All Forum Posts by: Arlen Chou

@Precious Thompson there are several reasons that a person in the REI space might make that decision However, keep in mind that a person can always convince themselves that pretty much anything is justifiable.

For some strange reason REI is the only industry where SOME people can convince themselves that taking a loss is acceptable. In no other industry would a business owner say that it is acceptable to take an open ended loss on a business. I come from the world of company start ups, angel and VC funding. The after asking about the product the next thing every investor asks is when is breakeven.

It is understood that there is an initial investment in the company and that a loss is expected during the start up phase.  However, a target to breakeven is always in the plan.  Furthermore, it is clear that many people get tripped up with believing that the building they buy IS the business.  Clearly this is not correct, the building is the product the company either makes or supplies to the market.  Everything you do AROUND that building is the actual business.

The only time a company will make and sell a product at a loss is to capture market share or for add on business. A good example of this would be Toyota when they put out the Prius. They essentially wrapped money around each car sold, so that they could capture the market. This strategy does not work for REI unless you are a really big player and buying up large numbers of properties in a concentrated area. Another example would be Microsoft making the XBox. They sell the units at a loss, so they can secure the market for the software. Both of these strategies do not apply to the normal RE investor.

With that being said, as @Gerald Harris mentioned an investor might take a loss for tax purposes.  However, it is important to understand that these losses are "paper" losses and that you are not actually loosing money out of your wallet.

There are many people who talk themselves into saying that taking a monthly loss against future appreciation is acceptable, especially in hot markets like California. But this is extremely dangerous as you have no real control over that appreciation.  Sure you can force some appreciation by upgrading the property, but that number is finite. Again as an investor in any other industry, a wise investor will not rely on the winds of the market to dictate profitability.  

With that being said, it is VERY different if you are taking an initial loss with a PLAN to get to profitability.  That also means targeting a date when you will breakeven and then start becoming profitable, and having the steps outlined on how to get to that point.  This is why you see many people referencing "business plans" in many of the posts.  Create a business plan for each property you are considering and things will become clear as to if it makes sense to move forward or not.

Hope this helps and good luck!

-Arlen

Yes this is crazy, but I believe there was a ruling that said this was unconstitutional. They have until today to appeal the ruling. It's pretty crazy here but if you are doings things correctly there is still money to be made.

@Jamie Wooley  it sounds like you are potentially going down a slippery slope without brakes.  I say this because it does not sound like you have somebody you trust to do the actual home inspection.  

If you see water marks inside the building, there was definitely water pooling up in the attic.  How much water really depends on the length of time the hole/leak in your roof has existed.

You could ask your GC to send somebody up into the attic and look around for mold around the area where the stain exists.  He probably will find something up there.  But what he finds and how much he finds is probably the more appropriate question.  If you spray common surface mold with a bleach and water solution, it will start to disappear after a few minutes (no scrubbing).  If the mold does not go away, you potentially have bigger problems and you might need to have a special crew come in and take care of the problem.

Keep in mind that there are potential legal issues that could haunt you regarding mold.  At the end of the day you need to understand your tolerance for POTENTIAL legal issues. If the thought of getting a call after you sold the house is going to keep you up at night, I would suggest sending a trained mold specialist up there to look around.  Don't get some GC, but an actual specialist to look/test for mold.  It should cost you a few hundred dollars for the test.  If they don't find anything you will at the very least have a document clearing the property of mold, which should make potential buyers feel more comfortable.

If they do find something, maybe you can use it to negotiate the price down.  Once mold is found and the seller is notified of the problem, I believe they become legally bound to tell other potential buyers of the safety hazard.  

Good luck!

@Kahanu Noa I started off handling everything myself. This was because the number of tenants was low, so it was pretty easy to deal with all of the issues. I was also using the space often, so it was easy to check. I did very quickly find a cleaning service to handle laundry and clean up after renters. I got very tired of cleaning up after people! 

But I must be honest, I still see this as a family vacation home that happens to generate some income. But as we use the property less, and the idea of renting it out more is becoming more of a reality signing up with a management company is sounding more appealing. When I am through the process the property will end up being a vacation rental that happens to be a family vacation home on occasion.  At that point, I will expect to run this property like my other standard rentals.

Good luck!

Eldar Manetsh what you basically have is some power that is running that is tied into their meter that they don't control. Did the electricians actually trace the lines inside the building? If they did, you would know because it would be a long and slow process. Is there evidence that a previous owner had done some physical changes to the building? If the answers to the above question are no, then I would suggest that you start with just doing some investigation based on the electrical bills of the rest of the units. It should be fairly obvious, especially if an adjoining unit has really low electric bills. A previous owner might have wanted to put outlets on a wall in an adjoining unit and just put outlets in by daisy chaining the power that is there for the questionable unit. You can figure this out by turning the power off in the adjoining units and testing outlets and switches in those units. If you cut power at the box for those units and you find live power running inside them, then you know it is coming from the wrong box. I have never seen heating from the ceiling using electric wires. Radiant floor heating using wire is fairly common now, but heating from above does not sound right. Anyway, I would start with the easy stuff and compare the bills/electrical usage for all the units first. I hope this helps and good luck to you.

Ryan S. Have you created a corporate entity yet? It does not sound like it from the post. The banks just want to know if you will be able to repay the loan. That is the primary concern you should focus on. You have no documentable income and if there is no corporate entity a bank is going to look at your flips as a hobby. If you have a company, you might be able to put together a business plan and a case for a small business loan for expansion instead of a personal loan. Good luck!

@Kahanu Noa , I have one but I would not say I am experienced in vacation rentals. My property is is in Carmel Ca. I bought it as a personal vacation unit (second home) and it slowly turned into a vacation rental for specific events: golf tournaments at Pebble Beach, Auto Shows and nearby auto racing events. I am not sure if my experience will be directly applicable for you, but I thought I could give you one perspective.

The property that I have is a 3bd/2.5ba three blocks from the ocean, within walking distance to Downtown Carmel and Pebble Beach.  Most of the year I keep it open so I can use it with my family, but on special events weekends I do rent it out for a killing.  It is important that if you are going to use the property for mixed use that you have areas that you can lock up your personal things that you want to keep there. The last thing I wanted to do was have to "move in and out" every time I used my own property.  I segregated the building so that the upstairs area holds of my family belongings.  Therefore I rent the place out as a 2bd/1.5ba.

In my case, I am close to the property so I handle bookings and cleaning myself.  I also have gotten to the point where I don't need to advertise and get bookings based on repeat business or word of mouth. This makes the risk level substantially lower and the potential headaches much more manageable.

The downside of the way I do it is that many months I don't rent it out, which equates to a loss.  However, the upside is that I don't have to worry about people walking around on the hardwood floors with sand on their shoes, because the people want to come back the next year.

Anyway, basically I started out as an owner occupant and I am making the transition to full time vacation rental. It can be done, but your goals and time horizon needs to be realistic to make it happen without major headaches. 

Not sure if I answered your question, but I hope it helped!

@Johnson H.  Thanks for pulling the meet together.  It was great to meet everybody and share ideas!

Hello everybody, I am looking forward to going to my first meet up and putting some faces to names!

Hello everybody, I Thinking about contacting a guy in Oakland who apparently specializes in brokering apartment deals in Oakland. Has anybody worked with Nick Myerhoff? Any feed back would be appreciated. Thanks, Arlen