All Forum Posts by: Joe Scaparra

I know this is going to come out a overt critical but I know of no other way.

You bought the property in 2017 or 2018? That was 5 to 6 years ago!!!!  You are negative cash flow and you seem to fully rely on your property manager.   Looking back did you know your were going to be negative and did you not grow your rent to keep up with taxes the last 5-6 years?

The one glaring issue for me is that you have a property manager! If I am new to REI and I am after Cash Flow, I am going to eliminate out going flow as much as possible, especially if I am in a NEGATIVE cash flow situation. If you're renting for $2000 a month you could save yourself about $200 per month right there!

I have a property that I may be willing to let someone use arbitrage.  Would be willing to hear their spell.  

East Austin 2 bedroom 1 bath duplex.  One unit considered.

I am sorry to tell you but replacing an appliance for a duplex rental is not that big of an obstacle.  AC issues, roof leak issues, slab leaks, are more daunting to overcome when low on funds.

You are playing Russian Roulette if you start out owning investment real estate with no reserves at all.  Probably should try and delay your buy for 6 months if you can with the seller and save $1000 a month or get a side hustle.  

When you were a baby, you learned to crawl before you walked and you walked before you learned to run.  Same  for investment real estate, reserves are a must before you lay down the deposit.  Cheers.

As a pure investor there is a lot more risk within the Austin MSA.  Within the city limits, it is a real challenge to make the numbers work.  House hacking or renting by the room seems the only plausible avenue to try and make the numbers work. 

If you are renting now, I believe you certainly can improve your economic standing but to get cash flow positive using 20% down is like trying to find a needle in a haystack.

Looking on the outskirts of the Austin MSA is really the best option, other than leaving the Austin market for say the Bryan/College Station market.  Cheers.

@Adam Reilly, @Nathan Gesner said it all.  I am chiming in as I am local and mostly a duplex investor.  Bought my first one in 2003.  Just helped my nephew buy one in Elgin beating the 1% rule just 6 months ago.  

Adam, you are younger than I when I first started.  I am now 68 and have 19 units total.  Yes it was different 20 years ago but deals still exist but they are much harder to find.

Read my profile to get some idea about me.  I do mentor a few young investors, so if you want to do coffee or lunch let me know.  

I have several duplexes in Round Rock and may be heading up there this week to put to bed a few issues.  A meeting might be in the cards.  Let me know.  Cheers!

Quote from @Jonathan R McLaughlin:

Quote from @Joe Scaparra:

My leases specifically state that Heating an AC are not emergency conditions.  

Yes, I will act as soon as possible with an AC issue in the summer but I do not offer or recommend landlords offer hotel nights during periods of no AC.  If I had a tenant who was medically compromised to the point of being a serious health issue I would consider a hotel stay.

However, having grown up in San Antonio from 1st grade thur 11th grade with no AC in the house, i am less sympathetic in giving hotel assistance to my tenants.  

Texas Landlord/Tenant Guide suggest 7 days to repair is reasonable after written notification has been given.   After 7 days the landlord should provide actions taken to remedy the situation and additional time is reasonable if labor or parts are delaying repairs.

https://assets.recenter.tamu.e...

Your lease can say anything it wants doesn’t mean actions will hold up, but you at smart and make reference to the actual law! Buried in the statement you quoted is the phrase about accounting for actions taken once it takes longer than 7 days,which means you are—conceivably—having to explain to a judge what you did to mitigate.
How hard is it to have someone drop off a portable/window AC in 24 hours?? 

agreeing with you by the way, just saying that folks need to treat this with urgency and it’s not that hard: it’s about living conditions not just a repair. This will ultimately save you money

 I hear you!  I have 25 units I own/manage in Central Texas.  I haven't yet have one take more than seven days to fix, except one that happened in November.  Circuit board went out and took a little trouble shooting before we realized that and then got the board ordered.  Even though November, the tenant was not happy but it is what it is and all ended well.  Listen, we have rolling power outages in the Winter and Summer.  Sometimes that may last days or even weeks for some.  Landlords are no more responsible for those either.

Yes landlords need to get to the repairs in an expeditious manner.  Most of my tenants tell me they haven't had a landlord like me in that I am very responsive.  Every Christmas season, I personally drop off a little gift.  It goes a long way and keeps my tenants happy.  Cheers.

