All Forum Posts by: Bonnie Low

Well, it depends on your goals. Some people invest for appreciation more so than cash flow. How has the market performed in your area? Are houses appreciating? If so, it could make sense to rent it out at low to no cash flow so long as your tenants are covering the expenses. But what are you going to use for a down payment on your next house? If you don't need to pull equity out of the current house to use as a down payment, that would be another reason to go ahead and keep it and purchase another home. Either way, sounds like refinancing would make sense to lower your payment. You can do the math to figure out how long you need to hold the property for the refinance expenses to pay for themselves. 

I totally agree with the previous posts. Good contractors are worth their weight in gold. Don't underestimate the value you bring to the project and don't over estimate how difficult it is to get financing. No matter how you end up structuring your partnership, make sure you use a contract drawn up by an attorney. Partnerships can be tricky and partnerships between friends can be especially so. You'll have money and property at stake so you don't want to get caught without a contract.

How long are the leases he has in place and have you confirmed that there actually ARE leases? It's actually not a bad thing to have tenant turnover of long term tenants in some cases. The units may need upgrading, particularly when they've been there for a long time. And sometimes they become too comfortable with the old management system. The previous owner did not condition them to regular rate increases if they're performing that much below market now so you're going to have some hassles as you try to raise the rent through new leases for old tenants. Sometimes a fresh start is better! If you're not going to have to live with negative cash flow for long, I'd consider it. Then there's the whole COVID eviction moratorium, but you're going to have to deal with that anyway. Hopefully that one doesn't last too much longer. 

I hear Deal Machine advertised by Brandon Turner on the podcasts all the time. I haven't used it yet, but it's another resource for you to look into.

Reach out to REIA members in that area. You might find someone with the experience who would be interested in partnering with you. They may have the experience but not the deal and you clearly have the deal but not the experience. You could get an equity position in the property by partnering with them and if you really want to learn about renovating, you could shadow them to learn how they estimate, the steps in renovating, how to create relationships with all the subs you're going to need, how to deal with permitting, etc. etc.

80% is pretty generous right now for cash out refi's. Especially if you have bad debt on your credit report. Besides, if you fall below 20% equity you're probably going to have to add PMI to your monthly mortgage so it might not make sense. I'd take it. 

I love this story and your outlook ; )  Congratulations!

Why is house hacking out of the question? Many people house hack duplexes or small multi's, which you can absolutely do with a family in tow. I remember reading about one couple who bought a typical SFR with a small mother-in-law unit. They rented out the main house which pretty much covered the mortgage and lived in the small unit for a year or two essentially for free so they could save up $ for their next investment. It was cramped, but they got through it. I don't remember how many kids they had but I can tell you, you can sacrifice a lot when you really need to. My husband and I lived in a single wide mobile with two kids for 7 years when we starting out (and no, we weren't real estate investors then. We were just really, really broke). Point being, think creatively and ask yourself what you're willing to sacrifice. The saying goes something like 'live now like most people won't so you can live later like most people can't.'

You're already insulating yourself from the impacts of an eviction ban because you said you're planning to buy a place to house hack, so only part of your mortgage is at risk. That's a pretty fair mitigation strategy. As for the eviction ban, who knows? But even in the bill your article references, it says a tenant eviction ban is only part of the strategy. They also are calling for assistance for small landlords (which the VAST majority of us are), and mortgage forbearance. So even if the eviction ban is extended, it's likely there will be financial assistance for small landlords in one form or another anyway. And, really, California does not need more homelessness. Talk about affecting your rental portfolio...some areas of the state already look like refugee camps and mass evictions will make that far, far worse. It's a temporary situation that will resolve itself and investing is for the long haul. So if you plan to invest in CA, I wouldn't let this dissuade you. That's not an argument in favor of investing here, rather just an observation that this should not be the thing that changes your mind because lots of other states are doing the same and we're likely to see similar measures at the federal level as well. The broader the relief for tenants, the more likely there are to be similar measures put in place for landlords.

@Dan Heuschele - my son works for a contractor in San Diego that is focusing heavily on building ADUs in and around San Diego. They are seeing huge demand. I don't know that it's equating to a higher selling price, though, as some other posts have said. I think what's driving it is the high cost of housing, lack of affordable housing, the ability to rent out the units as a STR for side income, and of course the extra space to move family members onto the property. So it's driving value, but not necessarily resale value.