All Forum Posts by: Leo R.

 @Levi Dobson excellent question.

I think it's useful to consider this issue: What are the MOST COMMON problems people experience when they live with housemates? 

In my experience, the most common problems are: 1) there's not enough space for the people living in the house, 2) there's too much noise (created by the people living in the house), 3) there's too much mess (created by the people living in the house), and 4) the housemates don't have enough privacy.  These problems are often interrelated--for instance, if there's not enough space, this makes it more likely that the noise one housemate makes will bother another housemate.  

So, the house you get should be set up in a way that minimizes the likelihood of these problems.

A few important factors to consider:

First and foremost: you want large square footage, and lots of square footage per person.   5 housemates living in a 2000 sq ft house would probably be cramped, but 5 housemates in a 5000 sq ft house would probably be quite comfortable.

Lots of bathrooms (ideally a bathroom for every person living in the house). The more people have to share bathrooms, the less comfortable the housemates will be, and the more problems you'll have.

A layout that makes each bedroom relatively private and isolated--for instance, a bedroom that's down a hall and around a corner from the kitchen is much more private than a bedroom RIGHT NEXT to the kitchen, living room, or other high-traffic area.

A layout that minimizes the amount of traffic that goes by the bedrooms--for instance, a bedroom that's right next to the front door sees a lot more traffic than a bedroom at the back of the house.

Multiple floors, with the bedrooms and bathrooms on separate floors--for instance, I have a 3 story house that has 2 brs/1ba on the bottom floor, 2 brs/1ba on the middle floor, and 1 master suite on the top floor--this makes it so that no more than 2 people are "living" on each floor, and one person (the master suite) has a floor all to themselves--this provides a lot more privacy and living space for each person compared to a 5 br house where all br's and ba's are on the same floor.

Multiple exterior entries/exits in locations that allow tenants to come and go with minimal disturbance to the other housemates.

Carpet greatly reduces noise, whereas hardwood floors (especially old ones) can be very creaky.

A large kitchen with plenty of food storage space (and perhaps even multiple fridges and dishwashers) will be much more livable than a small, cramped kitchen.

Sufficient parking will be important.

Ideally, an HVAC system that allows each housemate to control the temp in their room would be great.

Closely consider what types of tenants would want to live in the property. For instance, will the tenants all be mature, high-income, 30-something professionals who all have plenty of experience renting properties and living with housemates? Or, is it 18 year old college kids who have never rented a property, who have no experience sharing a house with housemates, and who want to throw parties? The type of tenant the property attracts will make all the difference in the world.

Also, all the other usual principles of REI apply (e.g.; location, location, location, grade of the property, characteristics of the local tenant pool, etc. are all extremely important).

Good luck out there!

@Malinda Cardel

What made us start doing ARV-dependent strategies like flipping/BRRRR'ing? Dirt cheap debt combined with a bull market. Housing prices were going up, and the debt to buy those houses cost almost nothing.

Today, housing prices are uncertain at best, and there's plenty of evidence they're falling, and debt is 2x+ what it cost a year ago. Because of that, right now is NOT a good time to for beginners to jump into ARV-dependent strategies like flipping (even experienced pros are struggling with ARV-dependent strategies). It's very easy to go upside down on a property these days--and nobody wants to be the guy (or girl) with $300k into a cashflow negative property that will only sell for $250k.

There are better, less less complex and less risky strategies available to beginning investors (e.g.; house hacking)--I'd suggest studying up on those techniques!

Good luck out there!

@April L. also, you asked whether it's better to buy a "boring" property you can afford to get your feet wet, or is it worth the risk of partnering with another newbie to purchase an incredible property (which presumably costs a lot more and brings more risk).

This is a bit like saying "I've never skied before. Is it better for me to start off on a beginner trail, or should I tie myself at the hip to another beginner and huck both of us off a double black diamond?"

If you're a beginner, start with the simplest, most beginner-appropriate strategy (e.g.; a house hack), and then gradually build up to more advanced strategies as you gain experience. Your future self will thank you, and you'll keep your friendship!

Good luck!

@April L. I can think of a BUNCH of reasons to NOT partner.

Partnerships make RE investing exponentially more complex. 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 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.

Moreover, inexperienced investors often want a "partner" because they're (rightfully) intimidated by RE investing, and--because misery loves company--they feel more comfortable with a partner. Granted, it is more comfortable to take on a challenge with someone else at your side, but this instinct can lead an inexperienced investor to form an ill-advised partnership with another inexperienced investor (who is also intimidated, and who also wants the "support" or a partner). When that happens, now you have two people who have no clue what they're doing, tied at the hip--the blind leading the blind. As a real estate newbie, the only type of partnership that makes much sense is a partnership with someone who has all the real estate experience you currently lack (but need)--and this brings up a second question:

If you're 100% sure you need and want a partner, you'll need to answer this question: "What value am I bringing to the partnership?" ...if you're not 100% clear on this, then a partnership will never materialize, and if it does materialize, it will likely fail. The value you bring might be in the form of capital, experience, access to deals, the ability to put in a lot of work, etc., etc., but you have to bring SOMETHING to the table. ...regardless of what type of value you bring, it has to be sufficiently valuable for the partner to benefit (and if the partner is a highly experienced and successful RE investor, they ain't gonna come cheap).

