All Forum Posts by: Dan H.

In my market that would significantly over value the ADU. What I am seeing from appraisers is

1) they want to use sold properties that have an ADU. Unfortunately for those that added an ADU, these comps typically place a value far less than the hands off cost of adding the ADU.

2) in the absence of adequate comps, these ADUs are valued as an amenity and typically gets an even lower valuation than the low valuation from comps.

ADUs typically have good rent to add costs. If it was valued like commercial properties based on NOI and cap rate, then it would be an easy decision to add ADUs but in my market the appraisers usually value ADUs tens of thousands of dollars less than the hands off costs to add the ADU.

Good luck

This will be my 4th BPCon.   I like the smaller venues which I donot believe this will be.   Orlando was like we were cattle and I fear this will be similar.   Yet I will still be there

I find them to be motivational.   Networking with attendees, presenters, and vendors is a good opportunity.   The sessions can be educational.

I suspect you could get as much or more from a n appropriate accountability group.   Costs with hotel and travel are likely close to each other excluding the high cost accountability groups.

I recommend you attend at least one BPCon and Las Vegas is close to Los Angeles.  It is a convenient location for you.  

Good luck

My view is non local RE investing has increased risks especially for a new RE investor.

In addition I am unconvinced you have looked at all options local.   here are some thoughts that I suspect you have not exhausted:

- alternate financing: NACA, assumable (have your agent search for the word assumable), owner financed, lease option. Each of these would allow you to purchase higher value home with similar payment (if you can afford $500k at market interest, what can you afford at 3% assumed loan?

- alternate rent models: STR, MTR, rent by room can all produce better revenue at the cost of more effort than LTR. It likely will not help in your traditional loan qualification, but it can provide you increased revenue that can help reduce risk.

- I recommend newbies buy using a real estate agent due to the risks, but off market deals typically have better value adds. Buy a home at $200k less than ARV and spend no more than $100k on the rehab. The numbers would be too tight for a flip, but can work as a house hack. With sweat equity and the associated risks, you have a property worth $100k more than you could have afforded if you purchased a mls ready home.

My view is all of these options is lower risk than purchasing OOS residential and expecting a decent return.  Note I am not stating it does not happen.   What I am stating is the RE market is challenging now and a lot of OOS investors are not going to achieve returns that justify the work and effort.

Good luck

Quote from @Carissa Atendido:

I've been using the BP Rental Calculator and BiggerDeals to analyze potential properties for my first investment, but I'm running into a consistent issue — most of the properties I look at are showing negative monthly cash flow and really low COC returns.

I’m wondering: am I doing something wrong in my analysis, or is it just that good deals are really hard to come by in the current market?

Here are the assumptions I’m using (are these too conservative?):

• 5% for maintenance & repairs

• 5% for vacancy

• 5% for capex

• 10% for property management

My target price is $300K or below, and I’ve been looking in Nashville, Austin, Dallas, and Atlanta. I realize that’s a wide range of markets, but I’m trying to run as many deal analyses as possible to learn what works and what doesn’t.

For those with more experience:

• Do these numbers seem reasonable?

• Is it normal to see mostly negative cash flow deals, or should I be tweaking my filters?

• Any tips for spotting better opportunities?

Thanks in advance — I really appreciate any feedback!

Carissa

I dsagree with all posts that claim your expenses are “fine”.   They are not and I challenge any of them to show me a spreadsheet with life expectancy and costs that show at that cost of property that maintenance/cap ex is sufficient.   Maybe at a 1% rent ratio, but then you would not be posting about negative cash flow using your numbers.

using 0.7% rent ratio, the rent will be $2100 on $300k purchase.  10% is $210/month.   This is over $100/month short of what a small OOS LL can hope for for sustained maintenance/cap ex expenses.  I want to see the spreadsheet that shows otherwise for a property.  Sustained means full life cycle of everything in a property.  

the vacancy is also low for those markets especially if it includes defaulted rent.  Small LL typically cannot turn units at the rate of LL with many units that may have dedicated w2 employees for maintenance/cap ex.   Nashville vacancy is 11.5%, Austin over 14%, Atlanta over 12%,  DFW is over 10%.  Add delinquent payments and inefficiencies with small OOS LL on the unit flips and those vacancy rates are not high enough to reflect what you are trying to represent.   If I was class b area, I would add 1.5% To each.   If I was class c, I would add 2% to each.   I would not consider below class c.

https://www.apartments.com/blog/10-cities-with-the-highest-v...

what does this mean?   It means the cash flow situation is even worse than your numbers depicted.   

it is a challenging time.   Finding properties that provide return that justify the work and risk of LTR on the MLS is very difficult.  Finding ones that work off market is difficult and I consistently state that I believe new RE investors should buy off the mls using an RE agent.    The risks are too high buying the typical off market purchase.

good luck

Quote from @Jack Pergola:

Hey everyone — I’m a 20-year-old junior in college (Economics major at Binghamton University), and I’ve been obsessively learning about real estate investing. After digging into strategy, leverage, and long-term wealth building, I’ve put together a game plan I plan to execute starting now and would love feedback or insight from more experienced investors.

