All Forum Posts by: Alex Shapiro

In looking at the Minneapolis market, many multifamily homes are built around the 1900s. This is going on 122 years old, which means many harsh winters, degradation, foundation issues, etc. Many have boiler heat and A/C wall units. Are these giant money pits? Looks like there's a smattering of duplexes built around the 1960s, and even those are getting old, e.g., 20-year old electrical boxes and whatnot. What's the general consensus of old craftsman homes built in the 1900s? Are they going to last much longer before breaking down or where they built better than today's standards? Is it a wiser investment to look towards newer built single family homes and live in one and move out after a year and rent it? Should I switch strategies from buying a "newer" duplex built in the 1960s and instead look for newer single family homes to purchase and rent out? Are people looking to rent single family homes in the Minneapolis area or are they looking to rent in Uptown and Northeast? What's working in the Minneapolis market? What should I avoid? Thanks! 

@Spencer Cornelia Fantastic. I love the idea of paying the down payment in installments.

@Ali Boone Great insight on the "poor deals." That was a really schrewd observation of you, and it makes sense as to why she might have a high sensitivity to debt. At this point, I believe that she has "enough" money invested in the REITs so that she will never have to work again. This may color her perspective on risk. Anything she would do now would be too much stress. Imagine never having to work again and being able to afford anything (within reason) that you want. I think that's where she is in life. For me, I have to work a day job and live frugally just to save for my first investment. Once I purchase that, I have to save for another 1 - 2 years at least. To someone like me, leverage and debt is not riskier than living so frugally for the next 30 years. Instead debt is a powerful tool to me in order to scale up in my lifetime. 

@Kent Chu I'd say anywhere from B- and up. What are your thoughts on the idea?

Would it make sense to partner on a house hack in this way:

I live in California, and I'd like to move back up to the San Francisco Bay Area for career growth and networking. I currently moved back home to Los Angeles after Law School to save up some money (emergency fund and for general real estate investing). But, I'd like to move back to the Bay if it makes financial sense.

Obviously, the San Francisco Bay area is stupid expensive. But, what about a partner house hack? Say you want a piece of the Bay Area real estate market, either for appreciation or for tax incentives, but you don't live in California or the Bay. I could move into a property that looks like a good deal (either in SF or the Easy Bay) and secure an FHA for 3.5% down by virtue of living in the property as my primary, rent out additional rooms, and essentially function as the property manager. This way, the partner wouldn't have to shell out an insane $200,000 for a down payment. Instead, the downpayment would be split between us and lowered with the FHA 3.5% down option. The partner and I would share the down payment and any repair costs respective of our equity position (e.g., 70/30) and the partner would co-sign on the mortgage to ensure that we secure the FHA.

The partner would get the bulk of the equity position, and the high barrier of entry to a HCOL area would be lowered via a lower down payment, lower repair costs, and lower management costs. Is this something an investor would be interested in, or is it too cumbersome to be attractive to folks?

Would it make sense to partner on a house hack in this way: 

I live in California, and I'd like to move back up to the San Francisco Bay Area for career growth and networking. I currently moved back home to Los Angeles after Law School to save up some money (emergency fund and for general real estate investing). But, I'd like to move back to the Bay if it makes financial sense. 

Obviously, the San Francisco Bay area is stupid expensive. But, what about a partner house hack? Say you want a piece of the Bay Area real estate market, either for appreciation or for tax incentives, but you don't live in California or the Bay. I could move into a property that looks like a good deal (either in SF or the Easy Bay) and secure an FHA for 3.5% down by virtue of living in the property as my primary, rent out additional rooms, and essentially function as the property manager. This way, the partner wouldn't have to shell out an insane $200,000 for a down payment. Instead, the downpayment would be split between us and lowered with the FHA 3.5% down option. The partner and I would share the down payment and any repair costs respective of our equity position (e.g., 70/30) and the partner would co-sign on the mortgage to ensure that we secure the FHA.

The partner would get the bulk of the equity position, and the high barrier of entry to a HCOL area would be lowered via a lower down payment, lower repair costs, and lower management costs. Is this something an investor would be interested in, or is it too cumbersome to be attractive to folks?

@Ali Boone I don't think she had a set strategy from the ground up so to speak. Her parents made money in real estate through small multifamilies and she took over the properties after her parents passed away. She hasn't really gone into specifics about buying and selling properties, but she always told me that she had to unload a lot of poor deals that her parents made. She now owns at least one small multifamily that her parents acquired when they were alive (I think a four-plex) and her own home. I believe she funnelled all the money that her parents made through real estate and the properties that she sold into a REIT for passive income. I don't know the details because she has never really discussed specifics with me. On the one hand, I don't think she became successful by starting with low or no money. But then again, she didn't mess up the portfolio either.

So I just had a discussion with a retired family member who made her money (millions) in real estate. I brought up the BRRRR strategy and she got upset that I brought this up as an actually viable strategy. She asked, "well what do you do with the crushing debt service?" She said that she lost me at the refinance stage, and that pulling out all of the equity to just go buy another property creates a crushing debt service and is not sustainable and reckless. Every time I would indicate that the BRRRR strategy allows you to build a real estate portfolio with leverage and that the tenants pay down the mortgages she would say that the world is not perfect and things will go wrong, this strategy over-leverages you and creates a "crushing debt service." She asked me where I was getting this info and pretty much implied that I was getting this strategy from a fraudulent guru and that I was misguided. I tried to argue that using leverage is a smart strategy to build a real estate portfolio. I then brought up out-of-state investing, and she almost lost it. Lol.

So there were have it: how should I have responded to her questions? Is the BRRRR strategy not as cracked up as it seems? If it is a great strategy, how do I convince someone like her to accept it as legitimate? Is the BRRRR strategy more geared to a younger real estate investor, dare I say.. new school?

Hi There!

What are the best ways to finance the down payment, closing costs, and rehab costs? In other words, say I just find a nice triplex with a vacant unit and BRRRR wont work because other tenants are under rent control and paying below market value rent (and so fixing it up and increasing rent wont allow me to refinance effectively). Yet, the property can still cash flow and there's always a chance a tenant moves and I can reset my basis, which makes it still an interesting investment. Further say that the owner is willing to do a 70% seller carry-back loan at 4% for 30 years. This leaves the down payment of 30%, the closing costs, and rehab costs (or I can just go traditional and get a 3.5% FHA and forego the carry-back). Interested to hear everyone's thoughts!