All Forum Posts by: Leo R.

As anyone who's done a rehab in the last few years can tell you, good contractors and tradespeople (e.g.; plumbers, electricians, etc.) have been very hard to find  (probably because the economy was so hot that anyone who could swing a hammer had more business than they could handle--and demand for GC's/tradespeople completely outpaced supply).

I've heard a few people mention that now that the economy is slowing, GC's and tradespeople have less business, and are therefore becoming easier to find, and that labor costs are coming down...is this true?  ...will the next few months produce a good opportunity to hire GC's/tradespeople?  ...why, or why not?

I'd be especially interested to hear perspectives from GCs/tradespeople, and/or people who frequently hire them....

Lol @Greg R.  three months and 2k+ posts later, and this thread is still goin' strong!  --think it's safe to say you found a hot button topic!

I'm really interested in people's thoughts on when/whether rates will come back down (and if they do go down, how far they'll go)...I've heard widely varying (but equally well-justified) opinions on this, so it will be interesting to re-visit folks' predictions on the topic 6-24 months from now...

@Joseph Eversman I grew up in those areas and lived in Morgantown WV and Pittsburgh through much of my 20s and 30s....my perception is that most of the areas you mentioned (south of Pittsburgh) have little appreciation (and risk of depreciation), so if your goal is long term appreciation, those markets probably won't perform very well. ....either way, you'll probably want to look into the relevant market data on appreciation, jobs, population, etc. to make sure...

...if you're willing to go as far south as WV, I'd suggest checking out Morgantown, or going north to Pittsburgh. I would think that both Morgantown, and PGH probably have stronger local economies than places like Waynesburg and Washington, and probably both have better tenant pools....(though, I think even Morgantown is pretty mediocre for appreciation)...but again--check the data, because I could be mistaken....

Good luck out there!

@Kevin Nerio as others have mentioned, you'll want to talk to the city/county and do all your homework on local permitting/zoning/code.

You'll probably also want to get an experienced GC who understands zoning, code and permitting in your area to walk the property, and tell you what needs to be done (and how much it will cost)...you'll also want to talk with the GC and the city/county about what things can't be done (for instance, if you planned to do X, Y and Z to the property, but zoning/code won't allow you to do those things, obviously you want to know that before you buy the property).

Until you do these things, the $15k seller credit you mentioned is almost meaningless (because, you don't yet know whether the work needed will cost you $15k, or $50k). 

You also mentioned that you'd be getting the property "for 55k under the appraised value" --how do you know the value of the property, if you don't yet know all the expenses involved in getting the property permitted and up to code? You'll first want to understand all the expenses you'll face with the zoning/permitting/code issues before making any judgements about the value of the property.

Good luck out there!

@Dominic Pizzi if you want even more in-depth info about house hacking, here's one of my posts on the topic copied from a different thread:

There are a lot of ways to get started in RE investing, but all other things being equal, a house hack is a better strategy for a beginning investor who doesn't have much real estate experience.

Why? Because, house hacking is comparatively simple and beginner-friendly (and therefore has the highest likelihood of success), but strategies like BRRR'ing, flipping, wholesaling, out of state investing, etc. are far more complicated, and have a far higher chance of failure because they involve so many "moving pieces".

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).

With a house hack, you can make money while learning the essential skills you'll need to succeed in RE investing (e.g.; how to analyze properties, how to find an investor-friendly agent, 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). So, you can make money and learn invaluable lessons with a HH, but it's typically a much lower risk strategy than BRRR'ing, flipping, out of state investing, or wholesaling--which are strategies that (when executed poorly) can easily bankrupt a beginner.

Moreover, 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.

Plus, if you do 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 HH or two under your belt--a ton of the lessons you'll learn from a HH can be used to successfully execute an out of state investment/BRRR/etc.! ...in fact, I'd say that a HH should be a necessary prerequisite to the more advanced strategies for most folks!

Now, having said all that, house hacking isn't 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!

@Account Closed when you say that it will cashflow $200-300 per month after the first year, I assume you mean that it will have that cashflow because you'll move out and rent the 2nd unit after the first year (correct me if I'm mistaken).

Is $200-300 month cashflow on a duplex "worth it"?  ...depends on a lot of factors.

If this property is a turnkey A class property, in an A or B neighborhood, in an area that has good appreciation, and you expect that the tenants will all be highly qualified (e.g.; traveling nurses, doctoral students, etc.), and your DP is minimal...then yeah--200-300 cashflow might be OK (but, you'll need to run your CoC numbers to know for sure).

But if the property is C or D class, in a C or D neighborhood, and the tenants will cause you endless headaches, and the property requires rehab and/or has looming capex, etc....then, no, $200-300 may not be worth the hassle.

There are properties that I know would cashflow THOUSANDS per month, but I wouldn't touch them with a ten foot pole because I know that the headaches the property and tenants would produce just aren't worth the money...

