All Forum Posts by: Leo R.

@Gurjot Grewal your contingencies seem reasonable to me, given that you include the pre-approval info in your offer...I would not necessarily suggest dropping any contingencies until you have a better idea of WHY your offers aren't being accepted (at this point, it sounds like you're not sure whether they're being rejected because of the contingencies, or because of some other reason).

You mentioned you live in Canada, but it sounds like you're making offers on property in the U.S?

This is a topic I don't know anything about (because I've never tried to buy a property outside my country), but I'm wondering if the sellers know that you're in Canada, and whether that would potentially turn them off?  ...is there anything that the sellers receive that indicates that you're in Canada?  ...if so, does your agent have any sense as to whether this might turn them off from your offer?

All things being equal, I would think that a seller would prefer to sell to a US buyer than a buyer in another country.

(Again--this is WAY outside my area of expertise, and I don't know anything about the legal aspects of sales to a buyer outside the US, so it's just a total shot in the dark).  ...but I'm interested to hear your take on it...

Good luck out there!

@Don Shoemaker I'd suggest checking out Morgantown, WV.  It has one of the largest universities and health sciences center/hospital in the region, often pretty reasonable prices, and probably potential for cashflow. I'm not certain, but I think taxes might be low there, too. However, be forewarned: it is definitely a university town, meaning that the tenant pool is transitory and seasonal (i.e.; it's mostly undergrad students, grad students, traveling nurses, medical residents, etc.).  

I don't personally own property there, but I lived there for many years and have considered going back to buy property...

I'd also suggest looking into Pittsburgh, which has a lot of the advantages of Morgantown, plus big city amenities and a much more multi-faceted economy (though, I think their taxes might be a little trickier...you'll want to ask a local pro about that).

Good luck!

...another factor in this conversation is that in many cities (mine included), the most desirable neighborhoods are closer to the city center, and those tend to be the oldest neighborhoods in the city. ...whereas the less desirable neighborhoods are often on the outskirts, and those tend to be the relatively newer neighborhoods (that were built over the years as the city expanded)...

So, in cities with that type of layout, if you want a property in one of the most desirable neighborhoods, it often means you don't have much choice--the house is probably going to be pretty old.   

@Matt M. back when they built things to last.

@Trey Bagby  the age alone isn't really enough to go off of, and age alone wouldn't affect my decision to buy a property...we'd need more info to give you any good feedback on this house specifically. For instance, what grade is the house, and what grade is the neighborhood? What type of tenants will it attract, and how easy will it be to find tenants? What types of issues does the house have?  Are there LBP and/or asbestos issues that need to be addressed? Does the floorplan need to be re-arranged? What items will need to be completed for the rehab, etc., etc.

Other than age-specific issues like LBP and asbestos, the things I'd look for on an old house would be much the same as what I'd look for on a newer house--these things would include: signs of water diversion failures (such as rot, peeling paint, masonry damage), settling issues, the type and age of plumbing, HVAC, and electrical, the condition of the sewer main (scope it), the type and age of windows & doors, a meth test, a radon test, etc. etc.

I have properties from the 1910s, 40s, 50s, 60s, and 2000s, and frankly--the older properties are often my favorites, and some of them are the best-performing properties in my portfolio.

Just being an old house doesn't--in and of itself--make a property "good" or "bad"...plus, old houses sometimes have charm and aesthetic appeal that no new house can touch. You mentioned this house is '20s--the '20s and '30s were arguably the greatest era of American architecture, and there are some incredible homes from that time period!

In some scenarios, older houses can have other big advantages over newer houses.

In my opinion, the idea that “new houses always cost less to maintain than old houses” is one of the biggest misconceptions among inexperienced investors! A new house might be less to maintain, but there are plenty of scenarios where a new house will cost you WAY more to maintain than an old house. Why? Well, for one, some new building materials and methods are unproven at best, and junk at worst. For instance, many pros are very skeptical that pex will have the service life of copper plumbing. Sure, some modern building methods are far superior to what was used in the past, but lots of building methods used today aren't nearly as robust as in prior generations (ask an experienced GC).

