All Forum Posts by: Bradley Bogdan

@Wesley W. That $84000 is what you would have in expected expenses (not including any holding costs) if you were to buy and flip the property on your own dime. You would have to pay the ~$14000 to bring the property current on the mortgage, then pay ~$7000 in repairs, then, after sale, pay off the remaining $63000 on the loan, for a total of $84000 in base costs for the flip. For a goal profit margin of 30% on the final sale, you would need it to sell for about $120,000.

As for a buy and hold, a rent rate of $1400/mo is different than your original rent range for the neighborhood of $1000-$1200. Assuming $1400/mo is reasonable to expect, then that leaves you with $500/mo after mortgage, or about $6000/yr. This doesn't include any utilities you need to pay, any property taxes, any vacancy, or any repairs/upkeep needed on the property. Depending on those costs, you may or may not have a good investment on your hands. A good rule is to be able to conservatively expect $100/mo/door in positive cashflow minimum, or on a better investment, $200/mo/door. I suspect that your costs in holding the property would eat most, if not all, of that planned $500/mo profit. 

@Hal Thompson brings up a good point, you might be able to refi the remaining loan and assume it at a much more attractive rate, which could make your margin more acceptable for a buy and hold. 

Hi @Wesley W. ,

Just crunching the quick math here, only generating $100-$300 above the mortgage payment on a one door rental is not a good recipe for buy and hold. I would talk to a local broker and get an accurate value for the property, Zillow's zestimate is notoriously inaccurate. If your ARV is $120,000 (~$14000 purchase price +$7000 repairs + $63000 repairs= $84000, $84,000 with the 70% rule applied gives you $120,000) or above, I would feel confident about buying and flipping for full value. If those numbers don't pan out and you think you can wholesale, go for it.

@Joel Owens brings up a good point, though I would caution this can be area specific. In my local area, this isn't really an issue, but if it is in yours, perhaps you'll need to resign yourself to drawing out that timeframe to 6 months instead of 2. The OP did mention this is a SFR, so no other units, which obviously makes this consideration more important.

All that said, viewing this as a cost you should or shouldn't undertake due to how many months it takes to recoup is, IMHO, the wrong way to view this. I would look at this no differently than purchasing a property in poor condition and anticipating those 6k in repairs to bring it up to my standard, and thus working that into my budget (which hopefully you did). If things are really that bad, it should be viewed as a new roof or other necessary capital project, yes its expensive and will wipe out your cashflow for a year+, but not taking care of it will just lead to greater and more expensive problems in the future. If they're that rough on the property, there is a good chance they could be slowly doing more extensive, expensive damage as we speak. 

Finally, as I mentioned before, dollars and cents are important to whether REI is a good idea for anyone, but so is headache. Removing them some point soon and rehabbing your property my not be the BEST financial choice at this time (assuming I'm wrong about the risk of further, more expensive damage), but it certainly isn't a bad one, so if it makes your investment something you can continue to hold and use to further your REI strategy, all the more reason to go for it.

@Frankie Woods Keep the posts coming! I'm thinking about pursuing a similar plan if I'm able to join the military in the coming year.

@Bryan N. is spot on, ultimately all of our investing decisions are dictated by the life we are ok with leading. Some people are ok living like a pauper for a while to maximize their available funds for investment, some people are ok with flipping houses and not having a regular salary to pay the bills, some people are ok with renting to low income populations and tackling the additional challenges they pose, but all of these people have made the decision that they're ok with the downsides of their form of REI. You are clearly not ok with the monthly run around by your client, and it doesn't sound like your rental is such that you should need to be ok with it. Be firm with your deadlines for another couple months, and if issues continue, the change in landlord will probably always be too much for her to handle. At that point, give her appropriate XX-day notice to terminate the agreement, and suck it up for the rehab costs. Even if you need to borrow a bit extra to make it happen, having the unit in good shape and rented to folks that don't give you a hard time will be a financial boon in the long haul. The last thing you want is to put off the rehab work only to find out the inside looks like the house in this thread: http://www.biggerpockets.com/forums/48/topics/1182...

Ultimately, if you're not happy with how things are going, change something! Good luck!

Rarely are large market (national) situations simple enough to be easily identifiable and actionable for the average investor, and when they are, its probably not a good thing for most folks. Top economists are often like top football coaches in the NFL draft, there's a ton of data they have access to and use, but they're still making guesses often based on ideology, and are wrong a large amount of the time. In both cases, its very hard to get good real world data that is free of most outside factors to study that leads to a clear conclusion, repeatable over multiple data sets. Data that trends one way may mean future boom times (or a future all-Pro player) in one case, but a hot mess in another.

I don't mean to poo-poo the discussion, I have strong opinions on the effects of quantitative easing, the willingness of banks to engage in certain types of lending such as mortgages, the regulations and backing of such lending, and data/examples that have led me to those conclusions and love to debate them with knowledgeable folks like here on BP! I just always cringe when I see short, simple news stories on what one or two policies will either supercharge the economy or crash it in the next year or two. Still, thanks @Joel Owens for starting the debate!

In my experience with lower income tenants, divorces make a mess of credit. That and medical bills are the two things that don't generally scare me on credit reports. That said, I would sit down with the prospective tenant and actually get an explanation in person, from there you can probably get a pretty good vibe as to whether its all the divorce or not. I wouldn't be scared, but I'd still do a normal follow up and meet the tenant. 

The FMR rates are based on a 3 year rolling average calculations of 2 bedroom rents in your area, so they're only ever nice numbers by chance.

@Franklin Romine None of the PHAs I'm familiar with send out such a notice, but that's cool that yours does. I'm guessing most don't want to actively encourage landlords to raise rent/increase paperwork.

@Steve Hyduchak I'm a masters level social worker for my day job and serve on the board of the largest of the local substance abuse recovery non-profit. I would NOT recommend this area as your first REI. As mentioned previously in the thread, there are a lot of specifics as to what you need to provide at any particular level of care to qualify to bill your local gov't, Medicare/Medicaid, and private insurance. For many of these varieties of housing, you will need to hire staff, often with specific qualifications. These vary state by state and insurance to insurance. If you haven't had experience in running a healthcare business, there will be a very steep learning curve to get to the point where you can comfortably navigate the never ending changes and roadblocks with each form of payment. There is a high level of need in most areas, but unfortunately, the landscape for payments for these services is VERY volatile.

Now, depending on your local laws, you may still have a couple options to help out folks in recovery without having to enter into the murky world of healthcare. First, the most simple way to help is to reach out to local non-profits and see if they are expanding their residential treatment or aftercare housing programs. Many of these agencies have trouble finding a house/building to expand into due to the cold feet of many landlords, so a few phone calls offering to master-lease or lease a good size building to the agency could solve many problems for them. Second, you could offer sober living housing by the room, essentially renting out a house by the room, to local folks in recovery. This is even a higher work rate for the landlord than normal low income housing, as you will probably need to have an on site manager at each residence, you'll have very high turnover, and you'll regularly have folks that blow out. In some areas, renting individual rooms is actually prohibited. There is certainly money to be made in that field, but don't expect it to be passive income. 

Hopefully this doesn't dampen your enthusiasm to help those in need and those working to resolve their substance use issues, but this is a VERY challenging route to go for someone with a lot of experience. I would be afraid that taking this kind of thing on with limited experience would burn you out from REI and substance abuse recovery all together.