All Forum Posts by: Leo R.

@Bruce Woodruff I agree in theory, but I've never seen a situation where 2x appreciation in 2 years (or any amount of appreciation in any amount of time) is a certainty.

Nobody knows for sure how a property will (or won't) appreciate in the future, so it's a speculation.

If the speculation is a small percentage of a person's net worth (and they can afford to be completely wrong), sure, maybe it's worth rolling the dice...  ...but, there seem to be a surprising number of folks willing to make speculations that their net worth can't support.   :(

Reminds me a bit of that scene in Top Gun: "Son, your ego is writing checks your body can't cash"

@Jordan Sachs it sounds like there are a couple separate issues:

First is the issue that the property had a major problem that would be apparent to any tenant, and the tenant did nothing to notify you or the PM about the problem--thereby making the problem even worse. You should have terms in your lease that require tenants to immediately report all issues--particularly time-sensitive issues like flooding/sewage backups. If a tenant fails to report such a serious issue, it's usually more than enough justification to look into eviction options and retain the deposit (depending on local laws). If the tenant can't be bothered to report a sewage backup so severe that neighbors smell it, that's a sign of serious incompetence/negligence--which is a major liability to you.

Second is the issue of what caused the backup. Sewer backups are often caused by tenant misuse, but not always. It is possible that the sewer backup was not the tenant's fault--for instance, tree roots are a common cause of sewer backups. Sometimes sewer mains deteriorate and collapse. So, you need to know what caused the problem, and that will presumably impact how you handle the situation. However, even if it was not the tenant's fault, the tenant's lack of reporting the issue still shows a level of incompetence/negligence that puts you at serious risk--and which more than justifies looking into eviction options (or, at minimum, not renewing their lease).

And, as others have mentioned, there are a litany of other serious red flags here from the tenant and the PM that justify corrective action on your part. What @Nathan Gesner said is 100% correct--you'd be well-advised to follow his suggestions.

Good luck!

Open question for @David Yue and everyone else; why would anyone buy a cashflow negative property?

@Juvawn Parker first off, congrats--it sounds like you're killing it (ESPECIALLY for someone your age)!

I can't necessarily tell you what you should do, but I'll tell you what I did (and it worked out pretty well):

Buy, and move in to, an A or B grade SF or small multi fam using a conventional 30 yr mortgage every year. Only buy properties you know will have sufficient cashflow as rentals. If you need to (or if you just want to maximize your returns), house hack it in year 1 to offset expenses. Then, rent it in year 2 when you move to the next property. Rinse & repeat until you hit the limit of 10 mortgages.

It's arguably the simplest way to acquire more properties with the best debt terms available.

Since you already have 3 properties, you presumably already have a lot of the necessary experience to execute this strategy (e.g.; market & property analysis experience, due diligence experience, property management experience, etc.).

And, since you also have good W2 income, if you want to mix in some other strategies (e.g.; and occasional BRRR, etc.), you can probably do that...though, I suggest that the aforementioned strategy should be your bread and butter (since it's lower risk and less work than ARV-dependent and more complicated strategies like BRRR'ing).

As for whether to pay off the debts on your existing properties...this depends on factors like: what are your current debt terms? What could you do with the cash if you don't pay off the properties right now? How do the properties cashflow now, and how would they cashflow if you paid them off?  Would paying them off result in the type of cashflow needed to help you achieve your goals?  ...and, what ARE your goals?     ...answering these types of questions will help you zero in on what move fits you best...

As others have mentioned, if you have good debt terms locked in (most investors who bought properties in the last 5+ years have EXCELLENT debt terms locked in), then it often doesn't make much sense to pay off the property (especially if it's already cashflowing). Why would I rush to pay off my properties that have debt locked in at 3.25%?  Especially when we have inflation that's WAY higher than most real estate debt, it rarely makes sense to pay off the debt....my debt is at about 3.25%, but inflation is over 8% --this means I'm literally repaying the debt with money that is worth less now than it was when I borrowed it. It's like borrowing gold from a bank, and then repaying them with gravel! (well, maybe not THAT extreme, but it is repaying a debt with something that is less valuable than what was originally borrowed --one of the few times investors have an advantage over the bank!)

Good luck out there!

New construction tends to not pencil out in most markets...and, although new construction can have some advantages, it can also have some major disadvantages that investors should understand...

Why are you only interested in new construction?

@Gloria A. unfortunately, these tenants are a lost cause. Begin the process of getting rid of the tenants ASAP--whether this is via eviction or some other means depends on your lease and local eviction laws. The longer you wait, the worse the situation will become--I can tell you this from experience.

Also, never, ever allow a new tenant to pay the deposit and rent in installments--the fact that they asked to do this should have been a huge red flag right out of the gate.

Going forward, you'll want to significantly tighten up your tenant screening process to avoid deadbeats. Fortunately, there are tons of free resources (BP blog posts, forum posts, books, etc.) on how to properly screen tenants--you'll want to study up on those materials.

Good luck!

 Extremely valuable info here...

@Kyle Swengel I don't have any personal experience with Solar, but--as others have mentioned--one consideration is the age/condition of the roof.

It would be no fun to install solar, only to have to rip it all down in a few years because the roof needs to be replaced...plus, if you had to do that, where does the power come from while you're replacing the roof?

So, I'd probably want to only put up solar if A) the roof is very new and has plenty of years left, or B) the roof is very old--in which case, I'd look into replacing the roof before adding the solar.

...but, perhaps removing the solar for a roof replacement isn't a big deal--if there are any solar experts on here, I'd be interested to know how much of a hassle, and how much cost it is is to remove and re-install solar to replace the roof....

@Joseph Crunkilton curious to know--what grade is the neighborhood, and what's the tenant pool like?

Also, what type of appreciation?

Cheers!

@Juan Rodriguez you are correct that real wealth typically comes from appreciation over the long term (assuming it's an appreciating market--which is not always the case. Contrary to what some folks preach, real estate can--and does--decrease in value if the surrounding market falters). Also, some properties don't appreciate or depreciate, but stay relatively flat. So, simply holding a turnkey property for X number of years is no guarantee of wealth--it depends on the property, and its market.

Regardless of whether the property appreciates, depreciates or holds steady, cashflow is still crucially important because it reduces the risk of losing the property. For instance, if a property produces an unanticipated $20k capex, but it only cashflows $100/mo, then its appreciated value 10 years down the road doesn't really mean much (because it has a $20k problem that needs to be fixed TODAY--and with so little cashflow, the owner might be forced to sell at a loss). Appreciation can fix your problems in the future, but it can't fix your problems TODAY (that's where you need cashflow...or cash reserves).

I don't have experience with turnkey...but, in the experience I do have, if something sounds too good to be true, it's often too good to be true--and turnkey sounds too good to be true. However, some folks swear by it, and I'd love to be proven wrong...

What has the experience been with your turnkey?