All Forum Posts by: Edward Dean

Try to find something you can do both in. Find a multi-family property, or a single family property you can turn into multiple units if that's allowed where you live, where you can live in one unit as a primary and rent out the others. If you can, try to find something that pencils out as a long term, medium term, and short term rental where you can also live in one of the units. This gives you the advantage of lowering your living expenses (the house hack part), while building equity, and you can try the short term rental game out in a lower risk way. If the STR doesn't work as expected or you find out it isn't for you but the property still pencils out as a long term or medium term rental, you have something you can fall back on. Either way, when starting out, the house hack is often the way to go because it has the potential to lower your entry and carrying costs (you have to live somewhere no matter what you do) and it lowers your risk because you are in a more convenient position to manage it than if you try to buy a rental 1,000 miles away with no good boots on the ground in that area.

Best of luck!

Hi Brandon,

Start thinking about what type of property you are looking for too. Are your parents ready to retire now so they want something turnkey and ready to go or are they a few years out? If a few years out then what is the plan in the meantime? Are you wanting something that can be a short term rental or long term, or maybe medium term in the meantime? Is high cash flow the main driver in the meantime or is longer term appreciation a bigger factor? Do they want to be in a community with amenities like a condo complex or something with more space and less neighbors nearby? Start building an image of what you want this to look like both when you are ready to buy and in the longer term and then work with an agent to find that in the area you and your parents want to be in. 

Best of luck with it!

Hi JaMaal, on top of talking to real estate agents in different markets, also try to think about what a "good deal" looks like to you. What are your long term goals? Every market is different. Some areas you can get great cash flow compared to what you pay for the property but you may need more of them to meet your goals. Other areas may not cash flow great or at all in the beginning, especially putting 0 down, but they might provide better appreciation or higher debt paydown, especially after a few years. Put another way, if you are considering 2 properties in 2 different areas, one that is lower cost but also lower rent, and one that is higher cost higher rent, and you expect the same level of rent appreciation for both, that more expensive property should increase your overall gross revenue faster than the one with rent at a lower starting point. One big reason why you may need to purchase more properties in a lower cost/lower rent area if you want to meet your long term growth goals than you might need in a higher cost/higher rent area. Is taxation a concern? Some states have no income tax (though they usually have higher property taxes) so is where your primary residence located going to be important for tax reasons?

There are tons of great books on BiggerPockets as well as others like What Every Real Estate Investor Needs to Know About Cash Flow by Frank Gallinelli or The Millionaire Real Estate Investor by Gary Keller, and many more. Read as much as you can and set up a plan that works for you to meet your specific goals.

Best of luck!

Like everyone else here said speak to an attorney versed in real estate law and who can advise on notes. One who can walk you through how to make this work for you and also cover all of the unknowns because there seem to be a lot of what ifs on this deal. The way you have described it, it sounds like you are more so negotiating to provide a new note rather than a sale at this point. You say you would have a promissory note but talk to an attorney about how that should look to protect you. If you want to get into the note game, great, but you should research what the terms should look like, what happens at the end of the three year period if a sale to you does not happen, how are you coming up with the money to pay off the existing note, is 7% a good return for this type of deal, etc.  

Best of luck with it!

Beyond getting a better paying job, you can also see if there are creative ways to start cutting your current costs or earn side money so you can build your down payment faster. Do you live in a place currently that you can rent a room out or something similar? No reason you need to own a home to start house hacking. Get a roommate. If you have a car, can you rent that out part time or use it for gig work in your free time? Do you have an eye for or talent for fixing things up? Some of the BP podcast hosts mentioned recently how they started by flipping items like furniture when they were starting out to build capital for their first deal. There are many ways to boost your income which will help get you to your goal faster.

Best of luck with it. You can make it happen if you really want it!

If you can refi, take out enough to still do the multi-family purchase, and still cash flow the existing property (even if it is significantly less than what you cash flow for right now) then hanging onto it sounds like a win-win. If you think you can get better returns on something else by selling or it would be dragging your cash flow down too much to keep it after a refi, then sell.

