All Forum Posts by: Dan H.

I am a big proponent of newbies investing local to where they are located. I realize Seattle has a fairly high entry cost but some of that can be negated by house hacking a detached duplex. As owner occupied you would have a significantly lower down payment percentage and a lower rate. In addition, Seattle has pretty good historical appreciation which can help with ROI. Texas has lower entry costs but property tax is severe in many locations and there are many locations that have significant foundation issues. Then there is the occasional hurricane. We owned an OOS property (Gulf Shores, Alabama) that got hit by 2 hurricanes in a short duration of time so it does happen.

The primary reasons that I am a big proponent of investing local are 1) the learning opportunity that comes with self managing a property.  This knowledge if so valuable.  As Rich Dad Poor Dad indicates the knowledge is priceless and there is no way investing OOS with a PM you obtain the same type of knowledge 2) requires less reliance and trust on others.  You are in control.  You will be much better prepared to build that killer team for OOS after you have acquired certain knowledge that is best learned hands-on 3) Local provides the potential for owner occupied which has better loan terms (lower down payment and lower rate).  4) Local provides you the best opportunity to be an "expert" on the area.

So if I were you I would wait until after I pick where I am going to live before purchasing.  I would then house hack a detached duplex acquiring as much knowledge as I could.  After I have a little experience I would consider if I was ready to take on the challenges of OOS RE investing.

Good luck.

> You can find a much better ROI in the Midwest.

You are a professional. You know that historically your statement is not true. If you do not know it is untrue then simply pick a coastal city in CA and compare the ROI to the best city in the midwest for 5 years, 15 years, 20 years, 30 years, 40 years, 50 years and reply indicating which Midwest city beats the worst coastal Cal city for ROI (i.e. list both cities and the time frame). I am confident that you cannot find one especially if the purchase is financed.

If you indicated cost of entry is less in the Midwest, cost of purchase is less in the Midwest, initial cash flow (at purchase) is often better in the Midwest, that much of the Midwest has more friendly landlord rules, or that there are places in the Midwest with lower property tax rates then I would not be taking exception to your statement.

However, I know that you know that your statement is historically not accurate. I challenge you to find the Midwest city that has produced a better ROI than the worst coastal Cal city for any of durations listed. You provide one and I will retract my statement indicating that you know your statement to not be true.

Good luck with that challenge

 Never had scented candle smoke damage but I did have the worst smokers damage that I have seen in many years.   It was an inherited tenant that stayed a total of 23 years (23 years of heavy smoking).   We did everything except paint the foundation to remove the smoke smell but when the unit has been closed up a couple of days you can still smell the smoker smell. 

Ceiling texture removed, ozoner used, industrial deodorizer, kilz primer to seal, new paint, all flooring except tile in bathroom and kitchen removed, it had no heat ducting.  If I were doing it again I would seal the cement foundation with something like the kilz primer.  Other than that we did all that we could and the smell still lingers.  

Fortunately the smell is reduced enough that just living in the unit provides enough air movement so that it does not smell; for tenant turnover we need to open the unit up prior to the showing otherwise it has some smell. 

We were already all non-smoking on tenants we had placed but this confirms our policy.  

The longer a tenant has been a good tenant the more forgiveness they have earned.  

However in no case would I give them no penalty for breaking lease early.  if they have been a good tenant for 5 plus years and leave the place with little effort to flip to the next tenant I would probably charge $50 early termination.  If they have been there less than 2 years or the place is not handed over in very good condition I would keep the 13 days of rent.  

In both cases they need to know providing less than 30 days notice is not acceptable   

Good luck

As an investor, A has concrete rationale rather than more abstract things such as like the area.  

If you invest using your head, A is the obvious choice.  

If you invest with your heart, B is the obvious choice.  

I suspect investing with your head is much more likely to be a good investment but sometimes you have to do what the heart wants.  Life is short!

Pick one that is right for you and never question the choice. 

Good luck

As indicated a sfr purchased at retail today would not cash flow and duplexes to quad purchased at retail would not have much cash flow if any. 

However a few years ago duplex to quad could have great cash flow upon purchase and even without forced appreciation rents went up about $100/month each year.  Then add any forced appreciation and you have the equity gain from the forced appreciation and the associated rent increase from the forced appreciation which is on top of the market rent appreciation.  I have a unit with $680/month higher rent than when purchased in 2014. 

You also have the market appreciation. In the last 6 years the lowest market appreciation year in my market was 8%, the highest was in the low 20s. Note if I purchase at 80% LTV and get 20% appreciation the year of purchase it is 100% return not counting any closing costs.

