All Forum Posts by: Mike K.

Hi BP members,

I am looking to invest in a SFH that cost about $400,000. With 20% down the property will negative cash flow $500/mo. It breaks even @40% down. One lender advised me it's better to negative cash flow if I can afford it and still do 20% instead of 40%.

Reason : the additional 20% or $80,000 is better spent towards down for another property (provided of course I can afford twice the negative cash flow) because the annual appreciation @ 5% (which is likely in Florida) will be greater than the negative cash flow per year.  That is $6000 negative cash flow for $20,000 appreciation in return.  That is still a 17.5% return(capex not included).  I don't discount the possibility that the lender gets to finance 2 properties instead of just one but the proposition does make sense on paper and in theory. Does anyone refute this or agree with it?  Am I missing anything?  Thanks in advance.

Did you acquire residential or other investment property in Santa Cruz County prior to July 1st, 2023, and are now contemplating selling it? It is essential to familiarize yourself with the new septic system ordinance enacted on July 1st, 2023. For investors in our region, comprehending this ordinance is critical, as it substantially affects the sales process and could notably influence your investment's outcome.

The updated regulations mandate a comprehensive inspection and pumping of onsite wastewater treatment systems (OWTS), also known as septic systems, prior to any property transaction. This requirement applies regardless of the property's purchase date, even if acquired before the implementation of this ordinance. Furthermore, the inspection must be performed by a certified liquid waste hauler and dated within six months of the sale.

Additionally, there's a mandatory reporting component: liquid waste haulers are required to submit the inspection report to county health officials. If the report indicates a failing septic system, this triggers additional county oversight. A failing system typically cannot be simply handed off to a buyer without remediation and replacing an aging septic system with a modern alternative treatment system (ATS) can be a significant financial undertaking. Current market estimates, and ones that I have received myself, have the installation of a new ATS ranging from $45,000 (on the low end with perfect property conditions) to $80,000 or more. This cost variability depends on factors such as system design, property size, soil type, and system capacity requirements.

For investors, there are strategic moves and due-diligence steps that can be leveraged with this ordinance:

1. Pre-Inspection Investment: Prior to finalizing the purchase of your investment property, it is crucial to obtain a passed certified septic inspection, conducted by an authorized liquid waste hauler. In the event of a failed inspection, the Santa Cruz County Environmental Health Department will be notified. Subsequently, the property will undergo an evaluation by an Environmental Health Official to ascertain the necessity for system enhancements or the installation of a new Alternative Treatment System.

2. Cost Analysis: A failed septic test, while challenging, is not insurmountable. It represents a problem that requires resolution, which may involve significant time and expense. Conduct a comprehensive cost-benefit analysis for replacing the septic system, incorporating up to eighteen months for the approval process should an upgrade to a new Alternative Treatment System (ATS) be necessary. This analysis should also account for long-term maintenance expenses and the potential forced appreciation in property value resulting from the new system.

3. Check Your Area’s Water Level: Often overlooked, especially by new investors unfamiliar with septic systems, the effectiveness of a septic system hinges on its leach fields. In essence, water enters the sealed septic tank, solids are separated, and the water then moves to the porous leach fields for ground absorption. However, high ground water levels, like those after heavy rain, can submerge leach fields, causing "over saturation" and system failure, leading to potential septic backup in the home and, if Santa Cruz County Environmental Health is notified, could trigger a ATD upgrade requirement. Not to mention, your tenants will not be too excited to be without a working septic system for potentially weeks to months out of the year (think no toilets or showers). While not an absolute deal-breaker, it's crucial to be aware of the ground water impact on septic systems before investing.

To determine if your property is affected by high groundwater, you can access the Santa Cruz County GIS portal at https://gis.santacruzcounty.us/gisweb/. Simply input your address or APN and navigate through the available layers. Alternatively, you can reach out directly by calling (831) 454-2022 for assistance.

4. Property Selection: Choose your septic system wisely, as not all properties are created equal. The primary cause of septic system failure is the inability of the leach field to disperse water, typically due to sediment buildup. When faced with this issue, you have two choices: 1) upgrade to an Advanced Treatment System (ATS) at a cost of $45,000 - $85,000, or 2) install a new leach field for $8,000 - $12,000. While the latter may seem more economical, it's only viable if your property has sufficient space for a new leach field. In Santa Cruz County, especially in the mountainous and rural areas, many properties lack the necessary expansion fields (space) due to factors like size, slope, groundwater, and zoning restrictions. Therefore, when choosing a property, consider the potential for leach field failure and ensure there's enough room for expansion.

By understanding and navigating the new septic system ordinance efficiently, real estate investors can mitigate risks, capitalize on potential opportunities, and make informed decisions in Santa Cruz County's real estate market.

Has the new ordinance impacted you, or have you adjusted your purchasing strategy to comply with it? Let me know!I

Alright, I just read a post from a guru pitching services on BP. I did not want to respond with what I really think, but let me tell you my story here instead.

In 2007 I went to a RichDad seminar: after the free Thursday night pitch, I signed up for the $300 weekend class. Sitting in a hotel conference room just outside of Milwaukee with probably 300 people I got a tour of every possible way how to make money in real estate followed by the obligatory pictures of checks cashed to proof the point. At the end of the weekend we were asked to sign up for courses. I believe about a dozen different ones, each one for $8,000. We were asked to select at least 6 and put them on a credit card - we would make the money back in no time, so the promise.

