All Forum Posts by: Jason V.

@Jen Lucas Everything looks pretty solid to me, you just need to watch out for increasing future expenses. In particular, I'd be concerned about health care. You might wind up needing another property (or two, or three) just to cover your insurance until you hit Medicare age. 

And in the shorter term, while you're still working, I would consider paying down your existing mortgages (or using 15 year notes) - your returns are much, much worse with shorter term loans (and your cashflow will be less) but you'll get them paid off faster, and have more security sooner. Just a thought. 

One other stray thought: consider minimizing the number of different areas you invest in, and really consider the future of the market in which you're buying. I see Texas continuing to go up (if more slowly) for quite a while. Population growth isn't slowing down, and more and more industries are moving there from the business-unfriendly states. The opposite is probably true for Dayton, although my crystal ball is no better than anyone else's, and at this point, who the heck knows what our economy is going to do on the manufacturing side? Dayton may very well wind up being a great market in 10 years. 

Good luck!

@Derek Rocco - A couple of things to watch out for (that you may have already included, which I missed): 

1. There's a difference between 'Vacancy' and 'Economic Vacancy'. If all 5 units are occupied all of the time, you have 100% Occupancy, and 0% 'Vacancy', right? But if you're looking at a 5 unit building in the Pittsburgh area in the $80k-$90k range (or anywhere in the 12-16 Cap range) I would guess that you're going to have a higher than average 'Economic Vacancy' - i.e. your tenants are going to pay late, under pay, or not pay at all. So you lose that first month's rent, and it takes a month to evict them, meaning you'd be out 1-2 months rent, plus repair costs after eviction (and there will be) plus time to get it re-rented, etc., etc. Thinking along these lines, the current tenants might have only stayed so long because they're being allowed to pay late, skip months, or otherwise cost the owners money - and the owners just don't feel like dealing with the hassle of an eviction to get more bad tenants. Economic Vacancy is a much bigger risk in these types of properties than True Vacancy

2. I'm not sure I understand your reasoning with wanting to use a hard money lender versus a commercial loan on this deal. If you can just barely cover the down payment on it, maybe the smarter move is just to save up for a little while longer, rather than pay the extra interest and closing costs for hard money. Or bring in a more experienced partner for the deal (second set of eyes never hurts on a first deal.) My real concern would be that many commercial lenders won't be interested in this deal, for a couple of reasons. For them, it's a very small dollar amount to lend, so they won't make any money. Add that to the fact that it's a 12ish Cap deal, probably not in a great area, and I think you'll have a hard time finding a commercial lender that wants to take the risk. Apart from that, many times commercial appraisals and inspections are much, much more expensive than residential, and your closing costs are likely to be higher than you expect. So my worry would be, if you take the hard money to buy this, you're going to get stuck in it 10 months from now trying to get refinanced, and wind up "buying time" (to the tune of a couple of points) from your HML.

3. You made an offer, it got rejected - why not make another offer? I know in some markets you "have to bring your highest and best offer" - but I really don't think you're seeing that type of competition for small MF in Pittsburgh (or am I wrong?) Not that long ago I offered $69k on a property that was originally listed at $153k. They were so angry about the offer that they "countered" with a higher than asking price number. After negotiating for several weeks, I was able to buy the property for a huge discount, with another separate parcel of land thrown in for good measure. Get used to hearing "no" - it's just part of the business. (Wait until the first time you're sitting across the table from someone and they completely flip out at your offer. If you want to get that property, you're going to have to "Peel them off the ceiling" - as we used to say in the sales world.) In some markets, this is the wrong approach, but I'm from the school of thought that says "Any first offer that's accepted was too high." 

4. The "No Contingencies" statement is becoming more and more common, because there's a trend in Real Estate for buyers to make an offer, have it accepted, and then use a painfully meticulous inspection to try to hammer the seller to reduce the price further. I've seen some absolutely ridiculous things show up on inspections, and have buyers expect money off for them. In my mind, an inspection should cover major things - but if a buyer didn't notice some peeling paint behind a storm window, or old caulk around a bathtub when they walked the house and made an offer, I certainly don't want to give them another $1,000 off to have it painted or re-caulked. So I see this as an attempt to avoid getting nickel and dimed to death. Or there's a major structural issue they're trying to hide. Either-Or. (Have fun figuring out which!)

5. I'd be wary of the thinking that this property is going to be worth twice in 10 years what it is right now. I could be wrong, but I also doubt you're going to see anything trading at a 12-15 Cap right now double in value any time soon. 

6. I only see your returns from the calculators - I'd be much more interested in seeing what you put in for costs/expenses. In a 5 unit building with $2200 total rent ($440/unit/month) I would be estimating my expenses to be much higher than the suggested ranges on the BP calculator. And one bad tenant (out of 5) could easily cost you a year's worth of profit in a month - that's always the risk with these types of properties. 

7. The Pittsburgh area is one where I would not be at all opposed to buying SFRs right now - especially using the BRRRR Strategy, considering you have a HML already lined up. I think this is an area that's going to grow quite a bit in the next decade (but that's just me.)

Good Luck!

This may be a little outside the box, but you can try using a running/workout app (such as Map My Run) and log your drives as workouts. I know it can be done using the website (which is how I use it) but the app may work better, depending on what you want to do. 

Seconded.

Somebody fresh off their first Seminar "starting to Build Their Team" and asking for recommendations in XYZ Area. Apart from the laziness/obnoxiousness of these posts, I'd bet that 99% of those folks never wind up actually doing anything other than wasting the time of whoever they "interview." (But hey, that's just a part of being in one of those professions I guess.) 

