All Forum Posts by: Brian Kloft

You have had a lot of good answers. I will give you my 2 cents in a slightly different way.

My rule of thumb has been that if I didn't feel comfortable being at the property at 8pm with my little kids then I would not buy in that area. From my experience dangerous neighborhoods, as your parents put it, are best left to people that specialize in those or grew up in or live in those types of neighborhoods. It takes special people to handle dealing with those areas. We managed a property for someone once in an area not quite that bad and my property manager came back one day after a bullet went flying by while she was there. We no longer managed in those areas after that. You have to deal with those area different than any other type of property. I manage areas where it is lower income and there is a homeless problem but dangerous takes it to a whole other level. You can not rely on a property management company in those types of areas. It is rough work and there are few that are willing to do it. 

As far as your first property being an investment or primary I say you are fine either way. The best is if you can get a multi tenant one as your primary. The good thing with that, assuming it is a good investment property, if that job doesn't work or you get transferred or you decide that you don't like that neighborhood for yourself then you just move to where you want to be and rent out the unit you were living in. When you buy it you can get better rates and terms since it is an owner occupy. Really your downside is that you have an investment property with a better rate and terms than you would have just buying it as a rental. The only other downside is that you might have to move twice if you don't want to stay there. Of course if you can stay with your parents for another year and save up move money then that is a bonus and buy a multi unit property for your second property where you want to live. Of course just make sure your parents are good with you living there another year. ;)

Your plan sounds good to me. That is assuming a couple of things. First that you will not go back into consumer debt (credit cards, cars, etc). That is bad debt that will keep you from making money. Second is that you can be disciplined enough to take the money that is left over and not spend it on "stuff" so that you can have it to put down on your next property that you are going to house hack and that you will do it when you get to your next destination this summer or fall. (You may need some time to figure out the market and where you want to live there. Start stalking zillow listings there now.)

Investing is not purely about the numbers, it is about what makes you comfortable and happy. If you are miserable and you feel like your situation is crippling you then that is not a way to live. Just taking a loan out on the property so that you can move your higher interest rate debt to a lower one will help some but not give you that breathing room that you need. Selling the property can be your reset button for you to start over in a better position. However you need to be disciplined not to get back in consumer debt again or you will waste this opportunity. 

As @Bill B. showed you, you are not making a great rate of return on your property now. If you can take that and buy a 2-4 unit property and live in one and rent the others, with the aprox $110-120k you are putting down you should be able to be in a good position and make a much better rate on your investment. The reason Brandon has yet to come across someone that regrets keeping their property is that that is not who his circle is, plus anyone that regrets keeping a property just goes and sells it so that they no longer regret keeping it. Personally we recently sold one of our properties with the sole purpose of paying off a loan of ours. Numerically was it the best, no, but it made things better for us and we do not regret selling it. 

Finally make sure that you have lived in the place you are selling two of the last 5 years to avoid capital gains taxes. Check with your accountant. You don't want to sell it thinking that there won't be taxes just to 6 months later find out that you have a $30k tax bill.

If it is a duplex then I comp it like a house with an ADU. However if it is a larger property I comp it like I do a commercial property with a cap rate and with cash flow. Am I going to make money on it, is there a value you ad opportunity so that I can fix it up increase the rents and thus increase the value of the property. If it does that then I figure it is a good property. I do not do any short term rentals. Most of the places along the coast heavily restrict STRs. STRs are also not my game and I prefer to stick with what I know.

Quote from @David Ojo:

Hey! I think you might be referring to Obie Insurance? If so, I'm actually insuring two rental properties with them. They don't charge an arm and a leg, and my experience with them has been pretty great so far. That said, I haven't had to file a claim yet, so I can't speak to that part of the process. 

 Yes thank you, I didn't catch that typo of mine. Thanks for the info.

To me you are asking all the wrong questions. Those are simple financial questions. The bigger ones have to do with renting to your daughter, and her being beholden to you. Dave Ramsey has a good saying about how Thanksgiving Dinner is different when you owe money to the other person at the table. If you don't like Dave Ramsey then we can look at Big Bang Theory where Penny borrowed money from Sheldon and even though he didn't care about what she was spending or when she would be paying him back, every time he said anything she thought he was grilling her about that. 

