All Forum Posts by: Leo R.

@Thomas O'Donnell as others mentioned; in general, if it's an item that breaks due to typical wear & tear, that's usually the owner's responsibility, whereas items that break due to tenant negligence/misuse are usually the tenant's responsibility.

In my experience, one of the more common tenant-caused problems involves plumbing blockages (e.g.; tenants dumping food scraps down sinks, flushing stuff down toilets etc., and blocking the drain lines in the process).

So, it's a good idea to have very clear terms in the lease for these issues--terms that state that the tenant is responsible for all costs associated with plumbing blockages (including costs stemming from flood damage that results from plumbing blockages).

Having said that, I'm not a lawyer, and the legality of including these types of terms in a lease may vary from state to state.

Good luck out there!

@Ted Kaasch Long story, but a good one:

Back when I was a relatively inexperienced investor, I got a 2 am phone call from a tenant. The finished basement (which included bedrooms their children were occupying) was flooded with 6 inches of water! Worst of all, it was ground water--coming up from underneath the slab, and there was no easy way to stop the flooding.

Adding insult to injury was the fact that this was the third time in six months the house had flooded. After the first flood, I dug some French drains around the exterior of the house. After the second flood, I dug out a standard-size sump and installed a pump in the basement. No dice. Clearly, I needed to pull out the big guns.

Every bone in my body wanted to sell the house, sell all of my properties, and quit RE investing. The next several months were extremely stressful; the tenants left, I watched my bank account get lower by the day, and I spent every waking hour trying to figure out a solution. ...for weeks, I thought I was headed for bankruptcy, and I assumed the entire house would need to be razed (who would buy a house that has regular, unpreventable floods?). Plenty of people made fun of me for this debacle... It was one of the most demoralizing experiences of my life.

I hired a hydrologist who helped me understand how water moves underground, and potential solutions (best few hundred bucks I’ve ever spent). Unfortunately, none of the solutions he proposed were easy.

I stripped the basement of its finishings, jackhammered through the slab, and dug three sections; one was about 15x5, another about 12x5, and one about 20x5. All of them were dug about 4.5’ deep. Worst of all, the basement had no exterior door, which meant that approx. 30-40 tons of water-logged clay had to be removed by hand, one bucket at a time, through a window! (I put my gym membership on hold that winter).

Then, I installed industrial-grade perforated pipe that was roughly 3’ diameter (the type of thing you might see kids crawling through at a playground), and three industrial-grade sump basins, each of which were 65+ gallons (large enough for a full-grown adult to crawl into). The pipe and basins had to be sourced from a company that provides supplies for city infrastructure (this ain’t stuff you can pick up at Home Depot). I added an industrial grade pump to each of the three basins, each of which I plumbed separately.

Then, I back-filled everything with sewer rock (which, again, had to be brought in by hand, one bucket at a time, through a window), and then I re-poured the slab and re-finished the basement.

THEN, I dug a pit along the exterior of the house: 10’ x 20’, and about 10’ deep. Again, all dug by hand (this was back when I had no money, and couldn’t pay for an excavator). Added more industrial-grade perf pipe, and a vertical access pipe so I could drop in another pump if needed. Backfilled with another truck load of sewer rock.

As luck would have it, that Spring was the wettest on record in our City—rain, rain, rain. Every day, I held my breath waiting for the new tenants to call me saying the house was flooding (talk about anxiety!). ….aaaand….nothing.

Many years later, and the basement has remained bone dry (knock on wood).

Even more astounding—I got a call from a neighbor who owns a house across the street, about 50-75 yards away. He told me he’s owned his house since the 1970s, and that his unfinished basement has flooded almost every Spring since he bought the place…until, you guessed it. He’s never had a flood since I finished my little project…So, it seems that my absurd drainage system is not only draining everything under my house, it’s also draining the entire surrounding area!

Today, the “flood house” is the best cashflowing property in my portfolio (the cashflow potential is a major reason I put in so much effort to fixing the problem).

Every time I hear someone mention REI as a "passive" form of investing, I smile and think back to when I was knee-deep in mud, excavating truckloads of clay by hand, one bucket at a time through a basement window. "Passive" lol.

 100% 

Repetitive house hacking is one of the most efficient, simplest ways to build wealth.

Folks often lament that "it takes work to move every year" ...true...

But, y'know what takes a LOT more work?    Rehabbing a house.  :)

@Michael Lonsdale I'd say go with option F: forget BRRR'ing for now (it's pretty risky given the current market, and even experienced pros are failing to hit their ARVs), and instead buy a new primary that you'll house hack (if you want, you can do a live-in BRRR). You'll get much better financing terms, it will greatly increase the number of properties available to you that pencil out, and it's lower risk than BRRR'ing (esp. BRRR'ing on hard money). Plus, when done correctly, a house hack will lower your expenses while increasing your income in a single step--the fundamental key to building wealth.

Good luck out there!

and as @Courtney Jones notes; one 4plex may or may not always be easier to manage than four single fam houses....In some scenarios, the 4plex will be easier, but in some scenarios, the four houses might be easier.  

For instance, there are some markets where it could be a lot easier to find tenants for four houses than for four units in a 4plex (and there are markets where the opposite is true). There are markets where the tenants looking for houses are more qualified than the tenants looking for 4plex units. As Courtney mentioned, a problem at a 4plex can potentially affect multiple units (or all of the units), whereas a problem at one house will generally be contained to that one house....along those lines: if a problem occurs at a 4plex (like the electric going out, or a fire), it could affect all of your tenants, but a problem at a house only affects the tenants in that house...

