All Forum Posts by: Michael Garofalo

Jamel,

For starters, I would recommend putting a professional photo up for your profile. It will show others you are serious and make interactions more personal. Second, start listening to the podcast episodes, beginning with the first year they launched in 2013. There is also a "UBG" (ultimate beginners guide) on this website which would tell you everything you should know about how to use the site and get started.

Take initiative and help yourself first by gaining a baseline of background knowledge. Then use the forums to ask questions and learn more as time goes on. Then, do a deal and learn from experience, as there is no substitute for jumping in and taking action.

@Bill Frog are you going to landlord yourself or use property management? Am I correct in assuming this is your first rental property purchase? 

If I were you, I'd look for something less expensive that will cash flow and needs work. The crappiest house in a nice neighborhood is always a superior choice to a nice house in a less desirable area. That being said, I only buy properties in areas i believe are on the upswing (current C potential to move to B within 3-5 years). If I see they are within the path of progress and less than 50% of the neighborhood has turned over, usually that is a good sign. If a neighborhood has a hip coffee shop, nice grocery store, and/or other amenities, for me that is usually an indication that someone (or group of people) much smarter than me has already done their market research to know they won't be losing money on their investment. 

Hi Leigh Ann,

Instead of doing a cash out refinance, have you considered taking a HELOC (home equity line of credit) against them instead? I like HELOC's more because you only pay interest when you need to use the funds. So you can shop for a deal and then tap the HELOC when the right opportunity comes along. If you do a cash out refinance, you will have money sitting around that may not be able to be deployed for a while. This of course assumes the housing market does not drop, if it did the bank reserves the right to freeze the line (making your access to capital come to a hault).

I don't think I would do a cash out refinance just to pay off the mortgage of another property. The cost and headaches of doing so wouldn't be worth it to me, but that's just my opinion. If you want increased cash flow, work to aggressively pay down the existing mortgage on the other property rather than shift equity from one house to the next.

How confident are you in the rehab budget? If it's actually $50k, that will likely take you more than 1 month's time, unless you have some superstar general contractor who you've worked with before. 

The expenses also seem a bit high. Specifically, I'm referring to the $500/month in property taxes and $300/month in utilities. I personally would never buy a duplex that didn't have separate electrical meters. 

@William Hauptly by definition, recasting a mortgage will never change the interest rate or cost you any money. It's completely different from refinancing, banks usually don't advertise they allow it because it basically allows you to save on interest. If you want more cash flow, but don't want to acquire additional property, I think it's a wise move especially if you have a strategy of eliminating debt. If your goal is to grow as much as possible, then the capital would be better served putting towards a new investment.

I recasted my primary mortgage to maximize my HELOC for future investments, and that has worked out nicely. Everyone has different opinions but recasting is a valuable tool.

@Nathan Silver most definitely yes. If you look at how Washington, DC has transformed over the last 20+ years, coupled with many other macroeconomic and demographic factors, it is simply a matter of time before EOTR becomes more gentrified. There is a significant housing shortage in DC and it's one of the most stable markets in the country in terms of holding/appreciating home values.

In the long run (10+ years) I firmly believe you can't really go wrong wrong with anything within 0.5 miles of either the Anacostia, Benning Road, and Deanwood metro stations. Drive through any of those neighborhoods, in the right pockets, and you'll see early signs of redevelopment. Contrary to what many people believe, there are still deals to be had and opportunities for cash flow if you understand the neighborhoods and secure the right tenants.

@Dan Robinson one creative idea might be to play "musical chairs" with the units and tenants. In other words, renovate one of the vacant units first and then move an existing tenant into it, then proceed to renovate that tenant's previous unit etc. You could do this for all existing tenants and then look outside for fresh tenants to fill the remainder of empty units. You could raise their rents to an amount that is in line with rent control guidelines and slowly bring everyone up to market over course of a few years, if current owner is under-charging.

Everyone has a different strategy, but I think it would be best to avoid kicking current residents out of their homes unless they are really causing issues or the rents are so grossly below market that it would take an excessive amount of time to get them up to their fullest potential.

I agree with 100% of what @Richard Sherman said, that is all rock-solid advice! Only thing I'll add is you have to honor the terms of the existing lease agreement. So before you do anything, you need to wait until the current lease terms expire unless the tenant is on a month-to-month agreement. If this is a long-term tenant of 8 years and they pay on time and don't cause issues, you definitely want to hold on to them and should follow the strategy Richard outlined. Too much of an increase too quickly will give them sticker shock and may cause them to get emotional and leave once the existing lease expires.

@Jake Diamond while you are trying to decide definitely keep it in a high-yielding interest account, there are many that offer 2% with no minimum balance or monthly fees. 

I would advise against partnering unless it's someone you truly trust and know has a good track record. If the bank you are working with is making things difficult, why not shop around for a different one that is more flexible? Local banks that keep notes in house are often the best to deal with. Big banks have too much red tape, I wouldn't recommend going through them for anything investment-related but just my two cents. 

@Minnie Barnes short term rentals in DC are going to have the highest demand in the middle of the city, near the museums, monuments, other tourist attractions, and large business offices. If you are looking in more remote parts of the city in NE or SE, a long-term lease via house-hacking is definitely the better strategy in my opinion. Beginning in October, there will be more restrictions on airbnb. Namely, you can only do it for (i believe) up to 90 days each year and it must be your primary residence. The city is likely also going to roll out more regulations on business licenses/permits.

My advice: purchase something in an area of the city you would be happy living in, and where the greatest potential for appreciation exists. You'll find better opportunities for cashflow (and future appreciation 5-10 years out) in neighborhoods like Deanwood, Marshall Heights, and Anacostia, however these neighborhoods are still in transition so I don't think the demand (and income) from AirBnb would be as great as something like DuPont or Logan circle.

If you have any further questions feel free to PM me. I have lived in the DC area my entire life and currently own two properties in the city (one in Northeast DC on other side of anacostia river and one in Northwest quadrant).