All Forum Posts by: Justin B.

ok, at that, yes I would say it's still a bad deal.  Numbers are always worse than you think with repairs and such so it's a good bet that it's probably negatively cash flowing when it's all said and done.  I just honestly believe if you're numbers spit out 1%, find something else.  There are ways to better the deal (like better loan terms, reduced purchase price, put more down, etc) but if you're at break even, you have a long way to go.  If I was analyzing the property and I got 1% return, that's just where I'd stop.  Normally "creativity" gets you a few % at best, so making a deal go from 12% - 15% would be great, but 1%-4% isn't so hot.

There is something to be said for experience, so I understand what you want to do, I just can't get behind basically no return and all you have to look forward to is potentially equity.  You will pay down the mortgage over time, so that helps, but obviously doesn't put money in your pocket for a long time.  Up front, it's 80% interest anyway so even over 5 years, you might pay down 10% of the loan.  Any deal can look good if you go out enough years.  A $500k property that you buy and lose $1k/year on looks pretty good in 30 years when you sell it for $1M, but that's 30 years from now and along the way it just takes money out of your pocket.

The short answer is to look for a better deal.

Well, everyone has to start somewhere.  The vast majority of these folks are young and fresh out of school.  If you do a background check, verify income, and everything else looks good, it wouldn't phase me to rent to someone like that.  There are plenty of good reasons for not having a rental history, just do your normal due diligence and if everything says they should be able to pay, I don't see any issues.

How are you calculating that 1% return?  Are you getting 1% return on the units you are not living in?  If so, I think you are calculating it incorrectly.  "House Hacking" is a different animal from a traditional investment when it comes to calculating "return".  For example, if you have a Quad and live in one and rent each for $1,000/month (making $3k the revenue) and your expenses are $2,980/month, you are NOT making $20/month, you are making $1,020/month.  This is because you don't have a mortgage (or rent).  Because that's $1,000/month you aren't spending to live elsewhere.  In fact, it's probably more because your insurance/taxes, etc are all included in the quad.  I do not live in any of my investments, which means I have a mortgage on my primary home.  I don't factor my own mortgage into those numbers.  You have to kind of take the same approach.  If you can live "rent free" and make 1% return on the remaining units, that sounds like a great deal.

On the flip side, if your expenses on that property are $3,980, I think it's a "bad" deal and I wouldn't do it.

Make sense?

Nope.  I was just making a general statement.  I have certain returns I look for and if the deal doesn't meet them, I walk away.  To clarify, I look for a certain cash flow return in my deals.  The other metrics are "less" important to me (but not overlooked), but that's just me.  Everyone has their own goals.  So don't get too crazy and ask if I'd buy a property that was expected to be worth half in 5 years just because it cash flowed well up front :).  The answer there is I doubt it.

And I think a "hot" market is a relative term.  If by hot, you mean a seller's market where sellers are getting top dollar and it's expensive to buy in that market and returns are 1%, I'm not in that market, nor would I consider investing in one :).  I did get your assumption on wanting to invest locally if I was in a market like that but it's a stretchy assumption.  If I did not want to invest out of my area and I didn't want to entertain elsewhere and that's what I'd be stuck with, I either wouldn't be investing or I'd have to leave the area.  And yes, we can play all day with where the "line" is, but it's probably too objective to really discuss.  Again, being a numbers guy, there are a ton of factors that would play into it.

I didn't read the other reply's but I think the answer here is simple.  It's by far the easiest way, with no money, to get into real estate.  I can't tell you how many times I've heard or read the Question "How do I get into real estate?" or a variation of it and 90% of the answers are "Try Wholesaling!".

That's the reason why I believe the truly bad ones (the shady ones) are few and far between and the ones who are not knowledgeable are abundant.  The problem is so many people try and get into it with not near enough knowledge or experience and think they can "flip" some deals for a few $K here and there.  Those are probably the types of folks you're running into the most.

There is no good or bad advice here.  It's all up to you.  I'm a numbers guy.  If the numbers worked I might do lots of things, but I think you are bordering on dangerous if you are talking about using ALL your money (or even most).  Even if the numbers work, using all my money would cause undue stress.  My best advice is always to listen to your gut and never do anything that would cause worry or stress. Beyond that, it's all about the numbers.

400 lbs should not even come close to splitting it with normal use.  It's probably just an old toilet and anything that gets old can have issues.  I'd replace it and just move on.  If he winds up breaking another one (as it would be rated much higher than that weight), then you can go down the path of requiring the tenant to replace it.  Keep in mind, it wouldn't be an issue with his weight, it would be an issue with misuse of the toilet and I would make the tenant responsible for it. He would have to be doing something else to it to break a new one.

It's just my opinion but while equity can be a powerful thing, if it negatively cash flows I would never do it.  It's too easy to find deals with cash flow and equity.

Bill hit it on the head.  When you bought is irrelevant.  As long as you lived in it as your primary residence for 2 of the last 5 years.  Once you moved out, that 3-year clock started ticking.  As long as you're within that, you're fine and all proceeds should be tax free (up to $500k for married couples).

I think the answer is yes and no.  People tend to gravitate toward the positive.  When they read success stories around people that do just that, they think that is what they should be getting, every time.  We all know there are a variety of factors that go into deals like that, plus, very few people post the bad deals, which there are far more of.

It's the 80/20 (or more like 90/10) rule happening.