A few weeks later I got a call asking me why I did not sign up. And if I would be interested in a one year personal coaching for $3,500. That sounded more reasonable, so I signed up. Books came in the mail and my coach scheduled a (initailly) weekly call. I had material to study, home work to do, some field research and then to present to my coach every week. I asked my coach how many deals she had done and I always got a vague answer. I have to say the curriculum was very comprehensive, they covered everything from sandwich lease options to sub2. Felt like a college education and after you are done and get your first job, you realize you have to start learning all over again.

Eventually I bought my first duplex. I still own it, I think mostly for nostalgic reasons. A year later I had the confidence to buy another one and after that it was on. Fast forward in 2015 I quit my W2. Looking back I would say even though the course was interesting, it was not necessary and I took a gigantic detour, lost a year (with increadible buying opportunities - even though at the time it did not look like this) and could have bought a property instead. Buying a rental property and renting it out is not that hard. 

If you are new to this, here is what I want to tell you: buying rental properties is not complicated at it's core. Don't let anyone tell you different. People have done this literally for thousands of years. Read a couple books (Brandon Turner's are very step by step), find someone who has been doing this for a while and can guide you and probably most importantly: buy a quality property. You will never have a problem finding quality tenants. 90% of investors I have every met, who failed or gave up, had one thing in common: they bought in the hood. 

Nobody has ever regreted buying a quality property. Don't worry too much about how much the water bill is going to be exactly; if the bank is willing to finance your deal, you'll be good. The business model makes it actually really hard to really screw up in a big way. You won't go bankrupt over buying a duplex. I have bought plenty of bad deals: I overpaid, rehab ran 30k over budget, appraisal comes back low, contractors from hell, you name it - but real estate has that thing, a few years later it does not even matter anymore, even if you overpaid for the property.

Get comfortable not knowing everything before you start. You will figure things out when you have to. BP nation is here to help. And fellow local investors at a local REIA are always happy to help if you need advice. After doing this for 15 years I am still learning new tricks. You have to know it takes effort and a lot of time, play the long game, but it's totally worth it. Don't expect it to be easy or to make you rich quick. The years of buying cashflow with zero money are also over. We are back to normal: you will actually need some money to invest and a W2 to qualify for a loan. But plenty of investors have built their portfolio in similar markets. In the 80s interest rates used to be double of what they are today and people still succeeded.

Get started. Don't let anyone tell you you need to buy more guru courses before you are ready!

 Linden, Whitehall, Hilltop

Ugh, not again. Are we entering crazy bonkers time again? 

I just had clients lose a home in the Denver suburbs a competitive situation reminiscent of 2021/2022. The home got 18 offers and went for 12% over list price. This isn't the first competitive situation I've seen in recent weeks.

What do you agents/investors think? 

Recent market stats from Denver and Colorado Springs lend some credence to this.

Denver

-- Median home price up 5% YoY in January. 
-- 5% might not sound too crazy, but A) We don't have February numbers yet and B) The trajectory is upward. Previous months were basically flat YoY.

Colorado Springs

-- Median home price up 3.5% YoY in February
-- Again, this is up from 1% YoY in January, so the trend is not only YoY increases, but an acceleration in the increase.

My thoughts? I don't think this is 2021 redux, but I do think things are going to get much tighter. The 2023 market lulled some buyers/investors into thinking they could relax, that they had some power and time to mull over decisions. The spring may be a rude awakening.

What's everyone seeing out there? In Colorado or elsewhere?

I think there's weak assumption here as thing is more complicated than that. I say every market has to be analyzed mostly the DOM because that would reflect the supply and demand.

We're in extremely weird situation where home price keeps getting bid while rate is high, unemployment is high and rate is high.

Some software analytic company has this metrics called sold/listing ratio which also measures the demand, currently we're in match between buyer and seller.

But what you suggested also happened in Q1 2022 where massive supply increases when rate is going to all time low. But that's rare.

That's a completely different environment. It's comparing apples to oranges, you literally went from a 5-day work week to complete remote work and housing as the #1 sought after target for any individual in America.  Coupled with a massive money printing situation and savings/income at levels we haven't seen ever.

Now, you're going from 7% rates to 5% rates. With debt higher than ever, and savings to below pre-pandemic levels. How are these two situations anywhere related? Go ask a guy who bought a house in Q4 2020 at 3% if they'd pay 5%, they'd scoff at it. Go ask anyone in the last 18 months if they'd take 5%, they'd do whatever it takes. Recency bias is huge.

The #1 reason house prices are up is location and supply in that location,or lack thereof. What would make those house prices dip? You build more or more people open to selling. How do you get to that? You make rates lower or physically build more. The impact of rates are usually not drastic over night-- H2 '22 showed otherwise-- but this duration of high(er) rates will have it's impact later. I'm willing to bet in most markets, as soon as rates get low(er) to say 5% we'll see inventory pick up. The inventory/supply increase will create a tighter market.

I'd buy a multi-family property that cash flows in an appreciating market with a growing economic base, like Columbus, Ohio.