All Forum Posts by: Jonathan Pflueger

@Michael Moreno

Of course it is! Rent out the rooms, sign leases, and keep the money coming in even when you are traveling. I am not up on the laws in your state, but as far as I know renting out the rooms in your primary home (emphasis on primary) does not negate the Homestead Exemption.

Search “house hacking” on the BP forums. This is one of the best strategies and most creative for creating income from nothing (well not nothing, but from something that was not there before in its original form). Think buying a 5 bedroom home split level and then separating the home in two homes - boom you have a duplex and and an additional rent source. Or just rent out the 4 bedrooms you are not using, although this works best in college towns or other similar areas.

Bottom line, for someone you age the sky is the limit when it comes to this sort of out of the box thinking. Property is an income driven (income and equity) asset, finding its “highest and best use” is your goal. When you point this at your living situation you would be amazed at what you can figure out.

@Anna Howe

Considering your upcoming move and the challenges of long-distance property management, selling your home in Winnemucca might be a better option. Managing a rental property long distance is not for everyone, especially while pursuing a master's degree, and can add unnecessary stress and complexity to both your lives. Will you have the time, resources, and mental commitment to dealing with tenant issues, maintenance, and other unexpected challenges that arise with property ownership?

Assuming the rent covers the mortgage at $1,600, there's no immediate positive cash flow. When factoring in additional costs such as maintenance, property management fees (if you do not opt for a property manager, and you should), and potential vacancy periods, the financial burden could increase.

Check this out: If you're breaking even on rent at $1,600, any additional expenses or vacancies directly impact your pocket and mental health. For instance, with a conservative estimate of 1 month of vacancy per year and 1% of the property value in annual maintenance costs, you could be looking at an additional $2,000+ in costs annually, not to mention the effort and time involved in managing these issues from afar.

With all that said, real estate is worth the effort but not all deals are created equal. If you are committed to being a real estate investor you can make this work. The question is, do you want to make it work? Do you want to put all the money, time, and energy into owning this home/investment?

I don’t know your full situation, but getting a masters degree is hard and important. There will always be other opportunities to buy homes.

@Michael Moreno

Your proactive approach to building equity in your first property is a solid foundation for an exciting real estate investment career. Since you're interested in expanding your portfolio, the BRRRR strategy (Buy, Rehab, Rent, Refinance, Repeat) could be particularly effective. This method involves purchasing properties that need work, rehabilitating them to add value, and then refinancing based on the improved value to fund additional investments. If done right, you can refinance at the end of your rehab and pull close to, if not all of your money invested in the property (down payment + rehab cost) and then buy another house and do the same thing. Over and over again. It's slow but it can build an amazing solid foundation that will lead to other even bigger investments.

It's a powerful way to grow your portfolio while leveraging the bank's money, and if done right, you can do this over and over again. I know some investors that buy and move to a new home every year to do this. This strategy starts to compound when you find homes that have an ADU (accessory dwelling unit, casita, bungalow, etc…) along with the main house. Think duplex without the multi-family title.

However, given your stage and goals, you should also consider house hacking, especially since you initially considered a multi-family property. This strategy involves living in one unit of a multi-family property and renting out the others. It can significantly reduce or even eliminate your living expenses, allowing you to save more towards your next investment. This approach might be more immediately accessible and less intensive than a full BRRRR, given your current situation.

Keep it up, your effort and drive is gonna pay off huge!

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 hear Detroit is a great buy. And Josh Dorkin is really bullish on it.

In terms of investing, I have never thought about states as blue or red. My only concern is return vs. risk and then time involved. Because of this I have never invested out of California, and for that matter, the Bay Area.

I sincerely believe that any investor can be successful anywhere, it basically comes down to mindset (and sure, having lots of capital and other things can also help, a lot). So much of what I see is investors with limiting beliefs when it come to where to invest. I keep hearing that Red states are inherently more risky than Blue - I just don’t buy this. In my modest opinion, the biggest risk we all take when we invest is opportunity cost. This comes in the form of limiting beliefs, lack of education, siloing our approach to what could be based on who we read, listen, and talk to.

@Vicktor Abrams

Welcome to the community Vicktor! BP is a tremendous resource at your finger tips. Your best bet is to start learning as much as you can by reading through the site, books, and anything and everything you can get your hands on. Also, try and find a few real estate meetups in your area to start attending. You may feel out of your depth at first but the more you attend and learn the more comfortable you will feel. 

Best of luck and keep at it!

@Tom Server

Get a property manager as soon as possible. @Nathan Gesner is absolutely correct, but knowing what to do and actually doing it and doing it right are usually not all done together. Most experienced investors use a property manager - a good one will limit your risk exponentially and free you up to do other things. 

I hear investors complain all the time that paying 8-10% for a PM is just not worth it. This is crazy (in most situations). A good deal accounts for the cost of a PM, every-time, all day, every day. Would you represent yourself in court? I wouldn't, this is the same thing. 

There are some situations where a PM may not make sense, for instance if you are renting a room out in your house or the ADU (casita, pool house, bungalow) in your back yard. Otherwise, for risk management and scaling you need a good PM.

@Nathan Gesner

If only being a property manager or landlord was all butterflies and lollipops! Good on you for making the decision you did - bottom line, we have to make hard decisions every day with the data we have stacked against our own experience and professionalism. 

I am assuming this is a home you have under property management? If so, as an investor I would be happy with the decision you made. We can't always make the exception, if we do, the exception becomes the rule and then we are all in a world of s!#t. 

@Bruce Woodruff

That is a bad deal. Your best bet will be to work the process a slow as it is. I would reach out to your county supervisor like you mentioned, or maybe ask your LEO neighbors too as they may already have a relationship. 

In my area (and in CA in general) you can do just about anything and get away with it. To include, stealing from businesses, sell drugs, etc... but what my area and CA is hard on is environmental violations. If you dump oil, gas, or anything like that on the ground they will slap you with fines and a possible stint in jail. Expose yourself in public or steal all the toothpaste out of Wallmart and nothing happens. Point said, try the environmental angle.