🏡 Background

My parents own a home currently worth $2 million, bought for $500K

• There’s still a mortgage on it, but they have ~$1.8+ in equity
• My goal is to partner with my family and responsibly borrow against the house to start building a rental portfolio
• I live at home, have almost no expenses, and want to reinvest aggressively

💡 The Core Strategy

Finish college with minimal debt

1. Land a solid W-2 or commission-based job out of school (sales/consulting/real estate)
2. Convince my parents to give me partial ownership of the house or structure a joint borrowing arrangement
3. Take out an initial $300K–$600K loan against the home (not the full $1M+ possible)
   
• Use 25% down strategy to control $1.2M–$2M of real estate
• Buy 3–6 rental properties in cash-flowing markets
• Hold ~$50K–$100K in reserves to avoid overleveraging
4. Rent pays off all property debt + covers most (if not all) of the home loan
5. Use job income to fill any short-term gap (targeting break-even or net-positive cash flow by year 2)
6. Reinvest profits + refinance gains into new properties every 12–24 months
7. Eventually scale to 10–20 doors, pay off the home loan, and build a family portfolio

🧠 Long-Term Vision

Create a multi-generational wealth plan with my brothers

• Build an LLC or family trust to manage properties
• Use smart leverage + cash flow to retire early or buy full freedom
• Teach my family how to compound together
• Eventually pass on millions in property to our kids — no debt, just systems

Why I’m Posting

I don’t need hype — I want honest feedback

• What would you improve?
• What risks am I underestimating?
• Any tips on structuring family involvement and responsibilities?
• How would you scale this without going broke?

Thanks for reading. I’ve got the vision, the drive, and the family advantage — now I want to execute this intelligently.

Let me know your thoughts. 🙏

 A beginner RE investor wants to leverage their parent’s home to invest in Residential RE. What could go wrong? LOL

Two recent national studies show that in virtually every large city in America it is cheaper to rent than to own. This implies the typical property is cash flow negative at standard LTV. At 100% LTV, which is the case when the down payment is borrowed, virtually every property will have negative cash flow. How do you plan to make the loan payments and pay the other expenses?

A post indicated the OP was using conservative numbers. I could not disagree with this statement more strongly. 100% leverage is extreme; my view for a newbie to do this is probably reckless. To do it with someone else’s money is wreckless.

I cannot state strongly enough my fear of your proposed path. I can see so many ways this fails with extreme consequences.

Do your parents have enough earning time to recover from a $300k to $600k loss? I fear your plan could negatively impact your parents’ retirement.

It is one thing to risk your own money. It is another thing to risk someone else’s money. You have a lot of time to recover any of your money that you lose.

I hope you heed my warnings.

Good luck

My view is from 2010 to 2020 virtually every RE syndication produced decent to great returns.   Since 2021 things are different.

I have 3 syndications that I have done since 2021 and 1 seems to be doing ok but it is the most conservative, 1 seems to be doomed, 1 is far behind on distributions but still has potential to produce a good return. 

@Brian Burke was nice enough to offer to analyze the offering that seems to be doomed.   His two primary thoughts was it was smaller than he desires and difficult timing.

I will state with your syndication choice that the timing was far from ideal.   Many syndications that were fund raising at that time are struggling.   I recognize that is little solace with this being your first syndication.   I am sharing your pain.

Learn from this.   I am convinced the sponsor is every nit as important as the deal if not more so.  My syndication that seems doomed was with a sponsor that had done this plan successfully over a doxzen times, but the one I invest in seems doomed.   One of the primary GPs went through a divorce and exited as a GP.  lesson is even established, successful GPs can 1) exit the syndication 2) fail.

Good luck

In my market I am required to count the assisted rent in the income qualifications, but I would only provide a w9 if the courts ordered it.   I have seen no law that requires me to provide a W9.  I try to avoid providing my SSN and have never provided it to of for a tenant.  

Consult a lawyer, but do not be surprised if this is more work and cost than it is worth.

As others have stated, I suggest you use your va loan.   It is a benefit that you have earned and is a great benefit.

Good luck

Quote from @Dalton Foote:

wow.... very insightful Collin! Love educational posts like these 

Oops

Let me see if I understand this

- you somehow did not think that expenses could change usually in the direction of increasing

- this in spite of the loan documents having text that discusses escrow holdings and that they adjust.

- this in spite of having it occur on your first purchase.   Seeing that you had 1st hand experience that escrow fees can and often does increase, how can you be surprised that your escrow holding increased on your 2nd purchase?

What sort of warning did you expect?   Expenses can and often do increase.

Let me help you out, if you do not get a fixed rate loan, your principle and interest can fluctuate.

Let me help you out more…

- property prices can fall

- rent can decrease

- RE, especially residential RE, is not typically passive

- natural disasters can and do occur.

- rehabs can cost more and take longer than the estimate.

- your flip may not sell for the antipated ARV.

- RE is not typically a get rich quick investment.  I suspect this is more true in this market than it was in the dozen or so years since the GFC

- this is not intended to be a complete list of the risks or effort associated with RE investing. 

Good luck

According to the numbers my PM provided, occupancy is down 30% nationally and 9% in San Diego.   I am unsure of the source of his numbers.  My units’ occupancy this summer is at least as good as last year but Jan to March was possibly our 3 worst months since the GFC.   Still I expect our revenue this year will be higher than last year. 

At the GFC we had 2 local STRs (in mission beach). We converted both to student housing in the school year and STR for the summer. It was work doing the transition, but we had extremely low occupancy on the STRs in the off months (some months 0 occupancy) so it had to be done.

I think most locations will not do great compared to the easier LTR.   In addition, I believe a good location without a good pm/co-host also will not do great compared to LTR.   if you have both a good location and good host, you can outperform LTR.   Mission beach on or very near the water is a good location.   Inland, not so much.    My pt Loma STRs about a mile from the beach but convenient location have not noticeably out performed being an LTR to justify the effort.   It seems like a pretty good location, but pretty good location is not a good location.

It is a challenging RE investor market virtually everywhere.   San Diego is not an exception.   Do not expect large return in the near term.   

Good luck