All Forum Posts by: Larry K.

Multi-family plus: will typically have better net income and cash flow

Single-family plus: no conflict between tenants

I remember Donald Trump being a guest on talk show and someone stood up and asked "what separates you from other real estate investors like Carlton Sheets."

Donald paused for a moment and said something like..."I guess its fame because I have never heard of him but I suppose he has heard of me. I honestly don't know who he is"

Robert Kiyosaki recently (about 2 years ago) put out a book profiling several real estate experts, Carlton Sheets was one of them.

Jason, buying a duplex to hold is exactly what I just for my first deal. In my case I rehabbed and am now holding it. You'll want to make an analysis chart of the gross income, expenses, net income and cash-flow. If you'd like to provide more information I'll help you as best I can.

I have heard others on the site who go by the property to pick it up. Others have found a way to have the tenants deposit it directly into your account with deposit slips you give them. I just have them mail it to me

Really what this comes down to is education for yourself and your spouse. As you are educating yourself also educate your spouse. Your spouse will become more comfortable as the codes are cracked and you both become more knowledgeable. Make it so that you can stand next to a flip chart and show your spouse exactly how and when that money from your HELOC/IRA/Wherever is going to be invested, perform, and returned to you. Make it so that they can also teach someone else. It isn't always just about how much you know. It is also about how much they know after listening to you.

Of course focus on the positives: wealth, change family tree forever, time with family, etc.

But also look at the negatives of not doing it....

Start asking yourself and ask your spouse to also ask "What makes your job so much more secure". You could be called in one day for no wrong doing and you'll be without that job you relied on. Only you'll be many years older. Better to have means to take care of yourself. Real Estate is a great means so you are right to want to start.

It took me a while to do this as well but my wife got on board completely. It can take time so understand this is very common.

Jason Grote
How high are you filling the pipes with water?

Perhaps we are speaking of two different types of tests.

I am speaking of a test that fills the drain/vent pipe system all the way up to the roof vent. You plug the drain at the basement, go up to the rooftop and fill the vent pipe with a garden hose until every part of the system fills up and water overflows the vent pipe at the roof. In a house that is just rough framed this is no big deal. In a finished house if you get a blow-out...water, water everywhere.....

I did mine as part of the rough plumbing inspection during construction.

Are you speaking of a different kind of test?

Jason Grote
Wow. I did the hydrostatic test to my own house when it was only rough framed. Doing it in a finished house sounds very risky. Also the pressure during normal usage is minor compared to the test. Meaning just because the test blows out water does not mean you'll get leaks during normal usage.

I don't think I'd ever let a buyer do this to a house I still owned nor would I ask a seller to have it done if I were buying. I think you just look for signs of leaks (staining, etc.)

Any code violations are equally violations whether or not the work was done with a permit. If he has not done the final apartment with a permit then he probably also has not done the other 3 apartments with a permit.

I would ask yourself the question "if the final apartment were not under renovation at this point would I be concerned about whether the other 3 were done without a permit". I guess you would not be.

If you want to inquire "under the radar" you could probably call the state and find out if an owner occupied 4-family requires permits. The local jurisdiction probably follows state laws regarding this. In my state, most work would need a permit for such a property.

You might want to have a registered architect also look at it for you. Most home inspectors are knowledgeable about the physical property but not as much about multi-family life safety codes (in particular fire protection such as sprinklers, interconnected smoke detectors, wall ratings, egress, etc.)

You also might want to obligate the seller to obtain the CO. Otherwise you could be in for a rude awakening when you try to get it.

Cap rate can be useful to help you determine if it is a good deal or not. Like maybe above an 8 is where you'll need it to be to cash flow.

However, for single family and duplexes, the cap rate does not really apply in the way it does for larger true commercial properties (perhaps for a 4-family it might). For these commercial properties there is a going rate for cap rates in your market for that type of commercial property (office, retail, industrial, and 5+ multifamily). An experienced, local commercial broker who is on your side can help you with this.

Run the numbers yourself for your deal and see if makes sense to you.

Why not do both? Buy, rehab, then hold.

You would have the same equity if you hold after rehab than if you your were to sell after rehab. The equity is just "in the property" instead of in your pocket. Plus when you sell after holding for a year you'd pay taxes as capital gains and not as income.

This would contrast a buy and hold (without rehab) whereby I think this is more "parking" money for the cash flow with no added equity (until appreciation). Unless of course you had some killer buy where you could buy equity right in. Could be done with good connections I suppose but this is less common.