All Forum Posts by: Will Barnard

That is a fantastic story and very inspiring. Congrats on pulling the trigger and jumping in with both feet. While some call that risky, it appears you took the necessary cautious steps prior to jumping so I call that having guts and it is commendable.

I’ve been investing for almost 20 years and to see someone go from zero to 60 mph in such a short span is always impressive. It took me many years just to get to my 7 rentals and you did it in year one. I look forward to seeing where you are at in year 10!

Your first buy and hold can certainly be out of state, however, before doing so, it is important to consider your options in out of state investing. Doing it yourself and building your own team without any previous experience can be an overwhelming challenge in of itself. Learning the specific market conditions (both past and present so you can more accurately predict future) is imperative. Fail on this portion and you will set yourself up for a failed investment.

Options: What could you invest in passively out of state and what returns would that produce. Place that side by side with your do it yourself single family rental purchase and see which pencils out better. Some of these options would be partnering with an experienced out of state investor with at least 5 years experience (successful) or investing in a syndication are two other options just to name a couple.

When u start off investing with someone else with experience. You get your feet wet, learn the ropes and have a “safety net” via the experienced investor to keep your investment on the right track. Of course this comes with risk too as the selection of the partner or sponsor of the syndication is of vital importance. Perhaps even more important than the deal numbers, the partner or sponsor selection is number one priority to get right to ensure success.

 Many of the previous answers did not seem to get the numbers correct based on what I am reading. If this is a complete gut to the studs, then clearly you have the legal ability to pay the tenants currently in there to move as it will not be habitable. Spending $1M on a 4 plex remodel without adding any square footage is a very steep price and I am a contractor here in LA so I know costs, I'm not guessing from another state. The numbers need to be laid out correctly on paper for both options and then compare side by side returns on the investment capital. Once that is done accurately, it will be easy to see which way delivers a better return. If your first occupied unit brings in $1600 (which could be increased to $3500 once the project is completed) and the second occupied unit gets $1000 (to be increased to $3500), then you have a net gain of $4400 monthly from those two units. Your 3rd unit is vacant so lets assume it could get $2k monthly as is (feel free to correct this figure as this is just a guess). Increase that to the $3500 for an additional $1500 on top of your $4400 (total now = $5900 monthly gross income gain). The 4th unit you state you are living in and assuming that remains accurate, you have zero gain on that unit. So you have an annual gross income gain of 70,800. YOu will have operating expenses, vacancy, capital expenses (albeit little to none in the first few years since everything will be new), so your actual net gain is obviously less. Lets use a 35% cost margin which gives you a net pre tax gain of $46,020 annually. To get your $1M back, it will take you 21.73 years and even more when you factor in the interest on the loan. By this calculation alone, I would love to see wife and parents reply of the financials.

It is often said that good family relationships are often ruined through business dealings so without being emotional, try using this simple math approach and then put the ball in their court to explain how it makes financial sense. Numbers don't lie and numbers don't have emotions. If you still need help, set up a meeting with you, your family and myself and I can perhaps get to the bottom of the financials with you all to make a sound investment decision based on numbers that pencil out and make sense.

"Tenant is unhappy with the rent increase"

And I am unhappy with gas prices, food prices, inflation, politics, the inept building and safety departments, etc. But all the wining in the world will not change the facts and as such, your tenant needs to pay the increase or find a new place to live.

That said, a $400 monthly increase does seem steep all at once and quite frankly, it was your own fault for not raising the rents in smaller increments each year. Perhaps a better explanation is in order or perhaps a lower increase now and another each of the next years. YOu may be better served explaining to your tenant that due to extreme and unprecedented circumstances, you did not raise the rent during the pandemic to help your tenants but do need to retroactively raise them now to catch back up. If that explanation fails, then you have two choices, stick to your $400 guns and let him leave or pay, or make the increase smaller today and increase again in 6 months or a year.

Biggest challenges are finding deals and keeping rehab costs under control. As Evan stated, costs for labor (AND materials) have skyrocketed and although I have my own GC company (as well as HVAC), the material costs (and availability) are well out of my control which makes managing the project much more difficult than during pre covid days.

With a recession looming (some say we are already in one) and interest rates on the rise, finding a deal that pencils out is getting even more difficult. This begs the question, is it necessary to fully switch gears and go down a different real estate strategy like buying apartments or self storage or keep trying to find deals to flip? NOt easy to answer and one answer is not right for all - only you can make that call.

Welcome to Biggerpockets Frank. THe SFV is my main area of real estate investments and I also currently have a 14 unit in K Town. Happy to answer any questions you may have and perhaps network with you at a local meet up.

 Good. I am a bit late to respond here but in CA, asbestos is no joke and highly regulated. The testing company should report findings and the abatement company certainly must. AQMD is the authority over this and fines are in the tens of thousands for violations. The abatement company must be licensed and certified for asbestos abatement and since you disturbed the item containing asbestos, a level 5 procedure is required. Yes, they will come in with "space suits" along with all the necessary equipment and then report back to AQMD. There is also a mandatory 10 day waiting period so make sure you are aware of that. The abatement company will report, then must wait 10 days prior to doing any work. I have gone through this process several times and just completed a procedure 5 abatement at a flip project.

 Yes, last Wed of each month. There is typically a post on BP for each meetup.

Ignore the 70% rule, it’s not a rule anyways and never meant to be one, it is more of a quick analysis guideline, but never to be used as a purchase decision. Price points, market conditions, investor experience and team, etc all play a role. Where a deal hitting 70% works on 1 home, it could be a loser on another. Not buying because a home doesn’t meet the calculation may also be a mistake. I have made 6 figures on flips that were at 77%. I have made over $1M on 1 flip and lost over $$250k on another. None were purchased if they did or did not meet the 70% figure (although the $1M profit deal certainly did (it was in the 60’s%).

Do what J Scott stated, run all the actual numbers and see if the potential profit is worth the time, effort, and risk.

I like Evan’s post above, good advice. I would add that you should avoid any properties with major uncorrectable deficiencies which will reduce your buyers pool thereby reducing profits. Examples are next to commercial, on major streets or near freeways with traffic noise and smog, no garage (unless the entire area has many homes common without them), near railroad tracks, in airport flight paths, too many stairs to climb to front door, etc.

The level of rehab should be factored in too. If the rehab is heavy, your hold time will be longer so make sure to account for that. Also pay close attention to the surrounding homes. Is the subject property sitting next to another dumpy looking house? Since you can’t fix that one too, proceed with caution as most buyers will not want to buy a nice home sitting right next to or across the street from these dumpy homes. Of course not all markets are created equal so take that into consideration regarding my advice.

Knowing your market conditions and trends is also of vital importance. Since you have already done 2 brrrr homes, you probably know this already, but since you have not sold them, you have not actually completed a flip, just a remodel and the sale piece is an important step in the process. Miscalculate and pay the piper.

I look for the ugliest most outdated home in a nice area with other nice homes on the street. These tend to be the very best in profitability as they typically sell fast if you did the job right. Depending on your location and market conditions, buying the smallest home (perhaps a 2 bed 1 bath) and adding on can also be highly profitable so long as the cost to build the addition is well below the cost per sf you get at resale.