All Forum Posts by: Roger Simons

If your rental revenue skyrocketed upwards the tax department would obviously know.  Would they tell your city and if they did your appraisal might rise meaning your city taxes might rise.  (Not what you want!)  I was wondering if this ever happens. 

I think most cities just drive up and down the streets noting obvious external changes as they don't seem to have time to spend a minute doing a walk through and recording it and comparing i with the previous walk through the previous year.  Maybe its got something to do with privacy of the homeowner.  

Of course if permits for the renovations were required that could be used to change your appraised value so we're talking about a hypothetical situation where no permits were required.  

A 1 br apartment would rent to 2 people, one in the living room.
A 2 br apartment would rent to 3 people, one in the living room.
A 2 br with den apartment would rent to 4 people.....

In many cities with high rental demand and lots of younger people that aren't home much this could really work and result in about 30% more revenue.  Sometimes 50% depending on the layout.  Unconventional?  Yes.  Lucrative, very much!

Taking this to the extreme would result in a total rebuild and layout alteration where the kitchen and possibly the bathroom are transformed into a rental spaces.  Communal facilities would be provided in the building.  This would especially appeal to people with eating problems as they wouldn't have much food on hand to tempt them when home.  And when they did eat they would be around others - peer pressure can be powerful.  Everything can help get you towards your goals of eating sensibly.

Converting the kitchen/bathroom could hugely affect revenue, especially if the kitchens were a little larger than normal.  Especially wider.  Some are very narrow.  

Your thoughts?

If the layout makes this feasible is anyone considering it?  Surely the property would be worth more this way, especially if there is little yard area around the house.  Also if one had a basement, perhaps egress private entrances could be used so the basement could become a few condos.  If the house was a wreck and needed a complete rebuild, one could alter the layout dramatically, hugely improving things.  Like eliminating hallways and stairwells (put all entrances outside).  This would be aimed at very small units for single people.   There would be a lot of neighbourhood resistance though.   It would have to be done in a very low income area.  The aim for this (besides a big fat profit) would be that this would provide far more living units for that property.  Most people, after all, the vast majority, would far prefer to share their space.  

Another option for low cost apartment type housing is to make very small units without cooking or bathroom facilities (though a chemical toilet for the privacy conscious might work and wouldn't take up nearly as much room as a conventional one does and cost much less without the plumbing and upkeep).  If the bed was mounted on top of the desk like this people could live in a very tiny area. 

Another option is to have the bed on a platform that can be raised and lowered so during the day its right up at the ceiling giving more headroom. This is the smartest way and can be done with low cost pulleys. No mechanization is needed.  If a mattress that isn't very tall is used without a boxspring of course and the supporting platform is just plywood, say 1" or so, a lot of vertical space can be saved.  Otherwise this is awkward working within a 8' ceiling.  If the ceilings are tall then you don't have to worry.  Pulley beds are more used in mobile living situations as space is so limited.  They are almost always used over a desk/computer/work area as you don't need a lot of height when you're sitting.  Here's an image search of many examples of pulley beds.  Clearly a lot of people are working with a tall ceiling.
www.duckduckgo.com/?q=pulley+b... I wondered if shipping containers could be used for a sort of capsule type shelter for the homeless.  The inside is about 8' wide so they would be placed width wise and have about 2' for storage at the end.  There could be a bed of about 30" wide with shelving around it for their stuff.  The space could be not tall at all, just enough to sit up in.  This way units could be stacked in the container, allowing a large number of people to be sheltered in one container. They're about 45' long x 8' wide x 9'? tall.  There could be different heights for different sizes of people.  2 or 3.  And of course you can stack shipping containers maximizing land usage.  For added cost, ventilation could be added so each unit could be sealed from outside noise.  That would take some engineering.  As homeless people can have addiction problems and often have loud outbursts, this might be worthwhile.  The main thing is they would have a place of their own, safe and secure.  This would especially be great for women, the most vulnerable in homeless situations.  It should be built for them to start, then for men later.  And you'd never house men and women together if possible of course.  

Being confident doesn't assure us of anything.  Its a guess.  We shouldn't invest on that.  Fine if it helps us and we're on the fence bu you don't hinge your investment on the presumption things will always increase.  They may stagnate for years and we need to weather the storm during that time.  Many, many financial advisors are pessimistic right now.  Especially as everyone and their dog is looking to buy property now.  As they say, fools rush in. This is probably the worst time to buy something like a condo in several years.  Haven't prices risen suddenly in the last year or two?  What happens usually when there is a sharp rise in prices?  They usually correct themselves and sanity returns.  

Quote from @Matthew Hamilton:

I have the opportunity to purchase a 2b/2b 1300 sq. ft townhome for 200k. 5.5% interest rate and 25% down. Monthly payment is $1350 before vacancy and capex. There is an existing tenant who has been there for 5 years, agrees to pay $1500/mo and says she intends to never leave, she loves the place. Is this worth it at the current rates? 

I appreciate any help or feedback as i start my RE investing journey! 

Thank you, 

Matt

What are the typical room rental rates for the size of bedrooms AND the living room and or dining room in that area?  That's your answer.  Add each up.  Obviously you have a good tenant now so you need significantly more to make it worthwhile.  It sounds lousy to me compared to what a house could give you with a good layout, especially with a basement that can often become 3+ rentable rooms.  How much are the annual taxes and what about the monthly condo fees?  Often in areas with lots of snow they can be much more than normal.  Also, do you need a place to live yourself?  Are you renting out space in your present place?  We need data!

