All Forum Posts by: Leo R.

@Bryce Ericson there is no hard and fast rule--it depends on the specific property.  In many situations, an older property can be PREFERABLE to a newer property.

One of the biggest misconceptions by inexperienced RE investors is that new houses are inherently less costly/less headache to maintain, and inherently "better" than older houses. This is true some times, but in some scenarios, brand new properties end up producing significantly MORE maintenance/repair headaches than older properties.

The reasons are:

1) Some building techniques/materials are far superior to those used in the past, but some are not, and some are unproven. For instance, I'm very doubtful that pex will have a longer service life than copper plumbing. The trend toward flat roofs is just silly in most areas (bc it causes water diversion problems, which then cause a myriad of other problems). Lumber quality today is mostly trash. Etc., etc.

2) A new house hasn't gone through its "growing pains" phase. All sorts of problems can emerge in the first few years. For instance, inadequate/improperly designed water diversion systems can cause major problems (e.g.; rot, masonry degradation, foundation settling) that won't emerge for several years. I personally know people who bought brand new, multi-million dollar, beautiful luxury homes, only to have serious foundation settling over the first 5-10 years of ownership (and the repair bill was in the hundreds of thousands!).

On the other hand, an older house has been around so long that these types of problems have either occurred and been addressed by previous owners, or they're often plainly visible. For instance, if there's an unresolved settling issue, you can probably see cracks in the foundation, buckling, un-level floors, un-plumb doors, etc. ...but, if everything is solid now on an old house, it'll probably remain pretty solid for the foreseeable future. As my GC says: "if it's stood straight and true for the last 100 years, it'll probably make it at least another 25".

I own properties from the 1910s, 1940s, 1960s, and early 2000s –and frankly, the older properties are some of my best performing, and least headache-causing properties of the portfolio!

Don't get me wrong; there are plenty of issues/problems/quirks that old houses have that new houses don't, and an old house can obviously have hidden problems and big repair/maintenance bills too--which is why thorough due diligence is fundamental to REI...but, the point is: a brand new house is not a foolproof solution to repairs/maintenance headaches (and in some cases, a brand new house can be a much bigger gamble than an older house).

This is a particularly important lesson for inexperienced investors, who tend to be the most prone to "shiny object syndrome" (the tendency to let nice aesthetics distract from real, underlying issues). There are no shortage of lipsticked pig properties out there, and learning to spot them is essential for successful RE investing...we're all susceptible to "shiny object syndrome", but being aware of it is the first step to avoiding it!

Good luck out there!

Running the heat is not nearly as costly as flood damage.

You winterize by (at minimum) keeping heat on and draining exterior and unnecessary plumbing. There are other forms of winterizing like insulating plumbing, sealing door/windows with rubber gaskets, installing storm windows/doors, setting up heat lamps or other supplemental forms of heat in basements, etc. (there are plenty of articles/resources online on how to winterize a house)--but, at bare minimum, the heat must remain ON . 

Good luck!

@Sophia Oberlander there aren't many, but I have found some...in my area, America First Credit Union will do a heloc on a rental property. I'd suggest checking out your local credit unions.

Good luck!

@Mark F. excellent question...I've learned a lot about property analysis from podcasts, books etc., but there are certain aspects of property analysis that I've had to learn mostly from experience.

I often think of property analysis in two ways: 

First is "the paper assessment" (which includes the P/L spreadsheets, the appraisal, SQ footage, data on the local market, and all other info that can be easily conveyed on paper--or at least on a computer).  You can learn a lot about "paper assessments" via podcasts, books, youtube videos, etc.--for instance, you can learn how to analyze a property's financials via podcasts, articles, etc.

