All Forum Posts by: Daniel A.

In today's market, people are looking for that modern touch. People want efficient and convenient. Stainless steel and black appliances are great, but you also want to toss in additions that help the wallet. Tankless water heaters, for instance, can be up to 34% more energy-efficient that it's tank counterpart (depending on the total water usage). Solar panels not only help the bank account, they grab the eye as economical. You see the solar panel, you start asking yourself what else does that property have to save me money? 

I'd also say it depends on whether you plan to flip or rent, but I generally like to put in some USB power outlets. I recently installed two of them on a bar top. One above and one beneath but high up. Plug your phone in and set it on the counter while you cook or eat. Convenience. And of course if you can integrate smart-home technology, people can get notifications when their laundry is done, they can control the lights, they can control the A/C, they can see who is at the front door.

If you have a yard, throw in a deck or a patio and a firepit. People who love to entertain guests will value it and a warmly lit yard. And needless to say, but having the landscaping look like something out of a magazine is a must. Get that curb appeal to draw in buyers or tenants.

First off, congratulations on deciding to take action. And good job reaching out to the Bigger Pockets community for guidance. I doubt I'll be of much help, but I figure I'll toss out a few ideas. Maybe you'll find something of value.

As to a recession and loosing money, your concerns are reasonable, but there are a few ways to look at it. If you lock yourself into rate X, a recession usually brings with it lower mortgage interest rates. So, it's not out of the question to have your interest rate lowered through a refinance or an adjustment. You should also consider that even though a recession leads to job loss and property values dropping, if you have a fixed rate mortgage, your payments to the lender will remain the same. Rents will always be due. And if your rent covers all your expenses, then you're set. (Evicting a tenant in during COVID is not something on which I can elaborate.) 

I tell this to all new investors because I myself have taken this route: do what works for you. Sometimes you need to take the leap and see what happens. 

If you aren't planning on selling your property, then the fluctuating value of the property during a recession shouldn't cause you to lose any money. And I will say this: tenants are the wild card in rental real estate. Times could be good and you'll have a tenant who defaults for whatever reason. Times could be bad yet the tenant makes timely payments. If your property is in a good area, if you have strict tenant qualifying criteria, then you heighten your chances of having a tenant who is financially wise and who will have saved some money for such occurrences as job loss. But again, and I reiterate, someone who seems financially wise could jump ship at the first hint of anything.

As to the numbers, a $58 profit each month, assuming the numbers are solid, doesn't leave you much wiggle room. Perhaps there are some value-add opportunities with this property. Perhaps you can do some baseline work to get that $1,400 up to $1,600 or even $1,800. Take this into consideration when it comes time to send out the lease renewal. Maybe you don't renew the lease so you can toss in some new flooring, some new appliances, and a nice backsplash.

Even if the profit margins are small, having a property brings value on many levels. You build equity, you gain appreciation, but above all else, you gain knowledge and experience.

It seems like you find yourself in a common situation. Fix or Flip? While you could read books upon books on the topic, really, it boils down to what works for you. Yes, you could consider whether the property values in that area have historically risen or if they've remained static. That could help in your decision. If they've steadily risen, then holding onto the property for a somewhat long term could be in your best interest, even if the month-to-month net isn't exciting. And yes, you could try and flip it and make some profit. 

As I am sure you know, when you flip a property, things go wrong. Plain and simple. Especially as a newbie, I myself have made countless errors, some of which being costly. But the thing about it, I don't get frustrated when I make an error. I don't stress when I have to cut a hole in the wall because I dropped a coax cable to the wrong spot. I don't get mad when I spend two hundred dollars on the wrong sized duct work. (For one, I enjoy working on my properties, and two, I don't get mad in general), but if anything, and this is how I mentally handle the financial blow, I consider the cost an educational expense. By this point I'm practically a licensed electrician, a master plumber, and a kick *** A/C guy (who only knows how crawl around in a 90 degree attic to replace R6 flex duct with the new fancy R8 that the inspectors say I need). While I've fudged up enough, I've learned even more.

