All Forum Posts by: Leo R.

As others have mentioned, screen her again using the criteria you would for a new tenant to make sure she can afford the more expensive unit, etc. and make sure she did take care of the previous unit... assuming she's a good tenant and she matches your criteria, then yeah; I'd let her move. Just remember to update her lease, and have her update her deposit and last month's rent to correspond with the new rent amount. 

...I have tenants who transfer from one of my units to another on a somewhat frequent basis (usually it's tenants who want to upgrade from a cheaper unit to a more expensive, nicer unit)...because my portfolio includes a fairly wide array of locations, property types, and price points, a tenant can move around within the portfolio and find whatever type of unit matches their needs. Because of this, I often have tenants who remain within the portfolio for 5+ years, which really cuts down on my turnover expenses, vacancy, risk, and management headaches. It's almost always better to keep a good, proven tenant than to take on all the risk of a new, un-proven tenant.

@Chris Hoffmann investing borrowed money (like HELOC funds) is often extremely risky...very smart, very experienced people have gone bankrupt trying to invest borrowed money.

Of course, it also depends on how large the HELOC debt is compared to your overall financial picture. Warren Buffet can afford to use $100k of HELOC funds on an investment because that borrowed money is just a tiny fraction of his net worth--even if he lost it all, he could easily pay off the debt with other funds and move on with his life. Most people are not Warren Buffet.

As others have mentioned--even if you ignore the significant risks of investing borrowed money--the difference between the HELOC debt service and the investment return would likely be very minimal.

Good luck out there!

Last I checked, both america first credit union and golden west credit union would do HELOCs on rental properties in Salt Lake City. ...of course, whether using a HELOC to buy a new property is a good idea or not is an entirely different discussion--it depends on many factors (e.g.; your current financial position, the deal, projected cashflow on the new property, your existing portfolio, your goals, what percentage of your overall net worth and cashflow this deal would consume, etc., etc.)...as others have mentioned, it's very easy to become over leveraged and find yourself in hot water--so you'll want to use very conservative financial models, and have some experts check your models for errors/omissions before moving forward...  Another (probably simpler) option is to buy a house as a primary residence at 5%-20% down (using cash you've saved), house hack it for a year, and then move on to another property.

Good luck out there!

@Jason Ruello a beginner trying to start with STRs is a bit like a beginner skier trying to go down a black diamond (the most advanced terrain). The chances of failure are high because you don't yet have the experience that's required for the strategy...I'm not saying it's IMPOSSIBLE for a beginner to be successful with STRs, I'm just saying that there are simpler RE strategies that are better-suited for beginners. I always suggest starting with the simpler strategy (like house hacking), and then working your way up to the more advanced strategies (like STRs) as you gain experience.

Good luck.

@Peter Jin it depends on a million different factors other than the CoC.

For instance, a 10% return on a turn key A grade property might be solid, while a 10% return on a C or D grade might be a nightmare. 

Also, it depends on the circumstances of the investor. A 60 yr old investor with a $30 mil net worth is in a completely different position than a 30 yr old investor with a $25k net worth--a "good deal" for one might be a terrible deal for the other.

In real estate, there are no simple rules that you can always follow in all circumstances because RE involves so many moving pieces...you have to make a list of all of the relevant factors for a deal, and make a decision based on that, and your own circumstances.

@Sam Munroe as a general rule of thumb, small multi fams will often have better cashflow, and single fam properties will often have better appreciation.

cashflow vs. appreciation is a perennially discussed topic on BP and around other real estate media spaces, and it's well worth educating yourself on the topic.

As is often mentioned, cashflow is similar to defense in the sense that it's relatively unlikely for a good cashflowing property to go into default....but, it's difficult to get truly wealthy from cashflow alone. Appreciation is often compared to offense, in the sense that people who get truly wealthy often get there via good appreciation.

Here's an example; let's say you have 10 properties that are each cashflowing at $1k per month, so $120k total cashflow per year...not bad, right?

Now, let's say you own 10 properties that are each cashflow neutral--the incoming rent is exactly the same as the outgoing costs of operation--you don't make or lose a penny on them each month in terms of cashflow.  However, each of those 10 properties is worth $500k, so the whole portfolio is worth $5 million. If the market appreciates just 3% in a year, that $5 million portfolio gains $150k in equity...if the market appreciates 5% in a year, that's $250k of gained equity.... In a crazy year like some markets had in 2021, 15% appreciation would equal $750k in gained equity on this portfolio in 12 months....  so, you can see how in a year with decent appreciation, the appreciation can very quickly eclipse the cashflow...

Because cashflow is similar to "defense" and appreciation is similar to "offense", different investors will prioritize them differently depending on their position....for example, for a beginner with a relatively low net worth, an unexpected capex of $25k could be devastating if they don't have sufficient cashflow--so for them, a property that cashflows $100/mo vs. $900/mo could be the difference between survival and bankruptcy (they need the cashflow to cover that capex NOW; they can't wait several years for the property to appreciate, so adequate cashflow is critical) ...but a more experienced investor with a net worth of $10 mil can easily survive that unexpected capex of $25k, and to them, whether the property cashflows $100 or $900/mo might be trivial if the property is appreciating well..

Of course, appreciation isn't guaranteed, and real estate can (and does) depreciate in some markets... also, in today's market, it would be very difficult to get a typical single family (or even some small multifams) to cashflow at $1k/mo as an LTR....and then there's the important matter of taxation...all of these are additional factors you'll want to educate yourself on...

