All Forum Posts by: Joe P.

I've been described as a huge extrovert, but I have a bad social anxiety that folks think I'm boring and that I have nothing to talk about. I love meeting people and thoroughly do not mind small talk, but I feel like every conversation I've ever had with someone, I am keeping it going or trying to have the person not think I'm boring.

Point of telling you that is, even "extroverts" have some anxiety (I don't know if I would call it anxiety, its just a feeling I get).

What I've tried to do in my professional career, and professional real estate career, is focus on professionalism and value. I try to just be respectful, gain insight into what folks are doing (are you involved in RE? what are your holdings like? how are you faring in this economy -- generic questions), but I also think I'd offer value to people in a conversation. I think I'm excellent in helping folks with an eye for evaluating, so I let them know that -- "hey, I love evaluating deals just as a second opinion. If you ever need someone to do it, here's my card. No charge -- I just like people to see some of the "boots on the ground" experience I've had with my holdings so they can ensure their deal is a deal." Now if you have construction experience, engineering experience, or even life experience -- these are good things to offer that focus conversation on what you can do and keep you on a topic you can talk about.

Far too often I see folks come to RE meetings and the same 20% of the people are working the room and doing all of the talking. There is value in what you do -- find the value vis-a-vis real estate, and lead with it.

You can never be sure of anything. With inherited tenants, it gets even tougher, as you will most likely not get to disturb them or even meet them prior to sale.

Information is key on anything and everything -- try to find out their name, maybe see if they have a social media. The stuff people post is always interesting to me, showing pictures of the unit you're about to purchase in the background.

You can also ask for the property to be delivered vacant as part of sale. Then this person is welcome to reapply with you either during escrow period or otherwise -- although I don't think this is common, it gives you a chance to meet them and put them on your terms versus the previous owner/landlord, who is probably absent at this point.

While I can appreciate those saying its no big deal to raise it a few inches, what's the actual upshot of a 4 bedroom versus 5 bedroom in this area? I have to assume that once you reach even 3-4 bedrooms, your rate of exponential rent goes down unless you're in high-end rentals and its the difference between one rental to another.

If it costs 5,000 and you're able to recoup that in a year or something, I could see it being worth it. But if it costs $5,000 and only adds $100 in rent per month, that's some significant CAPEX without real return. I'd rather eat the 5k and have it ready when something else invariably goes wrong.

As @Nathan Gesner said, it's probably better to list, market, show, explain, and legalize that it is a 4 bedroom -- put some safety measures up there anyway, like smoke/carbon monoxide, do window guards, fire extinguisher, all those items should be $75 to $100 -- and then go from there. Show the inspector that its listed and leased as a 4 bedroom as well.

@Kyle McCorkel yep, exactly. That's a nice deal in any market. Even if the housing market crashes and your ARV loses 30%, its still a good play long term.

The people who will lose are the people paying market value on a primary or investment property, and will lose that short term. The market tends to go up over time (other factors not withstanding, e.g. neighborhood getting better or worse). We were looking at changing our primary home for something better (and pricier) but I am starting to think that buying at a peak market doesn't make sense, both for business or pleasure. :)

Someone asked me about what I thought would happen in the market, and I think the market is only as good as the supply/demand from sellers and buyers/renters.

Millions have hit unemployment over the past few weeks, and companies continue to suffer while we social distance. We also have sickness/loss-of-life which will impact every market slightly -- production, real estate, etc. If there isn't a quick rebound in this sudden recession, then in a few months we'll see homes hitting the market, likely at discounts, especially in middle-to-lower class areas where jobless claims hit hardest, nest eggs are smallest, and "emergency funds" are nil to slim. A $1200 check from the government might cover a month of rent. So, if you're an investor, it might be a great time to buy, sadly, as others are negatively impacted by this massive disruption.

At the same time, the market for rentals in these neighborhoods are likely impacted in the same manner as homeowners -- if homeowners lose their job, so do renters. So you may be dealing with a tougher rental market with a smaller tenant pool as folks are displaced and cannot afford their current neighborhoods. Maybe they move in with family, hopefully, or find some kind of fair housing, while transition occurs. All the money you put into a good buy and good rehab may sit when rubber hits the road -- so a deal is a deal is a deal, but your contingency for the deal should be padded enough. Think 2-3 months of vacancy, perhaps scaling back any major hits to your reserve (keeping rehab costs down), and re-running numbers in a not-so-bloated economy.

