All Forum Posts by: Dan H.

I never do cash for keys. I do not desire to reward tenants for poor behavior.

I explain the consequences of an eviction to the tenant. I explain they will have difficulty Renting a quality unit, that I will ding their credit, that I will attempt to garnish their future income to recover what they owe. They believe I will do what I state because I have always done what I told them I would do.

My market has a low vacancy rate. Poor tenants cannot obtain quality housing. My tenant requirements includes no evictions, ever. No excuses accepted

So far with a combination of good screening and good luck, I have never needed to evict a tenant.

When the time comes to evict our first tenant, I will hire the best lawyer and let the expert take care of it. I will add the cost of the eviction to what tenant owes, and if the cost is not recovered I will consider it a cost of doing business.

What I will not do is pay a bad tenant to leave so that another landlord gets stuck with having to deal with a bad tenant that I have rewarded for their poor behavior.

In addition if I paid a tenant to $crew me, it may cause me to lose sleep. Sleep is precious. I would rather not pay the tenant, pay a lawyer, lose some rent but not lose one wink of sleep allowing the bad tenant to get money from me.

Do not do cash for keys.

Good luck

 >Someone tell me where I'm wrong!

Here is an alternate perspevtive on one aspect of your reply.

>As long as rents are high in the US there will be constant pressure on renters to buy.

It depends on how you define “high”.   2 separate recent studies showed that in virtually every large city it is initially cheaper to rent than to buy and that this is the all time most extreme.   So per those studies and what I see in my market, rents are low relative to the cost of purchasing a home.  Per the studies, people in virtually every one of these cities should rent and not purchase.

My own view, not from the studies, is a property purchased today is at some point in the future likely to cheaper than renting.   This is because most buyers use fixed rate money so the largest expense (P&i) is fixed while inflation will drive up all other cost in most markets it will not be as great as the rent increase.  The question is how long until the purchase is superior to having rented and are you actually going to own the property long enough to benefit from the ownership recognizing the costs associated with buying and selling.

Good luck

Historically San Diego RE has been a great investment.   However, RE is more challenging than in recent times.

However it is my view there are only a few paths in San Diego RE at this moment 1) patience. I am thinking years of patience. San Diego has historically out performed virtually all other markets. Over the long term I believe this will continue. However, other markets have the same issue contrary to the posts from OOS agents. I am not that patient. 2) value adds. For the most part these require work and have risk but there are few markets that do better than San Diego via value adds. My last purchase is up over $500k above my costs in 2.5 years. 3) alternate rent models (rent by room, STR, MTR). These require work. Pay a pm and the profit is significantly reduced 4) path of progress. It is getting a little late to leverage the Chula Vista bay front development. However Brown Field upgrades is in its infancy.

You can achieve cash flow by minimizing leverage.   However, historically the San Diego return is via appreciation.   Leverage magnifies the return from appreciation.   Lower leverage equates to lower return.   Low leverage is a conservative approach that will be reflected in the returns achieved.

Good luck

I would first determine why there is no leach field.    Can a AEROBIC TREATMENT UNITS (ATU) be used to leach cleaner water.   ATUs can be used in septics with poor leaching.    They have higher installation and maintenance costs than tradition septic, but likely will be less expensive than pumping the tank every me it gets close to full.

 Find out what the options are before rejecting the property.   If an ATU. is a viable solution,  you could End up with a. Good purchase because you were able to address a problem that sent other potential buyers running.

good luck

The markets you listed have already arrived.  The returns in such markets is the lowest that any buyer is willing to achieve.

Your task is to identify markets that are attractive but are not widely known by RE investors.  There are many destinations that are not yet known but could be the next “wave”, Dollywood, etc.  When I visited the wave, I visited a site in the area that was every bit as spectacular that is virtually unknown.   I will use the initials for those in the know, C.A

Such markets should have monthly rents near or above 2% of the purchase price with expected rent growth as the attraction grows in popularity. Use a STR revenue tool (airdna, STR insights, etc) to determine the income. Recognize some of these markets have poor competition and it is not hard to exceed the revenue projection. Use the enemy method to analyze the competition.

If you go to a market like the smokies, recognize your expected return will be the least of what an investor in that market is willing to achieve.

Good luck

Not a lawyer.  Verify with your trusted professional.

did you use an estate lawyer?   Do you understand stepped up basis?  Did you get a time of death appraisal?   Do you know that you almost for sure can assume the existing loan even if you would not normally qualify?  

BP has various calculators (look at the various calculators) including one for buy and hold residential investment properties.   If you have zero clue as to expenses you can use the 50% rule.

