All Forum Posts by: Jon Schwartz

Jon Schwartz has started 37 posts and replied 926 times.

Originally posted by @Brian G.:

@Jon Schwartz is San Pedro STR friendly?

Nope! San Pedro is part of LA City, which has super unfriendly STR laws.

0 Votes

Originally posted by @David Siegel:

We are in escrow and our inspection contingency ends on Sunday, Feb 6. We had our home inspection on Thursday, Feb 3 and the inspector included in his immediate recommended improvements:

"Substantial foundation cracking, deterioration and/or movement was observed in the foundation walls at the basement. This implies that structural movement of the building may have occurred."

We had one foundation repair company out at the property on Friday, Feb. 5 and his tone was very alarming, almost unprofessionally so. He noted that one room (12' x 20') was sloping 2 inches. The basement cement walls are bowing fairly drastically and there is evidence of a lot of cracks being patched recently. He told us to run. Then, he gave us back the $450 we paid his company to provide a report and said he didn't want to be involved in this.

Result: no report, no quote

Another foundation repair consultant from a different company came out later that same Friday and had a different tone but essentially agreed that the home's foundation was questionable and that since it was built in 1950 it has clearly experienced some sinking since then and there's no way of telling if it's done sinking or how to anticipate what will happen next. Because it was recently flipped all evidence of movement would have been covered up while they were renovating. I asked him to provide a report or a quote. He said he couldn't really do so because there was no clear evidence of an issue to address besides the heavily sloping room and the bowing/cracking walls in the basement.

Result: no report, no quote

We discussed with the second foundation guy the concept of asking for a $30K seller credit because there is evidence of issues with the foundation.

We spoke to an REA friend and ran that by him and he said no way, not a good look to request a seller credit without a quote for repairs. Basically, don't ask for money back just because you're in an uneasy place. You need to show them a quote. I don't know if I fully agree given our experience.

We are working on our Request for Repairs and really don't have any idea how to address the foundation issue. 2 foundation companies would not provide a quote or a report. Its highly unlikely that we will have someone able to see it before Sunday.

Very eager to see how this would be handled by whoever took the time to read this whole thing. TIA for sharing your insights!

This is a conundrm!

I'm in LA. Buildings settle here, so it's totally common to have a few small cracks in the walls and a crack or two in the foundation. Simple cracks can be repaired for under $1000, so a few cracks aren't a big deal.

Also, the age of the building is a positive. Builders made good foundations by 1950. It's buildings from the 1920s and earlier that you really have to be careful with!

I wouldn't be alarmed by the language in the inspection report or the comments of the second foundation inspector. Both are what you often get for unremarkable circumstance. General inspectors need to cover their behinds, so they're quick to recommend further inspection by a specialist. And foundation/structural engineer guys often say things like, "Welp, it's moved two inches, so maybe it'll continue sliding off the hill or maybe it's done sliding for good, there's no way to tell." I once had a structural engineer tell me that a retaining wall had technically failed (it was still standing, but angled), but there was no way of telling how long until it toppled or if it would ever topple at all.

The first inspector is what really worries me. I've *never* heard of an inspection refunding the inspection and running for the hills. I also don't have much experience with basements, so I'm a bit in the dark there.

Here's my advice: don't worry about missing the inspection contingency deadline. You're earnest money is still protected. If you blow past the deadline, the seller has to give you a Notice to Perform, as which point you have two more days to cancel escrow without your earnest money being in jeopardy.

I would ask your realtor to calling the listing agent and say something like, "We had a foundation inspection that was very alarming. The inspector was taken aback, said there was evidence of cracks being recently repaired, and refunded the inspection because he doesn't want anything to do with this structure. Can you speak with your sellers and get all the information they have about work done to the foundation during their ownership?"

Sellers are required BY LAW to disclose all material facts, known or expected to be known, about the property. A "material fact" is one which would affect the value of the property. So, if the sellers covered up some foundation damage, or even did some straight-forward foundation repair, the onus is on them to disclose it.

Have your realtor also tell the listing agent that you need to conduct another foundation repair to get a quote, and as a result, the inspection contingency is going to be extended.

Then hire the most expensive/most legit structural engineering firm you can find in SD. Get them to come out and give a quote for work -- even if they only thing they can find to quote is a full replacement of the foundation.

This course of action assumes you don't want to buy the house without getting to the bottom of the foundation issue -- or, at least, getting a significant discount. If you're willing to purchase the house at its current price knowing that you might have to replace the foundation in a few years, proceed!

Good luck!

Best,

Jon

4 Votes

Originally posted by @Eric Riddle:

Originally posted by @Jon Schwartz:

Originally posted by @Eric Riddle:

Hi BP community. I'm a rookie investor looking to do my first deal with house hacking. One of my biggest concerns moving forward is landlording. For anyone that has house hacked before, is there anything different about land lording a property you also live in? Are the interactions with tenants any different? Any guidance here would be nice. It's already a little intimidating starting out as a landlord, but to do it with no experience while living next to my tenant(s) sounds like it could potentially be harder to navigate, set boundaries, etc. Any suggestions would be greatly appreciated!

