All Forum Posts by: Dan H.

@Ray Lai

Just to let you know your cap expense is way low.  I have no town houses and do not know if all your external is covered but I can tell you that my spreadsheet places cap expense on a kitchen at about the $45/month you are estimating total.

I am not trying to be discouraging because I think it is great that you have started and that often that is the biggest hurdle.

Good luck

@Laura C. I am not house hacking this but here is an example that I am close to closing escrow on that would have been a good house hack. A detached duplex 3/1/1, 2/1/1 in San Diego county for $442K. Current rent is $1900 and $1400. Both rents are fairly close to market in their current condition (not rehabbed) so I have little room to increase the rents. They are in a nice location in working class area. Most of my REI purchases have been at 80% LTV but for this one the rates made it so that 75% LTV was beneficial. Rate is 4.625%. PITI is ~$2200 (PnI = $1704). If I was house hacking I would not need to put 25% down and I would be able to get a better rate but for this exercise I will use my numbers mostly because I have already worked out my numbers (it is easier for me because I have the real calculations that I have already performed). PITI will be ~2200/month. If I rented the 3/1/1 and lived in the 2/1/1 I would be living in the unit for $300 ($2200 - $1900 = $300) rather than actual rent of $1400. This simplifies things somewhat because as the owner I have vacancy (I use 5% but have never had a vacancy rate that high) and maintenance and cap expense (I used $300/unit = $600 in my calculations). So $300 (rent delta) + $600 (maintenance and cap ex) + $95 (vacancy: 5% of $1900) = $995/month to live in a $1400 unit (savings of >$400/month). Equity pay down starts at $426/month. So now I am >$800/month ahead of renting the unit. Ideally both the rent and property appreciates but if not $800/month is OK return in large part because I have good confidence of my numbers.

Hope this helps and good luck.

I agree with @Andrew Johnson but will add one item to his good list of reasons to invest in Iowa near your family.  

When you go to your OOS investment areas to build team, find properties, deal with any unexpected issues, etc. you will get to visit family.   Most Midwest cities only have a few places worth seeing (they are not high tourist locations).  It is nice to have family to visit and maybe they can assist with some of the minor issues/problems that could pop up.

Good luck

@Ashley L. I purchase that property in a minute in my market.  I think those in higher cash flow areas are used to what is a good deal in their market (i.e. cash flow market).  Versus in higher appreciation markets I would rate it as forced appreciation (your property does excellent), instant equity (your property does excellent), expected property appreciation (you believe your property seems likely to have good appreciation and I am assuming have done your homework), expected rent appreciation (you believe your property seems likely to have good rent appreciation) and finally initial cash flow (your property does OK but there are many locations in the country that do better).

It is not arguable (as in mathematically it can be proven) that historically financed buy n hold in appreciating markets return better ROI than low appreciation markets that provide far better initial cash flow.

I do recommend that you do the full calculation of expected cash flow taking into account mortgage payment,

taxes, and insurance (PITI), vacancy, maintenance, and cap expense. I have used spreadsheets to calculate estimated monthly cap expense and it shows me that cap expense is higher than all except the mortgage (assuming high LTV such as yours).

Good luck on what looks to me to be a very good investment.

@Dulce Beltran I think the flipper had to be very experienced with good teams in place and many efficiencies including his own realtor. I could not do that flip and expect to make any money. The purchase was at 85% ARV. I do not have the teams in place or the efficiencies. My little rehabs take almost 2 months.

So either the flipper was very good or he did not make much money.  I suspect I would lose money if I tried that flip.

However, finding 70% of ARV purchases is difficult and getting more difficult. I am in escrow on a buy and hold in San Diego county that is ~$30K below current value. I suspect the purchase is at ~80% of ARV but I am not flipping it so I do not have to be that precise on expected ARV. Could I flip this purchase and make a profit? I think I would not be making as much of a profit as I would desire but would make a small profit. Part of the issue with this REI is that it is not so thrashed that all upgrades/rehab would return full investment. If it was more thrashed I could possibly purchase for less than 80% ARV but those are difficult to find and purchase.