Also, you mentioned that you think higher rents and appreciation are in the future for this neighborhood...if your plan DEPENDS on higher rents/appreciation in the future, you're not investing, you're speculating. Your financial models need to stand up to stress tests where there's not only no appreciation, but where there's some depreciation (it can and does happen). ...everyone in 1965 Detroit assumed that future RE appreciation was a lock...well, not so much.   ...although you can (and should) try to find places you think will appreciate, at the end of the day, your financial models should not depend on unknown future outcomes that nobody can predict.

Good luck out there!

@Dominic Pizzi when I was starting out, I bought a B-grade property every year that I house hacked (I had housemates). ...if you can tolerate having housemates (or living in a duplex/tri/quad with tenants next door), then this is often a better approach than buying a property with an investment loan, because you get all the advantages of an owner-occupant mortgage (lower DP, lower rate, better terms all around).

Also, you mentioned student loans. I did not wait to have my student loans paid off. My numbers all penciled out nicely even with monthly student loan repayments...(and, I'm glad I didn't wait to pay off my student loans, because it allowed me to get into RE investing at an excellent time, when rates were low, prices weren't astronomical, and properties still cashflowed easily)...

In my opinion, house hacking is arguably THE best way for beginning RE investors to get started--it has MANY advantages over other RE investment strategies, and you'll get to learn all of the essential lessons of RE investing and property management that are critical to success in RE investing...house hack a property every 12 months using an owner-occupant mortgage, and in a few years, you can have a solid portfolio...

Good luck out there!

@Tony S. do you have any sense of the age, materials, and condition of the plumbing / wiring behind the walls? ...if the plumbing/electric are as old as the wood panels & popcorn, then it's possible they're nearing the end of their service life...

If there are plumbing / wiring issues behind the walls (or if the plumbing /wiring are just nearing the end of their service life), then does it make sense to rip out the paneling & do drywall without addressing those issues in the process?  

(I've seen plenty of flips where people put up beautiful new drywall over end-of-service-life plumbing & electric--turning a $ problem into a $$$$ problem).  ...nobody wants to put up brand new walls, only to have to rip them down again in a year or two to fix plumbing/electrical problems...

So, that's a factor I'd be considering any time I'm thinking about replacing walls... 

Good luck out there!

The most recent inflation numbers came back lower than expected, indicating that perhaps inflation has peaked (maybe). Here's a summary: https://www.cnbc.com/2022/11/1...

However, the last time we had inflation like this (late 70s/early 80s), rates increased and stayed up for a pretty long time (years); here's a graph of mortgage rates going back to the 70s:  https://fred.stlouisfed.org/se...

So, what's the forecast for rates now? 

I've heard widely varying views on opposite ends of the spectrum--everything from "rates will go back down to 2021 levels in the next 12 months" to "rates will continue to go up significantly for the next 12 months, and will remain elevated for 5+ years"

What do you think, and why?

@Wesley McDavid  this IS a creative deal...that's what I love about real estate--no matter how long I'm in the business, I'm always learning about new approaches!

I don't really have a good answer about whether this deal is "fair" (for what it's worth, it doesn't necessarily seem UN-fair at face value).  

@Ricky A. outlines some EXCELLENT considerations--I'd definitely suggest reading his post carefully...

I don't think you mentioned this, but if you are both beginner investors and/or beginner STR operators, then you'll want to be pretty conservative, because learning to invest in real estate, manage a property, and run a STR operation are all pretty big challenges when you're operating on your own, and they presumably become significantly more challenging when there are two parties involved. Personally, I don't have any partners with my properties, so I can run them with absolute authority without having to work around anyone else's interests/requests/personality/etc....  ...this isn't to say that succeeding at the partnership you describe is impossible, but it will probably take a lot more effort/preparation/thought than simply buying and operating a property on your own...

Another important factor is the state of the STR market right now--which is changing rapidly (in a way that makes it significantly harder for new STR operators to succeed). Specifically, there's a lot of data indicating that many STR markets are way over-saturated with supply. Plus, demand is diminishing quickly as we head into recession ...so, that could be a perfect storm to put a lot of STRs out of business. ...Also, air bnb recently changed their platform to focus on top-tier, highly unique properties (think: luxury beach front tree house)--as a result, a lot of the more "typical" units are getting pushed down in priority on the platform, and are having problems with vacancy. ...so, these are issues you'll definitely want to read up on carefully (if you haven't already); there have already been a number of podcast episodes / blog posts / articles on this topic for you to check out...at the end of the day, you'll want your financial models to include some really serious "worst case scenarios" (e.g.; extended vacancy) to stress test your model before you do the deal...

If you do the deal, you'll definitely want a thorough contract that outlines all the responsibilities, authorities, obligations, etc. of both parties, and which outlines processes for as many eventualities as possible (for instance, her/your rights to remodel parts of the property, her/your decision making authorities if one party decides they want to use the property differently than originally planned, or if one of you decides you want out of the property, her/your responsibilities for repair costs, processes for dealing with unexpectedly high vacancy, etc., etc., etc.)   ...I'd suggest listing out as many of these issues as possible, coming to an agreement on them, then drafting a contract and sending your contract to a contract attorney for review before you sign...

If you do this deal, definitely keep us updated on how it goes--it sounds like an interesting one!

Good luck out there!