It could take years to recover, so make sure your deal has long term promise. If we recover sooner, then great, but plan for the worst. Personally, I am under contract for a BRRRR that was supposed to close on March 17. When quarantine lifts I plan to close. By the time we finish the close and rehab, I'm hoping for a decent summer renter market. My deal looks good either way.

@Alex Ramirez how does your wife convince you to like some of the things she likes or is passionate about? E.g. if she enjoys traveling, wine tasting, car maintenance, et al? Truth be told, she is she, you are you -- if someone doesn't have the desire to do something, there's no point in trying to convince them.

Rather, more importantly, you need to have trust with your wife. You want to make major financial decisions that could either destroy your economic profile, maintain it to some degree, or improve it drastically -- it's all risk. Your wife has to trust you and has to be behind this, and be happy with the information and process you are following. Because even if ALL of that is met, if things go south, the last thing you need is an unhappy wife who was never on board in the first place.

A small example, but something I always think about in my marriage -- my wife and I were (many years) ago not yet engaged, but decided to get a dog. I wanted a Dachshund. I wanted one so bad. That's the only dog I wanted and she seemed like she was on board -- we went to a dachshund rescue place, we found our dog, we loved him, and we brought him home. A week later we brought him back to the shelter.

We didn't do our due diligence, the dog had major health and hygiene issues my wife was not comfortable with, the dog and our existing cat were in literal pissing wars over territory, and lo and behold -- my wife never. wanted. a. dog. She was doing it to placate me.

Don't let your wife placate you. Don't placate your wife. You guys need to be lock, stock, and barrel on this decision. Because if getting a dog isn't something you can agree on and can cause tension or trust issues, imagine taking every liquid penny in your name and putting it into a house.

You don't need to convince her to have a passion. You need to convince her that this is a good economic decision, and she needs to trust you. If she doesn't, don't do it. More money can't fix a marriage not built on trust, understanding, and agreement.

@Jasraj Singh if you own a property that has a mortgage, you owe the remainder of the mortgage upon selling.

For example, if you own a home with 100,000 mortgage remaining balance, and you sell for 150,000, your transaction includes paying off liens on the property -- the mortgage company balance is resolved, and you get 50,000 (minus closing costs of course).

Another example is if you own a home a 100,000 mortgage remaining balance, and you sell for 80,000, your transaction includes paying off liens on the property -- the mortgage company balance is resolved, and you owe the remainder 20,000, and have to pay closing costs.

The mortgage payoff happens during the sale. So tell us the mortgage balance and the expected sale price, and we can ballpark what your take home (or extra payment) will be.

@Michael G. sorry you feel like I attacked him. If you read the thread, you would see the back-and-forth between me and the OP was respectful and constructive. I learned from his input, and I shared why it wasn't the right play for me, personally. There was no attacking; he asked for deal analysis and I gave it from my vantage point. I even suggested more experienced investors weigh in to help level-set the numbers and tell me where he and I might be wrong or missing something.

And while I respect the OPs analysis, I maintain that maintenance, CAPEX, utilities, management, etc., all cost an investor money/time, regardless of who executes it. You can disagree with me if you want on that point, but that's the crux of my argument against his deal.

My rules are not BPs rules, they're MY rules for investing. My rules are based on my desire to cash flow a certain amount from every property, account for good times and bad times, have someone manage the property for me (I'm an investor who wants to manage a manager, not manage tenants, maintenance, etc., I have and enjoy my day job), and invest in solid blue-collar towns near other larger cities which could mean long-term appreciation.

@Account Closed I'm in Gloucester City, NJ. Blue collar down about a stone throw away from Philly over the Walt Whitman. 2-bedrooms rent for about 1000 per month, 3-bedrooms are about 1300 per month. You can pick up SFH distressed around 40k, mid-range for 60k, and perfectly rehabbed for 100k. Duplex prices are in-line with SFH, making them excellent long-term buys for cash flow.