I sure hope you're a better realtor than a writer.  That was difficult to read.  Like looking at a report from a 10 year old that's lagging in English.  Maybe you were rushed.  Maybe your device's autocorrect was out of control.  How about proofreading before posting?  Works rather well. 

Your points are spot on though.  It is a borderline crime the fraud that is being perpetuated on unsuspecting newbies.  They need help and don't like to read but figure a "course" is going to be more like a video but also interactive.  They don't realize there is often almost no interactivity at all and all they've bought are videos and an ebook.  Really expensive videos and a really expensive ebook.  Courses sold today are very, very profitable, that's why everyone is jumping on the bandwagon and packing them.  Many are hundreds of dollars.  Who gets hundreds of dollars for each ebook they sell today?  As they say, follow the money.  When the course teacher looks like they barely eeked through puberty, you know experience is not going to be a part of this equation and the content's accuracy is going to be very hit and miss. You see the exact same thing for get rich quick schemes for the stock market, only there its even more absurd and it is often clearly and blatantly fraudulent.

Snake oil salesman have been around for a long, long time.  If you need info start learning.  Make it 99% text and 1% video.  Make notes.  Ask questions in forums like here.  Gradually the pieces of the puzzle will come together.  And in the meantime do everything possible to REALLY minimize your expenses and practice your discipline in a variety of areas.  Because you'll really need that later.  Also compartmentalize the process.  There's the buying, then the renovating, then the renting, then the decision to refinance or sell or hold.  Learn tax basics for your area as well.  Each area has its experts and very few people are very good at more than one area.  You'll see that after a while.  You'll be drawn to one of these areas.  So you'll need to actively work on the others because they don't seem as interesting. 

Impulse control:  This needs to be very strong.  You need to be able to laugh at your impulses to spend your hard earned money.  If you have to buy substantial things, make sure they are used, never new, so you can resell them and recover most if not all of your money when you're through with them.  That's smart spending.  Learn how to sell locally and online.  Both are crucial.  Larger, heavier items that aren't expensive cannot be shipped, they have to be sold locally.  

In many areas its risky to rent the garage as its technically illegal and the renter can rat you out anytime. Especially after you've evicted them!  There's also the danger of the tenant doing things you're not aware of because they're far more isolated and have more privacy.  So renting out the garage is usually not optimum. 
But....what if the owner lived there?  They will have more privacy.  and more room as most 2 car garages are actually quite spacious, much larger than almost any bedroom.  Plus there's the possibility of putting in a 2nd floor for a storage/sleeping area/home office area up there.  Its OK if you can't stand up there as you're sitting or sleeping up there.  
The downside of this is you are less connected to the main property.  This might be good for an owner with a young family who needs privacy from others and who wouldn't consider house hacking because of this.  

Quote from @Jonathan Soto:

need to do a commercial loan based on DSCR. debt service coverage ratio. would rents cover expenses on property.

 That was very informative Jonathan.  And you touched on the very things I'm concerned about.  I would need the lender to focus solely on the revenue.  But as you said, this may be difficult as its really in a residential area.  So it would need to be marketed as shared accommodation, but taken to the max.  And zoning laws would need to be respected.  Not sure how far one can push it.  There are some big families out there.  But they are related so rules may be much more flexible for them. 

It is odd that on one hand they are often clamouring to lower rental costs for the public yet seem to squash entrepreneurial attempts to solve the problem.  

I should mention this would be done by an owner living on the property.  Active management.  That is crucial.  Of course that means you can't scale upwards.  Well I guess you can just get/build a barn type property and turn it into more of a barracks than a residence!  THAT would sure raise the rental unit availability in whatever area it was implemented if done on a large scale!

Quote from @Jonathan Soto:

need to do a commercial loan based on DSCR. debt service coverage ratio. would rents cover expenses on property.

Yes it would be based on DSCR of course.  Its all about revenue.  
Are you asking a question?  If so, most definitely in this hypothetical scenario.  Quite a bit more.

House hackers: Have you noticed if many people in your area are attempting to rent rooms to more than one person (not a couple)?  I've noticed a particular demographic that is active in this area but not many others (outside of intensely competitive areas like Manhattan or parts of San Francisco).  Just talking about middle class cities with moderate land cost and strong rental demand.  

It can be very lucrative as they generally get about 50% more per room for 2 but it obviously requires active and careful management.  3 to a room is usually about 75% more and 4 to a room (very unusual) gets about double.  It only seems to work if the renters are out almost all the time because of multiple jobs and school.  And generally they are eating out as well.  Obviously this would require non-smoking, quiet and amiable tenants.  Almost all I'm seeing are only renting to women. 

This provides much lower cost housing than average to someone who just needs it for sleeping. 

You can ascertain how often this is done by doing a search by filtering by price.  Put in a minimum price filter as well to screen out the nightly renters.  That's usually enough.  Its usually a pretty narrow price range that's about 60 - 70% of the norm for a room of that size/location.  Then you'll find vaguely worded ads that often specify a certain nationality.  Renting to your own culture surely its advantageous when problems arise.  You certainly don't want any language or cultural barriers if possible. 

Now of course you're battling zoning constraints.  The way to minimize problems is to make sure your renters exit the house using all possible doors in as quiet a way as possible.  Absolutely no talking entering or exiting obviously.  If only you could get them to all dress the same!!!  That would perplex the noisy, gossipy neighbours!  

Done right the revenue can be astounding, especially if all possible rooms (LR/DR/laundry/rec room/library/etc) are rented.  No window?  Make one.   Mortgages could be paid off in 5 years or less at these interest rates. 

Now think of what you could sell that property for, say originally bought at $250,000, that is now pulling in $50,000 + a year?