All Forum Posts by: Dan H.

I suspect you will find that electricity usage in an apartment is very different from a house and that you will be selling a lot less power back to SDG&E at wholesale rate than you are anticipating.   If you have net metering the buyback does not occur monthly but annually.  This is good because there will be variation if both the power generated (summer is more than winter) as well as power used (typically AC is large electricity user and typically at worse in Aug and Septempber (but not so much this year)).

My point is that I suspect the lease will not be as bad as you have calculated.  Still if you are conserve your electrical usages $130/month is slightly high cost.

If the area is 95% SF then using a recent sold multiplex in the same area will be difficult.

My view is that the property is somewhat unique and that the comps will not be that good and will need a lot of tweaking to provide an appraisal.  The thing about unique properties is that unique does not necessarily mean worth more.  Unique properties often have a smaller buying base.

If you plan on conventionally financing the REI, the lender will do an appraisal. Typically I see their appraisals do not put much value on uniqueness which may make using a SFR of similar size appropriate but if I were the seller I would not be too keen on this approach. This is one reason unique properties sometimes stay on the market longer than the more standard listings.

It sounds like an interesting opportunity.  Good luck.

Why are you mainly looking for cash flow.  If you believe a property will appreciate it is trivial pulling equity out of a property.  I am about to do it for the second time in 2 years. 

I agree with everyone that indicates that RE goes in cycles. This is true even in Cal. However in coastal So Cal you can look at any number of years and the market has appreciated faster than virtually everywhere else (I suspect to a lesser degree this is true in Sacramento). Do you think something has changed so that this history will not continue? My point is if you can ride a down cycle in the long run Cal buy and hold when financed has historically whooped the higher cash flow areas on ROI and that it is trivial getting this appreciation out of a REI (and you do not pay taxes on this money until you sell the asset without doing an exchange - I never plan to pay taxes on this money (If I sell I plan to do a 1031 exchange)). So I do not understand a preference for cash flow especially if historically that cash flow does not approach the ROI of your local REI. Add in the extra headaches and effort of a distant REI and you understand why I currently only invest local (We still have one out of state property but it was purchased more than a decade ago).

Good luck on whatever you decide.

do not accept partial payment as it muddies the eviction.  Also have you talked with them?  They may be under the p false impression that their deposit can count towards the last month of rent.  

I'm sorry you are faced with this so early in your landlording foray.  I was a landlord for many years before I had to give an eviction notice and I have never needed to actually evict.  

Good luck. 

$20K profit with free contractor labor, your time, risk, etc. seems way too low and way too risky.  You want to be compensated for both your labor and your risk which I'm not sure that you are being compensated even for the labor.  Your labor, your Dad's labor, your Fiances labor.  You may end up working for minimum wage.

If this were a buy n hold you could leverage the risk over a longer potential profit of cash flow but as a flip your profit is all determined at the sell and the profit will be taxed (versus a buy and hold profit when taken via a refinance is not taxed).

Good luck

@Ashley S. I would use the $100k as down payment to purchase a buy n hold duplex to quad in San Diego in a working class area. They can cash flow. Even if they do not cash flow today rents are going up very fast. 3 years ago I purchased a duplex that was flat on cash flow when including $250/ month cap expense per unit, maintenance, and vacancy. The rents have gone up faster than $100/month per year so this REI is now cash flowing at over $600/month and has appreciated ~$250k. Historically the ROI exceeds virtually every other RE buy n hold market in the us. It is local so better able to manage any issues. In a decade time prop 13 will likely be helping your cash flow significantly. I have a unit with prop tax set at ~$200k worth that is worth ~$550k (that equates to >$300/month savings). My family has a unit taxed at ~$400k worth that is worth ~$1.4m (that equates to >$1k/month in tax savings). You live in an area that historically has been an incredible buy n hold locale (near the best in the nation) and you are considering purchasing elsewhere. People dream about ROI that have historically been real in San Diego.

I have posted recently (last few days) on my recommendations for beginners investing in San Diego.  Search for the post as I suspect there is something in there that could be helpful (or maybe not but I wrote it because they are things I have learned that I wish I knew when I started). 

Good luck

@Ronald Filian  Info matches what I have found for commercial loans that I have looked into (but never applied for).  In particular the rate is guaranteed for a few years with the longer guarantee you desire (all being fairly short compared to non-commercial loans) the worse the other terms of the loan.  This makes fixed loans for commercial less advantages and the variable loans start to look better. 

