All Forum Posts by: Eric Carr

@David Zheng  I saw that also, can you believe that?! 

The LA City Council proposes rules, which have yet to be signed by the mayor, to restrict and regulate AirBnB type short term rentals throughout the entire city. The rules set limits on the number of days a primary home can be rented and bans, RSO (rent stabilized) units, trailers, RV's, sheds, and other structures from being used for vacation rentals. It also places rules on what kind of property can be rented on the short term market and under which circumstances. I know that short term rental platforms have made it possible for people to afford a home - a small multi family building, like a duplex, while living in one unit and renting another to vacationers. 

Below are some of the rules, what do you all think? Is this a good step, will other cities follow?

• Hosts will have to register with the city planning department and pay an $89 fee each year.
• Only a primary residence can be rented out, defined as the place where a host lives for at least six months per year.
• Renters can’t home-share without prior written approval of their landlord.
• Stabilized (aka “rent-controlled”) units are not eligible for home-sharing, even if you own your own RSO unit.
• Hosts may not register for or operate more than one home-sharing rental unit at a time in the city.
• Hosts can not home-share for more then 120 days in a calendar year, unless they have registered with the city for “extended home-sharing.”
• The “extended home-sharing” option allows hosts to rent out residences for an unlimited number of days. To get approval from the city, hosts have to pay an $850 fee. To qualify, they’ll have to have been registered for at least six months or hosted for at least 60 days. Hosts who have received a citation in the past three years will be disqualified, unless they pay an $8,500 fee to have their case reviewed.
• Non-residential buildings and temporary structures are not eligible for home-sharing; that includes vehicles parked on the property, storage sheds, trailers, and tents

Read up on these terms to start: Cap Rates, Cash on Cash Return, IRR, Gross Rent Multiplier, Class A, B, C, D - just to get familiar

Real Estate is long term - I tend to take a wholistic view. Consider buying a property, and in an area that you believe will continue to be valuable in 20 or 30 years - that is quality. There is no such thing as purely cash flow. If you're looking for instant gratification, you risk missing the rest of your due diligence and running into issues in the long run. Right now, with the market high, you won't necessarily get a good property with high cash flow. You're buying quality at a high market price, and receiving market rents. If you were to purchase a low quality building, you might pay a low purchase price up front, and even if it's occupied, it may not be such a good deal in the long run. There is so much more to this, just don't buy a slum in a questionable part of OC, just because the cashflow numbers look good. Think long term. 

My advice is that you do your research, learn the tools, analyze a purchase for the long run. For this example, even if you break even every month right now, you have a good performing rental and a solid asset for the long run. Over time, rents will go up, your principle will be paid down, and you build wealth and cash flow. You'll get the tax benefits in the meantime. Remember, market conditions will determine a lot of what your cap rates and cash flow will look like, which you might also start to use as a measure to determine if you're in a buying season. 

If you find the right place, buy it. If you don't, you might find that the housing prices will come down sometime within the next 2 years. Now no one can predict or time market corrections, so do your research and buy the place when you find the right one. You want quality and stability.

Home appreciation has slowed, rates have ticked up a bit, and I think people have fears over the future of the economy. I believe we are at the top of a cycle and have headed into neutral territory. I'm in Los Angeles and we have seen appreciation slow into the 3% ranges, cash buyers and multiple offers have also cooled off

Think about this long term. A class A property, even if yielding lower ROI, will do well in the long run.

Here's what it comes to, knowing the market, knowing the demographic, and MAKING it work. Become the best at running a D+ building in an area you are the absolute master of. You will undoubtedly have headaches in the form of late and non-payment of rent, but this gives you  the opportunity to sharpen your selection chops and ways to cover yourself. Even still, it's a matter of when not if. In Class A buildings, you tend to have demanding tenants who pay on time. It's a matter of setting up the right processes, knowing your market and demographics,  and dealing with personalities. You figure the niche you want to be in and master the heck out of it. 

Another thought is, class C and D properties are less likely to have high vacancy rates and rent drops during a down economy.

Great question! You must have a standard criteria of tenant screening and selection that you must apply to all tenants. If anything comes up in these answers that you can legally apply to that, add it to the list - I think that will be difficult, however 

The background and credit check stuff is legal and above the board. Social media, unless you can prove their social media shows they lied on the application, I'd think is going to be tough to use without violating fair housing laws. As you know, you can't deny a tenant because you don't like their photos, political views, or their lifestyle. 

Whether this is morally right or wrong, I'm not sure what's to stop you from checking social media before prioritizing candidates applications. You know, for a look and a gut check. Just make sure to provide a valid, written, response to anyone you deny - even if that's because someone else got the unit first. 

Bug bombs might only push the ones you can see back, but it will not make much of a difference. 

First, your tenants must keep the place clean! Once they aren't attracting roaches inside the units, get a pro out to spray, plant gels, and traps. The traps are good because if even one roach will eats the poison, it will go back to the next and pass, and be eaten by the rest of the roaches, who are also poisoned. Clean up first, then get a pro in and get it done once and hopefully for a long while. Otherwise you will see them again in a month

Good job on no car loans or credit debt! In making your budget, first identify what you are spending and on what. This will give you a clear picture of your habits and where you can save more. Let's move to a couple of things that stand out to me

Your Apartment - Down size or move into something less expensive. Where can you find an 80K investment property? If it's a single family home in your area, buy one and live in it. Gratification and having a cool apartment mean nothing, you're funding the dream you want for someone else. 

Podcasts and learning - stop doing it on your free time and make it a priority, learning is the beginning of everything 

Strongly consider multi-family properties for investment. Single family homes might look attractive but I can list a host of reasons why SFH involves more risk and I've seen people get wiped out who kept large SFH portfolios

Your 401K - Remember, 401K is not tax free it's tax deferred. Ask yourself what you could do with that extra $40K a year? Time value of money is important. Also, investment property is the best tax shelter there is - and it's not deferred! If you plan on becoming rich through RE investing, not only might you not need a 401K, but with fees, uncertainty, and the fact that you will be in a higher tax bracket when you are 59 and a half, you will be heavily taxed on that money you are locking away for the next 30 years! If you want the 401K, consider putting your money and resources into RE now and go back to the 401K later. 

Don't think about age, time frames, etc. Just start doing the work today and do your best every day. Not only might you get there sooner than planned, but the process is so much more fulfilling. Start doing what others aren't, today. Do what's necessary to make those goals come true. 

Cut back expenses, buckle down, and start buying good solid investment properties! 

Good idea, but choose wisely

I need bids from a handyman team for exterior house painting, grass removal, and mulch and drip irrigation installation.