However, when you're doing things like tenant viewings, it is easier to only be driving to a single 4plex compared to driving around to four different houses (esp. if those houses are far apart).  ...also, the 4plex might only have one sewer main, one electrical main line, fewer windows/doors, and fewer things to break in general than four separate houses, which could result in lower operating costs...

There are a lot of "double edged swords", too; for instance--it may be easier and cheaper to replace a roof on a single 4plex than on four separate houses. HOWEVER, if replacing the roof at the 4plex means that you have to vacate all four units, then that vacancy could be a tougher pill to swallow than if you replaced each of the roofs on the four houses one at a time (thereby only having one unit vacant at a time).

Another consideration: small multifam often has better cashflow, but singlefam often has better appreciation. It's also easier to sell a singlefam than a small multifam (all other things being equal).

So, I don't think there's necessarily a clear "winner"; each approach comes with its own pros and cons.

 It's difficult enough to build ONE OOS team, let alone multiple OOS teams...

 If the lender/mortgage broker is really good at what they do (which it sounds like they are), then they should be providing you with this level of service anyway.  

Similar to my agent, I've worked with my mortgage broker for years, and he's provided me with a wealth of information and education.  On a somewhat regular basis, we will have multi-hour long conversations or lengthy email exchanges to discuss a myriad of financing issues.  ...he's not my employee, but I am one of his best clients, so he knows that helping me be the best investor I can be helps him in the form of reliable business. In other words, it's in his business interests to give me the highest level of service possible. I doubt I'd get any better service from him if he were my employee (heck, I might even get WORSE service from him if he were my employee, since he wouldn't have the same sales-based incentives as he does now).

I should note that I got excellent service from this broker before I had proven myself as a repeat client (which is why I became a repeat client). ...Additionally, I had to filter through several not-so-great brokers before I found a good one... But, point being: if you've found a good broker, build a good relationship with them by being a good client, and they should continue to provide you with great service (no hiring needed!)

@Pat Rach an agent could probably explain this better than me, but when a property is "under contract", it means that the buyer and seller have agreed to a contract to sell the property at a certain price (provided certain conditions are met), and which describes all the terms that will govern how the parties will proceed with the sale of the property.

This contract typically includes the terms by which the seller is able to engage in due diligence (e.g.; terms governing how the buyer can inspect the house, check the title of the property, etc.). Importantly, the contract also includes terms that prevent the seller from selling the property to someone else while the contract is in place, and terms that prevent the buyer from exiting the contract except under certain circumstances.  Contracts also often include terms related to earnest money, how the buyer will pay the seller, the timeline for the due diligence process, the terms of the inspection (or lack of an inspection), the agreed-upon location, condition, dimensions and features of the property, how much the seller's and buyer's agents will receive, etc., etc.

In a nutshell, the contract lays out what is being sold, for how much it is being sold, and all the terms that govern how the buyer and seller will proceed with the sale--and it also makes it so that the buyer and seller can only back out of the sale under certain conditions (which helps prevent buyers or sellers from "flaking" out of the sale for frivolous reasons).

Except under certain conditions, canceling a contract usually means serious penalties to the seller and/or buyer; these penalties can include financial penalties, legal liability, and also the inherent penalty to both the buyer and seller of lost time, effort and missed opportunity.

Having said that, it is possible for a buyer or seller to cancel a contract. Although you generally want to avoid canceling a contract in most scenarios, and there can be significant penalties for canceling a contract, it is sometimes necessary. 

I rarely cancel contracts (mostly because I do pretty solid due diligence before I even make an offer), but I have had a couple instances where I had to cancel contracts--once when my post-contract due diligence discovered serious problems that the seller hadn't disclosed, and another time when a totally unpredictable event significantly changed the value of the property while the property was under contract. In both instances, my reasons for canceling were legitimate, verifiable, and legally sound--and as a result, I didn't have to pay any penalties for the cancellation (other than wasted time, and the disappointment of not getting a property I had been really enthusiastic about)...but, that's the nature of the game sometimes...

Hopefully that's useful info.

 1. Most investors (myself included) generally say that if your goal is to be an investor, then there's not much point in getting your license...it's a better use of your time to focus on learning how to invest and find an experienced, investor-friendly agent to do the agent work for you. I've worked with my agent for years, and he's an integral part of my operation. A good agent provides a second set of eyes for your due diligence process, which can be the difference between successful REI, and total catastrophe--and this is 1000x more true if you're a new, inexperienced investor!  A good agent can help you spot value add opportunities while steering you clear of potential disasters.  I'm a pretty experienced investor, but I still rely heavily on my agent to be the extra safety net in my due diligence process, and he's saved me from making mistakes that would have cost me tens of thousands MULTIPLE times. In fact, my agent is as important to the property inspection process as the actual inspector. 

...the problem, of course, is finding an agent who understands all of the factors that go in to successful REI, and who understands how to spot impending capex problems at properties (this is a whole other topic in and of itself). Agents with those skills are few and far between, so when you find one, treat them well.

2. RE: paying your mortgage broker as a contractor. I have zero idea of the legality, advisability, or feasibility of this, but more importantly, I don't understand WHY you would do this?

Also, I don't know if this is necessarily true, but my impression is that credit unions are more likely to do HELOCs on rental properties than traditional banks....I could be totally wrong about that, but that's just my personal experience (maybe some of the lending pros on here can tell us whether I'm correct about this)