All Forum Posts by: Rick Albert

It's all about the rules. What are the quiet hours? What about laundry uses, parking, yard space? Be very clear so that nothing can be up for misinterpretation. 

In terms of medical students, is there something they need that you could offer? For example could you add a desk that can fold into the wall? Does including wifi make it more enticing? Just think about possible pain points that can set you apart from the competition.

Think about your goals. Keep in mind if the numbers work at zero down, then an investor putting 20%-30% down will likely pay more. So think of ways to add value (adding bedrooms, ADUs, etc.) or invest in an area that is considered to be a path of growth. This would be in areas just outside of where everyone wants to be. So as people get priced out, they have to go somewhere.

I haven't played with the BP calculator yet, but I would imagine it needs to be involved, otherwise something can be missed that is extremely important.

With that said, I do get where you are coming from. I would just simplify it in an excel spreadsheet:

Total acquisition price+total rehab+all in refi costs=x

X/.8 (assuming you need 80% LTV)=appraised value (After Repair Value)

Then you just need to confirm your numbers and if the appraised value is doable. 

You can always rework it if needed:

ARV (After Repair Value)*.8=your all in costs

Then subtract rehab and cost of acquisition=offer price.

Hopefully this helps.

When investing in real estate, I'm a big advocate of buying just outside of a desirable area.

El Sereno is that type of area. As people get priced out of competing markets, they have to go somewhere. That's where you come in. 

Plus generally speaking most properties will appreciate over time. It just depends on how long you intend on keeping it. If you are thinking 1-2 years, you likely won't see the appreciation you want unless you added significant value (additions, remodels, ADUs, etc). 

One of things that makes California so unique is that it is so diverse. I've lived in the Bay Area, near Sacramento, Central California, and now So Cal. I can't tell you how different each part is. It's wild. 

It's going to come down to supply and demand. It costs too much in LA to build affordable housing, so then traditional homes need to hit the market. Therefore we are relying heavily on things like job relocation, death, divorce, marriage, kids, etc. that would drive people to move. But because each market is different, making a generalization as a whole won't likely give you the accurate picture you are hoping for. 

If you are asking to find that perfect deal, the reality is if you hold on to a property long enough, it will look like a steal when looking in the rearview mirror. When I bought my first house hack in 2015, I paid a fair price. Put about $20K into it (condo) and then I sold it 7 years later for about double what I paid for it. It's all about time in the market. 

Hey Debbie,

There needs to be a little more context. I've had all sorts of life events that have triggered changes in my financial planning. You just need to pivot or stay the course when necessary. 

Regarding Chris's comment, that can be true depending on the circumstances. However you would need to talk to someone savvy enough to help, not someone who will just tell you want you want to hear.

Best,

Rick

Depends on what your goals are.

Here in LA, $9,600 won't get you too far, especially if there are repairs, etc. Just doing inspections once under contract will cost you about $2,000.

I house hack here and invest out of state (Birmingham being one of them). It just depends on what your goals are.

LA can be tricky with the rent control laws, but you are dealing with bigger numbers, which builds wealth faster. A 3% appreciation on a $1M asset is $30,000. That same 3% on a $100K home is $3K. And what's really interesting is you might be using the similar amount cash for both properties since with the house hack you can go FHA. The same rule applies to rent. Even if you are in the negative with the house hack (most start this way), your appreciation will move much faster as long as you have built in rent increases each year on existing tenants.

What I've done to get start was house hack here and then leverage the equity to buy out of state. I never would have been able to get started had I not started here.

Airbnb was never passive income unless someone else is managing it. It's a hotel business.

It's part of the reason why I haven't gotten into it. I had clients who would do it and they had to watch it every day and adjust prices accordingly to justify the 98% occupancy rate. 

Even long term rentals are now much more active, even with a property manager. It's only passive in the eyes of the IRS.

So now you brought up a sticking point: Selling with tenants in place.

A single family home will likely sell for more vacant than with a tenant. If you are hoping to sell with the tenant in place, then it becomes an investor play, where the numbers have to make sense. If you sell vacant, then you follow the comparable sales in a neighborhood.

For example:

Selling as an investment property:

Rent is $6,000/month= $72,000/year

30% for property taxes, insurance, vacancy, cap ex, etc.: $50,400 net

If an investor wants a 5% CAP rate, that's a $1,008,000 value.

But typically we see about the .5% rule (versus the 1% rule of rent versus price), so that means comps are likely showing around $1,200,000 as a valuation. 

Of course this is all hypothetical because I don't know about the home, what area, etc. But with this example you are leaving $200K on the table. 

Also yes you are losing $2K/month, but that may not factor in tax benefits, loan buy down, and appreciation. You might be making that up in unrealized ways. 

Putting my investor hat on, I would consider finding the money to convert the garage into an ADU and generate income. The challenge is your tenants have the rights to use the garage, so it may be after they move out. In which case then you can consider selling.

Did you factor in the tax implications, if any, when selling the investment property? Are you intending to sell the investment property with tenants in it? These can change anyone's recommendation.

I wouldn't focus on the interest rates. That's a trap many people fall into. Just because something is a low interest rate doesn't mean it is worth keeping.

Can you pivot on the investment property to generate more cash flow? For example mid term rental for fire victims while their homes are being rebuilt? Would it actually make sense to put more money into and build out an ADU? The ADU alone might close the gap. The money can come from a HELOC, etc.

How much equity do you have in your current home? That money is going to be tax free and generally speaking a three level home with no yard can be a tough sell. Your buyer pool is very small for a property like that. I've sold homes like those in the past in LA and it ends up being a price play. Maybe taking the liability away with tax free money makes more sense while pivoting the investment property.

Another option that wasn't talked about was moving into the investment property, refi into an owner occupied rate, and then sell the old primary where, again, the money is tax free.