BUT - maybe BP builds a searchable database (by Zip Code) of members who are RE Agents, RE Attorneys, RE Insurance Brokers, GCs, etc.? Have Pro members get to opt-in to the database? So I can get on BP and have one single page where I can punch in a zip code and get results on different tabs for all the different types of RE professionals in that area? Sorted by ranking/activity maybe?

@Eddie T. I met up with Jerry for coffee a couple of weeks after this post, and we'll definitely be doing business together going forward - I just haven't had an opportunity to put him to work yet. 

My wife and I unexpectedly wound up buying a new primary residence for ourselves (kid number 4 is in process, and our current house just wasn't cutting it anymore) which took up what I had slated as down-payment money for the next two properties. We're in the process of selling off two SFRs right now (the returns just aren't as good as MF, and we have good equity in both) and once renovations are done on a 4 unit, we'll re-fi that to get our cash back out, so hopefully we'll be in full-speed acquisition mode come 2017. 

@Aqil Dharamsey  Weirdly enough, I think there’s an important mental/philosophical side to investing in real estate that is not often addressed. It seems either people can deal with it by their nature, outsource enough of what stresses them to survive, or get out of the business (and then badmouth it to everyone they know, typically.) I’m a firm believer that anyone can improve in this respect – it might just take a lot of time and hard work.

As a recovering (functional) alcoholic and all around piece of crap human being, I’ve spent a ton of time trying to figure out why I did the things I did, reacted the way I did to situations, thought the way I did about things, and why I was who I was, essentially. This is obviously an extremely deep topic, and not one that can even begin to be addressed by a forum post, as it will be exceedingly specific to each individual. But one of the big things for me was not learning how to ‘manage stress’ but to learn what caused my stress, and more importantly, why. Maybe one of the easiest things we can do to start this process is to go back to being two years old – and ask ‘Why?’ constantly. Why did I get angry when that person cut me off in traffic? Why do I worry that my tenants won’t pay on time? Why do I worry that my contractors will disappear with my money? Why does it make me relaxed to sit down with a glass of bourbon? Why do I hate to exercise when other people love it? Why am I surprised when everyone acts in their own self-interest?

These days, I’m one of those crazy, live like I believe it, Christians, and my faith plays a huge part in my approach to life – but there is a ton of philosophy out there that would be helpful to everyone. In particular, I see the Stoic Philosophers as being very relevant to real estate investors. Check out Epictetus, Seneca, and Marcus Aurelius to get started. More contemporary works folks would find helpful might be “Thinking: Fast and Slow” which was written by Nobel winning researcher Daniel Kahneman, into cognitive biases. Fascinating stuff if you’re interested in why we think what we do. A different look at the emotional or spiritual side of that would be Donald Miller’s “Searching for God Knows What” where he discusses what he calls the “Lifeboat Theory.” These happen to be writers/books that changed the way I looked at the world, but there are literally thousands of them out there. It’s a matter of finding someone discussing these topics in a way you can connect with (because at the end of the day, we’ve been talking and writing about the same things as a species for a couple of thousand years now.) Then you can learn the thought processes, techniques, and strategies that fit you best.

So to answer your original question: I’ve learned to manage stress by doing everything in my ability to prevent becoming stressed, and maintaining the ability to reason my way through stress when I do feel it.

“Man is not worried by real problems so much as by his imagined anxieties about real problems”

― Epictetus

@Charlene Isoh I'm with @Aqil Dharamsey on this one as far as rents go. Maybe as high as $850 in you're in a good part of the area. 

Also, lower end rentals: you're going to run vacancy higher than 5%, and property management is likely going to be higher than 10% by the time it's all said and done. I'd suggest 8.3% vacancy at a minimum (going up from there for tougher neighborhoods) and PM at a minimum of 10% (but I tend to use 12%-13% to account for lease-up feels, maintenance surcharges, etc., etc.) Your maintenance budget might be a tad low (especially if you're using property management) but probably isn't too far off.

And double check the tax bill - $1560/year seems low to me. It might have been reassessed after the foreclosure, or previously had STAR, or some other trickery that costs you $1,000 a year after the fact. 

This would be a pass from me. 

@Charlene Isoh - what goes without saying here is that the property may not even be worth the rehab costs when you're done with it, depending on the address. Do you know when it was built? 50s maybe? Depending on the year, I'd be sure to check the foundation. 

I'd also have concerns about HVAC/Hot Water Tank without having more information. The pictures kind of, sort of look like there were electric baseboards that were ripped out? Hard to tell - could have been hot water baseboards too, but either way, if those are gone they'll have to be replaced. HW baseboard heaters will be a lot more expensive to replace than electric, but both will cost some money. 

Depending on the area, it might be worth doing the kitchen cabinets (but probably not.) My guess is they're worse than they look in pictures, and don't close or stay shut very well. 

It's all dependent on the address - in many neighborhoods, this could be a decent rental pretty much as is (as long as everything works.) 

@Matthew Drouin - can you recomend a good painter on the East side? I just got a couple of quotes do to the whole interior of a house and they were all close to $6,000. It's more of a job than this, but I felt like these guys were trying to gouge me pretty hard too. 

The line that killed me "Landlords have all the power" - apparently he didn't bother talking to any actual landlords, especially in the tenant friendly cities and states. Watch an eviction take a year to complete, all the while receiving zero rent and having the people absolutely destroy your property. Lose tens of thousands of dollars in one shot, but I'm sure it's the tenants who feel the pain....dipstick.

In this numbskull's mind, we all sit around lighting cigars with hundred dollar bills while laughing at the misfortune of the suffering.