All Forum Posts by: David Lee Hall, III

I doubt you will find a contractor you have never used before to front you renovation costs - especially supplies. I do know one guy, not in your area though, that has interest in rentals for retirement funding, so you may be lucky enough to find someone like that and cut them in on the deal as payment. Again, this could be hard not having a prior relationship. 

The scenario you are describing is exactly why private and hard money exist. The biggest issue often is the sizing - many won't go below $40,000 so you will need to call around. This could be the opportunity for some creative credit card hacking if you can get a 0% APR 12-month option, pull cash out of it to pay for the work, and then refinance to pay it off. Additionally, you referenced a 1st deal. I do not know what type of equity you have on it, but you may be able to leverage a HELOC there to get additional funds.

@Brandon Vukelich Thanks for the feedback. I still don't have anything worth two shakes of a lamb's tail on this front, but you did bring up some different perspectives than I had thought about which is very helpful.

So, let's say the mother gets hit by a bus tomorrow, who is paying the rent in November given that currently she pays $0 and her income is the same as your rent. Okay, so she pays you, then they shut off the electric and she has to live in the dark. 

If you want to help her, see if you can recommend a better place than she is now versus putting yourself at high risk of trouble. 

@Daryle Smith Pre-tax cash flow / cash invested

So a property that has a positive $500/mo cash flow and had $60k of purchase and reno would be 500/60000 = 8.3% cash on cash return. The Bigger Pocket's calculators will calculate this for you.

 What is this appreciation this you mentioned? ;-)

OpEx:

Operating Expenses, think non-depreciation repairs. The stuff needed to keep the property at value but isn’t going to prolong the life of the property. So patching drywall, fixing leaks, etc. Usually you will see these every year or at tenant turnover.

CapEx:

These are your big ticket repairs/upgrades that extend the life of a property. A roof, kitchen redo, etc. These can be depreciated. These are infrequent expenses but should be saved for to avoid cursing when they come up.

ROI:

I target north of 8% cash on cash as that is north of the historic stock market returns. Do I meet that? That correlates very well to my estimation of repair costs, which is something I am still working to perfect! (Always looks so great on paper until I open the wall of a 100 year old house.)

Can’t really comment much on the live in flip. I know @Mindy Jensen loves them but I don’t have experience there to say how it would impact rents.

 I have found the same in the education field where there are background checks and the like to get hired. Any profession that does screening for acceptance and employment in my book is a value add on a tenant application because there is a second set of eyes reviewing that person. 

I invest in western PA (live here). General rule is you should "easily" be able to make the 1% rule with acquisition and renovation costs. One of my associates I work with frequently won't do a rental unless it cash flows $350/mo after PITI and Property Management. I think he has 8 or 9 places in the last year alone that fit that bill. I target $100/mo after PITI, 10% PM, 8.5% vacancy, 5% CapEx, and 5% OpEx. I pay myself out of the PM portion since I am doing my own management. With my "soft holdbacks" that number has been harder to hit (I just need to buy cheaper!). Also, I prefer to stay in the suburbs. Multifamily is hot. I am not involved in it currently so can't give much insight. For areas, it depends on what you are looking for. Speculation you can look into Wilkinsburg or Hazelwood or Homestead. For a little safer you an look along the 65 corridor. Places like Lawrenceville and the South Side have pretty much blow up already, so luck to you getting in those areas today at a good price point (especially if doing MLS). You can also look along the Brownsville Road corridor for opportunities. You can find a $10-20k places there that may need $20-30k in work and will rent for $800-900/mo. It isn't a trendy area, but it isn't going anywhere. Unless you are into Section 8, I would stay out of Homewood or Penn Hills. Penn Hills is a mess with their school district/taxes and Homewood is where you can get $500 houses (but come with that standard of tenant). Homewood has more potential being near East Liberty and Bloomfield, but it misses that mark of feeling safe there - I just haven't thus far.

Sell, but do it yourself. It is going to be difficult with a tenant doing showings either with a realtor or without one. You will lose too much if you use a realtor with that little equity. Start with Craigslist and Zillow FSBO listings. If you want to put it on the MLS, a flat rate company can do it for a few hundred, though with that little cushion I would try to avoid any spend. If you had say 40% equity, you could try finding a 90% refi (there are a few out there, haven't used them) but at only 20%, that 10% will be eaten away by closing costs and lender points. Another option, if you can drive around town and see For Rent signs, call those numbers, or if there are local property managers, call them direct. Tell them you have a turn key rental in their neighborhood and would be interested in selling. 

@Michael P. - owning a home with asbestos is fine. You find it in 1950s era flooring tile (usually the 9x9 ones), concrete/asbestos siding (durable but brittle), piping insulation, sometimes that 1920s insulbrick siding, as an additive to some old plasters, and probably half a dozen other places I have forgotten. The key with it is do not disturb it. The danger is when the microscopic fibers get airborne and you breath them in. In all cases, removal requires negative air pressure and appropriate protective gear. Depending on the size and scope, costs I have seen range from a couple thousand to 10's of thousands. I even was chatting with a gentleman a couple months ago at the local ACRE meeting whose complex ended up on the news due to "questionable" treatment of asbestos siding during construction. All of that said, there are no issues painting or covering over these products. The same goes with lead paint (just don't sand it as a prep step without appropriate protection). You don't need any special handling to put 1/4" plywood over asbestos floor tiles and then carpet over that. Covering siding is similar (though usually I see that with insulbrick not the cement version). 

So in short, if a tree falls on your house, yes the cleanup will likely cost more - so make sure your insurance is adequate. Otherwise, paint that stuff and leave it alone. That is what I did with my first personal residence 15 years ago. The folks after me sided over it.