Now, does this mean you should never partner with anyone, or you should give up on the idea of a partnership? No. It simply means that, if you want a partnership, you'll have to figure out answers to these types of questions, and you'll want to thoroughly educate yourself on business partnerships before forming one.

Good luck out there!

@Rob Burgess you can get some protection via a good insurance policy (I'd recommend having this regardless of whether you have an LLC). With 1 door, you might not have much equity to protect, but if you acquire more properties and build more equity, then an LLC (or several LLCs) may become more and more useful...

Also, an LLC's protections depend on whether you run the LLC properly--if you're not operating it correctly, then it won't provide much protection (there are a lot of articles/resources about this--so, it's worth studying up). A decent CPA can help you understand how to operate the LLC in a way that provides protection.

Good luck out there!

@Travis Reed the house getting trashed and parties is pretty much a guarantee for most college rentals--it's the nature of the beast. Also, keep in mind that college rentals have a certain seasonality to them. That being said, they can be good investments when done right...especially if you're renting to undergrads, you probably want to have their parents co-sign the lease...

How large is the college/university? If it's a big university with graduate students, you can sometimes reduce the trashing/partying stuff by trying to find grad student tenants...most doctoral students are too busy to party all the time, and they tend to be more mature than the undergrads. At larger universities, many of the academic departments have a coordinator for incoming doctoral students to help them find housing--connect with that person, and you might be able to tap into a source of tenants...

Good luck out there!

@Kyle Curtin one of the first big lessons I learned was how to avoid "shiny object syndrome"--which beginning investors are especially susceptible to...

When I was an inexperienced investor, I found my "dream house", a property that I instantly fell in love with. I was ready to buy that place on the spot. However, while I was succumbing to shiny object syndrome (admiring the fancy new kitchen, new hardware, and beautifully tiled bathrooms), my agent was crawling around in the basement crawlspaces, collecting cobwebs and assessing the plumbing. The basement had some un-finished spaces, but most of the basement had just been beautifully re-finished with a mother in law apartment (which I was going to rent out). 

I tell my agent to write the offer, and he says "OK, but before we make an offer, you need to understand that the entire house has galvanized steel plumbing, which will fail. It may fail in 5 years, or it may fail in two weeks, but it will fail, and when that plumbing fails, you will need to demolish substantial portions of that brand new basement MIL apartment to replace the plumbing. It will cost you approximately $35k-55k to demolish that fancy new finish work in the basement, re-plumb the house, and then re-finish the basement again. Are you prepared to take that on?" (the answer was no, and although I was incredibly disappointed, we walked). 

Point being: my agent did not succumb to shiny object syndrome, and he began the due diligence process the moment we walked into the property. ...and it saved me $35k-55k and a massive headache. A NON-investor friendly agent (or an agent looking to make a quick commission) would have said "yes, this house is SO CUTE! LET'S BUY IT!", and I would have ended up with a serious problem. That's the value of an agent who goes hard in the paint on due diligence.

Since then, I've learned to avoid shiny object syndrome, and I now know how to evaluate a property correctly. 

There are plenty of lipsticked pig properties out there, and learning to spot them was a very important lesson when I was starting out.

@Nikki Nicole as with any city, it depends on the specific neighborhood. The three most important rules in REI: location, location, location! I'd usually rather have a C house in an A neighborhood than an A house in a C neighborhood.

What grade neighborhood are each of these properties in?

@Susana Rivero I'd suggest studying up on how to find and manage effective contractors, and also run your numbers for selling the property to determine if that's a good option. Also, I'd suggest studying up on 1031's to see whether that's a viable option.

Whether to keep pushing with the rehab, or get out depends on the financial models of each option--things to consider include: how much will the rehab cost to complete? What will the cashflow and property value be after the rehab? How much effort will this unit require to manage correctly after the rehab? What are the numbers for selling the house, and what are the numbers for doing a 1031?  etc., etc.  ...in other words, figure out the numbers and all relevant factors for your various options, and make a list of the pros/cons of each option.

Good luck out there!

@Arjun Raman as I understand it, renting to an assisted living company is a completely different ballgame than renting to standard tenants--there's a whole set of laws and regulations that are specific to assisted living (and a lot of the laws/regulations differ depending on what state you're in). Presumably, there are also code requirements for assisted living buildings, probably unique lease terms, and as you mentioned--unique insurance requirements. I think there are also different categories of assisted living properties, and each category has its own requirements, pros and cons.

Of course, it's a unique niche--and some investors who put in all the time and effort to learn the unique requirements of assisted living have had some significant success.

There was a BP podcast a while ago that covered assisted living properties--I'd suggest listening to that, and reading up on the topic as much as possible.

Good luck out there!