1031 has some pretty harsh time constraints that can add pressure to you if you are already in a market that has low inventory or a lot of competition. You can always speak with exchange companies to see if a reverse 1031 exchange is an option too. There may be different lending requirements for the purchase but it can take some time constraints off of you if you know your home will be easy to sell quickly.

Best of luck with it.

I am a realtor in CA so maybe the rules are different where you are but if you are in your due diligence period you should have the ability to continue getting quotes on items that may need repair. If I think the roof is nearing its end of life I would probably want to know what that expected cost is going to be to fix it whether I'm getting that from the seller or I'm going to begin planning to cover it myself down the road. That being said, you may need to pay to have the vendors come out, sometimes they are free other times they will charge you to give an estimate, provide an inspection report, etc. And just because you get a bid it doesn't mean the seller will have any obligation to cover any of the findings or pay for the person that came out, but it does at least give you more information.

In a hot seller's market you probably aren't going to get much for items that are old but still functional, ie, if the water heater works, the roof isn't actively leaking, then yes a lot of seller's won't chip in for that. Same for minor aesthetic fixes, especially if you were aware of them going in or could have easily seen it prior to writing an offer. BUT, I don't see why you cannot ask for a credit for legitimate issues (safety issues, broken items that were not obvious or visible when you initially walked the property, items not functioning the way that it should). You have a 100% chance of not getting any concessions if you do not put in a repair request but at least some chance if you do. Especially if your real estate agent can make the case that every buyer will care about these issues. Talk with your real estate agent to see if there is any harm that they can see in putting in a request. Most cases, the worst that will happen is the sellers says no and you're not in any worse of a position as you are right now, but they may say yes to at least a few things. 

And if they say no, then like other posters have mentioned, you can always walk away. There will always be another home to write on (though if it is a really hot market there then the equivalent home may quickly become more expensive than the one you have in contract right now).

One final question, since this is a townhome, have you checked with the HOA to see if the roof is going to be your responsibility? Some HOAs cover the roof.

Best of luck with it.

Curtis,

Remember that IRR is just one formula to use but try not to get too hung up on just one metric, especially if you are just starting out. To your other question, cashflow is difficult to attain initially but doable in San Diego, you just may need to get creative and/or give it time. Have you considered value add projects such as adding an ADU? You can look in markets like Vista, Escondido, Eastern Oceanside, ect, for homes that may need work and also have a two car garage you can convert or a larger home you can easily split into two units. It may be more capital and time intensive up front but it creates a scenario where even in San Diego County you can have an opportunity to put in sweat equity, get the rental revenue potential up through renovations or create new rental revenue streams with an ADU (or both) so cashing out some or all of your money out after doesn't have to leave you with negative cashflow out the gate. And then remember, San Diego has traditionally appreciated quite well and should continue to. If you are looking at building long term wealth I doubt you'll look back and say "man I really wish I hadn't bought in San Diego" in the future.

Best of luck with the search. 

Hi Juan,

Right now it sounds like you need to get some more information. A good first step is usually to ask the new seller if they have an attorney assigned to handle this probate. If you are going to represent them in the sale you need to determine what their probate process is going to look like (is it just this one seller who has authority to sell or are there other heirs who may have a say, will it be subject to court approval or any overbid processes, is there a trust and does that spell out how dissolution should look, etc), and that attorney should be able to answer a lot of these questions for you. The seller also needs to be sure they actually have the authority to execute the sale. You can also reach out to your broker (I am assuming you are an agent who will represent the sale) as probate sales are quite common and there will likely be other agents in your office who will have experience dealing with probate in your state that you can lean on as well.

Best of luck with it.   

Hi Cathy,

San Diego is a great market to invest in and there are tons of people doing it but yes you may have trouble seeing positive cashflow in the beginning. You should talk with lenders to get an idea of what you can actually afford though it doesn't really matter if you talk with an agent first since most agents will have lender recommendations. Finding creative ways to value add could be a good avenue to get you in the door, especially if your partner is a contractor. If you can't find an existing multifamily to pencil out try to identify something that you could add an ADU to or a larger single family home you can split into more than one unit using ADU rules. It can be more capital intensive up front and take a little more time than a traditional BRRRR but it gets you started.

Best of luck with the search.