Here's the thing with your analysis -- respectfully (and I do mean that, I'm not trying to be a jerk in an online forum), I just disagree with almost every number you've input in the calculator.

• Are your closing costs really 5k? I doubt it. Even a modest closing cost percentage like 2% would be about $13,600.
• Have you confirmed your interest rate on a 25-year loan? 3.9% seems like something a SFH "forever home" buyer would get. Investors typically pay a premium on the regular rate. 4.5% and upwards is probably where you will be.
• Again -- you've accounted for no real expenses in your analysis. If a unit goes vacant, that takes away from your income. If you have to replace a heating unit, that's an expense. I understand you do the work yourself, but you are managing this with your time, fixing it with your time/money...it seems like you put a gigantic black hole over the real costs of your property.

On my duplex in 2019, I had a rough year. My income was about 22,000, but my expenses were almost 12,000 -- a little over 50% of my income, not including PITI. And when you did your calculations in the BP calculator, I KNOW for a fact it gives you a category called "50% Rule Cash Flow Estimates" -- taking your income, and subtracting 50% for expenses and your PITI. It's a more realistic way of estimating actual cash flow on a deal like this. Some years you'll do great, and some years you won't, so having that 50% baseline is your "middle ground". Dollars to donuts in the report you snapshot that from, it's an extremely negative number in your calculator.

We all have different risk profiles -- I want to make money even in down years, or difficult years, when I have big CAPEX items to pay for (you will, roofs, appliances, turnover...they all need to happen and cost time, money, or both), tough vacancies to fill, etc. So my risk profile is extremely conservative.

I continue this discussion with you,because you may be an experienced investor with the means and knowledge to handle a property in this risk valuation. However, a newbie investor (or even myself -- I'm not a "handy" person so I have to outsource maintenance and CAPEX) would see this and think its a great deal. In my opinion, based on my limited experience both on the ground and theoretical, this property would cost an investor like me money every year, or perhaps show a false income before needing to take care of serious CAPEX issues, vacancies, or turnover costs.

If I can put a real world application in place, which is where I think you are headed, let's say you cash flow about $1500 per month, or 18,000 per year. If you had ZERO expenses other than the categories you indicated, you would get your money back on your initial investment in 10 years. And that's accounting for NOTHING going wrong or ever spending a single dime on any aspect of the house, and having FULL tenancy for the length of that time period. Say that sentence out loud -- does that make any sense or sound realistic to you? You won't have to replace or even fix part of a roof in 10 years? You won't have to deal with a vacancy for a month? You won't have something requiring a fix-up, tenant turnover, an eviction, a trashed unit, etc., that would cost you time and money? If you don't think anything like that would happen in 10 years, you're lying to yourself AND you are not prepared for it. Which means your cash flow that you think you are getting is actually far less than that.

I also encourage you to tag other very serious and experienced investors (try Brandon Turner, Russell Brazil, Jay Hinrichs, et al) to see if they will respond to this thread and offer their experience on your analysis. My parallel point to warning other investors with your analysis is to warn you -- I think you are headed for a rude awakening at some point. You aren't supporting this property with real dollars -- again, in my humble and very respectful opinion -- and I'd hate to see a fellow investor hit a wall.

@Account Closed it's called "Green Dot"; just so happened to see the commercial tonight. 3% yield on their accounts -- just checked their website and its 3% on first 10,000 only. Looks like most HY savings are running 1.75 to 1.8%. Again, if you want no headaches and you're in it for cash flow, would you do a property for no appreciation at 3% or just a HY savings at ~2%?

I'm primarily interested in cash flow. I realize you are N. Jersey and there may be "slim pickings", but if you have the ability to expand to more fruitful areas, you might want to put your money there. If this is the peak market and you aren't buying for appreciation, and don't have great cash flow, then I'm sorry to ask -- what the heck are you investing for?

I'm with you -- I want to become a better investor, and I have less units than you (I have a duplex and was under contract on a buy and hold before corona hit), but if I had your cash I'd want to invest in areas that cash flowed better, could appreciate, or both. I could be missing something...