All Forum Posts by: David L.

@Ian Walsh, Thanks. How much more savings would you suggest? 

@Jared Walling
IN and Atlanta, GA was also on my radar although I haven't done too much research yet. From what I read, IN can vary wildly from block to block. 

Having a team that can help find the deals would also be a way to go rather than using MLS or retail prices. What do you suggest? Finding a realtor first?

I want to avoid using random turnkey distributors as a lot of times they make properties look good when they shouldn't. I also don't want to waste a realtors time until I know I have enough funds to cover what I am looking for. But then again, I won't know until I ask and confirm

I'd be interested in a 70k-90k range provided it's not a complete warzone. 

Would you say my estimates are close for Cleveland? 

3/2 house for 70-90k - C neighborhood

Rents 1100 

2/1 house for $50-60k 

rents $850-900 

As the price point moves up, the neighborhood gets better and risk decreases but it looks like once it surpasses 90k, I would need a considerably large downpay (around 40k-50k) to cash flow positive. 

@Don Petrasek

Thanks for the input.  

I'm not opposed to going into Cleveland as opposed to Parma. I just want to avoid war zones. If the neighborhood is riskier, I would probably increase the funds set aside for repairs and vacancies but it would largely depend on the property manager. 

I took a look at 44111. 

This 3/2/1300 sq ft is listed at $130k. It was bought for $30k last year. 
https://www.zillow.com/homedetails/3381-W-125th-St-Cleveland-OH-44111/33365756_zpid/

This 3/2/1300 sq ft is listed at $90k. It was sold for $10k last year. 

https://www.zillow.com/homedetails/3250-W-112th-St-Cleveland-OH-44111/33332027_zpid/

I'm guessing these are not only flips but in incredibly bad neighborhoods? If I were to invest I would heavily research the area and learn all the streets and schools but it would take some time. 

Am I correct in my superficial assessment that those properties would not only NOT cash flow but they're turnkey properties that look finished but will need work or are in bad neighborhoods as you suggested? 

This 3/2/1200 is listed at only $55k. 
https://www.zillow.com/homedetails/11930-Geraldine-Ave-Cleveland-OH-44111/33365578_zpid/

At those numbers it will most definitely cash flow and my downpay would suffice but I'm guessing its the same as above. Not great neighbhorhood and/or problems with the home. A 50k home sounds a warzone house. 

Going back to Parma, it looks like the houses that are 3/2 and in decent neighborhoods are going from $120-150k like you suggested. 

As an example, using $130k and rent estimates of $1100.... I would need to put down $45k to bring the mortgage down to $550, which is 50% of rents. 

Does that sound right? I was under the impression I wouldn't need so much cash to cashflow. Unless I got the rent estimates wrong... or the 50% rule is way off in Parma. 

I have about 15k + 5k. 15k down + 5k reserves. However, if I choose to go no reserves, I can put 20k down. 

I've read a few threads about reserve amounts and it seems most people are comfortable with 6 months PITI. 5k should cover that for the house prices I'm looking at (100k give or take). I also have decent credit line and a small 401k should I need it.

My investment strategy: 

- I want to use the 15k or 20k as seed money to put down on a home out of state (CA is not an option) and do a buy-and-hold strategy on a low risk house. 

- This house will act as a non-liquid savings account for my kid. So when they're older, tenants will have paid off the house passively. 

- Ideally A or B+ areas with appreciation

- Home price range 80k-150k. Looking for the highest price point while still being cash flow positive. 

- House hacking/flips/BRRRR where I have to physically move out-of-state and live in the property is not an option. Mainly looking at finished homes that are passive.

Does anyone else employ this slow and modest strategy? Scaling can always come later, but for now 1 house is the goal. 

Example:

If the house is worth 100k and is cash flow positive on a 30yr mortgage, my kid will have a 100k to invest/pay for college/buy a home, etc. Any money the house generates will be used to pay it down or invested as part of the property.

I don't need the cash right now so maximizing cashflow isn't an priority BUT I still need the house to cash flow positive is because its important that the house passively can pay for itself when it comes to cap ex, vacancies, repairs. 

Questions:

1) What areas would you suggest that fulfill these requirements? (80k-150k home, A/B neighborhood, cash flow positive with 15k down, decent outlook for appreciation)

I've looked at Parma Cleveland and West Cleveland. No appreciation but seems like 100k+ gets you an A neighborhood. 75k even. 

Fort Worth is slightly more expensive at around 150k+ but relatively safe, low risk and appreciation is strong. But property taxes really kill any margins I would have. 

2) Is 15k enough to be cash flow positive at this price point? Maybe I'm not doing the math right but setting aside 10% for property management, 5% for vacancies, and other for cap ex.... it looks like it might be possible. Using a mortgage calculator.. 15k down on 100k is about $565/mo on 30 years. 50% rule puts rent at $1100 to cover expenses, to be cash flow positive. 