Rent  * 0.5 - principle & Interest = rough estimate at cash flow.   Most markets currently have negative cash flow especially on single family homes but if the existing loan is older than a few years old it likely has rates below market rates.   This could turn a poor cash flow property into a decent cash flow property.

There are a lot of paths in real estate (RE).   Different rent models (Long term, short term, mid term (furnished long term), rent by room), different financing (including assumable), different strategies (flip, buy and hold, value adds, development, etc), different asset types (residential, commercial residential, office space, industrial, storage units, business, etc).  Educate yourself on the various paths as well as recognize REmay not always be the best path of the path for everyone.

If you are in CA let me know as there is some considerations with regard to property tax.

good luck

I have not seen a response that mentions that the RE market slows down in Oct and does not speed back up until spring.    This implies that listing today presents a slower market than 55 days ago.  If this falls through your best option could be to delist until late February or march. 

I therefore advocate for an EMD that covers holding cost and the removal of all contingencies. What good is an EMD if the sale falls through due to financing and there is a financing contingency? It serves no purpose. You want to cover your costs regardless of the buyer's ability to close. Why should you have the bulk of the risk? Put the risk of non performance on the buyer.

good luck

I will be there.

Have you been using the Whova app?   There is various meet ups/groups there including by location (for example as relates to me there is a San Diego RE investor lunch meet up planned) or by RE discipline.   For example I saw a beginner flip thread and a more experienced flipper thread.  I saw a brrrr thread.  If you look there, you can network with groups more aligned with your RE interests.

Somehow both the wife’s and my selected sessions got lost.   I have not heard of it happening to others but it would seem strange if we are the only 2 that lost our selected sessions.   I made my selections on July 24 (wife made hers close to this date) and a few days ago saw we both had zero sessions selected so we made new selections.  I go to BPCon more for the networking than the sessions, but it was an inconvenience and not something easily to delegate to someone else.  

best wishes

I have made a lot of money with both LTRs & STRs. You can create wealth with either approach but both approaches are more challenging than in the recent past.

At this point I mostly seek highly desired property locations such as beach or lake front, Mountain cabins, bonus if they are near a destination such as national park of monument or other tourist attraction, etc. These properties will always be desired. Extra bonus if the destination is up and coming versus already arrived. A large majority of my recent offers have been of these high desired properties.

These properties pencil out better as STRs than LTRs. In addition, it is nice to have locations I can use or let friends and family use. Last week we had family from Minnesota visit for the first time. A group of 7 that we had stay in one of our large local STRs. This month my brother is staying at one of our beach STRs. We regularly visit our beach STRs on their vacancies. We use the parking spot, watch the sunset, eat at the beach. The good life. It is hard to quantify the value, but for us if we did not have the beach STRs I suspect we would visit the beach here much fewer times than we do.

As for the extra work …. I would argue that regardless if it is an STR or LTR you should underwrite with the use of a manager/co-host. Scaling beyond a handful of STRs with a full time job is not easy and amounts to having another job. If you choose to self manage, you deserve compensation for your efforts.

The biggest downside to STRs is increased regulations. Contrary to the view expressed in the past by some STR "experts", vacation destinations are not exempt from increased regulations. NIMBYS and/or those that seek a piece of the pie are everywhere. In some markets hotel lobbyist push for STE regulations to eliminate competition (I believe the competition is smaller than the hotels believe as many STR guests are looking for a different experience than provided by most hotels).

None of this implies that I would not purchase a LTR that meets my profit expectation. The issue is that even off market offerings are not meeting my return expectations. Residential RE is not passive. The projected return should far exceed passive options. For me, at this point (I admit to being spoiled on RE return), the LTRs in general do not project return enough in excess of passive options to justify the effort, risk, and potentially stress of residential RE. If someone wants to purchase for a COC of less than 20%, the more power to their hustle. There are passive options that perform too close to that to justify the extra work and risk. FAANG is unlikely to provide killer return indefinitely, but does anyone think their run is already over?

Good luck

 My San Diego market is at a historically worse.

- it is the 2nd or 3rd (depending on your source) least affordable for high leverage residential since records were kept. All sources show the early 1980s were less affordable.  Some (not most) sources indicate just before the GFC was less affordable.

- rents are the lowest per the affordability since records were kept.  

The implication is that this is the worst or near the worst cash flow in my market ever. 

So is it just my market?   Two recent studies show that in virtually every large city it is initially cheaper to rent than purchase.   Both studies indicate this was the worst ever for purchasing over renting.  So it does not seem to be only my market. 

I recognize RE is local.   But the indications are that in general high leverage residential purchase today has near the worst cash flow ever.   This certainly does not imply that there are not markets where cash flow is possible or that cash flow is not possible via alternate financing, low leverage, alternate rent models, value adds, patience, etc.

best wishes