All Forum Posts by: Cameron C.

Hey BP,

My landlord and I are currently kicking the tires about transferring ownership of the property I currently rent and therefore allowing me to house hack it from the rent my other 3 roommates are currently paying.  The home is in a hot rental community of Pittsburgh (Southside).

I am waiting to hear back from him tomorrow about his final position but we have a ballpark number the would make sense for both of us. Because I'm "house hacking" this property (it will be my first investment) I would attempt to do 3% down on a conventional first time home buyers mortgage. It wasn't until today that I remembered the concept of seller financing. One obvious benefit to this route would be the elimination of PMI and I would be able to shorten the term of the note etc.

Tomorrow I should know what he still owes on the property, if anything, and will be able to introduce the concept to garner his thoughts.  My question to you is relative to general advice structuring one of these agreements and then executing on such.  I want to make sure I am fully confident of all of the pros / cons for both sides so that I can pitch a strong case for why this makes sense when I get him on the phone.  The other thing I am trying to understand is whether or not this is an option if he has a good deal left on his mortgage?  I understand that if it's not an incredible amount that I could make my down payment equal to that but what if it's a lot more?

In short, any assistance to help me understand this would be wildly beneficial.  I would like to make a strong, clear case tomorrow and want to ensure I understand all of the details.

Thanks!

Cam

@P.J. Bremner great response, thank you.  Here's the answer to some of the questions you posed...

1)  Today, we completely furnish the house, pay the utilities etc.  This would not change if I went from a tenant to a living landlord.  My other roommates would continue to pay their rent (to me!) and we would continue to split utilities. 

2)  My house is beautifully updated and is considered higher quality, but still relatively in the norm for the area.  It was not a quick flip or cheaply done by the owner.  I honestly believe I could fetch an additional $50/bedroom after I moved out based on the market comps.

3) The area (Southside) is extremely high in demand.  A quick Google search could validate this.  I am a few blocks away from the hustle and bustle of Carson Street which features over 28 consecutive blocks of bars and restaurants.  Additionally, this is a huge rental community.  Duquesne and University of Pittsburgh students make up the majority of the landscape due to its' close proximity to campus and night life scene.  I may be a little over confident but I have no reservations about renting it upon moving out.  It's the norm in the area.

4) As far as the tenant law concern goes, I would be too concerned about it between now and when I moved out, seeing as the other 3 tenants are great friends of mine and I would ensure the 3 names on the lease are theirs and not mine (I obviously wouldn't sue myself).  That said, I would still like some protection in a few years to be able to hold 4 people liable for the property.

Hope that gives you a clearer picture.  I would love for additional input or things to look out for.  Thanks!

Cam

That's great input @Jay Belcher.  Thank you.  Despite the purchase price being $285,000, the property was assessed in 2016 at $117,000.  When the current owner purchased the property 10 years ago, it was completely condemned and more than 150k in just materials was needed to get it in its' current state.  I spoke with my landlord today and he said he estimates yearly taxes around $1,500 for the property.

That said, I'm not sure if you know anything about the right the municipality reserves to come in and reassess the place.  To your point, if they were to come and reassess it at 300k that would significantly change my numbers.  Is there something that prohibits them from increasing it by X percent year over year?

Right, that all makes sense.  This may be walking a very fine line but I'm not sure if my first year or two in this current property I should claim my roommates rent as income or just simply act as if they were my family and I were paying the mortgage?

I guess what @Will Pritchett and @Michael Seeker you are both saying is that I cannot have it both ways.  It will be beneficial in two years to claim I have an supplemental flow of income via my property, however, I will not be able to fully show that unless I am claiming the income on my tax returns within those years.  What do you recommend is my best way of handling that situation considering that I would want to buy another property in 2 years?

Cam

Hey BP,

So I'm looking to jump into the investing scene and to be quite frank, I do not have a ton of capital to start off.  I'm currently in the process of purchasing my 4BR single family and recouping the mortgage of $1,800 from my 3 roommates, who each currently pay $650/br to live here.  Additionally, and no secret here to house hackers, I have the advantage of acquiring the property as my primary residence as a first time home buyer, which will allow me to put as little as 3% down.

That said, I'm wondering if I can "rinse, lather, and repeat" this strategy for my next investment in say, 12 months? Do you know any restriction or requirement that allows you to continuously change your primary residency status in order to obtain better financing options? My thought process is if I can continue to purchase a property every year or so and acquire it for 5% down as a primary resident rather than the 20% required as an investment that I could continue to move and eventually hold a few investment properties with big LTV mortgages.

Any pros and cons you guys initially see with using this as my guiding principal to jump into the investment scene?

Thanks in advance,

Cam

I've ran countless spreadsheets and these are some of my numbers.  I'm also struggling understanding as to whether I should count my share (the $650 I pay now as rent as income) which I have included below.  If anyone has feedback on these projects it would be greatly appreciated!

