All Forum Posts by: Cameron Lambo

For me there are more factors at play than just the net cash flow. 

If I have to put up 20% on a $300k duplex to receive $500/month, I would pass. If I could get in the deal with $0 or very little out of pocket, then of course I would do it.   

But your goals or objectives may be different. You may be trying to preserve capital in a lower risk investment and then it may be something for you to consider. 

I would ask for the signed lease agreement and get an estoppel agreement signed. I think BP has a blank template you can download on the file place. Also, You can the seller for the tenants rental payment history to see if they pay of time. Make sure you get a credit at closing for security deposits as well. 

I think the cons are you could be inheriting issues the prior owner didn’t want to deal with. 4 of the units we purchased recently had existing tenants and 3 of them are great. The other would have never met our criteria and we’re stuck until the lease ends . 

East of I-27 is quite different than other parts of Lubbock. If your getting property management, make sure they will service the area before you buy. 

Good luck and I hope everything works out well for you! 

Congrats on your new purchase!! 

Call Silver Burney with Goosehead Insurance. (Just google his number since it won’t let me post it) 

I see insurance coverage with borrowers every day. He usually has better coverage, at a lower price. I use him for all of my properties and would recommend him to anyone. 

@Daniel Jodrey

The multi family and "house hacking" part changes everything. What type of mortgage product? Are you looking at FHA with 3.5% down? Conventional with 5%?

You number might look lower because of the low down payment. However that lower down payment can be benificial. 

Also, house hacking is a great idea.  If you can cut down on your housing expenses and save those funds for future purchases. 

Have you considered renting out the other rooms in the unit you will live in? Maybe then you can cash flow while living in the property. 

I would also start talking with your lender about your plan to acquire more properties. If they are a decent lender, they will guide you in the right direction so your next purchase goes smooth. 

I think it’s a good first purchase and you will learn how to manage rentals in the process. 

If your saying your properties will are not self sustaining and your W2 job will cover the expenses, I think it may be a dangerous strategy. How many properties until your W2 job can’t cover all the expenses? How would you scale? 

If the property doesn’t make sense with your vacancy, capex, repairs, and management I wouldn’t do the deal. 

Maybe use those funds and go in on a deal with a partner? You could spend some money on marketing and find an off market deal that the numbers work better, or even consider out of state investing. 

Eventually a good deal will come along.

Just my thoughts! 

@Bart H. Thanks for your response!

Good point on the high-end appliances! I agree that top of the line appliance (and most other furnishings) makes no sense. We are looking at putting a better quality LVP flooring for longevity vs the builder grade at Home Depot. It may be a $1-1.50/sqft more but Ideally it will last longer.

I like your point about improving each time you do a rehab and figuring out ways to lower the cost, but not the quality. Also, #2 is very reassuring!

It sounds like you have put a lot of thought into your investment strategy and you don’t deviate from the plan. This is exactly the framework I was looking for. On a high-level being able to thoughtfully acquire properties while reducing the likelihood a downturn will destroy the value of your portfolio.

I appreciate your well thought out responses! 

@John Warren

Thanks for the detailed response! I like how you pointed out the over efficient furnace. This makes me take a step back and think if a particular upgrade is really affecting the quality/longevity of the property or not.

Your comment about your apartment renovation makes a lot of sense. Since you can estimate the rental increase, the renovation is justified as it will improve the overall value of the property.

In our situation, the numbers work either way. We can improve the property to a level we feel stands out from the crowd or put very little work in the property and move on. I would much rather have 10 great quality properties than 15-20 headache properties.

Great comment and I appreciate your time! 

When does a rental home renovation cost too much?

I purchased my first home while college and it needed a ton of work. I used this home as my “crash course in home renovations”. I did all the work myself by watching YouTube videos and asking a few friends for insight (aside from moving a gas line and a some electrical) but I feel I went overboard with the reno budget. I don’t regret the money I spent since I have learned so much about renovations.

I have no idea what I spent on the rehab. I did small bits over 3 years when I could spare some money and find supplies on sale. I was a broke college kid! I have no plans to sell the home in the near future. The interest rate is extremely low, I have great equity, and with the university expanding I don’t fear demand will dry up.

Home: 3 bed, 1 bath, 2 car carport, 1780 sqft. The home is in Lubbock and roughly 1 mile from Texas Tech University and a half mile from two major hospitals.