Eric,

I'm house hacking a duplex and have some advice:

• Pick a good property in a good neighborhood. The property and neighborhood will be 90% of what draws your tenants. If you're buying in a neighborhood that you're really happy to live in, you'll find likeminded tenants who are jazzed to rent there.

• Find your own tenant. I live in CA, where we have very strict fair housing laws (though most fair housing laws are federal, so you're subject them to). I knew I shouldn't ask questions about personal habits, etc., but when I showed my rental unit, I talked about my family's habits. I explained that I lived upstairs with my wife and daughter, that we were early-to-bed and early risers, that we weren't fond of hosting dinner parties, etc. Just telling this to prospective tenants weeded out a few people who probably did want to host parties, etc. And the tenants we ended up going with responded really well to my story (like, "Oh, great! I'm up at 5 to hit the gym every morning. I'm always asleep by 9, it's hilarious!")

• This duplex is actually my third home, and honestly, managing a duplex is about as difficult as managing a single-family home. There are more appliances, but that's about it. When friends ask me if I have to unclog toilets, I happily tell them that I've only had to unclog toilets wrecked by my wife, never a tenant.

• Setup online rent payment through apartments.com. This way, you never have to discuss rent payment with your tenants (unless it becomes an issue). Make sure your lease states when rent is due, when a late fee will be applied (if any), and when a notice to perform will be delivered. This way, everything is in writing. Then stick to it! You can be friends/friendly with your tenant while also adhering to the signed lease.

Really, it's all about the screening. Pick a good building in a good neighborhood, then spend time with your prospective tenants to select the best.

Good luck!

Jon

Thanks, Jon! Lots of valuable advice here. I do plan to do my due diligence in the screening process, but am concerned for taking on a house hack that already have tenants in it. But what you said about finding a good building in a good area could better my chances. Those are sadly slim pickins in Louisville, KY. But I think if I stay persistent in my daily search, I will find a property that makes sense and can pounce on.

Well, at least you're in a landlord-friendly state. You can always evict a bad tenant where you live!

0 Votes

Originally posted by @Christian Barto:

Hello everyone! I am starting to work with my Relator on finding a Single Family home to house hack. What are some criteria I should look for? I have the area pick out, the price range and the condition of the property I am looking for. Any tips would be greatly appreciated. Finding the first property in my real estate journey seems impossible!

Bathrooms! Having more bathrooms makes a single-family house hack all the better!

4 Votes

Originally posted by @Nate Ramos:

@Jon Schwartz Yes, I would be keeping the outside investor off the mortgage and doing a side arrangement with them. I think the side arrangement makes the most sense. However, I didn't know if the fact that they would also be on the deed of the house, if that would affect me obtaining the FHA loan. Do you know if that would be the case?

Yes, it would. The deed is what records the mortgage, so being on the deed = being on the mortgage.

0 Votes

Originally posted by @Dano Neslen:

Good Afternoon,

Long time lurker here on the forums and decided to jump in and ask for some assistance from the experts.

I reside in California and am 47 years of age.

Over the course of the year 2020, I purchased 3 separate single family homes for rental purposes in Alabama as investments.

House #1 was purchased for $121,000 and is now valued at $168,000 with approximately $90,000 in equity. 30 year loan of about $610.00 a month.

House #2 was purchased for $150,000 and is now valued at $227,000 with approximately $118,000 in equity. 30 year loan of about $795.00 a month.

House #3 was purchased for $115,000 and is now valued at $160,000 with approximately $73,000 in equity. 30 year loan of about $583.00 a month.

All three are rented out with long term tenants and I profit about $1400.00 a month across all three properties.

My long term plan is to acquire additional properties for investment purposes. This is the nest egg for my family and I don't really want to dip into savings to purchase more homes.

Can some please give me their recommendations on how to proceed ?

Should I do a cash out refinance and use some of the equity to buy a fourth property.

Or should I cash out re-fi and pay off one of the properties outright?

Thanks so much in advance for any kind advice you offer.

New Landlord

Dano,

Not a guru here, but I am a fellow Californian.

I'd just keep one thing in mind:

Pay attention to your return on equity, which is:

Net profits / Equity across your portfolio.

Right now it looks like:

($1400 * 12 months) / ( $90,000 + $118,000 + $73,000 ) = $16,800 / $281,000 = 5.98%

So when considering your two options, cash-out refi and buy vs. cash-out refi and payoff, calculation your return on equity for each option to the best of your ability. This metric should be very helpful in your making the best decision.

Good luck!