Second is "the physical assessment" (which includes all of the things that CAN'T be easily conveyed on paper or on a computer--these are things that often require a skilled in-person assessment of the property and neighborhood). For instance, knowing where the load-bearing walls are, knowing what types of tenants the property will attract, knowing the routing of plumbing & condition of the sewer main, knowing how noisy the street is, knowing that the house has a serious settling issue or water diversion problem, and--importantly--knowing how the property could be changed to force appreciation/rent. These are all things that are NOT easily conveyed on paper. Moreover, many parts of the "physical assessment" cannot be easily learned via books, podcasts, etc. Instead, the best way to learn about these issues is through experience--personally viewing lots of properties and having discussions with GCs, PMs, and other pros...

Here's an example: I once bought a 2 br, 1 ba A property in an A neighborhood at a discount because it was on a moderately busy street that turned off retail buyers (but it wasn't so busy that it would turn off tenants). This is info that you only learn by visiting the property. The property had an unusually large entryway that didn't have much use, and small bedrooms that probably turned off other buyers (again, I only learned this by visiting the property).  I bought the place knowing I could easily convert part of that entryway into a bathroom, and expand one of the bedrooms into the space--creating a nice large master suite. Because of the layout of the existing walls, and the routing of existing plumbing, ducts & electric, I knew it would be a fairly simple and inexpensive operation (again--I only knew this because I visited the property)...after the work was done, it transformed the place from a negative cashflow property (that mostly only appealed to college kids) into a cashflow positive property that appeals to couples, couples with a child, well-off single people, and pairs of housemates.

The "physical assessment" and the ability to see the potential of a property is a skill that can't be easily learned via books, youtube videos, etc.--because it requires actually going out and viewing a lot of different properties in-person, learning to spot opportunities that aren't apparent to other buyers, learning from GCs what is (and isn't) easily do-able, learning from PMs and agents about the local tenant pool and the unique dynamics of the neighborhood, etc., etc.

Books, podcasts, youtube videos are incredibly valuable, but there are many aspects of real estate that are best learned through direct experience.

That's a real thing--my agent has stories about people walking on properties because they didn't like the paint color!

The thing that drives me crazy about HGTV shows is that they make rehab look WAY simpler than it is in reality...in the HGTV world, EVERY house can be easily made open concept--it's just as simple as knocking down a wall!  (never mind re-routing plumbing, electrical, or HVAC duct, or engineering new structural support--in HGTV world, load-bearing walls simply don't exist!)   ...if only rehab were so simple...

Also, the unreal occupations and budgets of the guests--which have been turned into memes:  "I'm an organic, artisan ant farmer, and my wife is a professional interpretive alphornist...our budget is $5 mil."          :)

Yes--you can combine a house hack with a rehab and do a live-in BRRR (which can be less risky than a regular BRRR if you find a property that cashflows and also suits your living needs even if you're unable to hit your ARV). The downside, of course, is living in a property that you're rehabbing--if you're going to do this, it's a good idea to look for properties that are set up in a way that allow you to rehab one part of the property while you live in another part of the property; for instance, a duplex where you live in one unit while rehabbing the other, and then switch, or a house that has multiple, well-separated living areas that allow you to work on one part of the house while living in another part.

@Amran Musaid if I were you, I'd talk with my agent about how to negotiate it, and then have the agent do the negotiating...

I wouldn't necessarily walk away from the deal, but I would definitely negotiate it down to a price that I felt comfortable with, given the actual sq. footage.; i.e.; "In light of the appraisal report determining that the property is X sq feet (and not Y sq feet as originally advertised), our revised offer is Z, based on comparable properties; comp listings are attached for reference"

Good luck out there!

@Caleb Spillyards I'd suggest first zeroing in on the strategy you're pursuing--you mentioned numerous strategies that are all quite different. You are right to be wary of STRs right now (there are plenty of articles/forum posts etc. describing the risks of STRs).