....Additionally, a new house is still in its "growing pains" phase, and a lot of serious problems can emerge in the first few years of ownership--e.g.; foundation/structural settling, improper water diversion systems creating rot, etc. On an old house, those issues have usually been resolved--and if they haven't been resolved, they're often plainly visible (e.g.; big cracks in foundation, signs of water diversion failures, etc.). ...But on a new house, there's often no way to know what lies ahead. I know people who have bought new, beautiful, multi-million dollar, "turn key" luxury homes only to have to deal with major problems in the first few years of ownership.

Obviously, old houses often come with their own issues (asbestos, LBP, funky floorplans, and the all time most reprehensible sin against humankind: the carpeted bathroom) …but, if you know how to manage these issues, they’re usually things that can be fixed…plus, there’s the satisfaction of saving a cool old house!

Good luck out there!

 @Lisa Vu the newly built apartment complex probably isn't a particularly good comp--it's a brand new place, and a completely different type of property--likely with a completely different type of tenant experience. You'll want to find more accurate rental comps (properties that are the same grade, and the same type of property, as this triplex. i.e.; other small multifam properties).  ...the big new apartment complex is almost irrelevant--they're playing a different game.

I'm not a lender, but I've never heard of lenders denying a mortgage because of moving to a smaller property...and in fact, I've personally known people who have done exactly that (they had a mortgage on a large property, and then bought and moved to a smaller property--and they had no problem getting a mortgage for the smaller property)   ...so, I'd suggest looking into it more and asking the lending pros on these forums about it...  (if any lending pros are following this thread, please let us know)

And, as @Anthony Angotti mentioned; it's a good idea to run the numbers on a deal analysis calculator, and post the results on here...

Good luck!

I see some potential pros and cons to the deal...

So, with 3300 gross rent, and 3076 in gross monthly expenses, you're cashflowing less than 300/mo (or less than 100 per unit), which in most scenarios, isn't great...it might be OK in an A+ area with A+ tenants, but in most other situations it would be fairly mediocre...

On the positive side, grossing 3300/mo rent on a 300k property is exceeding the 1% rule (you'll want to read up on that, if you haven't)--and this indicates that if you use the right financing strategy, the property might be a good deal...

On the negative side, what's your cash on cash return on this deal? (if you run the numbers, I think you'll find it's pretty low).

So, I think it's relevant to ask: is there a way to acquire the property without paying so much cash? (doing so would increase your CoC return). ...if you could buy the property with an owner occupant mortgage at 5% or even 3.5% down, move into one of the units and live there for a year, that would completely change the financial model, and it might become a good deal--is that feasible? And if so, what do your numbers look like with that approach?...

I think you either need to do that, or have a viable plan of dealing with that 300k HELOC debt so that you don't have so much money on the table, which will increase your return (and also so you don't have 300k of adjustable rate debt)...

...but, there might be some folks on the forums who are more familiar with purchasing properties entirely with HELOC who might be able to provide better feedback...

Pittsburgh is a great city--one of my favorites!

Good luck out there!

 A few thoughts:

-You need to know what the repair costs will be on avg. per month; that's fundamental to your financial model.

-You need to know whether the tenants are current on payment. If they're not, it can create a total nightmare for you if you buy the property.  ...you'll also want to find out whether they've ever had prior payment problems--and ask for actual proof of their prior payments.

I wouldn't suggest proceeding without knowing these things.

@Lisa Vu we need more info...

In addition to what @Nicholas L. asked, what are the total monthly expenses (incl. all debt service, PM fees, and maintenance/repairs)?

The current gross rent is $3,300/mo, correct?   ...is that an appropriate market rate, or is it under/above market?

You said that it's in a "pretty good" neighborhood...is it an A, B, C, D, or F neighborhood?  I'm pretty familiar with much of Pittsburgh, so I'm happy to provide my feedback on the specific neighborhood, if you tell us the neighborhood.