Finally you have return from purchasing below market.   In my market it is very challenging to purchase at 75% of value but a purchase at 90% of value has $30k to $100k instant equity.  In my case this is the lowest contributor to my profits (I.e. even 90% of market properties are tough to find and there is significant competition for these properties)   

So my return numbers include cash flow, forced appreciation, market appreciation, and any equity from below market purchase.    

Question: have you actually talked to coastal So Cal investors about their return? A SFR purchased at retail a short while ago would have experienced similar market appreciation and could have had similar forced appreciation. The only area the SFR is likely behind our RE is on cash flow (in general SFR have less cash flow than duplex to quad). My point is my investment returns are not far better than what I expect other coastal So Cal investors to have achieved. In addition I know of no way that they could not have experienced good return if they financed at 80% LTV.

Deferred maintenance typically implies forced property appreciation opportunity.  

Rent can be raised on one unit typically implies forced rent appreciation opportunity.  

Take care of the deferred maintenance then raise the rent to just below market rent if tenant is a desired tenant, to market if tenant is so-so, to above market if tenant is below average. The forced appreciation should net significant equity.  The raised rent should lesson your negative cash flow.  When the other lease is up you should be able to raise rent even in a market with flat rents because you have addressed the deferred maintenance.  

To me cash flow and equity gain both provide return.  

In addition you have equity pay down occurring.  With the current low rates and the price of LA RE this has to be greater than the $500/month negative cash flow that you were estimating.  

Except for starting with the negative cash flow this is exactly the type of properties I purchase.  I look for the trifecta: cash flow, forced appreciation, below market purchase.  I seldom get all 3.  It appears this RE has 2 of the 3 (below market and forced appreciation).  I would weigh that into your decision as cash flow is just one way to profit from RE.  

Good luck

I agree w @jay 

@Jay Hinrichs but want to add that I purchased a projected cash neutral re.  It was $20k to $40k below market and had some forced appreciation opportunity.  

Due to market appreciation the forced appreciation returned better than projected.  The property would be cash flowing at a projected $800/month but I took out $100k via refi so it cash flows a projected $250/month.  

I typically agree with @Andrew Johnson but I would not put additional money down to get it to cash flow 

Analyze whether you can afford the negative cash flow.  Analyze whether you can stomach a 20% decline because the prices can decline in the short term.  Analyze if you can weather a decade before having the appreciation.  These are hopefully worse case scenarios but they can and have happened.  

If you answer affirmative on each of those questions the next question is whether there is a better investment option available.

LA historically appreciates going back more than 50 years at rate higher than inflation and higher than RE in the average locale. This s appreciation includes market and rent appreciation. Prop taxes are capped. Historically we know anything that you would have purchased with financing in LA in the past would have produced outstanding ROI. do you think the future is likely to be different than the last 50+ years.

Good luck

From San Diego here. SFR purchased at retail have negative cash flow upon purchase. Duplex to quad purchased at retail have positive cash flow in certain markets and other markets are cash negative. That is the bad.

The good is my ROI on all my properties has far exceeded 12% annual average return on investment. My Good RE have exceeded 30% annual return on investment. Best probably has exceeded 50% annual return on investment.

Provides some perspective on investing in San Diego.  I would not bother for a 12% expected return.  Too close to S&P return.  

Good luck. 

You have experienced abysmal appreciation in San Diego in the last 5 or 6 years? Or are you referring to purchase that was completed in 2006 to 2010 in which case you purchased in the midst of the worst housing depreciation cycle in over 50 years? I am just perplexed at the dismal appreciation part of the post as San Diego has great historical appreciation and great recent appreciation. Case Stiller listed San Diego as the #3 appreciation market for 2017 (Way behind Seattle and just behind Las Vegas). It has been high on the annual list of appreciation for at least the last 5 years and is high on the list for total buy n hold ROI for this century. My point is that any abysmal appreciation achieved in san Diego likely has more to do with the timing than the appreciation of San Diego RE which is regularly near the top for appreciation for the year.

There is a recent forum thread .  It answers your question on the pros and cons with a lot of fact and opinion on both sides.  When I run the numbers I believe I can produce a better return with quads than any other buy n hold option but I believe MF (5+) scale easier and there is economy in volume.  There are posts in that thread that indicate MF 5+ provide a better return than duplex to quad but it is not what my numbers indicate to me for San Diego.  I do agree with most of the advantages listed in that thread for the 5+ and will likely transition there eventually to take a less active RE role.

Good luck