All Forum Posts by: David West

Does anyone have experience with short term rentals on sites like Air B N B? I want to know the good, the bad, and the ugly! I'm in the San Diego market so there is a high demand for short term rentals and it seems like a no brainer. When I pencil out the returns it seems too good to be true. What am I missing here? Who's actively investing in these types of deals, and what do you wish you would have done from the beginning? What expenses did you miss or were bigger than you anticipated? What are the pros and cons of this type of investment? 

What's up BP Community,

I need some advice and would love any feedback you have for my current situation. I live in Southern California, and I have been studying real estate for several years. I bought my own property which I am currently house hacking, but this is the year that I will really start to build my real estate portfolio and start the journey to financial freedom. In addition to having a passion for real estate investing and building relationships, for the past 6 months, I have been working for an investment company that flips SFR's. I meet with agents, introduce myself, and try to get off the market properties that we can buy with cash. The purpose of this little intro is just to let everyone know that I do consider myself a newbie, but I still have some knowledge in putting a deal together and I know what it looks like from start to finish.

I talk to everyone I can about real estate, and the goals that I have. It's really an incredible vehicle to achieve your dreams and I really believe that anyone can succeed with hard work and some clever thinking. Through some of these conversations and my enthusiasm I came across a pretty amazing situation and this is where my question comes in.

Last week my brother called me out of the blue and told me that he wanted me to find a multifamily property that I would manage and he would finance. We have never worked together before but he's seen my passion, he trusts me, he has the capital, and told me that he needs to make an investment this year because he got creamed on his 2016 taxes. He doesn't really have the time or the desire to learn the ins and outs about real estate investing. I have a few questions around the project that I've found, but that may be reserved for another post. My main question here is how do I structure this partnership? I really don't have money to put in for the down payment or any of the rehab that may be needed. The last thing I would want to do is lose an investor's money, but the stakes are even higher when it's my brother. How do I make sure he doesn't feel like he's putting all the skin in the game, and how do I make him feel good about making this investment with me as a partner? I've read a few posts about structuring deals and I'm inclined to pitch the following scenario:

1. Purchase Price of 4 unit property = $1 million

2. Rehab = 50,000

3. Down Payment = 200,000 ( is it necessary to put down 20% or should we find a lowerdown payment product and use the rest for rehab?) 

Partnership Details:

Money = 50%

Acquisition = 25% 

Management = 25%

The down payment would be treated as a 2nd mortgage and would be treated as a 2nd position lien. 

I talked to a property management company who specializes in short term rentals and they say, on average, in the area where I want to purchase, a 2bd 1ba goes for $200 a night and will probably rent out 200 nights a year so that's $160,000 annually. I think PITI would be around $5,000 monthly which leaves $100,000 after the mortgage is paid. From there he would get a payment for the down payment at 8-10% interest then we would split the remainder.

Is this a fair deal, how would you set it up, what am I missing? Thanks for reading, and I would greatly appreciate any feedback. 

@Account Closed we should attend this event. Looks like an awesome project! 

@Dan H. that's another point of concern that I didn't even bring up. I'm worried about a conservative appraisal since the LTV is going to be so high. @Justin R. My lender says there are programs that I can go up to 90% with a 720 credit score, so hopefully that will work, but I will check out the Lending clubs too. Sites like Redfin have my value at just over $520,000 but I called my realtor to have him check the comps and give me a conservative estimate. He came back at $485k and my lender thinks it's around $500k. I do have good credit but I only have 1 credit card and the limit isn't anywhere close to what I need to accomplish my renovations. If I apply for more credit cards that will negatively affect my credit, and not allow me to borrow at the LTV that I need...Catch 22! That's kind of what I love about real estate though, there are complex problems, but there is always a way to make it happen. It comes down to creativity, knowledge, and the ability to solve the puzzle. 

Thanks @Account Closed. It definitely sucks to pay pmi every month. I appreciate the feedback.

I purchased my primary residence in September 2015 in San Diego, CA. We got a great deal on the property and have already gained a good amount of equity. We purchased at $400,000 and currently it is valued at approx $485,000. I want to do some upgrades to the home that should cost around 25-30k. Once the renovation is done my guess is the house will be valued between $530,000-$550,000. My question for the forum is, given these numbers are correct, should I refinance, get rid of my pmi and take out a HELOC for ~25k which would only increase my mortgage payment $40 or $50 a month, or try to get a hard money loan for 30k, complete my renovations then refinance and pay back the lender? Also, do I even have a chance of getting a hard money loan for only 30k? What kind of terms should I expect if I go the hard money route? What other options do you see in this situation?

This is exactly why I made my bigger pockets profile and exactly why I posted this topic. That is great advice Max that I didn't even consider. Unfortunately living in the addition is not an option for me. I have a wife and 2 daughters under 2 years old so that isn't in the cards for us. Now that you mention that I will keep an eye out for those opportunities in the future. Have a great weekend! 

Thanks for all the helpful feedback. I really appreciate all of the input. For now I think I'll take a combination of advice from all of you. First I'll find out what actually makes the space not up to code, then I'll find out if I can get it up to code. If not I will weigh the pros and cons and see if the juice is worth the squeeze. If I decide to roll the dice and rent it I will make sure I screen tenants well to make sure only one person is down there,   I will disclose the necessary info, and I'll make sure the apartment is as safe as possible. Best of luck to all of you and thanks for all the responses. 

I am new to the forums and this is my first post. I purchased my first home in San Diego, CA near San Diego State University in September of 2015. It is a home built in the 1940's and there is an unpermitted room with a separate entrance under the house.  Before I moved in, the mother of the owner was living in this unit. It is only around 300 square feet, but there is a kitchen, a bathroom, a bedroom, and a small living room. I definitely need to put some money into rehabbing the space, but once it is complete I don't think I'll have a problem renting it out. My concern is the liability of renting out that unpermitted space. The inspector said the ceilings are too low and the windows are not fire safe. Should I put the money into getting the space updated and rent it out to a tenant, another option is to rent it on Air BnB or something similar, or I can convert the space into something different all together (man cave, media room, or storage)? I would greatly appreciate any feedback!