All Forum Posts by: Gabe C.

@Marissa Weil

$25k is not a lot of money for a down payment, closing costs, getting a duplex rent ready (most Raleigh duplexes are older) and a remaining cushion on a $200-$300k place. If you don't have savings aside from that, I'd use that gap year to continue to save. If you're feeling aggressive, maybe stash it in index funds to grow it faster. You'll need a little bit of cushion if you're going to rent. Appliances break, pipes burst, etc. Can you withstand a $6k roof or HVAC right after you get a place?

You can also use that time to soak up more knowledge and run the numbers on a bunch of properties to figure out your criteria and get comfortable with what you're jumping into... if you aren't already. :)

@Ray Martinez LLCs limit legal liability, not tax liability. It is a pass-through entity tax-wise. I would refer to an accountant for this type of advice. It’s an area you don’t want to mess up, and planning ahead can be a benefit.

@Chase R Roehm
With just those two numbers, it looks great, but there are many others to consider. What condition is it in? What are the ages of the roof/HVAC/plumbing/appliances,etc. Does it need work? How old is it? What are the taxes and insurance? Factor in ongoing maintenance and vacancy costs. Is there an HOA? If not what landscaping do you need to worry about? What class is the neighborhood? This could affect many of the above. Are you going to mange it? Either way you might want to factor in property management costs in case you change your mind.

You could try one of the BP calculators to help work some of the math. Hope that helps!

@Peter Austin

Yeah, sounds like a potential keeper. You'll never have problems renting a place with a view like that. You can probably keep that vacancy contingency and count it as $150 cash flow. That might be enough to cover the occasional appliance. If it's only 18 years old with a new HVAC/W&D, your maintenance costs should be low too. Good luck with it!

I wouldn’t buy something like that unless it was virtually guaranteed to appreciate, but since you already have it, that’s a different story. If your financial situation isn’t precarious and you can deal with extra expenses or buying an occasional appliance, it’s still nice to have someone else pay off your mortgage for you. If you can afford to ride it for a year or two to see how it goes, might be worth not making a hasty decision. Maybe there’s even some ways to add value to increase rents? For me, it would largely depend on the Age/swankness of the property and neighborhood. Is it a gem? If not, it’s probably better to move the money into something that works a little harder for you, like Mack was recommending. 

Congrats on the first property! The answer to your question depends largely on your goals and debt tolerance. From a wealth building standpoint, it makes no sense to pay off your house. Buying another one allows you to use leverage again, magnifying your buying power. Paying off a house for increased cash flow only makes sense if you’re at the point where you want to wind down (ie retirement). As long as you have tenants, you’re not really worried about that debt, and having all that equity makes you a target anyway. Some just can’t stand having debt, which is valid too, but then building wealth is going to take much longer. Sounds like you put about 30k down? Saving another 30k for a new house is gonna be much faster than paying off that $240k. You will increase velocity with each property.

@Diane Heidke HOAs are neither good or bad. Just something to consider for your situation. The pros are that they take care of the exterior, so you don't have to hire gardeners, roofers, painters, etc. That can really reduce headaches and be worth the cost if you don't have economies of scale with your property management side of things. The downside, of course, is that the fees can be high, and they climb with inflation. If you are raising rents $20-$50 each year, your HOA might do the same thing, cutting into your gains. Also, if there is a major expense that the normal fees don't cover, you can get hit with assessments that get spread among the owners outside of your normal fees. This can be in the thousands. If you have a poorly run HOA, they may be incompetent or just plain a-holes to deal with. The HOA company can change too, so there's risk there. It can be annoying when your tenants leave their garbage cans out and you get threatening letters and have to slap wrists, but like with everything else, the flip side is that people don't leave their garbage cans out and the neighborhood looks neat. Once you accumulate properties, keep in mind that every place you get with an HOA is one more bill, one more set of contacts, one more headache you're adding to your list. My property manager doesn't deal with the HOA, and sometimes vice versa, so I can't delegate it. Applying for a loan and having to dig up statements from 10 different HOAs for the bank is a PITA. But if this is your first, that's not an issue. I'd say it starts getting annoying around 4... when you start forgetting which HOA is for which property. :)

I actually looked for HOAs when starting out, just to remove that variable from all the things I had to learn. As I became more comfortable with all of the things that went wrong with a rental, and could better plan for them, I started grabbing SFRs that had no HOA. Now that I have both in my portfolio, I can't really say one is better than the other. I don't feel really strongly about it. I dislike HOAs taking fees and filling more mindshare, but I also dislike having to replace roofs and making sure that the landscaping always looks great. If you like being more hands on, I'd say avoid them. If you want to remove a layer of hassle with your first property go for it. I'd say to go for it anyway, just to gain the experience for yourself. You will find out if you like it or not.

If the numbers work, it’s a deal! Pros are that people want to live in it, low maintenance, warranties, no costs to get it rent ready, modern amenities/construction... cons depending on the situation might be that if you need to exit, it could be hard to sell if new ones are still being built and coming onto the market, communities take time to establish, and usually no way to really force appreciation. 

@Rocky R. I would get a second opinion from another lawyer. I agree that it sounds overly complicated and aggressive for what you're doing. If you only have 1 property so far and only a little equity in it you probably could get by with no LLC and just umbrella insurance. It all depends on your situation and risk tolerance. If there's not much for someone to go after, you aren't much of a target. If your properties are scattered in different states, it will be even harder for someone to link you to them. Anyway, I'm not a lawyer, but it sounds like a lot of unnecessary work and annual fees.

Cottages are selling now. At least 9 of 30 or so. A few of those are investors. They are going to do a parade of homes in a month or two, so now is the time. I think COVID slowed things down, but it's ramping up. They will go fast after the parade. HOA has the rental cap at 50% inventory. Construction should be 100% done by end of year. Prices are already escalating.