Purchase Price:  $285,000

Assumed Total Cash Outlay:  $15,000

Rental Income after 5% vacancy assumption -  $2,470

Expenses:

Annual property taxes (high estimate, annual):  $3,000 

Property Insurance (annual):  $1,500

Maintenance & Repairs (annual):  $1,000

Capital Expenditures (used BP CapEx chart for 12 items over useful life, annual): $2,193

Total Monthly Expenses (4 items above divided by 12, some to be rolled into mortgage):  $641

Net Operating Income: $1,829

Mortgage Estimate:  $1,280

Cash Flow:  $549

Annual Cash Flow:  $6,583

Cap Rate:  7.70%

Tony, Thanks for the reply. Unfortunately I am unable to attend that session tonight but in the future for sure. Very interested to hear your full take. Be sure to link up with me tonight or whenever you have time to respond. Cam

Hey BP,

I'm looking for some advice and/or for you to poke holes in my current situation.  Let me preface this with the caveat that I know I would like to move elsewhere (maybe outside of Pittsburgh even) within the next 2 years.

I've lived in a hot rental area (Southside) for the past 2.5 years and have constantly been poking my landlord about his interest to sell.  I live in a 4BR 2.5bath 2,400 sqft standalone townhome that currently rents for $2,600 month.  The home is a 5 minute commute to downtown Pittsburgh and is nestled in between two large colleges (Pittsburgh/Duquesne).  I am very confident that it will be easy to rent in the future.  We have reached a tentative verbal agreement to of $285,000, no realtor commissions, I pay closing costs.  I'm a licensed realtor myself so I have access to all the standard paperwork to process the transaction.  I am looking to do a 3% convention and will attempt to "house hack" this property by continuing to charge my other 3 roommates their share of $650/bedroom. 

I've ran through countless analysis calculators and I tend to think I'm over complicating the deal.  Aside from the major capital expenditures that I would escrow for, I have reservations about a few legal intricacies.  For example, he bought the house 10 years ago and did a complete flip with great quality materials but I'm still questioning whether or not the proper permits were obtained.  This was not a quick flip or poorly done job.  Another reason I am interested.  Another reservation I have is relative to a Pittsburgh ordinance for single-family dwellings that prohibit more than 3 unrelated individuals to enter into a lease.  My house is a legitimate 4BR (4 - 150+ sqft BRs) and I'm wondering if there is an "exception" status anyone has heard in the past that would allow me to protect myself legally in the future if I were to move out and want to rent this property to 4 individuals. 

All in all, I think it's a good (not a fantastic one) deal in a great area that is very developed and in high demand.  There is no question the sticker price is what is primarily scaring me.  As a first investment property I wonder if I'm stretching myself too far with a property in this price range.  I expect to be able to acquire the property for under 20k out of pocket and I'm pretty confident it will cash flow each month, despite not meeting some of the fancy ratios and rules thrown out here on BP.  I'm really looking for some advice of other things to keep my eye out for and/or due diligence I could do in the meantime to make me more comfortable with "jumping in". 

Thanks in advance!!

Cam

I understand there are a variety of forums, many of which can address my situation to a certain extent, however, I thought it would make sense to lay out the exact context of my situation.

I am getting ready to purchase my first investment property (first property altogether actually - currently rent) in Pittsburgh, PA. A friend and I are going in on the deal and decided the first step we should act on is to establish an LLC to purchase and hold the property under. I have plans on buying more properties in the future, which I assume setting up a separate LLC for each would then make sense, however, I want to be very cognizant of a few different strategies / approaches up front so that I can be nimble and flexible with my portfolio for years to come. With that in mind, here comes my question...

In your experience, what have you seen work best for a portfolio of properties, many of which you may have different partners and different legal structures in place? I'm wondering if continuing with the "one LLC per property purchase" rule makes sense or if there is something else I should consider? The other piece of this puzzle is from the financing perspective. I'm wondering if and how I should set up a separate business banking account to be able to maintain these properties going forward in order to avoid the co-mingling of personal and investment funds. Would it make sense to have a separate bank account per LLC then? If I followed that mindset and in a few years I have 10 properties, 10 LLCs, and 10 business banking account with 5 different partners I feel like that might be an absolute nightmare and ongoing headache. I want to make sure I'm thinking about all of these things up front so that I can be flexible down the line. Does it make to have one business bank account and federal tax id and if so how can I link/associate that with a variety of different LLCs? The other biggest concern I have that I want to be thinking of is how all of this comes together from an accounting perspective. As a part time real estate agent who also have a W2 at tax time I already understand how complicated multiple incomes can be. I'm wondering how I can structure all of this while keeping it as simple as possible.

All and all, there are many questions baked into this post but I would greatly appreciate some general guidance and/or advice of where to start.  There are so many components that can make or break your success in this business and would love to hear what has worked for others and see if it may be applicable to my scenario.  I'd much rather put more time in up front thinking about the foundation of my strategy and investment structure than piece together a variety of broken parts down the line.  Any and all info, success stories, nightmares would be appreciate to help steer me in the right direction.  Thanks BP community!! 

Hello all!  I've recently moved to the Pittsburgh area less than two years ago, was lucky enough to close on two houses in 2015, however, I still acknowledge that I don't know all the nuances of the various areas as well as my competition.  Although I know some of the major areas of the city, I'm still curious to hear advice on the best ways to get a better understand different upcoming areas to help better serve my clients and also help me for a potential personal investment situation.  Have you found any websites, magazines, etc helpful throughout your experience.  Thanks in advance for all the help!