All Forum Posts by: Billy D.

One decision process you might use is to look at what the impact of a "significant loss event" with  extended period (say, 12 months or more) of uninhabitability would do to your personal and/or business finances.  Would you be facing financial ruin, or just a period of hardship that you could make it through?   If you are facing financial ruin, the coverage may be worth it.  

Take what I say next with a grain of salt because the past is certainly no guarantee of future results, but after the Northridge quake in '94 in So Cal, FEMA (with the help of the SBA, I believe) offered low interest rate loans to property owners who had no earthquake insurance (almost nobody had EQ insurance then) to make required repairs.

No one should expect a government bailout, but something like this may happen again the event of a large temblor that does widespread damage.   If you don't have a significant equity position in an investment property or don't face complete financial ruin with an extended vacancy, this could be a fallback position.

Granada Hills can be a good rental market, but the specifics of the neighborhood, schools, financials, and the financials are what determine if you have a good deal.  Without having all the details its difficult to say with certainty, but the asking price vs the monthly revenue stream doesn't suggest its compelling.  On surface, it seems like a full priced or even moderately inflated offer.

I lived in the Santa Clarita Valley for 17 years, and while nobody can predict accurately what home values will do over time, I'd say that you have a decent chance of being fine over the long haul even with this next phase of the Newhall Ranch project.  Of course, "being fine," depends on your intended window for reaping the benefits of your investment and where we are in the Cycle at the time.

That said, there is plenty of demand in the SCV (good public schools, low crime, small-town feel), but our $/sq ft multiples still tend to be a bit lower than those of our neighbors just to the south in the San Fernando Valley.  Significantly lower than other areas of LA.   

@Rich Waldis I am considering a similar scenario, though I'm a few years from my 1st heading to college, so still looking.  I agree with both @Thomas S. and @James Qiu that there are further considerations and/or options to consider for a son/daughter as a tenant.  One factor in its viability is if you've set aside a 529 plan for your child, since some/all of the room&board may be payable from the 529 plan.  To determine the viability of such an idea, I would definitely seek the professional advice of your attorney/accountant/financial advisor.

@Amy Ranae I might misunderstand what your asking, and I don't think these are Cardone's handywork, but have you considered the "50% Rule," or the "1% Rule" that we see often on BP?  Rather than explain them here, for brevity's sake, you can search both terms on BP...Brandon Turner has video descriptions of them somewhere on the site.

Anyway, both are are quick methods to get an initial estimate of purchase value if you know the total rental income for a property (for the 50% rule, I guess you really need to know expected/prevailing cap rates too to get purchase price), but neither should be relied upon for anything more than a starting point. 

@Rob Z., my situation was a bit different, but went through this same decision process last summer on an inherited property.  Home was near me north LA county, and was worth about $320K in its "as is" state and there was a mortgage of about $50K on it that had to be paid off.  We estimated repairs of $20K would have increased the home's value to approximately $370K if we'd chosen to sell it.  Had we chosen to rent it, we probably could have gotten $2200-$2400 per month for the property after repair.   

Not sure if this helps, but i used the Flip and BRRRR analysis tools on BiggerPockets to figure out if it made sense for me to keep, and in the end they helped me to decide that it did not. A big reason it did not (and doesn't sound like you have this same issue) is that I had several siblings who had equal interest in the property, and the numbers just didn't work out, unless we partnered (which they didn't want to do). Had I been able to find a way to do the deal and just not lose money, I would've done it for the education.

All that said, if you and your wife are the only inheritors of this property, and the numbers you put forth are approximately accurate, this could be a great way to educate yourselves with a margin of safety for mistakes (i'm assuming this would be your "first flip," or "first rental prop"), so that you could repeat in the future.  This might be less about how much you make on this deal, and more about getting paid something to educate yourselves for the next deal.  If you haven't already done so, run the numbers with the BiggerPockets calculators, talk to some realtors about both the comps and the rental market in the area.  Also talk to a couple contractors to see if their bids to bring it up to snuff make sense, and as @Tim Jones said, see if you can find an investor who has property in the area, run your numbers by them.  Maybe they see something you don't, or know something about the market that you don't.

Good Luck!

I'd like thoughts on structuring a partnering arrangement with a 2nd person who has expressed interest in working with me. I'd like to make this work, as I consider this person like my brother, but because of that very fact, I know it must be a win-win situation so that we don't jeopardize our friendship. I live in So Cal, but we would be investing in the market where my prospective partner lives, thousands of miles away. Frankly, my ideal niche would be mid-size multi-family for buy/hold, but because of where I think his complementary attributes lie, I think we may have to start with SFR's or 2/3/4's for either flip or BRRR's.

What I bring to the table:

• Capital....almost all capital for down payment / funding renovations would come.
• Sales Experience:  I am not a real estate pro, but I've been in sales for a long time and I understand the process of generating demand
• Deal Analysis and Negotiation

What he brings to the table:

• Location:  He lives in market, and has all his life
• Relationships:  He has a good relationship with a residential realtor who I've confirmed is a "player" in that market (not sure of their experience with investors).  He is also directly related to several contractors in the market, though he isn't one himself.
• Time:  He's married and has a full-time job, but he does have a bit more free time than I do.  He would have time to perform initial inspections, supervise renovation/repairs, and work to maintain our local relationships.  I don't think that "property mgmt" would (finding tenants, collecting rent, directly handling repairs) be something that he could/would do.  Almost certainly would end up going the wrong way if we did that, so I'd plan for professional mgmt.

  Thoughts on an equitable partnership arrangements?

Yes, several after me point out that there would be taxes to be paid as an active lender. I should've clairified that my estimate of 6.5% was a net return assuming you would actually lend at a higher rate (10%+). As several mentioned, that is not an unreasonable gross return expectation. However, it should be noted that there is also risk of default by borrowers, which depending on how the capital was diversified, could have a very real impact on net returns. Due diligence is extremely important.

An alternate route could be to explore a relationship with an existing hard money lender, a syndicator or to invest in any number of the crowdfunding investing platforms.  Assuming a conservative 6.5% return annually (you could probably do better), you'd end up with roughly $5,600/ month in cashflow.   I'm certainly no expert in such investments and I don't think it would be the way I'd go personally with $1M to invest (i like the idea of leveraged multi-family best), but it is an option which has the benefit of being highly passive.  Passive, that is, once the investments are made.  Prior to investing, a good deal of due diligence should be performed to ensure the investments you are making are sound.

@Modesta Lopez,

A couple of different books that I have read (though both are primarily focused on the strategy of "repositioning") and have found educational are "Multi-Family Millions" by Dave Lindahl, and "The Complete Guide to Buying / Selling Apartments" by Steve Berges. If you already have some experience investing in SFR's or 1-4 unit multi's, these are good multi-family starters. If you haven't made any investment yet, I would also recommend you start with Brandon Turner's "The Book on Rental Property Investing...," which covers the basics more thoroughly. Best of luck!