All Forum Posts by: Dan K.

@Justin Rank -- What sort of loan terms are you suggesting? Secured or unsecured?

- Honestly, the numbers are fairly tight and keep in mind it's very difficult to find tenants close to Boston. My guess is that your post rehab rents will be about equal to pre-COVID rents for the next 6-24 months. I'm just not sure there is enough "meat on the bone," for a hard money lender to make money while also satisfying your goals.

- Additionally, can your W-2 income support the additional debt?

- Why not just take it down with traditional funds, dip into savings for the $60K repairs and refinance afterwards? By the time between closing and getting a refinance your mortgage should be seasoned. Keep in mind it could take 60 days from your refinance application to the closing on the refinance.

I totally agree with @Greg Scott. I would add:

- How will it work with a 2-family? A pool with a 5+ unit building somewhat straight forward -- it's a shared resource. For a two-family it could get sort of awkward. Is one tenant going to sort of lay ownership over the pool? Will they leave pool toys out, etc.? You don't want to micromanage things.

- If it's not heated, the comfortable pool season in the Boston area is of course short

- Can you charge a pool use fee? In MA you can not charge a blanket "amenities" fee, but I believe you can charge membership to a feature. So a community gym that is open to everyone = no extra surcharge. But if you withhold keys to the pool unless X amount of money is spent for the season, you are probably okay.

- Lastly, what's you exit strategy. If you plan to sell in the near short term, II would just fill it in because potential investors will be scared off.

Hi @Nick Schiltz -- All good questions. To address concerns:

1) There are a number of BP Podcasts and forum posts on investing out of state.

My two cents -- understand your and your investors' goals. If you want appreciation and a physical asset that you can see on occasion, out of state might not be a great play. You are going to be heavily reliant on third-party management for out of state investing but some people are crushing it.

2) Talk to as many property management companies as possible. You might want to "practice" talking to property managers in a geographic location that you aren't considering (but within the same state). As a newbie you want to understand the correct verbiage, fees, and market expectations. For example in Boston/Cambridge/Brookline, landlords don't typically pay realtor/finder fees, but in nearby communities like Worcester, it's expected that landlords will pay those fees.

Also understand the process for disgruntled tenants. Are you investing in an area where people are lining up to live or do you need to search out tenants? Does your tenant pool consist of multigenerational renters or are you targeting "young professionals" and graduate students? What is turnover like? How many evictions can you expect in the area?

3) Be honest with the broker you are working with. Don't see properties as a "courtesy" if you are committed to looking at different regions. Your broker has invested in you, but at the same time they want to move on if you aren't a serious buyer. In addition, your broker will see you as a potential future client.

Make your priorities clear with the broker. Why are you looking in a different region? What are the metrics, property conditions, census data, etc., about MA that concern you? Perhaps your broker can find properties within the region that fit your criteria. 

Congratulations on making the next step @Thiago B DeSouza.

Perhaps you want to think about moving to one of the new units and renting out your current unit to get an owner occupied mortgage. Of course I don't know your living situation.

Sounds great @David Barnett. COVID has certainly impacted the Boston area rental market very hard.

As for the DIY work, I totally understand. Hopefully if you didn't invest too much equity (if it was just sweat equity) you can have a professional do some upgrades. I have been the GM for small to medium projects -- gutting bathrooms, replacing floors, electric, etc. Once you get into new construction you need a licensed GM in my opinion (plus it's required on larger properties).

Hi @Max K., welcome to BP. Spend some time thinking about what @Jonathan Greene said r.e. emotions and investing.

I can give you some General and Boston specific thoughts:

- Rentability completely depends on the town. Newton for example has single family homes for rent. They're expensive, but they don't come close to the 2% rule and likely not even 1%. These rentals aren't really investments, unless you are chasing appreciation. Instead they basically cover expenses until the homeowner moves back or decides to sell.

- Items like kitchens and bathrooms aren't just cosmetic. The budget can obviously quickly climb.

- If family members would be upset if you sold the property for a profit do not purchase the property. If you are considering this as an investment, you can't go into it taking one exit strategy off the table.

- Think about taxes. There are lots of details that you can research. When you sell your home, the capital gains on the sale are exempt from capital gains tax. If you are single, you will pay no capital gains tax on the first $250,000 you make when you sell your home. There are lots of exemptions. But if it's your primary residence and you fix it up and sell it you might be able to keep your capital gains tax free. If you fix it up, rent it for 5 years, and then sell it you will need to pay capital gains on the difference between your purchase price and what it sells for (there are strategies to minimize or delay the payment -- you can look into 1031 exchanges).

- You talk a lot about equity. Equity is great, but you are just starting off your investment path. If you have tons of equity in the property but can't access it, it won't really be a huge benefit. Let's say you have $500,000 of equity. You can certainly keep that in the house, but if you want to fuel other investments you are going to want to unlock that equity. To unlock the equity you are going to need to either (a) sell the property, or (b) get financing through a cash out refinance or home equity loan.

Bottomline -- The best way to make money in real estate is to purchase properties below market value. You have the opportunity to do that. However, there is a lot more at play. What will the family dynamics be when other family members find out you bought it below market value? Will people feel like you fleeced grandma? What gives you the "right" to get this sweetheart deal over others? Those are all things that you are going to need to decide how to handle -- nobody on BP knows your family dynamics. If you can figure out the family part, then it's an awesome opportunity to get into investing. You can even house hack by renting out rooms -- either find roommates or do short term rentals.

Hi Michael,

I'm an attorney as well as a real estate investor. I've helped clients put together some creative deals with seller financing as well as subject-to deals.

Happy to talk with you (for free) if you have any high-level questions,

Dan

Got it @Ryan Judy, you're running into local building code of course which can be more restrictive than the state.

If the lot has the square footage, could you build a second structure on the lot? The other structure would likely need to be 10 feet from the existing structure.

In my experience finding fire sprinkler companies for relatively small job is difficult and very expensive.

@Brian J Allen and @Ryan Judy

Anything in the 1-4 unit size is still residential. In 1990, MA passed a law that gives cities and towns the option to add into the building code a requirement for sprinklers be installed in residences with at least four units. Note: I was a three unit, and became a four unit.

The law only applies to new construction or to existing buildings when they are substantially rehabilitated so as to constitute the equivalent of new construction.

There have been legal cases disputing when a renovation is so substantial that it constitutes the equivalent of new construction. The most important case in the area is: ROBERT MacLAURIN & another vs. CITY OF HOLYOKE & others.

Hi @Phillip Dixon

I also meant to add, as a lawyer, I'd say that setting up an LLC is putting the cart before the horse. Your lender will require the three of you (if you are all putting equity in and want to be on the deed) to be personally on the loan.

Rather than an LLC, you can put together a partnership agreement or other operating agreement outlining how the three of you will work together, the financial and other expectations and a hopefully never needed plan for dissolution (breaking up) of the group.