Jon

1 Vote

Originally posted by @Nate Ramos:

Hi Everyone,

I'm having some trouble mapping out my plan and would appreciate any assistance I can get. My goal is to purchase a 2-4plex, to house hack and take advantage of a loan down payment loan. In addition, I would like to do it with a partner for financial assistance. However, I understand that if we approach the buying process as a partnership, we won't qualify for an FHA loan.

Is there a way to qualify for an FHA loan, while still maintaining a partnership structure, and all partners receive the rewards of the returns?

I just want to ensure that I approach it correctly, without causing an issue to where we would not qualify for the FHA loan.

I hope this makes sense.

Thank you for any help!

Nate

Nate,

You should ask a lender for the specifics about FHA loan requirements. I'm 99.9% sure, though, that the loan is only available to individuals, for corporations or LLCs. You won't be able to form a legal partnership and secure an FHA loan for that entity.

Speaking more broadly, house hacking provides great return for the house hacker, but a lousy return for an outside investor. The majority of the return comes in the reduction of your cost of living.

I supposed you could work out a structure in which you pay fair market rent for your unit or room, and then profits are split thereafter. You'd still have to get your FHA loan as an individual and keep this side arrangement with partners off the mortgage. Is that what you're thinking?

Best,.

Jon

2 Votes

Originally posted by @Eric Riddle:

Eric,

I'm house hacking a duplex and have some advice:

Really, it's all about the screening. Pick a good building in a good neighborhood, then spend time with your prospective tenants to select the best.

Good luck!

Jon

1 Vote

Originally posted by @Patty Nisbet:

This is our first house hack! We are looking to purchase a house with a basement hoping to have a seperate entry or a room that can be a seperate entry. We currently have a house we rent and rent a very small room that has a seperate entry and split profits. We see how succesful it has been so we are ready to own our home and do the same thing. We just can't do what I see many people do and rent rooms in the house due to have a child and 2 dogs. I just don't feel comfortable sharing space unless when we gave a child. I am feeling so LOST on where to look. How do I know if I see what I think is a good house the location would work? Most of the house we are finding for what we can afford is inEasy Aurora or not the best areas of Aurora, westminster or Thorton. I am not sure how to know we will get STR in these areas. I would love to find something in west Denver but there isn't much. We can't fix up much the house but if we have to invest money to create a seperate entry we can do that. I have been so used to living in either downtown Denver or Park hill neighborhood. Would these suburban neighboorhoods like Centenial, Aurora or Thorton be good options? Is there a way to estimate how much I can earn in rental?

The other issue is our rental is supposed to be renewed in a month and a half and the market is so low we feel stick because if we can't find a house by the time the lease runs out we will have to resign but if we do that then we would have to wait another year or there are hige fees to break the lease.

Thanks for all advice!

I really want to make this Happen!

Patty,

Have you considered buying a duplex? I house-hacked when my daughter was a year and a half old, and the only option we considered was house-hacking a duplex.

Best,

Jon

0 Votes

Denver, Colorado

Originally posted by @Wendell Butler:

Thank you, that makes sense. It would be nice if there was a platform or website that has cap rate information regarding the geographical area. There is not a lot of inventory now where I live to do your own calculations. Also when they were last sold, the appreciation and prices have changed a lot. So it's hard to grasp a cap rate where I have this property (Northeast CT).

If you're BRRRRing a small multifamily, cap rate numbers won't be so meaningful.

Cap rate is a measurement of yield from net operating income, so it assumes the property will be operated similarly from seller to buyer. This is generally the case with large multifamily (say, 40+ units) operated by a professional property manager. There is often opportunity to same expense on the margin and raise income through turnover, but comparable 100-unit buildings in any market will cost about the same to operate (roughly speaking).

This is where cap rate is meaningful.

When you get to less than 10 units, and when you're talking about a BRRRR project -- by which I assume you mean a re-positioning -- cap rate just isn't as meaningful a metric.

I'd look at recent sales in the area and crunch numbers based on these metrics:

- cost per unit

- cost per square foot

- cost per dollar of gross income (this is called GRM, gross rent multiplier, and the equation is: Purchase Price / Gross Annual Income = GRM)

This will give you a sense of where the market is and what you can hope to achieve when you reposition your building.

Is this helpful?

Good luck!

Jon

1 Vote

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All Forum Posts by: Jon Schwartz

Jon Schwartz has started 37 posts and replied 926 times.

Post: Which beach city has the best chance of appreciation in 10 years?

Post: In escrow with foundation conundrum

Post: Any landlord advice for a new House Hacker?

Post: My First House Hack

Post: FHA House Hack Question

Post: Question for Real Estate Investment Guru's

Post: FHA House Hack Question

Post: Any landlord advice for a new House Hacker?

Post: First House Hack - Need Advice

Post: Finding/Calculating CAP Rates in Different Areas