There are a LOT of moving pieces to consider in REI.

Good luck out there!

@Alexa Rooney I'm also in SLC and have built a good portfolio here using strategies similar to what you describe-- though the market is obviously very different today than it has been in prior years. As you probably know, since prices are still so high, and rates probably aren't coming down any time soon, value-add strategies and house hacking are often the only way to make properties pencil out in SLC right now....

As others have mentioned, adding a basement ADU, a bedroom, and/or a bathroom *can * increase the potential cashflow of a property. My biggest returns have been from adding basement ADUs (though, there are a lot of hoops to jump through and potential pitfalls with that strategy). Back when rates were in the dirt, it was possible to build a basement ADU using HELOC money, and then refi that debt into a mortgage on a different property--and the new lower rate would often offset the debt, and the end result was a big increase in cashflow. Unfortunately, that strategy is rarely feasible these days because most investors already have low rates locked in, and rates are increasing :( ....but, there are plenty of other strategies to choose from...

I've looked into building free-standing ADUs (garages with apartments on top), but I've had trouble getting those strategies to pencil out--the cost to build is often too high...but, I'd be interested to hear if anyone in SLC has succeeded with that strategy...

House hacking is arguably the best way for new investors to get started, so I'd definitely recommend reading up on that if you haven't already...A good portion of my portfolio was built via repetitive house hacking--it's a great strategy because it's relatively simple, relatively low-risk, it can produce great returns, and it provides TONS of invaluable experience related to REI and property management.

Just a heads-up: building an ADU in a basement can impact the property's value (and not always in a good way). For instance, if the ADU isn't permitted correctly and/or if there are zoning issues, that can potentially cause issues in the future if you go to sell the property --a topic worth studying up on, if you decide to build an ADU.

Let me know if you have questions.

Cute puppy!

@Jacob James how much REI experience do you and your friend have? (It sounds like you're just getting started).

Here's why I ask: partnerships make RE investing exponentially more complex. OOS investing also makes things exponentially more complex. So, you're combining two very advanced strategies, each of which will make the process exponentially more difficult. In fact, partnerships and OOS strategies are so advanced that even plenty of highly experienced real estate investors avoid them (though, plenty use them as well). 

 With a partnership, you have a whole array of moving pieces that you don't have when you're flying solo (e.g.; cost responsibilities, profit sharing, decision making authorities, work responsibilities, contracts & corporate agreements, etc., etc.) Every single one of these moving pieces will cause more work for you, and every single one is a potential point of conflict and failure in your venture. Although partnerships can be useful for some investors, for inexperienced investors, they often cause more problems than they solve. Often, the only party benefitting from a partnership is the attorney raking in the legal fees to broker and create the agreements, contracts, etc.

With OOS investing, you have a dozens of potential failure points that don't exist with local investing--lack of familiarity with the market, total dependence on PMs, less control of the due diligence process (esp. if you don't view the property in-person), far less ability to take control of the property when problems occur (like problems finding tenants, capex, etc.). All successful real estate investors know that two of the MOST important factors are 1) thorough due diligence, and 2) good property management--with OOS investing, you're putting both of those things in the hands of other people.

I'd definitely suggest reviewing the forums for posts from beginning investors who buy OOS...it seems like every few days we hear from a new investor on the forums who tried OOS investing and got themselves into a really bad situation. The story is often the same--they found a property that "looked great in pics" and "had great cashflow on paper", but it was in a C or lower area. Soon enough, they discover that no PM will put in the major amount of work required to correctly manage in a C or lower area (because there's no financial incentive--PM'ing in a C or lower area is like taking the worst job in the world for less than minimum wage). Eventually, the PM goes MIA. At this point, the property is often vacant, or it's occupied by deadbeat tenants who refuse to pay (C areas tend to attract C tenants...plus, why should they pay? They haven't seen the PM in weeks!). So now, the poor investor is stuck with a property that nobody will manage, that's bleeding money, that no qualified tenant wants to rent, and that nobody wants to buy; all because they bought in a C or lower area and ignored the three most important rules of REI--location, location, location!

Does this mean people should never do partnerships or OOS investing? Of course not--plenty of folks have built empires via partnerships and OOS investing! But, it's well worth examining the aforementioned issues closely and being brutally honest with yourself about these issues--and this is 1000x more true for beginning investors. 

Here's the good news: there are far simpler REI strategies with far fewer failure points that can be just as lucrative (like house hacking your own property). If you're just starting, it may be worth starting with the simpler strategies first, and then build up to more advanced strategies as you gain experience. In other words, it's a good idea to learn to swim before trying to surf a 50-foot wave.

Good luck out there!

@Michael Janzer you mentioned it's a tiny town, which leads me to assume that appreciation will be minimal (and the property might even depreciate). Also, if the town is very small, it means that if one of your tenants leave, it can be very difficult to find a new tenant. 

My two cents: managing 8 units (a lot of work) for $9300/year cashflow in a low appreciating area doesn't sound worth the effort to me...Also, $9300/year cashflow would be very thin ice for 8 units in most scenarios (with 8 units, there will almost definitely be fairly regular capex events, and just one or two capex events could easily put you in the red). 

Good luck out there!

 ...If you wanted to get really crazy with it, you could house hack the house hack by buying a property that had space & hookups for your van, and living in the van while you rent the rest of the house...