All Forum Posts by: Account Closed

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?  

Why not just do the math?  What are the room rental prices in your area?  Renting to 3 single people is usually far more lucrative than a couple or family.  Are there any other rooms you could rent out as well?  A basement?  The only reason you would convert back to a living room is if it was luxurious and is premium priced.  Doesn't sound like it is.  Let your calculator make the decision for you.  If you go ahead make sure you live close so you can be there fast if there are problems.  

Say you take your typical 3 br medium sized house that would typically rent for about $1500 and because of room conversion (like converting the living room/dining room/rec room/laundry room/den/etc) you now have a 6 br house and you're now getting double that and have months of proof of that.  Or years. 

Would an investor pay much more for this knowing you've just cleverly managed the space and the house itself really isn't much different from when you bought it?  

What about a bank?

Would anyone value it more for the revenue?  Isn't that what people buy businesses for in the first place? For instance in my area that typical 3 br house would sell for about $250,000.  And it would rent for about $1500.  And rooms here rent for about $500.  6 x $500 = $3000 or $36,000/annually.  At a 10% cap rate (omitting expenses which would be mostly shared) that $250,000 house is now $360,000.  Isn't a 10% cap rate particularly generous?  Wouldn't most investors jump at that?  I hear banks just look a appraised value which seems particularly short sighted.  Maybe other lenders loan on revenue more?

For a bathroom use a chemical camping toilet they can empty in the house once in a while. 

For the kitchen you need to know exactly how they define a kitchen.  Doesn't sound like you know yet.  Once that is determined you may be able to provide some cooking facilities but not enough to infringe on their silly rules.  

You might be able to rent it as a workspace or work studio.  Many people have small cooking facilities in their workspace at their office, right? 

Another option is really unorthodox.  It involves sleeping in a vehicle or trailer so they are legally not "living" there.  The trailer could have a kitchen and bathroom as well.  Even a tiny one.  If you live near a gym with nice showers all of this could be so much easier.

At least you live in a mild climate.  That offers so many more possibilities than if you lived up north.  I wonder if a nice tent would work.  Then a lockbox or security cage for valuables, anchored to the ground somehow.  How are your neighbours?  Will they rat you out the second they suspect anything unusual?  Some people are so petty.  These are almost always people that never get good ideas themselves so they have to tear down the ideas of others. 

Its so strange how rental demand is so high in most parts of North America yet everywhere they seem to want to restrict the creation of new units.  Probably if people that made the rules weren't allowed to engage in real estate business or rentals, we'd get a lot more flexibility and logic.  Prices too high?  Let'em build/renovate/subdivide/maximize their square footage!  That would be too logical.  

Say a typical 2 br house goes for $250,000 and rents for about $1500 in a low priced area.  You look at the layout and convert the living room, dining room and laundry room into rental rooms as they all have opening windows.  The LR and DR are much larger than the bedrooms so they go for quite a bit more.  The rooms are renting for say $400 & $450 for the 2 bedrooms, $600 for the LR, $550 for the dining room and $400 for the smaller laundry room.  So now its pulling in $2400.  Quite a jump.  Then you renovate that dingy basement and get 3 small rooms rented down there at $400 each.  Now we're at $3600.  My point is if we vastly increase rental revenue will the bank significantly increase the loan value it will allocate to us?  (And we can show several months of consistent revenue at these high amounts of course.) 

When we end up selling it, surely it would sell as a revenue property with that much revenue, right?  Being this is unconventional you'd have to raise the typical cap rate.  So let's say 10%.  That's pretty generous.  $3600 x 12 = $43200 x 10 = $432000, a huge profit from $250,000.  I know I'm winging the numbers and there are many other expenses but we're just talking generally here. 

What about refinancing it?  Will most banks ignore the revenue and just look at a general appraisal value for similar homes in the area?  I want to find a lender that looks at the money the property is pulling in, not me so much.  (My credit report is excellent but right now I have little income, just a lot of savings that I have invested in other things but it is quickly accessible in the event of an emergency.)

And if nobody is willing to reward me for my ingenuity in vastly raising the rental income I guess I just enjoy that rental income (with all its dreadful taxes that accompany it).