All Forum Posts by: Rick Albert

Just like anything, if the numbers work, the numbers work. Here are a few challenges I see going forward:

1) Insurance rates: It has become a part time job to hunt for insurance. It has also gotten much more expensive unless you are willing to do such high deductibles that it makes you feel uncomfortable.

2) Remodels: Not only is cost of construction high, but homes are only getting older, which means the projects are getting more extensive. I just canceled on a property because I was in escrow at $105K but the work was going to cost another $150K on a property only worth around $200k. 

3) Even with interest rates calming down, it is still difficult if you are buying properties with tenants already in place. 

With all of this, it is still a good time to buy. You just have to factor these in when you submit offers. I'm being extra conservative right now, which is becoming a challenge on finding properties but I'm willing to do that then get in over my head.

I wouldn't necessarily wait, as you would be missing out on loan buy down, tax benefits, and appreciation.

One option is to look for a small value add. Then sell in a few years and build up or if the numbers work, you keep it as a rental.

A couple of things to think about:

1. Are there mortgages on the properties? The mortgage was under your name, not an LLC. Technically a mortgage company could get pissed and call the loan. They lent to you, not an LLC.

2. If the properties are in California, check to make sure they will not be subject to rent control once put into an LLC. I attended an LA City seminar and they said once it is in an LLC, it is subject to statewide rent control.

3. On the Secretary of State website, it shows who the owner of the LLC is with an address and phone number. You could get a PO Box and set up a Google Voice number.

4. I spoke to one of my mentors about this. He said every time he had an LLC and was sued, they always named him individually as well in the lawsuit. Although you have protection, you are dealing with it all the same.

To be fair, they may not be here illegally. That's an assumption. They could be here legally (visa, whatever) and waiting for their green card. We should give them the benefit of the doubt considering somewhere along the family line we were all immigrants and these people may just want to have a better life for themselves and their families.

With that said, there are a few things to consider:

-What market are you in? Here in Los Angeles, because of the tenant laws, you have to be extra careful. I would love to make legal exceptions for people who want to do better, but I can't for reasons already mentioned.

-I have had some with a Vantage Score number when you run their credit, which is like a credit score. 

-The cash in the bank helps and it doesn't help. The problem is you don't know if someone just made a large deposit to make them look good and then the money is gone after they move in. I had an applicant years ago that got a random $10K deposit and that was a red flag to me. Now if you looked over the course of three months and see consistent deposits, that might make me feel better. 

-Are those immigrating here have jobs you can verify? Do they have passports to verify their identity? Are there websites that can verify at least criminal records based on the passports?

-Generally speaking, there are likely other tenants where you don't have to make all of these exceptions or jump through these extra hoops.

-Is there someone that can be a guarantor? Maybe that can help provide some accountability and help with qualifying.

To be fair, I've heard of very little issues with tenants that are immigrants. They don't want to get in trouble so they pay on time and many do hustle with multiple jobs as they try to create a better life for themselves.

 The test is a lender requirement, regardless of how much you are willing to cover. That's the challenge.

If you are willing to come out of pocket up to $3K and willing to get roommates, you might have something. Heck, I might have something for you right now (needs some work but has potential). 

Hey Kristian,

I am a Realtor who is on his second house hack here in Los Angeles. I'm a case study in the House Hacking Strategy. I also manage a Facebook Group with roughly 1300 landlords, mostly here in So Cal. I also own properties in three other states.

Unfortunately what you are looking for is far from a needle in a haystack. There are many 3-4 unit properties out there for sale but most are tenant occupied and most are paying below market rents. The numbers won't work. The second hurdle is if you do an FHA loan with 3.5% down, then there is a self sufficiency test, which basically means the lender takes 75% of the total rents (including what your unit would rent for) and it needs to cover the PITI (payments, interest, taxes, and insurance). The numbers don't work here. If you think about it, if the numbers work at 3.5% down, then why wouldn't an investor putting 20%-30% down buy it? There is the 5% down option that doesn't require a self sufficiency test, but the numbers still wouldn't be where you want them.

If you are looking at a house with an ADU, those are starting at around $900K and go up from there unless you are in C or lower class neighborhoods.

You could look into the FHA 203(k) loan for construction, but you run into the same concerns. It is the loan program that I did on my second house hack. Now if I wanted to I could live for free with major sacrifice (roommates, etc.) but that took time with appreciation and I had refinanced. I've owned it for 5 years now.

I'm not trying to be a negative person, I'm trying to be realistic. There may be some opportunities out there where you have to get extra creative, like creating extra rooms, etc. For example maybe buying in areas like Pacoima where having multiple rooms is common. I would just hate for you to go down this route with an agent who claims it can be done just for you to be in a bad spot.

I'm happy to talk to you more about it.

Another consideration is how long would it take to make your cash back. For example:

Buy a $450K property with 20% down, you save $360K in the bank. How many years would it take to get $360k in your bank account based on the rental income if you paid all cash? Your mortgage payment would be in the range of $2400/month (assuming 7% interest rate). That means it would take 12.5 years to get that back. Think about how many more properties you missed out on because you paid cash and it was tied up in the property. Versus if you leveraged, you could buy multiple properties (or larger projects), and be in a better position in the long run.

The reality is real estate kind of only makes sense if you leverage. You gain appreciation on the value of the property, regardless of the loan amount.

 I think the issue is people post here for guidance and advice. Yet agents are coming on and basically ignoring the initial post just to advertise themselves. 

To Steve's point, if you post on Zillow and agents find out, they will likely rat you out. Many Realtors are bitter because you are effectively competition on what could have been their listing. You are asking to get in trouble, whether you are in the right or not.