All Forum Posts by: Rick Albert

Where is this? Chances are you are SOL. In most cases it is a buyer beware situation and you should have done your due diligence. I had a similar situation in Nashville where the Seller/Agent misrepresented the separate meters. We consulted an attorney and he said that we could have counted the meters during the due diligence period. 

The square footage in the MLS is for marketing purposes. Agents put whatever they feel is necessary. You could have looked in public records prior to submitting.

For example for a while in Los Angeles new construction was counting the garages in the total square footage. 

The challenge is you have to prove that the seller misrepresented. For example, if they said that the basement was not part of the square footage but you find out it is. 

I understand that submitting non contingent offers makes you competitive, but it is never a good idea. Take this as an unfortunate lesson. I never recommend my clients do non-contingent offers, even if they want to. The only exception MIGHT be if they are going to tear down the house anyways and paying cash where everything is straightforward. 

Do you have the ability to create the ADU yourself by converting the garage? There is the FHA 203(k) loan that you could use. That's what I did. That might be your best bet. This way you can be in the best neighborhood that you want and you can get cashflow. Plus if you are in the good area, you should get better rents.

Hey Monica,

A couple of things to consider:

1. The less you put down, the higher the payments, which would make it difficult to cash flow. With that said, preserving cash gives you the advantage to scale. For example, you put less down, house hack for a while, then later on refinance if it makes sense. At that point not only will there hopefully be appreciation, but you are guaranteed loan buy down, which means if you truly needed to hit that 20%, you could invest less dollars to do it. If anything, you could use the difference to buy another property, where the cash flow there could offset the difference here.

2. You are partnering with your sister which is great. But going into business with family can be tricky. Have clear expectations on roles, business decisions, and what happens if you disagree on something. This kind of answers your second question. 

You are on the right track. Good luck!

There is a couple of things to think about (I've house hacked two fixers here in LA and leveraged to build my portfolio):

1. James did this strategy over the years. He also benefited from mass appreciation, lower construction costs, and low interest rates. It was a very different climate. I'm not saying he isn't good at what he does (he continues to have a great track record), but it's almost like a different world today.

2. I agree with what others are saying. Two years isn't quite enough time anymore unless you get a stellar deal. Not to say they aren't out there, but if you don't have the resources or experience, it can be tricky.

3. Talk to your CPA. Just because you lived in the property two of the last five years, you will have to pay back depreciation, etc. when you sell if it was a rental. To be fair, it is a better strategy because you may make it up in loan buy down and appreciation.

4. You can likely make it work in any market. The advantage of higher priced markets is that you have bigger loan buy down and bigger dollar appreciation (3% on a $1M asset versus 3% on a $100K asset). 

5. If you are constantly selling properties to scale up, how does that benefit you? Wealth is built in passive, long term income, not "quick" flips. James also has rental properties, etc.  

If you typically wait 6 months, then they will lend 80% of the appraised value. That's what I had to do.

That's a very broad question, but also a very good one.

If your focus is on cash flow, then you are likely looking at lower income areas because the price to rent ratio is better. Be prepared to be flexible.

A couple of websites I like:

howmoneywalks.com: Using IRS data you can see where people are moving to and from.

Zillow Rental Market Stats: Gives you an idea of how rents have been trending in a certain area.

Something to keep in mind: If you are putting a low down payment and expect the numbers to work, they likely won't in the beginning. If you think about it, if the numbers work at 3.5% down, why wouldn't someone putting 20% just pay a higher price? I would look at ways to add value (extra units, bedroom count, etc.) to maximize the house hack. I also would consider putting appreciation up there as a bigger priority if you are house hacking because of the low down payment. 

If you haven't already, talk to property managers about Section 8. When I bought my first place in Birmingham, the property manager at the time said they would not deal with Section 8 unless the tenants were inherited. 

Section 8 sounds like a gold mine but it has its challenges that only boots on the ground can really help with. 

The challenge with rough neighborhoods is your Cap Ex and Repairs are actually higher. Broken windows, stolen AC units, etc. are common and eat away at your profits.

You will find stories about this throughout the forums. My favorite is someone posted that they bought a property with these issues and then someone in the comments said, "was it in Cleveland?" and the author said "Yes! How did you know?"

You also need to look at how long it might take to get it rented. I am seeing higher vacancy rates lately and I would imagine being in a rough neighborhood would be even worse.

It depends if you want the leads or not.

In my market agents will host an open house for free as long as they get the leads.

There are a couple of resources that I like and my clients use as well:

1. Zillow Rental Market Stats: It gives you an idea of how a zip code is performing, even down to the bedroom count. Just keep in mind the more detailed you get, the less data could be provided so you have to take it with a grain of salt. I would focus on general.

2. If you are looking in Los Angeles, for information on a home, I really like Zimas.LACity.org. They provide recent permit history, assessor info, and more. If you are thinking about the PNW, then maybe there are resources there that can help.

3. Of course the forums, but remember that anyone can post and comment here. There are some great members here who can provide valuable insight.

Good luck!