I listed the home the week before Thanksgiving. I priced the home about $100/month over what other 3/1’s rent for in the area. I figured the home would sit on the market for a few weeks since this is an odd time of year, it has one bathroom, and it’s more expensive than 90% of the homes in the area. However, I was pleasantly surprised. After being inundated with calls from prospective tenants, I had to remove the listing after 4 days. I showed the home to 7 people and 5 them wanted to put a deposit down the same day. So, I rented the home in less than 5 days and receive $415 in cash flow/month.

I’m on my next project and I’m in the process of rehabbing the property now. We plan to purchase another home in 10 months. (rinse and repeat)

I want to gut the majority of the property or at least make the home more appealing than 90% of the homes in the neighborhood. Spending extra on mechanicals and materials to increase the lifespan and designing the house so can be easily maintained (adding service panels to shower control valves or vanities, etc.) Also, while improving the layout and design of the home with above average materials.

Here’s my theory: (all assuming the cash flow is positive and enough to cover expenses)

If I can over engineer the property and spend a little more now, I will reduce the risk of costly repairs caused by mechanical failures like water leaks, HVAC issues, or durability of fixtures. The home will stand out among the other rentals, lowering vacancy and reducing turn-around times. I want my rentals to look better than 90% of the rentals in the area, and I want to appeal to top notch tenants that are willing to pay more to have the best. Also forcing appreciation will increase the equity in the home and allow me to pull money out of the property sooner. [Reduced repair costs, lower vacancy, higher quality tenants, higher rent, and more equity.]

The downside of this theory:

1. I can’t know for sure the home will appeal to high end tenants.

2. Forced appreciation is not a guarantee or at least I can’t guarantee I will break even

3. I’m reducing my cash-on-cash return by putting more money into the property

4. I could be spending the extra money on purchasing more homes. (quantity over quality kinda thing)

5. The opportunity cost of spending more time remodeling a rentals slows my growth

Ignoring my degree in finance and my rational brain. I enjoy remodeling homes. I take pride in building things with my hands and designing a home that people love. I enjoy the creative aspect of taking a bathroom down to studs and starting over. This contradicts the finance/rational part of my brain that wants to spend as little as possible and move on to acquire more properties.

I’m not as concerned about the property generating large cash flow to “free me from my 9-5”. I have no plans to become a full-time investor or quit my job since I enjoy my profession. I am more concerned with growing the value of my portfolio, reducing risk, and increasing my investment opportunities.

• If I can get above market rent, force appreciation, reduce vacancy, and reduce the risk of large capex, but slow my growth acquiring properties and reduce cash-on-cash return; is it a good investment decision? What risks or downsides to this approach am I overlooking?
• We like to pretend that we are emotionless financial robots, but lets be real.. What value do you put on pride of ownership or the quality of your properties?

**I intentionally left out the numbers and I do realize asking, “is this a good investment?” is a difficult question without reviewing the details. This is more of a high-level/macro view and I’m trying to gain insight to how others view the quality vs quantity conundrum. 

Thanks for any input you have! 

@Account Closed

I would look at the cost difference between renting/owning. Say Rent is $2,000/m and the mortgage on a property you like is $1,500 = $500/m saved. Or same situation and you rent for $2K/m and still buy the home. What would you rent the property out for? Will this amount be greater than the $500/m you would save by purchasing/living in the property? 

Also, if you purchase and live in the home you wont be required to put 20% down. After a year, find another property to purchase/live in and rent your other property out. Then again and again 

First Step: Take action. Go talk with a mortgage company to see where yall are at. Then you can realistically decide what strategy to take. Don't put this off until you are ready to buy. It's a lot easier for the lender to help you if they have more time. (i see this every day. Borrowers come in looking to get prequalified today, but we need to work on their credit and it will take 1-3 months) 

@Jacob Tracy

That sounds like a hard situation for your parents. They sound like good people who have always done right by others. 

It's hard to say without knowing the numbers (W2/SSI). Sometimes we can "gross up" SSI depending on how taxes were filed. Did the bank look at tax returns? Did the bank say why they would not grant a HELOC? Also, did they speak with a local bank or a large bank? Would you be willing to co-sign with your parents if needed?