All Forum Posts by: Andrew Jones

Thanks for the input guys, but I think the fire went out on this one.  I was looking into this for my dad but I thought it would take 5-7 years to decline as much as we've seen in the last 18 months.  Word to the wise for anyone that may be interested in this area though...we're paying $9,800 per month (yes...per month, not annual) for his care and had to sit through a wait list for the privilege.  Best of luck in 2019 everybody.

@Anthony R. "Maybe not buying for cash flow is why so many people lose at real estate?"

Very well could be.  Right there next to buying a rental property in a town where the only grocery store and biggest employer is a Walmart.  They closed over 150 stores and more than 60 Sam's clubs in the last two years if I remember right.  Let's see how they do after this trade war with China really gets going or, worse yet, if the action we're seeing causes another crash.  Businesses relocating and closing are not a one in a million act of god...they are very common occurrences that will likely be more volatile in the years to come.  The last 8 years have been a real gravy train...buy for cash flow, buy for appreciation, both have worked with little effort in recent history.  I wouldn't recommend either for granted.  

@Anthony R."You can pitch what if scenarios all day. What if an asteroid strikes? What if a hurricane happens? What if my leg falls through a step and gets eaten by a homeless guy living in the basement?"

Hurricanes you can insure for (give me a call! My brokerage can help.) and the rest of it is nonsense.  Start listening to this weeks podcast (EP 306 I believe) around the 44 minute mark.  They say the same thing I did and the sentiment is repeated by anyone who knows better.  Buying for cash flow in a company town (or a nothing town) is a real risk.  I'm on the same page about cash flowing in the first six months, but only in a town that has a college, state capital, some sort of financial anchor.  The OP is house hacking in a growth market.  He's 40 minutes drive from seattle...one of the hottest markets in the country and this may be the best play available to him.

@Mary I think the issue with buying for appreciation is the speculative nature of it.  You have to ASSUME that prices will continue to increase, your flip goes smooth, etc.  This sunk a lot of people in 2008 and in a lot of places around the county just doesn't happen in a meaningful way.  It's not a great feeling losing money monthly while hoping the market goes back up eventually.  This strategy can work but I'd argue it's better suited for buyers who have the liquidity to bail themselves out if necessary.  The upside is you are leveraging tenant rents to pay for your assets and that loan will get paid off eventually.  

@Anthony R. Cash flow day one feels safer, but that is not a guarantee either.  What if a major (or the only) employer in town moves out?  People get laid off, stop paying rent and property values will decline.  Flint Michigan is a great example (and GM is downsizing again...how timely). The grief of trying to collect rents in a war zone may not be worth the income.  I'm sure there are places with multiple stable employers that will cash flow day one, but I'd argue these are not in big growth markets like WA where Adam is trying to house hack. 

We're just looking at different perspectives from different markets.  Mary's market in OR has been hot and will likely continue to be, where Anthony's Ohio market probably won't appreciate much but you can buy great cash flow.  

The nice thing about a house hack @Adam K. is considering is that it defrays your living costs, has tax benefits, you can bust some sweat equity and (theoretically) will let you ride out a correction.  The calculation seems right as you are losing money on paper, but you have a tenant helping you build equity and rents typically trend up.  I would see what comps are renting at, how long they sit on the market, and how increasing interest rates are likely to impact local housing prices.  You want to be critical of any potential investment, but if it's this or buying a single family home to live in the choice is obvious.  Just think about how long you want to live there and if you could suffer worse accommodations for greater cash flow (like a 4 plex).  I personally wanted to do a 4 plex in a war zone for 2 years, but my wife wanted a single family home...the duplex was our compromise and it has worked out well for us.  Good luck!

If you are buying with low or no money down with the expectation to live in (and off of) the property it would be wise to budget more than $1000 for repairs.  How old is the building?  When was the last time updates were made and were they done properly?  Our story is similar to what you're looking at doing.

My wife and I house hacked a duplex in Sacramento Ca which was a real dog when we bought it. $330k purchase price, one unit occupied paying $900 per month...woof. We put $70k down so we weren't feeling too flush, BUT at least with all expenses in we were only losing roughly $400 per month...less than a third what we were paying to rent. After four years of scraping, painting, repairing and renovating (hundreds of hours and roughly $30k supplies) we're doing a little better. We moved into a single family home and today we are grossing $3100 (netting almost $1000 after expenses and cap ex). Comparable duplexes in the area without renovations are selling for $460-560k, but that may not matter as we don't plan on selling and like be roughly 50% LTV.

Moral of the story is we bought too high and had to bail ourselves out with improvements.  It also doesn't hurt that people are fleeing SF and driving up our rents and values too, but who knows how long the tech gravy train will keep chugging along.

Thanks @Jon Crosby! If it’s alright by you I’d love to shoot a pm and pick your brain. 

I tried searching for posts on vacation rentals so forgive me if this is redundant...the only thing to pop up was a blog from 5 years ago and vacation rental apps have come a long way since then.  

My wife and I are getting ready to buy the next rental and the only small multi units that pencil out are in war zones.  We want a place we can manage ourselves and put some sweat equity into so out of state investing is out and we're not looking for syndication or REITs.  The last option I can think (outside of sending mailers to distressed homes) is buying a single family home in one of the nearby tourist destinations.  At first blush it looks like a $290k asking price home would demand $179-250 per night and the season is most of the year.  We'd probably see dips in early spring and late fall as most people would be looking for fun on the lake or skiing (both near by the subject property).  

My big questions to anyone with short term vacation rentals are:

1. How big a bite does AirBNB (vrbo, whoever you use) take out your income?

2. In a mountain town what does your vacancy look like?  I imagine in the summer and winter most weekends will be booked along with major holidays in between, but do you get any action in the off season?

3. I imagine the stuff I need to worry about on a vacation rental is different than a standard residential rental.  Insurance, permitting, absentee managing (I'm not going to be there for every flip)...anything I'm missing?

4. The long term plan for this would be to rent it for a few years, make some improvements, have some fun with my family when the unit is not booked and a few years out 1031 to something more exciting.  Does this process work the same on short term rentals as it does long term rentals?

Thanks in advance for any advice.

Repeat after me folks...back up of sewer & drain endorsement.  Every policy...every time (provided it is not an unreasonable amount of premium).  I've been an insurance agent for 10 years and this claim pops up a lot and is typically very expensive.  Particularly if you have old plumbing or other issues that leave you prone to flooding.

It sounds like this tenant is a PITA anyway so I'd offer them the opportunity to pay the full amount and put in their notice to leave without penalty.  Provided the market is hot enough there won't be a long vacancy that is...

Woof...the first thing I would do is try to put a claim in on the inspector's Errors and Omissions insurance.  If the roofs were that bad he should have picked up on that...this was a $200k mistake.

These tenants sound rough.  Is this just the type of tenant you can get because of the condition your building is in or is this a C+ home in a D neighborhood?  If it's the latter you may want to cut your losses, but if you can get better tenants by improving the structure I'd look for a loan to do so or a partner with experience and a bank roll. 

We're doing a rent to own arrangement with a family member.  It puts us in a better school district than we could afford on our own and the agreement is in the family trust.  This keeps a personal mortgage off our credit report (hopefully freeing us up to jump on another property).

Obviously we're in a privileged position.  If we didn't have this opportunity I'd probably house hack another multi unit, but everyone's needs are different.