How much demand is there for this neighborhood, and how easy will it be to find new tenants when the current ones leave? Is it an area where everyone wants to live?

Existing tenants are often a red flag--landlords rarely sell high-performing, low effort properties that have great tenants in place (why would they?). What do you know about the tenants? (e.g.; what are their occupations, what is their income, how long have they been there, have they caused any property damage, how well do they seem to maintain their space, what proof does the seller have that the tenants have been paying on-time, etc.?)...regardless of what you do, you'll definitely want to look into what your options are for thoroughly vetting these tenants (a bad tenant can easily ruin a good property).

The more info you provide to the forums, the higher quality feedback you'll receive.

Good luck!

@Matthew Harding it is definitely not "silly" to be looking for cashflow--cashflow should be one of the central considerations.

As for the question of whether cashflow is a "myth", you may have answered part of your own question when you said you're looking at a "relatively turn key" property.

In my experience, cashflow is rarely "found". Instead, cashflow is created.

This is similar to the RE saying "deals aren't found, they're made."

So, the obvious question is: "ok, how do I create cashflow?"

It often comes down to learning to see something in a property that other buyers don't see. For instance, being able to spot an easy opportunity to add a bedroom or a bathroom to a property...if it's an easy conversion, and it's on the right type of property in the right market, 10-20k spent to add a br and/or bathroom can pick you up an extra 500-1000 per month in rent...do the math, and you'll find that that is some incredible cash on cash return.

All sorts of rehabs/conversions can turn a total loser into a cashflowing property. ...another example: I've built ADUs in previously unfinished basements, which turned properties that were $500/mo negative into properties that now cashflow 1000/mo ...the power move was rolling the construction debt into refis on other properties at lower rates, which more than negated the construction debt...in other words, I got paid to build the ADUs (these days, this isn't usually possible--or at least, it's a lot less likely--now that rates are rising...but who knows, rates might decrease again at some point...).

...Although certain rehabs/conversions can force cashflow, there is real skill and art to spotting properties that are good candidates for these types of rehabs/conversions. ...an effective rehab/conversion is often a lot trickier than HGTV would have you believe, and choosing the wrong property to do this can completely blow up the financial model.

Another approach is to learn to find properties that have something that turns off other buyers, but which is irrelevant to cashflow, and irrelevant to your business model. For instance, I've bought properties in A class neighborhoods where EVERYONE wanted to live, but they were on relatively busy streets, which turned off retail buyers. However, I knew the streets weren't so busy that they would impact the rentability of the properties... I picked up the properties for a heavily discounted price (because they had sat on the market), and had no problems finding highly qualified (and high-earning) tenants that made the place cashflow right out of the gate.

Another example: I once bought a property in an A class neighborhood that had an awkwardly-placed stairwell inside the front entrance, which turned off other buyers. However, I knew that the stairwell had zero impact on the actual functionality of the property, and that it would have zero impact on its desirability as a rental. Once again, the property sat on the market for a long time, I bought it at a heavy discount, and it's been cash flowing ever since.

Cashflow can also be created by changing how you use the property—for instance, renting a house by the room or as MTR or STR sometimes creates cashflow.

By the way: every property I own cashflows well, and every property I own was bought on the MLS between 2016 and now--during what was probably the toughest buyer's market in American history! (I didn't have to look for off market deals, do weird business arrangements, or do anything unusual at all to get these properties, even in a tough buyer's market...shocker, I know!).

So, in summary: it is possible to get cashflow, but it's just not something that can be had without some effort and sacrifices...you have to go where others aren't going, and do what others aren't doing.

If it were possible to succeed at RE investing by buying turnkey, A class, perfect properties with no flaws, then everyone would be doing it! ...but, the reality is: RE investing takes creativity and flexible thinking, the ability to see opportunities others miss, the willingness to acquire properties others don't want, and the willingness to do what it takes to force cashflow.

Good luck out there!