I would also say that BRRR'ing and flipping are very risky and difficult at the moment (even for experienced pros). Plus, BRRR'ing and flipping are relatively advanced strategies, and you mentioned that you're a beginner--so, they don't really match your experience level... I always make the analogy that trying to BRRR with no prior REI experience is a bit like trying to surf a 50 foot wave with no surfing experience--the chances of success are slim, and there are MUCH better, lower risk ways to learn to surf--similarly, there are much better ways to learn real estate investing.

In my opinion, house hacking (a single fam or small multifam) is the single best way for people to get started in real estate investing.

Why? Because, house hacking can produce great financial returns, it teaches you essential RE investing skills, but (compared to more advanced strategies like BRRR'ing or wholesaling), it is comparatively lower risk, simple and beginner-friendly (and therefore has the highest likelihood of success).

More specifically:

1. A HH can produce great financial returns. A HH can substantially lower your living expenses, while creating cashflow, appreciation, mortgage pay down, and tax benefits. A HH can also involve opportunities to force appreciation and/or rent (e.g.; by adding an extra bedroom in a previously under-utilized space). When executed correctly and repeatedly, house hacking can be very lucrative, and there are multi-millionaires who built their fortunes on repetitive house hacking! Although it's a strategy that's good for beginners, there are plenty of very experienced RE investors who continue to HH, because it's such a powerful strategy.

2. A house hack will teach you the essential skills you'll need to succeed in RE investing. With a HH, you can learn how to analyze properties & markets, how to find an investor-friendly agent, how to spot value-add opportunities at properties, how to engage in a strong due diligence process, how to screen tenants, how to manage the property, how to build a network of contractors, plumbers, electricians and other pros, how to manage the book keeping of the property, etc., etc., etc. If you want to succeed in RE investing, getting this experience will be critical! In my experience, a HH can provide incredibly valuable lessons that no mentor, real estate course, book or podcast could ever teach (though, I'd still highly recommend reading up on relevant RE resources, listening to podcasts, etc.).

Plus, if you decide to do one of the other strategies in the future (such as BRRR'ing or out of state investing), you'll be much more prepared to do it if you have a few HH's under your belt--a ton of the lessons you'll learn from a HH can be used to succeed in other areas of real estate ...in fact, I'd say that a HH should be a necessary prerequisite to the more advanced strategies (like flipping) for most folks!


3. Compared to other strategies (like flipping, wholesaling, etc.), HH is relatively simple and lower-risk, and therefore has a higher chance of success. I always use this analogy: would you tell a beginner skier who has zero experience to ski a double black diamond (the most advanced terrain) for their first run? (obviously, no; a beginner could easily get themselves killed on double black diamond terrain!). Beginners should start off on beginner terrain, where they actually have a chance to learn and succeed. A house hack is like that beginner run (but BRRR'ing, wholesaling, and out-of-state investing are more like double black diamonds).

The fact of the matter is: real estate is often a high-stakes endeavor, and the more advanced strategies (like BRRR'ing, wholesaling, flipping, out of state investing, etc.) can easily bankrupt a beginner when they're executed poorly.

Now, having said all that, house hacking is not necessarily easy (if it were, everyone would do it!)...it's just easier than the more advanced strategies...House hacking still takes significant due diligence, skill in analyzing the market and the property, time and effort to learn about tenant screening and property management, the ability to anticipate appreciation/depreciation trends, etc., etc., etc....and even with lots of skill and preparation, things will still go wrong (vacancy, plumbing leaks, bad tenants, etc.)--but that's the nature of the game. As James Brown sang: you gotta pay the cost to be the boss.

Good luck out there!

@Timothy Burns I'd definitely suggest checking out the BP podcasts that focused on Section 8 --in particular, they had a section 8 expert guest a while ago who went into a lot of detail about his processes for tenant screening and managing tenant relations--which were incredibly in-depth, and he apparently had top-notch tenants who stayed at his properties for a LONG time (decades). Plus, his properties were all A grade (I didn't even know it was possible to have A grade section 8 properties, but apparently it is...)