As for the OP (@Tyler Powell) original question: The lending institute wants to know that the loan is fairly low risk but they will use a percentage of rent such that the payment is calculated in simple terms something that can be thought of (FullMortgagePayment - (Rent*X%)) = MortgagePaymentThatYouMustBeAbleToPayBasedOnOtherIncome. I knew what the X value was at one point but no longer remember. The point being that a portion of the rent offsets the mortgage payment in terms of qualifying. So investors can qualify for more on an rental REI loan than they could qualify for on an owner occupied loan. You should get pre-approved to know exactly what you qualify for as one of your first steps in looking to acquire a rental property as it will help you narrow your search to realistic purchase opportunities and it will make an offer you submit look much better.

Good luck

@David Faulkner is mostly correct on what I would recommend.

I recommend duplex to quad in working class areas.  I choose Escondido as my area of expertise because of the proximity to where I live (Poway) but I suspect other working class neighborhoods would be similar.  I recommend duplex to quad because they are the only properties that cash flow with what most people think are conservative numbers that I use for cap expense (I believe they are accurate as I suspect few people in San Diego have taken the time to actually calculate expected cap expenses).  Just as an FYI I use $250 to $300 per month for cap expense.  I have seen @Justin R. uses close to the same numbers (everyone else seems to use lower).

So here are my regular suggestions for newbies: 1) make sure you calculate for cap expenses 2) if purchasing duplex to quad do not use list prices as comps, look at only what has sold.  Duplexes to quads are purchased by investors.  Investors often list RE at prices that they do not expect to sell.  Similarly when investors buy the purchase typically makes sense as an investment which is typically not true for people purchasing a home to live in.  3) San Diego historically has always appreciated but it has cycles that include some significant down cycles.  The only people who have lost money in San Diego Buy n hold who financed the property are those that were forced to sell at a down cycle (even people who purchased poor buy n hold properties and over paid have made money if they did not sell in the down cycle).  So make sure you can with stand a down cycle.  Use 2005-2012 as a reference down cycle.  4) Do not over estimate cash flow in San Diego.  I have purchased units that had about even cash flow when purchased (including $250 to $300/month cap expense per unit).  The last such property I purchased was purchased in 2013 (duplex).  Rent have increased on this property at faster than $100/year for each unit.  So this property is now cash flowing at over $600/month.  The point is that rent appreciation typically correlates with property appreciation.  Few RE markets in US have historically appreciated as much as San Diego and this is irrespective of the duration (last 5 years, last 50 years).  Correspondingly few markets in US have experienced the rent appreciation that San Diego has experienced.

BTW I plan on being at the PB open house (I have RSVPed).  I find them educational and motivating.

Good luck

@Justin R. I have only had a few challenging tenants but I would not tolerate not allowing me and my contractors access to the property to complete repairs.  I also think it starts a poor precedent on who is in control.

However, at the same time as I finish repairs I would also have the air quality checked.  If a problem is found with the air quality it is in everyone's best interest to address the issue.  If it goes to a judge I can say the air was tested and if there was a problem it was addressed (CYA).  I do not want to be responsible for the tenants to get ill.

I state I would take a hard stand but we (my partners and I) are typically softies on many things (raising rent, occasional late payment with advanced notice, request for a service animal where we indicated no animals, etc.).  Examples: We have in our lease the requirement to have renters insurance but we do not check it.  We had a foundation leak that affected 2 units and neither tenant had the required renters insurance.  We let them stay in the units while repairs were being done and discounted their rent for the inconvenience.  Of course if they had the required renters insurance they could have stayed elsewhere paid by the renters insurance.  We did send out a letter afterwards to all of our tenants reminding them that we require renters insurance. This is just one instance, so I may talk tougher than I am (or at least I talk tougher than my partner is) :=).  We also just had yet another surprise request for a service dog (but they have been very good tenants) on a unit that we do not allow animals that we may provide OK for the dog (it has a shared yard so we need to check with other tenants first and if OK with them then we will allow the dog realizing that next tenants into unit without service animal may not be too keen on animal using the shared yard making it harder for us to rent).  If we were smart, not soft landlords we would simply say no to the request for dog on grounds that the unit is not set up to accommodate a dog in large part due to the shared yard that is to be for use by everyone (who wants to play on grass that dog just did its business even if "cleaned" up?).  We are probably too soft.

I virtually always agree with @Justin R. but not completely this time. My lease like Justin's allows me to enter property for repairs with proper notice.  If tenant is not allowing the repairs against the lease I would start the eviction process. They either provide access per lease or they get evicted. Stating this is what I would do but fortunately I have never had to do this.  

I do not think therapist is part of my job as landlord but I currently have a tenant that seems by-polar. When I talk with her and especially her husband they seem normal but the complaints I get via text are elaborate and mostly trivial items that sometimes are not in our control such as kids playing ball.  Partner had email all typed up pointing out if they are unhappy they can move with one month notice but she did not send it. 

So I talk tough but I have a tenant that is being a pain in *** and I have not done anything but she has not been breaking the lease; unfortunately nothing in the lease prohibits her from being a pain in the ***. 

Good luck