Ask yourself what you want, long-term. If you don't know, then that's okay. Sometimes indecision guides you to try new things. And don't think of choosing one option over the other as missing out. The only way you'll miss out is if you don't do any of them. 

I am by no means a seasoned investor, but I will say this: It seems that your post is as open ended as you can get. Normally, open ended questions are good, however, when you're seeking the advice of a seasoned investor, you want to get into the specifics.  There are just too many different fields for any one particular "seasoned investor" to know what it is that you want to learn. Saying "everything" is great, but there is no way anyone will be able to teach you everything. What do you want to learn about? Multifamily? Single Family? Wholesaling? Commercial? Start with one topic. See who responds and whether their advice sits well with you. Go from there.

Also ask yourself, "What value can I to bring to a seasoned investor in exchange for their time and knowledge?" Work up a plan and present it. Start with one topic rather than all topics. Show them that you are actively taking steps to reach your goals. For example: "Hi, my name is [Daniel], and I'm an aspiring investor in [Houston]. [Multifamily / Single Family / Apartments] have caught my eye as a fantastic investing platform and I plan on starting and building a portfolio. My main concern is that [banks wont take me seriously / I am overlooking some numbers / tenants won't follow the rules]. I'm really eager to learn and have been reading material and listening to audiobooks and podcasts, but I'd love to have a seasoned investor who can hear me out and who can give me some guidance and allay any misconceptions that I may have. If there is anyone in the [Houston] area who feels up to the task, I would value the opportunity to [work through a real estate deal with you]. Since I am new to this, give me the grunt work and watch as my passion guides me to finish the job."

I'll start by saying that "a dime a dozen" refers to an abundance rather than a scarcity. With that being said, and with other opinions abounding, one bed / one baths, while not highly sought after, usually have a decent base of interested individuals. Personally, seeing as how it's a duplex consisting of that layout rather than a 30 unit apartment building, I doubt that you'd have troubles finding prospective tenants and having low vacancy rates. Arguments could be made toward ascertaining the demographics, learning the median household income, etc., but really, sometimes you have to make the leap, especially if you are just getting into real estate. And the other benefit that you have is that you would live there, so were the worst case scenario to arise and you don't find tenants (you will, though), it's still your place of residence. Granted, you would have to wait until a lease is up for one of the current tenants before you could move in.

Another piece of advice: don't trust what the seller says. They could come off as nonchalant, saying it's cash flowing, that it's profitable, that it's a steal of a deal, but you should always take Ronald Reagan's quote to heart: trust, but verify.  

While everyone has their opinion, sometimes you should do what works for you. Educate yourself in all the numbers. Is there anything you're overlooking? In addition to the mortgage payment, you have utilities (water, electric, sewer, trash), insurance, maintenance costs, etc. Are the appliances in the units new or old? Do you anticipate any capital expenditures in the near future?  What's the situation with the water heater? It really stinks when you buy a property at market value, thinking it'll cash flow only to find out that the plumbing isn't up to par, that the water heater is going out, and that the oven is a relic from the late 70's. I live in Texas and something I look for in properties is when the roof was replaced. 

And then you have the topic of the tenants that the current owner brought in. What kind of lease did he provide them? (Not referring to length here.) Does it cover all the important things? If you do end up contracting to buy this property, make sure you figure these things out before the "inspection period" is over. 

In the end, oftentimes the seller wants something that is a little higher than what you are willing to offer. But again, you must do what works for you. If you are okay with taking on tenants, then awesome. I am one of the types that tends to learn the hard way, and I am of the preference that sometimes that is the best way to learn. You might get lucky and cash flow from day one. Just make sure you do your due diligence. That is the most important thing. You don't want to learn the hard way when the hard way entails six thousand dollars of capital expenditures in month two of ownership.

And my final note. (This is me driving the point home.) Do your math. Don't look at only what your mortgage payment will be and decide that the rent will cover it. Once you go into contract (supposing you do), get all the information that you can. If the seller is hesitant or gives you the runaround when you dig into the age of the appliances and water heaters (or refuses to give you proof - remember, Trust but verify), then maybe there is something he or she is hiding.

Are you telling everyone you speak with that you’re very interested in real estate? Sometimes the best way to network is just by telling people what your interests are. Oftentimes they’ll want to help even if you don’t ask directly for help.

