All Forum Posts by: Leo R.

@Kevin Pfeil I usually use a mortgage broker (I've worked with the same one for 7+ years and have done many deals and refis with him).

However, be advised: not all mortgage brokers are created equal. You can go to 5 different mortgage brokers, and they'll give you 5 completely different types of service, and may give you 5 different sets of loan options with different terms. Even something you'd think would be the same across brokers--like how much you qualify for--can be different from one broker to another. A good broker can help you understand all your options, will work hard to make sure the deal goes smoothly, and can get you good terms...a bad broker can completely screw up a deal.

Speaking of screwing up a deal: just because a broker quotes you the best terms does NOT necessarily mean that's the broker you should go with. It's not unheard of for a broker to quote excellent terms to get your business, and then once you get into the deal, you discover that they can't deliver on what they promised (not a good situation if you have a property under contract!). 

So, it's worth studying up on how to find a good broker, and finding one with real experience and a reputation for excellent customer service.

Good luck out there!

@Matthew Banks  if you want to be a successful real estate investor, self-managing your own properties (for a while) will give you invaluable experience--and without that experience, it will be very difficult to become a successful real estate investor (with or without PMs).

Think of it this way: trying to manage a PM (or team of PMs) without any property management experience is a bit like trying to manage a car repair shop with zero experience fixing cars, or trying to coach a team to an NBA championship with no basketball experience, or trying to manage a law firm with no legal experience. 

In order to successfully manage a PM, you need to know how to manage properties yourself--and the only way to thoroughly understand property management is to manage properties. Sure, you can learn a lot from forums, books, podcasts etc., but those things cannot replace experience...you can read every book on earth about swimming, but the only way you'll learn to swim is to jump in the pool.

If you want to be "hands off", owning rental properties is probably not what you want--because even with a PM, it is NOT a "passive" investment strategy--it takes significant effort, it's a tough learning curve, and it requires a lot of hands-on involvement.

(believe me: I wish it were as simple as buying a property, handing it off to a PM, and never touching it again while the rent rolls in...but, if it were that easy, everyone would be a multimillionaire!)

Good luck out there!

Good point about comps @Bill Brown  --Polish Hill is definitely its own thing compared to the surrounding areas, and can't be comped against the surrounding neighborhoods... 

Yes--the topography is tricky...but, that's a double-edged sword--it gives it great views, and gives the neighborhood character (some of the most expensive real estate on earth is on similarly rugged topography, with narrow PITA streets)... plus, it's so central, and so close to all the surrounding desirable neighborhoods, it just seems like it should have potential. ...but, I've been saying that for years, and I've apparently been mostly wrong about its potential... :(

Man, I miss PGH...the most underrated city in America, IMO!

LOL ....next up: a videogame simulator for doing your taxes. "TaxMaster 2023"   :)

@Elizabeth Conklin you said that the PM has been excellent other than this issue--if that's the case, I'd be hesitant to ditch them; especially since this seems like a solvable problem. 

You could ask the PM if they can have the cleaners use a checklist that includes checking for, and reporting damage...that's probably where I'd start. 

Maybe even find a way to incentivize them to follow the checklist...there are probably lots of ways you could incentivize them, but one way might be to pay the cleaners a bonus every time the property has a certain number of positive reviews (and remind them that broken furniture/stained carpet etc. will lead guests to leave negative reviews, which will mean no bonus).

Good luck out there!

@Max Hutchinson your first priority is to protect your asset--which means making sure there's enough heat to prevent the pipes bursting. You can potentially do this by putting some heat lamps or other forms of heat in the basement, but I'd just call the tenant, and politely explain that the furnace isn't running, a winter storm is approaching, and you need to access their space to confirm whether the furnace is off because it's turned off, or because something's malfunctioning.

And you also need terms in your lease for this type of scenario--I have lease terms that mandate that the temp must be kept above a certain level at all times in winter, and that tenants are responsible for damage that occurs from ignoring those lease terms.

Good luck out there!

@Daniel Ulie I have done SF and small multifam, and I have also converted some SF into small multifam.

Much of what I described can be applied to either SF or multifam.

Good luck!

@Nikki Ford welcome to the world of real estate investing!

You mentioned being interested in running the property as an STR...What makes you want to get into STRs (as opposed to the many other investment strategies)?

Have you studied up on the current market dynamics for STRs? Specifically, we're seeing significant increases in vacancy caused by an over-abundance of supply, and rapidly decreasing demand as we head into recession (vacation STR markets tend to get hit hardest in recession because recreational travel is of the first things people cut out of their budget during an economic downturn)...I don't know if this is occurring in your market specifically, but it is likely to occur in many STR markets...

...Also, if you haven't already, I'd suggest reading up on Air BnB's recent platform changes (they now focus on top-tier, highly unique properties--think: luxury beach front treehouses). As a result, lower grade, less unique, more "average" properties are suffering on their platform.