Quote from @Austin Bright:

Hi guys,

I'm getting ready to list for rent for the first time and am curious about your rental application criteria for tenants? This is what I'm thinking. But honestly, it seems like it might be too cumbersome? I'm not sure.

1. I've always seen gross income must be 3x rent. Must be willing to submit to employment verification

2. Must be willing to submit to and pass a criminal background check

3. No pets

4. 1 month's rent to be kept as a security deposit due upfront

5. Tenant responsible for all utilities

6. Must provide 2 years of residential history and contact for previous land lords

7. Tenant required to maintain renter's insurance

Are these reasonable or too picky. Is there anything I'm forgetting?

That's a good list to start out but be willing to use some judgement as well.

1.  Employment income is important but also the type of job and how long they have been employed with the company is important too.

2. Background check.....what is your definition of passing.  I look at the offense, how long ago was the infraction.  Usually anything that involves family violence or aggressive physical altercation is a no go.  Drugs other than a little marijuana can be a big problem as it is hard to beat an addiction.

3.  No Pets.  Sounds good but you will eliminate about 70% of the renters out there.  If you decide to change your stance think about what type, size and number of pets you might take.  Cats have to be neutered especially male cats.  I allow small dogs.  I also charge a NON=REFUNDABLE pet FEE!  Also be ready to handle ESA dogs and Service dogs, know your legal rights and the tenants as well.

6.  Rental history.  I will require a minimum of 1 year rental history.  If I have concerns I will contact their current or previous landlords. Yes someone mentioned they may give you a friend to lie to you but the rental application should give you enough information to sort out if you are being lied to.

7.  Renter's insurance is recommended but I don't require it.  If you decide to REQUIRE it have a company information handy that you can give a tenant to use as a lot of tenants will not have a clue.

Good luck. Cheers!

My leases specifically state that Heating an AC are not emergency conditions.  

Yes, I will act as soon as possible with an AC issue in the summer but I do not offer or recommend landlords offer hotel nights during periods of no AC.  If I had a tenant who was medically compromised to the point of being a serious health issue I would consider a hotel stay.

However, having grown up in San Antonio from 1st grade thur 11th grade with no AC in the house, i am less sympathetic in giving hotel assistance to my tenants.  

Texas Landlord/Tenant Guide suggest 7 days to repair is reasonable after written notification has been given.   After 7 days the landlord should provide actions taken to remedy the situation and additional time is reasonable if labor or parts are delaying repairs.

https://assets.recenter.tamu.e...

@Michael Foley, a couple thoughts here.  First update your profile.  If you are going to ask for advice on this INVESTMENT website, it would be nice to know more about you, your goals and more important YOUR WHY!    With that info you will get better advice from people.  Take a look at my profile to see what i mean.  

Now a little about me........we all have opinions, you know like everyone has an a@@hole.  Some good, some bad take them with a gain of salt.  However, I am 68yr old, and have Nothing to gain for giving you my advice as i am not a realtor or lender.  I am just an old fart that likes to mentor young people for the cost of a cup of coffee.

I saw that a duplex was brought up but you quickly said that is not what you are wanting.......did I get that right? Now because I am an investor and when we talk about investment property I like to keep focused on that what is best to meet your GOAL and WHY! Now from the outside looking in and not knowing much about you since your profile is blank, i would conclude you are making a huge mistake pursuing a SFH over a duplex in Austin TX especially if you plan on vacating in 2 years and will be renting out said property. But hey, what does this 68yr old fart know, he only has 20 years experience with INVESTMENT REAL ESTATE. Don't get me wrong, you could succeed buying a SFH but your greater chance of success starting out would be a small multi-family property.

Since you seem focused on the 78745 zip code let's take a gander..... You can buy a SFH for 450ish which will get you a 3 bed 2bath 1200-1500 home that you could rent out maybe for $2100=2300 a month. Your monthly payment on a 30 yr mortgage will be around $3300. So when you decide to get up a leave you will ONLY have $1000 negative cash flow. Most of the investors I run a round with would think this deal stinks!

Or

You could buy a duplex.  Maybe like this one in the 78745 zip.  https://www.realtor.com/reales...

