes works (worked from 2010 through 2021 in most markets) but other times will not (I believe at current rates, prices, and rent point a purchase today is unlikely to produce a good return significantly sooner than 10 years.

Some alternatives

- alternative financing. Sub-to is too risky for me but NACA, assumable, seller financing may work and 2 of those are typically only available owner occupied (OO).

- off market: a very large percentage of these require work and/or have risk.  I personally recommend against this route for most new RE investors.   To much risk.

- value adds: this has been my go to choice.   I have done well, but the current market is more challenging than the recent past.   Start small.  Maybe partner with someone that has experience.   It can work but it is typically not without risk (at least not in this market, I have done some in the past that seemed to have virtually no risk).

As for out of state, it is full of risk.  The cash flow is typically not worth it when properly allocating for sustained expenses.  Building and maintaining a quality team is not as easy as some people imply.   The actual cash flow is typically negative when properly allocating for sustained expenses despite what those in the market state/imply.  At low rent points, 50% rule is aggressive and rents must far exceed 1% at current rates for sustained cash flow.  Even if you see a couple hundred dollars of actual cash flow on an OOS RE (which is unlikely), it is not worth if.  Five to make $12k.   10 to make $24k.  I invest in RE to have it make a positive difference in my life.  How many units would that require?  By the way I have made ~$1m on my last RE investment in a high cost market.   ~$700k on my second to last RE investment.  Both of these I used accelerated depreciation providing me hundreds of thousands of write offs.  One before that I am approaching $1m made.

I likely see double as many posts on BP from struggling OOS RE investors than i see from struggling investors in their home market.

I definitely want to warn the market has more challenges today.  However, I believe you hold for 10 years in your market and you are very likely to achieve an exceptional return.

Good luck