All Forum Posts by: John Barrett

@Suzanna Smith Why do you want to keep and convert your existing town home into a rental?  Even in the Seattle area $3,800 a month rent is expensive and as such you have a smaller pool of potential tenants.  I am not arguing that you shouldn't keep the town home, just that you should get very clear on your strategy for this property.  My guess is that you feel the property appreciation will be higher than any money you are putting in on a yearly basis but you can correct me if I am wrong.

Every investor will have a different risk profile, my approach is very conservative. I personally am not comfortable loosing money on a property on a monthly basis.  However, I acknowledge that others have followed this strategy with success.  With regards to your situation, I would be looking at what funds would be available if you sold the town home and redeployed the cash into another property that generated both monthly cash flow as well as offered the chance for appreciation.

Best of luck,

John

@River Luce I would suggest that you start looking for properties that offer you the ability to create value.  Specifically, you strategy could be to house hack or get a house where you can rent out rooms.  This would allow you to cut your living expenses and would give you the option of capturing the gains after two years.

While the 1% rule gives you a guideline, it is really hard to achieve in HCOL areas with properties listed on the MLS. That said, if you have a strategy that allows you to create value you can achieve high returns.

Best of luck.

John

@Eric T. ROI is one of the metrics I use on my cash invested on any deal that I am looking at but I do not use this information in isolation. I also look at what the current cash flow and return the property will generate and what opportunities I have for increasing both. I often hear of folks talking about making $100 a door but this margin seems very thin to me.

As @Account Closed stated, "cash is king in rough markets."  That said, my investing style is to focus on the cash flow my investment will generate from day one as to do otherwise feels too much like speculation to me.  I know a lot of other investors have found great success with utilizing large amounts of leverage to maximize their returns but this can hide the fact of how much risk they are taking on.

Best of luck,

John

@Donna Martinez I would start with the leases that you are expecting to end soon.  Do you know if your existing tenants are interested in staying?  I would contact them to find out what their plans are.  You could offer to let the lease revert to a month to month and see how long this lasts.  However, if the tenants are willing to renew, I would be inclined to renew their current lease for another year. 

With regards to your vacant unit, you will need to get a bit more creative to deal with that.  It is likely that you will not be able to fill the unit near term.  You can start marketing it, but you or your agent will not be able to meet with tenants and show the units.  I haven't rented a unit without meeting the tenants but we all may need to start getting comfortable with this. 

Best of luck,

John

@Jay Hinrichs I have always looked at this as a balancing act between having cash reserves (accepting lower returns on your money for greater security) and profit margins.  When I see people posting that they are not willing to work with good tenants in a crisis that just tells me they are lacking in both areas.  When I hear people speak about earning ~$100 a door I always wonder what they will do in situations where there is some large unforeseen market disruption.  As Warren Buffet has said "Only when the tide goes out do you discover who has been swimming naked."  Unfortunately for many investors, it appears we maybe about to find out.

I completely agree with @Monica Johnson that this is a customer service business.  As others have stated it doesn't take a lot to really build a strong relationship with your tenant.  Offering some grace, respect and courtesy go an awful long way in a stressful situation.

John

@Thomas Larsen there are a number of meetups in the North End.  Just go to meetup.com and you can find many different ones.  I like the one both at Bob's in Marysville on the last Monday night of every month and there is a new one that is held once a month in Snohomish that's been good.

Best of luck,

John

@Scott S. More reason than ever to work with your existing tenants to come up with a plan that works for everyone.  The reality is that there are not nearly as many evictions as people think so I don't anticipate this is going to have a major impact.  The challenge will be if this extends on for a long period of time then the folks who have been operating with really thin margins could potentially get squeezed.

John

@Ric Mittleider the last few properties that we have purchase have been sold with a cap rate around 6%.  This obviously changes with the level of demand in the market here in the greater Seattle area.  The strong demand combined with very low interest rates have allowed sellers to compress cap rates greatly over the last few years.  As @Michael Haas stated most multifamily properties in Seattle are selling with sub 5% cap rates.  While cap rates (like comps) are interesting, I generally do not use them as go / no go for making a purchase decisions.

The determining factor is what options the property presents in relation to your particular investing strategy that will allow for forced appreciation and increased NOI.

Best of luck,

John

@Christopher Dolan ultimately that decision is up to you, but I would start by conducting a survey of all other rentals on the market and figure out where your rental fits in based on condition, quality and location.  Based on this information is what I would use to determine how to proceed with your current tenants. Finally, don't forget to factor in what is easiest for you. If it is simpler to simply raise the rent amount to cover the water and continue to manage that bill, that may be an equally acceptable option.

It wasn't clear to me based on your post if you transitioned the tenants to your own lease or if you are simply using the previous owners lease agreement. I would make sure you transition the tenants from the previous owners lease agreement to a your lease agreement.  You can get all the documentation necessary from either of rental associations (both are good).

Best of luck,

John

@Michael Judd I owned a duplex north of Seattle through the last recession and while the value did drop (about 25%) my cash flow never changed.  While it certainly hurt my pride to see that Zillow was telling me it was worth much less than the year before, the fact is it didn't really change anything.  Gains/losses are only captured or locked in upon sale and I didn't have to sell it. I chose that property because it was only 30 minutes away, easy to manage / rent and produced a decent return.

I would suggest focusing your research on a few targeted areas near where you live.  Once you have a good sense of the market you will be able to quickly tell which properties are a good deal and worth making an offer on. Set yourself up with an agent you trust (get recommendations and interview agents) and get your financing lined up so you are able to move quickly when you see something you like.  More than likely your first deal will not be a home run but remember besides the property you are buying an education with your time and money.

Best of luck,

John