Not saying you shouldn't go for an STR, I'm just saying it's a tricky and risky market to break into right now, and there are much easier, less risky strategies for beginning investors (such as house hacking, or running your multifam property as a LTR).

Good luck out there!

@Matt VanGorder

RE: cashflow vs. appreciation... Consider this: a hypothetical "mom and pop" portfolio of five single fam, standard size 1700 sq ft, 3 br 2 ba, B grade properties each worth $500k (which is a typical value for that type of house in my city)--total value $2.5 million. 

In a year where those properties appreciate 2% (the fed's typical inflation target), that portfolio appreciates $50k. So, in a 2% year, if you wanted your cashflow just to match appreciation, you'd need to cashflow $50k across those five properties (which breaks down to about $833 per month of cashflow per property--which, in most scenarios, would be considered a pretty excellent monthly cashflow for a single fam house). 

Since 2015, my city's market has been appreciating about 10-20% per year (some years more, some less, but never less than about 7% since 2015). So, we've probably been averaging about 10% per year--in a year with 10% appreciation, that hypothetical portfolio appreciates $250k.  ...so, since 2015, that portfolio has appreciated about $250k per year on average (at 10% appreciation), and never less than $75k per year (which would be 3% appreciation)....now, granted--this year, we may not see any appreciation, and we may even see a downturn--many are predicting a downturn of 5-15%, but given the appreciation history, a downturn of 5-15% isn't so bad after 8 years of 10-20% appreciation.

Now, let's look at the cashflow of this hypothetical portfolio in more detail: five  SF 3 br 2 ba B grade properties. Let's assume that each was bought via repeated househacking on a conventional mortgage with 5% down and a rate around 3.5% (ahh, the good ol' days). By most investor's standards, if a typical single fam house is cashflowing $500/mo, that's a solid base hit...but let's say you're renting each house by the room, and each property is cashflowing $1k per month--or $12k per year--that's $60k per year cashflow across all five properties.  ...so, an excellent year of cashflow (which would probably require the hassle of renting by the room) is about the same as a year of 2.3% appreciation, and it's far below the appreciation of 2015-2022, which was easily averaging 8-10% per year.

Granted, 2015-2022 was a huge bull run. You could make the argument that appreciation will stop this year, and that we might see stagnation or even significant depreciation for the foreseeable future--that's definitely a possibility (especially in certain markets)...but, nobody knows what the future will bring...

...and regardless of what happens in the future, the person who had that hypothetical portfolio made WAY more in appreciation than they did in cashflow 2015-2022. If each property was cashflowing $1k/month (a very liberal number), that's $420k cashflow 2015-2022. But, based on a (conservative) estimate of 8% appreciation per year 2015-2022, they made $1.4 million in appreciation (and that does NOT include any compounding effects--that's just simple napkin math...factor in compounding, and it's significantly more).

Having said all that--cashflow is still critical (especially for beginning investors). As they say, cashflow if your "defense" --it helps ensure that you aren't at risk of losing the property...but appreciation is the "offense" that allows you to build real wealth.  $500 per month cashflow helps you ensure you don't lose the house, but it's difficult to get RICH off of $500 per month--that's where you need appreciation...ideally, you want a portfolio that provides sufficient defensive cashflow, with enough offensive appreciation to allow you to hit your wealth building goals.

Good luck out there!

@Matthew Hermenau if this is your first property, don't beat yourself up too much--I've definitely heard much worse scenarios from beginners.  You're treading water or making $100 per month which isn't great, but at least you're not negative (I'm always astounded--and a bit scared--by how many beginners say they're negative cashflow).

A few thoughts:

If you end up keeping this property, I'd be trying to get out of the ARM asap--that to me is a ticking time bomb. So, you'll want to explore your options with refi'ing that if you're keeping the property.

I know you said it's OOS, but is there any chance you could move into the property, or move to the area so you could ditch the PM and self manage? (frankly, I think the first few investment properties a person owns, they should self-manage because they need that experience anyway.  Trying to manage a PM without any personal property management experience is a bit like trying to manage a law firm without any legal experience, IMO).

What grade is the property and the neighborhood? If it's A or B, I may be more inclined to figure out a way to make it work and keep it. If it's C or lower, I'd be more inclined to try to get rid of it (for a variety of reasons incl. lack of appreciation, and the difficulty of managing a C or lower property from OOS).

Real estate investing is challenging enough when the property is down the street...it's 10x+ more challenging when it's an OOS property...and it's 100x more challenging if it's an OOS D property.

Especially since you're a beginner, it may be advisable to ditch this property and start off with a much more beginner-friendly strategy (like house hacking, or at least getting a property that's in your area).  

Good luck out there!