All Forum Posts by: Abi Wegman

Originally posted by @Frank Wolter:

@Emiel Barbosa I'm a local investor in Cleveland. I see out of town I investors failing often. Boots on the ground are crucial. Property management will destroy you

 What do you mean that property management will destroy you? You mean the fees will eat up cash flow, or that the property management companies in CLE take advantage of out of state investors?

Originally posted by @James Wise:

 That's what I was thinking. Do you have an estimated range for the water charge? Is $200/month/unit reasonable?

 How difficult is it to evict a tenant for not paying the water bill, assuming they're current on rent?

@Brian Garlington

The $20k is really just as an example. I'm not talking about any specific property. I'm just trying to grasp the relationship between the expenses and the amount of the rent. It seems like it's really not possible to cash flow if rental income is below a certain amount, regardless of the price of the house.

Originally posted by @Aaron K.:

@Miguel Nava I'm not sure but is it anything like the trash service out here where you can charge the tenant for it but if they don't pay it gets added to the property tax bill?

 How does that work? If they don't pay, the responsibility ultimately falls to you, the landlord?

All I know is that in the Cleveland area, water bills are sent directly to the registered homeowner and that cannot be changed. I have read of some strategies for recouping water costs, such as building it into the rent, but the market is the market and with most landlords paying for water, I'm not sure how competitive you can be billing it back to tenants.

There are definitely people in Cleveland doing well with investing, and some of them must be looking at these sub-$50k homes. I just don't see what I'm not seeing...

It's a city law I think. The city of Cleveland will only bill the property owner, which makes it difficult to pass on to the tenant (from what I've read). You can't evict a tenant for not paying a water bill that was billed to you...

I agree, the fixed costs are high and killing any profit. To the point where it might not be worth to look at Cleveland properties with less than, say, $1,200/mo rent.

And yeah, the insurance is probably too high. Even if it's $200/year, that's only $40/mo savings over the $700. It's that darn water/sewer bill.

Most of the expense assumptions I use are based on rent. For example, I budget 10% of rental income for PM, 10% for vacancy, and 10% for capex/maintenance. Then there are fixed costs: I generally budget $700/yr for insurance, and $200/mo for water+sewer as it must be paid by the owner (I'm looking in Cleveland, OH).

Given that I have fixed monthly costs of $258 (insurance + water/sewer), and 30% of my income will go to variable costs (I haven't even touched on property taxes, which runs ~10% to rental income in my analyses), how can you ever cash flow on a property unless it has disproportionately high rent?

Let's look at an example:

Price: $20,000

Rent: $450/mo

Sweet! 2% rule passed!

But now I have $45/mo for PM, $45/mo for vacancy, $45/mo for capex, $258/mo for insurance & water/sewer, and maybe $40/mo for property taxes...and now I'm looking at monthly expenses of $433/mo, which leaves me with $17/mo positive cash flow. There goes any hopes of getting a mortgage! It also doesn't leave a lot of room for error.

Now, I understand that Vacancy and Capex/Maintenance are not true monthly costs, but a $1,000 water heater in Year 3 is what I'm planning for, right?

So... please help me understand how this works. Are my expense assumptions too high? What am I missing here?

This is awesome. I'm curious as to how you're 

a) Finding your rentals - I'd assume a property management company would dismiss you pretty quickly, so you're probably finding rentals that are listed by the owners?

b) How you're convincing them to let you use it as a short-term rental for others. My thought here would be that most landlords would take issue with you making money on their rentals (a bit of a middleman), but I suppose that many landlords would prefer the easy rent check.

Excited to see how you scale up such a unique business! Thanks for sharing.

As for your airbnb listing, I'd recommend getting a professional photographer and making sure the place is truly finished. For example, you have a picture where you have an artwork sitting on the floor. Hang it up and then update the photo :)

Tim and Jerry, I think you are being a bit cynical/jaded in interpreting Scott's post. Or maybe I'm naive. Whatever. Scott is house hacking and his tenant income covers all of his property expenses and then a little bit extra. He can save every penny he earns (I don't actually remember him saying exactly that) from his day job because his rental income can pay for his food, etc. Regarding him starting with $0 net worth - why can't this be true? The reference is from BEFORE he started diligently saving his earnings and BEFORE he ever owned a MF property to house hack. Obviously he now has a significantly higher net worth due to the lifestyle changes and sacrifices he made to get to this point. And he's doing it in an extremely competitive and inflated housing market, no less! The purpose of the article, and the message I'm sure Scott would hope you'd take away, is that house hacking a multi-family property and living frugally will open a significant amount of doors for you (pun intended) in just a few short years. If you can deny gratification now you will reap the benefits many times over in the future.

According to the IRS (note that Florida may have a different state law), any gifts to a spouse are non-taxable, regardless of value. You would probably want to consult a CPA for details on how exactly to structure that gift, though. See: www.irs.gov/uac/eight-tips-to-determine-if-your-gift-is-taxable