So if I were flipping I need to purchase for significantly less than 80% ARV to make the type of profit I would desire. If I could find something at 70% ARV that would definitely permit a decent profit. However, for buy n hold instant equity is tough to pass up and 80% of ARV is pretty good. I am happy with the pending purchase.

@Ann-Marie Vargas Sorry about your grandfather's passing. Congrats on entering into REI.

As for Meetups. Meetup.com has numberous REI meetup groups. Search for real estate. Pick the one that is most convenient. If it is not what you are looking for then go to the next one on the list. I suspect you will find one that works for you.

Some San Diego BP members (@Kevin Fox, @Justin R., etc) have an on-site meetup close to monthly.  I have been to a few (maybe 5 or 6) and have found each to be worth my time.  I learn something and enjoy the network opportunity.  I have found most of the best networking happens at the end.

Good luck

@Jeff Greenberg implies meetup.com has Meetups related to RE investing.  Just perform a search and many will come up.  Start with the most convenient and if they are not what you are looking for go down the list. 

In addition some San Diego BP members hold a meetup on a job site around monthly (a little less often in the holiday season). @Kevin Fox @Justin R.  I have attended a few of these and have found them to be worth my time.  

Good luck

I have made offers using all 3 of the methods you listed but most of my purchases have come from MLS.

The numbers can make sense in certain areas with certain purchases. You need to find those areas and purchases. I am in escrow on a REI currently and made another offer in the last month (that offer was accepted but the owner had issues with the inspections I desired so we used our escape - the unit has a lot of deferred maintenance/cap expense and I needed to have the inspections or a much lower purchase price).

I find CA RE investors investing in Texas an interesting choice as they pay income taxes here and property taxes there.  Foundations also can be an issue in Texas.  How long have you been investing in Texas? 

I have purchased near market highs and have experienced RE depreciation in the short-term but those purchases now look like I was a genius purchasing even though the purchases were near market high. In 1993 I purchased a SFR at $167k. It fell to low $140s. Today it is worth ~$575k. In 2004 I purchased a SFR FOR $741k. It fell to ~$620k. Today it is worth ~$950k. The only people to have lost money on San Diego buy n hold RE in the last 50 years are those that sold at the wrong time typically because they were over leveraged.

Good luck

It was not clear to me that you still owned the Cardiff condo. On the positive your appreciation is through the roof and you have a significant prop 13 benefit. The questions are how does the prop 13 benefit compare to the lost depreciation write off and is it a good rental. In general I would think that it is a rare condo in San Diego county that provides decent returns relative to its value using LTR. Have you considered turning over to PM that would run it as an STR? My family has a duplex STR that uses a PM; it has been a homerun. The annual rent likely exceeds what it would cost to build the units. The PM gets paid well but there is no way we could handle the units as STR without a PM.

Basically I am missing too much info to provide a definitive answer but hopefully I have provided some things for you to consider.  I know that when my units loose their depreciation write-off they will need to be evaluated if they are still the best investment option (actually this evaluation is on-going but a significant parameter has changed after the depreciation can not be written off). 

If you decide to keep it and need cash out there may be reverse mortgage, refinance, and ELOC (non-owner occupied ELOC are not super easy to find) options. 

Good luck

The first RE Purchase is the hardest. This is for multiple reasons but confidence is near the top of the list. In addition you have less contacts and less credibility than more seasoned investors. If someone has a RE for sale that is a good value in current market do you think they will offer it to the newby who has zero REI purchases or someone that has completed many REI purchases?

I will say it gets easier after completing some REI purchases. So it is important to start the journey into REI to open further opportunities, to increase your knowledge, and most importantly to get off the sidelines.

Good luck

The San Diego property is producing good for San Diego but is at risk of STR regulations. in addition STR has additional effort or cost (tenant turnover). Do you use a PM? Do you turn it over yourself? You show no PM costs but you called it money income so that can be post PM expense. We self manage except for our 2 STR units. I can find LTR with virtually the same rent rent to value numbers. However cost to sell will be close to 10%. I lean towards selling it.

Orlando is out of state.  You can do better than this RE local.  You can get better cash flow in many locales (virtually entire Midwest).   I am not a fan of local investors buying OOS especially before they are seasoned RE investors.  I cannot see any reason to keep this RE unless you have an emotional attachment.  I would sell it.