I only use this as an example and do not necessary recommend you buy this exact property. But I suspect you would have roughly the same mortgage payment of around $3300 but you could rent each side out for about $1500 side for a total of $3000 monthly. Now my friend you are still $300 negative but a WHOLE LOT BETTER than $1000 negative. I think I could fill that gap better with a duplex than a SFH. Did I mention with a WHOLE LOT LESS RISK! What is your cash flow when your SFH is empty between renter...........Zero! Duplex goes empty one side you still have $1500 coming in. Ok, the economy starts to take a dump your SFH tenant gets laid off and moves. You might have to lower your rent to $1800 what does that do for you. Same situation with one of your duplex units and YOU KEEP THE RENT at $1500 because all of a sudden you have a larger rent pool from those renting $2000 and above that can't afford those rents or mortgage payments. Get my drift.

Before you make a decision on what to buy, bounce it off your well thought out GOAL and WHY (which you don't have yet). Then ask yourself what property type BEST MEET MY GOALS/WHY. I suspect you want a SFH because you would enjoy living in one vs a duplex unit. If that is the case throw all my advice out the window. I like helping people build wealth, maximize living today is not a formula for success if you are trying to become financially independent.

Now this advice may not be appropriate for you.  Why?  Because again I don't know you.  If you are married with 3 kids this probably won't work for you.  If you're single now and renting a $2000 and up condo, you probably don't possess the discipline needed to move to a duplex.  If you have a $500-$600 car payment you probably are not a candidate for moving into a duplex unit. If you are carrying $5000 or more in credit card debt you probably are not going to be receptive to living in a duplex unit.  Again I don't know you, but someone who is determined, discipline, goal focused and has a decent paying job can absolutely acquire financial independence in 15 years or less but again I don't even know that is a goal of yours. The young people I mentor have that mentality, to do whatever it takes, forgo self-gratification today for a better tomorrow.  Is that you?  Cheers.

Quote from @Jay Dotson:

Quote from @Mason Liu:

Hey Jay, congrats on all that built up equity! Would need a bit more information on your current income, savings and investment rate, what you'd do with the sale proceeds if you sold, if you have the ability to purchase another property without selling this one, what is the potential return on investment of the next purchase or investment etc...

If you are confident in that sub market's potential to grow and appreciate in the mid to long term, I'm leaning more towards keeping it, at least for now. You're cash flowing pretty decently and the tenant is paying down the mortgage (I'm assuming there is a mortgage) while you enjoy the appreciation and tax benefits associated. As long as you save that extra cash flow towards CAPEX/maintenance items that will come up in the future, you should be fine.

Thanks so much for your feedback. That’s what I’ve been thinking as well. Not really sure if it would be worthwhile to use the proceeds for a multi family property, I guess that was more of my question. 

I feel confident in the ATX market though it’s been rough the last year. I got in at a great time and still think the ceiling is high on the home. Just a question of 1 door for $700/mo and the appreciation of 1 home vs. using the proceeds from the house to go into a multi family or storage facility to have greater potential.

@Jay Dotson A couple things to think about.  Give more in-depth thought about your goal and Why.  The Why is important and will keep you focused on your goal of financial independence.  The Goal and Why will also lead you in your decision making.

Now:  Pros and cons look at your current situation.

Pros

160k equity in current property!!!!

3% loan!!!!!!

Property is turnkey and rented!

Cash flowing $700 monthly 

Your comfortable with property and is keenly aware of property and tenant issues.

Now before i go into the Cons about this property, I want to interject a thought.

Let's say you did not have this current property but you had 160 cash to invest in property.  If that was the case would you buy the current property for an investment.  You see, since it was your primary residence you probably had a different goal in mind when you bought it.  Although an easy transition from primary residence to investment property conversion, it usually is not the most effective pathway to financial independence.  However, it usually is the easiest pathway.

Cons: These are more items for thoughts because I personally don't know thoroughly know your situation. 

SFH usually is less profitable than a small multi-family property (duplex, triplex, four plex)

Re-deploying 160k could net you multiple properties vs your one SFH.

So here is the bottom line, Yes selling could very well move you faster on the timeline to becoming financially independent, but will mean more work and possibly stepping further out of your comfort zone compared to where you are now. If you have the time and energy to make that move then I would do it.  Your tax free gain will compensate for having to acquire a new loan at a higher interest rate.  

I am 68  and financially independent.  I don't have the interest to increase my portfolio.  I would stay put or sell and put the money in assets that don't have as many moving parts as rental real estate.  However, if I was younger and not financially independent, then yes I would seriously consider selling and re-deploying the equity and i would change property type to small multi-family.  But again, I don't know your desires, energy effort, goal or why.  Good luck and cheers!