I'd be interested in seeing what areas are consistently getting these rents and will for the foreseeable future.

I'd also like to hear if it's not feasible with 15k? I guess anything is feasible should you go low enough on home prices but I want to remain in the non-war zone areas.

@Brian Larson Thank you, I will check out those sites

@Matthew Forrest That's interesting, basically the same situation here. I'm been familiarizing myself with the ADU requirements and visited the planning office here and spoke to the inspector. He gave us a bunch of handouts and stuff and assured us that at the very minimum we wouldn't be made to destroy the entire structure and re-do it. I believe since the garage is already permitted. However, it's an apartment now with dividing walls, 2 bedrooms, 1 bathroom, plumbing, kitchen, etc.

I'm not sure when it was built but I would have to guess it was at least 15 years ago or more. 

Like you, I'm wondering what components can be left as-is, and what will need to be up to 2019 code standards. 

Few questions for you:

1) Is it completely up to the discretion of the inspector and planning department on what will be required to be upgraded to modern code? 

2) Did he make you pull up flooring to check for a vapor barrier? (We have tile and laminate already in place)

3) Considering your ADU was already finished on the inside, how much did he exactly make you change? and how much of it was invasive? (I.E. re-doing electrical, plumbing, etc.)

4) How much did the entire process cost you including permitting? 

I was told I might have to do a Certificate of Compliance which is kind of weird considering it's a SFR and an existing structure that has nothing to do with parcels. It'll cost $1900 for the fees for the CC so I want make sure I didn't misunderstand this part.

This is an exit strategy we're looking for and trying to get started soon so that once it's complete and gets added to the square footage, we can sell the house. 

What I need I think is a former code inspector or a builder who knows CA building codes well that we can pay for a walk thru and inspection and they tell us what we will need to fix before even considering to start the process. I would hate to have the actual inspector make us open up all the walls to check for insulation. 

@David L. I need to add that the garage itself was permitted and done to code I believe. Just not the interior conversion

We have a property in Los Angeles county that is a 2/1 main house with a detached garage conversion that's also 2/1.

The main house is 1200 sqft and the garage is 700 and originally a 6 car garage. The lot is about 8300sqft.

The conversion was already done by a previous owner.

We went to the local city planning office to ask a bunch of hypothetical questions and made the conclusion that it would be wise to make this a permitted ADU as the property would jump from being 1150sqft 2/1 to a 1900 sqft 4/2.

We asked them permitting costs etc and from what they told us they said they weren't going to make us tear everything down since it's already existing. but we would have to pay for permits and the inspector would come to see if anything is not up to code.

Question: what specifically will they be checking?

I'm all up for being up to code but are they going to tear up the drywall to see how far the studs are apart? Make us redo the windows because they're big or not big enough, etc.

The cost of permitting would be about $10k but that's without repairs. We plan to repair the bathroom and the electrical panel upgrade.

However if they will make us redo any sort of framing and or foundation work etc it would be better to sell the property as is.

Is there someone who we can call on a consulting fee to look at the ADU and advise up what is up to code and what isn't and how much it can cost?

Someone impartial not someone like a GC who will bid a job.

I'm in socal and my parents are looking into buying a home (for themselves). The house has an unpermitted garage conversion, which seems to be fairly prevalent around here. They don't mind and would like to use that conversion. however, they are about to enter escrow and the seller countered with an Addendum stating that the house is sold As-is, they will not make any repairs, garage is unpermitted, and they require the buyer to use a licensed and bonded contractor to make repairs.  

That's fine it seems they want to cover themselves but is there a way to find out if the house has any pending or current violations from the city/county? I understand the title search is part of it but they'd like to get this settled before entering into the contract.  

Also, why would the sellers request that the buyers use a licensed and bonded contractor if they are selling as-is? I'm assuming this is repairs during escrow to appease lending/appraise demands and they are not left with shoddy work if it falls through? 

I've been crunching numbers on various deals and I've been using mortgage calculators and they differ drastically! 

Zillow is showing for a $200,000 property with 5% down, $1241/mo. Zillow includes PMI and insurance is 800/year, property tax 1.2% with 3.5% interest.

Mortgagecalculator.org is showing $1098.09/mo. Same $200k, 3.5% interest, 1.2% property tax, .5 PMI.

Bankrate is showing $898.09, doesn't seem to include PMI.

Obviously this can make or break a cash flow deal because the difference is practically $300!

I am looking at zillow and zillow is always on the high side, bank rate being too low. 

The rents in the area are going for $1200-1400 for this property. If I go with bankrate, I would be cash flowing $300+. According to Zillow, I can range negative cash flow to $200.

What's the best way to calculate the margins? 

I can call the lender but that means I have to call every time or should I call a few times and compare between calculators to see which one is most accurate?