I have found that by telling people what you’re doing, even if it’s not real estate related, oftentimes they provide you with information because they want to keep the conversation going or they want to feel helpful (whatever the reason may be). For instance, whenever a reputable company comes out to put a bid on, say, doing the drywall, I’ll talk to them about what I’m doing and they’ll usually chatter on and start asking me questions about things I never thought of. I’ve had two separate contractors tell me that they too have rental properties. I generally ask them how they got into that and whether they feel like it’s worth it. Then go from there. The same applies to networking. Talk about it. Your passion will shine through and it will bring you to those who will want to help you. Just make sure you bring something to the table. Make sure you don’t (indirectly) offer yourself as deadweight. 

Determining a length of lease can be a hotly debated topic, but I will tell you how I go about it. Generally, the longer the lease, the better. This locks your tenant in for a longer period of time, contractually obligating him or her to pay X for 12 months. Essentially, it's guaranteed rent for a year.  The pros to a year lease is that you won't have to search for and vet new tenants on a somewhat regular basis, and deal with the vacancies, were you to opt for a month-to-month option. A long term tenant will not leave your place a wreck after living there for, say, one month. (Yes, there are exceptions.) You gained one month's rent, and now have to replace X, Y, and Z, and find another tenant. Were that same tenant to leave your unit a wreck after a year of tenancy, you have accrued a year of rent payments rather than a month.

The main con to having longer lease terms, in my opinion, is that if you have a problem tenant, you can't decline to renew the lease until the lease term is up. You also have the issue of whether your lease is sound or not. If you find that you omitted something, you have to either wait until the lease is up and have them sign your new, updated lease (you know, the one with the updated clause about not flushing golf balls down the toilet because the manufacturer advertisement said the toilet could do so), or you have to get the tenant to agree to the change. 

I also take into consideration the area the unit is located. If it's in an upper class area, longer leases are optimal. The tenants tend to be responsible, whereas if you have a unit where the streets are unkempt, the surrounding properties are unmaintained, and undesirable tenants gravitate, I err toward shorter leases for the reasons stated above. I don't want to wait 9 months to be able to enforce an updated clause about not having six broke down, rusted cars parked on the front lawn. 

It's great that you're interested in learning at such a young age. The best part about living in today's world is that the dissemination of knowledge is massive. Being here on Bigger Pockets is a resource that has no ends. 

If you really have a drive to learn, listen to podcasts (I listen to Bigger Pockets podcast every time I'm in the car). Read books. The local library will likely have some that you don't have to pay for. Watch YouTube videos. Learn what you can and if you have questions, do what you did here: post it. 

If you're just starting out, what I would recommend is that you learn a little about all the different aspects of investing and determine which one you feel suits you best. From that point, focus in on that particular field and learn, learn, learn. I would also recommend that you educate yourself on what it takes to get investors on board. Learn what it takes to get bank loans and start working toward meeting those requirements. Once you meet those requirements, by that time you should be well versed in the field that you find most intriguing. You should be able to speak knowledgably and impress others with your understanding of various relevant concepts. 

Keep learning. You won't go wrong when you let your passion guide you.

While I am still somewhat a rookie myself in the realm of real estate, I take a lot of time to educate myself about all aspects of real estate investing (as it seems you are doing as well). What I am seeing as a common thread is that you should take into consideration a lot of factors, including the interior and exterior condition of the place. But above that, even if the comps are at X, that doesn't necessarily mean that you should offer a price commensurate to those. Find yourself some contractors who can take a look and give you an idea on what it might cost to get up to par. Ensure that you have your funding for the purchase (whatever price on which you decide), be it a bank loan or whatever. When you go to the owner with an offer, you should be able to prove to him that you are serious, and you can do that by providing him with information proving you can pull through on the money side. 

In addition, if you have a contractor estimate that it's going to cost you X to fix it up, provide the estimate along with your offer and your financing ability. Me personally, I generally like to have at least two, if not three, separate contractors give bids. (I of course compensate these contractors for their time.) The reason I do this is that I've had one contractor quote me 70k for a job (supplies and all) where another contractor quoted 20k, so long as I purchased the supplies. Same with a/c. One 7k quote, another 2,600 quote (the latter being from a reputable individual, the former ... [shrug]).