You don't want this to ruin your relationship with your daughter. What will happen if she is late with rent or loses her job and can't pay rent for a few months? What if she needs to move to another state? What if she gets married again and he wants her to move into his place instead of living so close to you? Doing business with family can put a lot of stress on the relationship. Keeping the good relationship with her and thus your grandkids is more important that the rest of it so make sure you are prepared to give and sacrifice money if and when it is required and have certain things agreed up and in writing up front. I am not saying to not do it, but you need to have some serious thoughts and conversations about it as well as contingency plans.

You need to get over the "getting annoying" part. That is part of being a Landlord. Per you above they are asking how they can help. If you were the Tenant you would want to be doing what you can to help limit the amount of money that they owe. You can't expect them to go, oh well it hasn't leased so we are just going to give up on getting any of our 5 months of rent back and not worry about that. If you aren't willing to just let them out and give up on several months of that rent then you can't expect them to either. 

You can tell them that you are no longer seeking another tenant but then you can't charge them anymore rent. As @JD Martin said, you have to mitigate your damages. 

If they are willing to help, you can tell them that they can advertise the property in places that you are not; to help you find a tenant. Perhaps at their work or facebook marketplace, craigslist? 

Is the Tenant still in your place? I am assuming that it is vacant so showing it should not be a problem for you. Why is it not easy to get it rented? Most places that I know of, rentals are still renting fast so I am not sure why two months in you still don't have it rented. Have prices dropped? If so are you marketing it at the price that you would after the Tenant's lease is up or at the same price as their lease is at? This is probably the most important thing to figure out because if the Tenant had not paid you for this then this would be money out of your pocket and next time it might be your money that you are out. 

Investing in "small towns" is actually a very broad term. Some people call small towns those with 70,000 people, others those with 10,000 or less. There are small towns that are just 20 min outside a larger city, so the town is small but an easy commute to a larger city for supplies and jobs. Then there are small towns that are more than an hour away from larger cities, so not commutable and Home Depot is more than an hour drive away. 

Some things to look at are what is the job source for your tenants? If you are close to a larger city then that can be your job source. If you are far away from a larger city, is there a major employer that is a significant portion of jobs and if they close down will that have a huge impact of that town? I have a number of properties that are on the Oregon coast in towns that are 10,000 people or less. I am not worried about any major employer as tourism is the major employer and people will always be wanting to be close to the ocean. 

As far as financing goes, I have been told to look at the local banks as they want their money invested in the communities that they are in. I have not had to do that yet.

Getting good contractors at decent prices can be a challenge in small towns if you are not close to a larger city. For example; I recently had to deal with a sewer line backup. I called every company in town to get someone out to cable or hydrojet the line. They were all booked up and it took me 5 days to get someone out there. In major cities I can get someone out for emergency service typically same day, even if I have to pay overtime for after hours work. It is not possible there. I am lucky that I can and like to go to my properties and do most of the major renovation work myself. It saves me a bunch of money and time.

In one of the towns the only hardware stores are Ace and True Value. In that town none of them are open on a Sunday, so the closest hardware store for an emergency on a Sunday is 1hr 20 min away. I make sure that when I am doing major work that I plan to avoid potential problems on a Sunday. ie I am not replacing valves and faucets on a Sunday in case something breaks and I need to shut off water and go get a new part to fix it and they are all closed until the next morning. 

We are working on getting a new insurance policy for one of our properties. small 3 unit property on the Oregon Coast. Our current insurance company decided to not renew the policy. (zero claims or issues) We are looking at going with Obei Insurance, they focus specifically on investor real estate. We are just not as familiar with them so want to see if anyone else has any experience with them.

Thank You

Just by doing a simple cap rate (capitalization rate) (what interest rate you are earning on the money if you own it free and clear) it would take a 6cap (6%) to get $10k a month and a 9 cap (9%) to get $15k / month. I don't know anywhere that you can get 9% without a lot of risk or a lot of work. You might be able to get 6% but I don't know LA market. Sorry for not having any better ideas, other than trying to grow your portfolio so that it get you where you want by buying a value ad and then adding the value. However hopefully my explanation of cap rates will be helpful to you.

From your answers that you say they are giving you I would say run away. It is fine if a property doesn't cash flow but if it doesn't they should say why that is fine and not give you some magical answer. If they are getting higher than comps then they should be able to tell you why, not just some hypothetical that their pm does some daily complex algorithm. I get higher rent than many others but I can tell you why I do. It sounds like they are telling you to trust them, but not willing to show you the details on why you should trust them but that it is their 'magical sauce' that makes things work. When people tell you that they are smarter than you and that you can't understand it and they won't take the time to walk you thru it line by line; you should not trust them. There are others that will be able to show you the numbers and explain why something works the way it does.