All Forum Posts by: Michael Tyler

The 2% rule only works in C class neighborhoods in the Midwest. The 1% rule is more like it, but even that is difficult in Austin. If you can move south to San Antonio, you’ll see cashflow a lot more easily.

I prefer to separate vacancy/repairs/capex from the other costs when calculating cashflow. In your case: $3500 - $1952 debt service - $634 insurance - $350 management - $102 insurance = $462 of income flowing in each month.

That $462 should ALL go into savings for the inevitable repairs and vacancies. And because $462 is well below the best practices for contingency savings, you should expect to fund emergency expenditures out of your own pocket if they arise early on.

This is where a thorough inspection comes into play. Make sure you know every detail that could go wrong, so you can plan and save for it. Water heater near the end of its life? Roof only have five years left on it? Knowledge is power. 

Vacancy risk is lower because they’re 3/2 units. People stay longer in those. My duplex is 3/2s and one tenant was around for ten years.

Also, you don’t have to pay 10% for management. My manager is 8% and he’s a standup guy. PM me for a referral. With a lower % you’ll be paying more for initial tenant placements, but hopefully that’s tempered by the fact that your 3/2s will keep tenants longer.

So in my book your deal does cashflow. It just doesn’t cashflow enough to carry its own weight for contingency funds. You pick up the slack from your own savings when something goes wrong.

@Jacob Pereira Not my tenant thank god. Toilet was put in the fridge. Mustard was paint. Whole walls were turned into art. Meth sucks. 

Austin has really skyrocketed and has gotten harder to cashflow the last few years. I call it California in Texas. It’s more an appreciation model than cashflow at this point.

Today if I were to buy my duplex there I wouldn’t be able to make it cashflow. Taxes too high, prices too high. That’s renting both sides. If you’re living in one side and managing the other unit, at best the renters are paying your mortgage. Probably only part of it. You pay the ~6k taxes and insurance yourself. Still not a bad deal but it’s not 100% the househacking dream touted in other areas.  

That’s why I recommend if you’re young and single to consider a single family home. Rent out rooms. It’s not the dream either but it broadens your investment choices considerably. Downside is your tenants are roommates. Upside is you get to yell at your tenants if they put a hole in the wall and then put a hamburger in the hole. Which happens. Sucks to find it at the end of a year-long lease.

Find a relative and tell the roommates/tenants that Aunt Whoever is the landlord. That way you’re not the owner, you’re the owner’s nephew. No one screws with the landlord’s nephew, and if the “landlord” has to say no to unreasonable requests it doesn’t negatively affect your relationship with your roommates. 

Just a thought. 

A lot of the duplexes I see in Texas (including ours in Austin) are 3br/2ba each side. If I were young, single, and hungry to get into the market, what I would do is somehow get into a 6br/4ba duplex and rent out rooms. 

Keep one bedroom in each unit mine. Sleep in one, an office in the other. That way I can walk in and out of both units at will as if the whole place is mine. Be a part of both households and wrangle the inevitable tempest of young renters.

Leaves four bedrooms to rent out. Five if I'm too hungry/broke to afford two beds myself. 

If I were really smart and had family close by, I would make my mom or uncle "the landlord" so no one knows I'm the boss. They think I'm just the landlord's kid getting a sweet deal on rent, and no one's dramas dare cross my bedroom doorstep. 

That's how people did it in San Diego during the bubble/bust. I saw it firsthand. Assuming rents rise over the years and I make continual improvements to the place, I would be set up to transition into the traditional hacking model of renting one unit in whole and occupying the other side myself. 

I’m a 20-year professional photographer, so my advice is limited to the listing photos. Take photos of everything, using mostly wide angles. I mean wide. The normal lens on a normal phone isn’t it. Budget kit lenses on DSLRs won’t do.

If you can swing a DSLR/mirrorless, an extreme wide lens, a tripod, plus some software to process HDR photos, then that is the ideal situation. It takes time but it’s worth it. If you want specifics, feel free to ask.

If all you can do is your phone, get an iPhone Pro. Or whatever model, but a high-end model with the extreme wide angle. If you can afford real estate then you can afford these phones. Their computational capabilities are to traditional cameras like what Zillow is to the MLS.

Good light is critical. Brighter is better, but quality of light also matters. Time of day matters. Again if anyone wants specifics then just ask.

Good light plus the right angle, well shot and well processed, creates an emotional reaction. The goal is to make potential tenants think about where they would hang their picture frames. That “I want to live there” feeling.

Or just hire a real estate photographer. Money well spent. If your makeready after a tenant leaves includes the same paint/flooring, then you can even reuse the photos.

It is my understanding that yes, they do factor in cosmetic condition to a degree. Particularly recent upgrades to the structure, such as a brand new roof, etc. And they seek out like features: If your property is a 3/2 with an attached garage, they will favor comps that have attached garages over those that do not.

However two appraisers can give very different appraisals. That's the BRRRR wildcard. You can't pick your appraiser. Last year we did a refi on a duplex which had been tenanted for ten straight years. Structurally it was fine, but a tenant left one side cosmetically destroyed. During the refi process we had to leave one bank and start over with a new bank. This gave us two separate appraisals. First was for $356k, second was $330k. Same trashed property. The difference was - I believe - the first appraiser focused on the structure. The second guy looked at the mess and said, "Ew."

Others may have more authoritative knowledge of appraisers. Mine is anecdotal. 

The ARV is ultimately decided by the appraiser at time of refinance. Typically an appraiser is focusing on only the last six months of sales.

We've been pretty steady the last few years, and so factoring in sales from 2yrs ago will not be wildly off target. But the appraiser probably won't figure those in. If there are no comps in the last six months, the appraiser has to widen the search area and everything gets even more unpredictable. This could be bad for your deal, or it could be a huge win. 

For example, go listen to the "Montana" podcast episode of the Investor's Journey. They're two guys who invest in San Antonio. They bought a brokedown house in the Denver Heights neighborhood (which is sketchy). There were lots of travails in their deal, but they came out alright in the end because the bank's appraiser had to pull comps from the neighboring Dignowity Hill neighborhood (which is more gentrified). The appraisal was amazing.

Consider also looking closer to the north side of the city if the right prices can be found. Apple is building their billion dollar campus up there, and tech jobs raise rents. The value of our duplex up there in a go-nowhere neighborhood is kind of blowing our minds when we look back a few years. 

I don't know a great deal about Millvale in specific, but I'll say that given its current condition you should expect rent to be on the low side.

Look at the south side of the house on Google street view. You've got siding issues, roof issues (at the very least a roofer will need to make repairs), and something is clogging those gutters. 

We're not even indoors yet and you've already spent your rehab budget (assuming your 90k price minus their $73k asking price = built in rehab budget).

Haven't run any comps but personally I wouldn't pay $73k for that property. It sold in 2017 for $42k. The owner hasn't improved it and Pgh hasn't appreciated that much in two years. It might be worth $50k depending on how many repairs you find.

Call some property managers and ask what they would charge for rent. Make sure the comps you're basing your ARV on are accurate. And whatever you do, get an inspector and at least one (preferably multiple) contractor bids during your inspection contingency. If the bids are too pricey to let you BRRRR, move on to other properties.

I just passed on a 4-plex in Pittsburgh. Really good cashflow and decent area but needed tons of work first. Couldn't get conventional lending on it as-is, but if you have the cash to renovate and then use delayed financing, your owner/occupant status would probably make it a slam-dunk. PM me if you want the address.