If the property has been sitting there for that long, then they likely know it's in a relative state of disrepair and will likely understand an offer that is under market value. The key (and I've learned this from listening to BP podcasts) is to go to the owner with proof that you can pay, and with detailed reasoning as to why your offer is what it is. Tell them that your contractors estimate [roof/siding/etc.] costs X to repair. If they decline your offer, then that's okay. Paraphrasing from a BP podcast, the answer is always no until you ask. If the numbers don't work, okay, there will be other properties.

Also keep in mind that if this is the first property you plan to buy to get into real estate investing, you're going to make mistakes. It happens. But the key is to start somewhere. Anywhere. Take the leap. Run the numbers. It can be rudimentary at this point. You're learning. We're all learning. But don't buy it at a price where your rent would have to be higher than any other comparable properties. 

I'm probably driving home obvious points here, but I promised myself that I would become more active on forums so I can get my mind active in a manner other than only listening to podcasts while I drive around. 

Investment Info:

Large multi-family (5+ units) other investment.

This Victorian-style house came as an added bonus to a triplex I purchased. Being a novice, my eyes widened at the rental potential. It touts 5 rooms across two floors. However, it's uninhabitable in its current state. I knew this going in. But I was eager for the challenge and the possibility of having so many rental units. As the estimates starting flowing in for the triplex, though, I knew the chances of being able to afford a renovation on the Victorian were slim.

This property is located just minutes away from downtown Victoria. The corner lot provides this building the commanding presence it deserves. But it's exterior and interior show the neglect to a depressing degree. Having removed the plywood and walked around inside, I was taken aback by the tall ceilings and the open rooms. The floors on the top story are robust, as are the wood-lined ceilings. My mind's eye raced at the possibility of restoring this house. I had consulted with the town and they told me that the historic district in which this house is located is by far the most relaxed. So far as they are concerned, no billboards, no manufactured / industrial housing, and there is a demolition delay, were I to choose that route. Other than that, have at it.

I know my limits, however, and realize taking on a project of this magnitude is beyond my current ability. I hate to just let it sit there, and I am in love with the corner lot, but I really cannot do much with it beyond fantasize. If anyone should find themselves intrigued by this house, please feel free to contact me. I will be listing it for sale on Bigger Pockets as well as Zillow and other platforms here in the coming weeks. At this point in my real estate journey, I could use the money more than the project. (I have some pictures of the interior, but there is a 6 picture limit here.)

What made you interested in investing in this type of deal?

I have always been interested in starting a career in real estate investing and have always had my eye on multi-family properties. This Victorian house caught my eye not only because it was a great deal (for obvious reasons) but because it crossed me as symbolic of an era when houses were built with passion, with craftsmanship, with pride. You still see that today, but not to the degree you did then. Today, more often than not, it's a "let's build it quick and cheap" mentality.

How did you find this deal and how did you negotiate it?

This property came as a bonus, you could say, to a triplex I bought. The owner had been in real estate and was at a point where he had other endeavors he wished to pursue. While he offered a few other properties as well, this brought me close to the extent of my budget. I left some room for renovations, but those funds are slated for the triplex.

How did you finance this deal?

The owner was willing to do owner financing, but the Bank of Dad offered better terms. I am looking to sell this Victorian and its prime corner lot that sits minutes away from downtown Victoria so I can use that money to work on more deals.

How did you add value to the deal?

I cannot say that I have done much more than tour it at this point and trim the weeds. But I have had people driving by stop and provide historical recounts of the property. A contractor I had out at the house had said she'd been in there when she was a teen. The neighbor across the street detailed how it went from habitable to uninhabitable. The other neighbor recounted watching the beautiful structure fall to neglect.

What was the outcome?

The outcome has yet to be determined, but I know that I myself along with the city of Victoria would love to see this building restored to its original self. Victoria is a town that prides itself on its history and you can see that when you drive around and look at the other Victorian-style houses that are standing tall.