Unfortunately, I can't remember the guy's name, but I'm pretty sure most of his properties were in Washington DC, and he's one of the few section 8 guests I've seen on the podcast, so if you search for BP podcasts on section 8, you can probably find it...

Good luck!

@Carlos Ventura you said you're a beginner, but BRRR'ing is an advanced strategy. Doing a BRRR with no prior REI experience is a bit like trying to surf a 50 foot wave before even learning to swim--the chances of success are low, and the chances of disaster are high. And, as @Nicholas L. mentioned, BRRR'ing is very difficult and pretty risky in the current market (even for experienced experts).  Therefore, I would suggest starting off with a strategy that's more in-line with your experience level.

Fortunately, there are other strategies that can be just as successful (or more successful) than BRRR'ing, but which are much more beginner-friendly.

In my opinion, house hacking (a single fam or small multifam) is the single best way for people to get started in real estate investing.

Why? Because, house hacking can produce great financial returns, it teaches you essential RE investing skills, but (compared to more advanced strategies like BRRR'ing or wholesaling), it is comparatively lower risk, simple and beginner-friendly (and therefore has the highest likelihood of success).

More specifically:

1. A HH can produce great financial returns. A HH can substantially lower your living expenses, while creating cashflow, appreciation, mortgage pay down, and tax benefits. A HH can also involve opportunities to force appreciation and/or rent (e.g.; by adding an extra bedroom in a previously under-utilized space). When executed correctly and repeatedly, house hacking can be very lucrative, and there are multi-millionaires who built their fortunes on repetitive house hacking! Although it's a strategy that's good for beginners, there are plenty of very experienced RE investors who continue to HH, because it's such a powerful strategy.

2. A house hack will teach you the essential skills you'll need to succeed in RE investing. With a HH, you can learn how to analyze properties & markets, how to find an investor-friendly agent, how to spot value-add opportunities at properties, how to engage in a strong due diligence process, how to screen tenants, how to manage the property, how to build a network of contractors, plumbers, electricians and other pros, how to manage the book keeping of the property, etc., etc., etc. If you want to succeed in RE investing, getting this experience will be critical! In my experience, a HH can provide incredibly valuable lessons that no mentor, real estate course, book or podcast could ever teach (though, I'd still highly recommend reading up on relevant RE resources, listening to podcasts, etc.).

Plus, if you decide to do one of the other strategies in the future (such as BRRR'ing or out of state investing), you'll be much more prepared to do it if you have a few HH's under your belt--a ton of the lessons you'll learn from a HH can be used to succeed in other areas of real estate ...in fact, I'd say that a HH should be a necessary prerequisite to the more advanced strategies (like BRRR'ing or flipping) for most folks!

3. Compared to other strategies (like BRRR'ing, wholesaling, etc.), HH is relatively simple and lower-risk, and therefore has a higher chance of success. I always use this analogy: would you tell a beginner skier who has zero experience to ski a double black diamond (the most advanced terrain) for their first run? (obviously, no; a beginner could easily get themselves killed on double black diamond terrain!). Beginners should start off on beginner terrain, where they actually have a chance to learn and succeed. A house hack is like that beginner run (but BRRR'ing, wholesaling, and out-of-state investing are more like double black diamonds).

The fact of the matter is: real estate is often a high-stakes endeavor, and the more advanced strategies (like BRRR'ing, wholesaling, flipping, out of state investing, etc.) can easily bankrupt a beginner when they're executed poorly.

Now, having said all that, house hacking is not necessarily easy (if it were, everyone would do it!)...it's just easier than the more advanced strategies...House hacking still takes significant due diligence, skill in analyzing the market and the property, time and effort to learn about tenant screening and property management, the ability to anticipate appreciation/depreciation trends, etc., etc., etc....and even with lots of skill and preparation, things will still go wrong (vacancy, plumbing leaks, bad tenants, etc.)--but that's the nature of the game. As James Brown sang: you gotta pay the cost to be the boss.

Good luck out there!