Long Distance Opportunity - Need advice for Newbie

[Michael Kotas]

Hi all,

I'm a newbie and have been lurking on the boards for a several years but now have a real opportunity that I'm in need of some advice.

Here is the situation:

My mother recently passed and has willed her 2 bd/2 ba house to my sister and I. Neither of us live in the market. My sister wants to sell while I'm contemplating keeping it and renting it out. The house is in good condition, ~ 20 years old, and but in a quiet suburb (20 minutes away from some major attractions).

Here are the questions:

- I can afford to buy my sister's portion but can I / should I put a mortgage down on her side? (will a bank even allow it? would I need to set up holding company?)

- Due to the long distance and the HOA covenants, I'd have about ~19k in annual operating costs when I include both mgmt service fees and burden my ROI with the opportunity cost of not investing the stocks. I'd like to purchase more units the future and ultimately move back in the next 5-10 but felt this might be a good starter rental home We think we'd get ~5% ROI (similar to stocks). Does this make sense?

- We'd like to potentially spend some time in this market during the course of the year which lends us to using AiRBNB however we'd probably make better ROI on a long term rental. Any opinions on one way or the other?

I'll keep re-searching away on the boards but wanted to get some details out for discussion since I'm not 100% sure where to start.

Thanks,
Mike

[Jake S.]

Hey Michael!

Sorry to hear about your mother :/

With your first question, could you buy out your sister and then get a mortgage against the property to pull out the equity?

If you did that, would the house still cash flow? What's it's value and what would it rent for in the area?

[Michael Kotas]

I believe burdening the cash flow with a mortgage would lead to about a -11% cash flow. My best cash flow option is a long term (read: year-long) rent for positive cash flow. Our two cons is a) ties up a good portion of my liquidity and b) prohibits my family from using the house during some of our vacations which obviously has an emotional tie- in to my decision making

[Anthony Rosa]

Sorry about your mother.

A different perspective.

Maybe you're better off selling it considering you have an emotional tie to the property.  You can't take your rentals personally, its all business.  The house has meaning to you for personal/family reasons and tenants could care less. 

[Michael Kotas]

Yes, we’ve been contemplating the pure sell option.

The alternative we’ve been discussions is to rent this out short term (1-2 years) while we purchase another 1-2 properties in the area as we potentially move into the original property

You’re absolutely right that we should leave emotions out of it, I just fear the future cost of acquisition will go up as neither my wife nor I are big into flipping

[Scott Smith]

Hey @Michael Kotas,

Sorry to hear about your mother.

One technique I often speak with real estate investing professionals is comparing alternatives. Generally if you want to do something a way can be found to do it. But the business question here is how you can best leverage the money involved. Look at both the best-case and worst-case scenario for purchasing the house and renting it out, then compare that to the best-case and worst-case scenario of selling the property and investing the money elsewhere.

A couple thoughts on this: investing in a market not near yourself makes simple tasks a hassle, and challenging tasks tremendously difficult. The other issue is that it seems to be a pretty nice house, which leads to the issue of finding good tenants - often tenants who can afford that high of a rent for a year could also just a get a house and just pay the mortgage (not all people do this, but it does limit the demand for the commodity you are supplying.)

I've seen people run distance rentals successfully and unsuccessfully. It really comes down to your drive to make it work and the numbers! If you know anyone who is an investor I would take them out to dinner and run the number by them and see what their thoughts would be.

This isn't legal advice, just my opinion as a real estate investor. 

[Michael Kotas]

Thanks @Scott Smith for the information....

We've eliminated the idea of trying to part-time rent it and part-time use the house. We've boiled it down to either full-on Rental or sell-it outright.

The market the house is located in is Buffalo NY, so I need to do some research on the location and pricing to validate if the numbers work or not...

[Jim Campbell]

Mike Kotas.. if you need any help as far as pricing for the area it's in.. I'm sure I can help.. let me know. 

[Scott Smith]

Hey @Michael Kotas,

Best of luck to you moving forward! The times that I have seen people successfully implement AirBnB part-time with their residence is when they do long-term travel. If there is a few months available at a time, it can be easier to set it up and also helps cover expenses while traveling. Otherwise a long time back on my own podcast I did an interview with a guy named Scott Sutherland who accepted the high level of disruption, along with his wife, by always keeping their house open for AirBnB. It's a pretty high cost, but it allowed them to grow faster due to the additional income from what is usually just "sitting money" in most people's assets.

[Khaled Morad]

@Michael Kotas I messaged you. I can help with some insight in the area!

[Denice S.]

Michael, Buffalo is a great place to invest but it is not without its challenges for out of town Investors.  Some things for you and your sister to consider while weighing your options...

1-Buffalo area is seriously deficient in quality, trustworthy propery management. I’ve tried many and have taken my properties back every time; and I’m local.

Air bnb will be extremely complicated without a 24x7 manager and cleaning/maintenance team...we just don’t have these companies in place and certainly not in abundance. 

2-Self managing in Buffalo is allowed, but you have to have a local property contact registered with the city of Buffalo rental registry.  If you have any family here, that would likely be acceptable. 

3-We are approaching the best time of the year to sell (June, July, August) and properties are achieving extremely high sales prices with favorable terms for sellers such as no inspection and no contingencies. 

All of the above is just food for thought, but you also mention perhaps moving here to Buffalo which reduces the challenges if you’re into self-managing. 

I think you also made mention of HOA terms which leads me to believe your mom's place is a condo or patio home. If that's the case and the association has systems in place to help you sublet on a months basis or if they help owners manage units for Airbnb that's an entirely different situation and could, in fact, be lucrative.

Denice

[Michael Kotas]

Thanks @Denice S.. I grew up in buffalo and visit 3-4 times a year but will not be moving back in the near term. My mother's house is in fact a Patio home. No intention to AirBnB at this time. 

Unfortunately, at the end of the day I need a Property Management company to make this work out. My friend recommended the following: Buffalo First Investors, Bellavista group, and Regent Companies. 

[Martin Krimmel]

@Michael Kotas I invest in Buffalo from out of state and having a great property management company is key. They are called Lodge Group and the only one I trust there. I'd be happy to connect you. Very sorry about your mom, I know what it's like unfortunately. PM me if you like more contact information.