All Forum Posts by: Erik Hitzelberger

Welcome Scott!  I'd encourage you to join KREIA so you can network with both new and experienced investors.  Good Luck!

I agree Borders and Borders is great.  For the specific issue you have, Brad Lammi at Henry Schildnecht law is your best resource. 

People are always fascinated by real estate investing.  Their interest is typically harmless, but there is no need to share information you don't feel comfortable disclosing.  You can easily tell them about the remodel and all of the work that went in to it.  If the press for financials, simply say, "It was a good deal or I'm really happy with the results." 

People invest successfully in every area of Louisville.  That being said, different areas have different tenants and require different knowledge bases and skill sets.  If you are not willing to do what it takes to be successful in the West End, you will do poorly.  

Taking action is critical.  Surrounding yourself with a strong community of like-minded people and getting educated are equally, if not more, important to your long-term success.  Find someone who handles west-end, multi-family units well and ask them for advice.  Compensate them if needed.  It will be money well spent.  I also recommend joining KREIA. 

@Mike Walsh  The lease/rent portion is largely a math problem.  If you buy under the terms you described, the PI portion is $1770.  With some rough approximations on taxes and insurance your monthly payment is going to be around $2250. After 2 years, you will have paid down $3150 in principal.

So, you can go rent a house for up to $2250, keep the $10,000 and forgo $3150 in principal reduction.  Note that the break-even point for this part is is to rent for ~$2120.  At this point, you lose whatever equity is in the house and whatever appreciation you would get over the next 2 years.  I can't speak to your valuation, but something pretty drastic would have to happen for the average house in St Matthews to not appreciate at least 3-5% per year over the next few years.  Even if you dismiss the initial equity (or count it as closing costs when you sell), the appreciation could mean $14-23K in equity.  This puts your break-even rent/buy rate between $1275 and $1667.   

You can decide how aggressive or conservative you want to be with those numbers. Also, we are talking about your primary home.  There is emotional value in owning and in not having to move again in 2 years.  These are factors you have to weigh.   

William, 

There's no good way to say this other than to be blunt, but the 1% rule, 2% rule, and any other rent-to-sales price ratio are beyond meaningless. The only thing that matters is whether the property meets your goals in terms of 1) cash flow and 2) net worth. When you properly analyze the deal including PITI, management and variable costs such as vacancy and maintenance, you can determine whether it is a deal. Be sure to properly allocate your allowance. It is an all too common mistake to blindly allocate the same vacancy and maintenance rates to homes across wide rental rates and with varying degrees of deferred maintenance.

With a 20% down, 4.5% fixed rate, 30year loan and 10% management fees, you'd make $350-380/ month BEFORE variable costs.  If the property has no deferred maintenance, proper material selections, long-term leases, and is in a decent (easy-to-rent) area, it would likely be a decent deal.  As you deviate from these factors, it gets tougher.  You'd likely still have positive cash flow in most cases, but you'd want to be careful.  Also, you need to consider whether appreciation matters to you and whether the house is in an appreciating area.

Finally, PM me if you want to talk about turnkey rentals.

Erik

@Kevin Allen The explanation from @William Osborne is largely correct, however there are a couple of quick points.  First, if your property gets cited, the information in the rental registry does become public as part of the case file.  Both the City Council and Code Enforcement were clear about this.  What's not clear is whether they will be publishing phone numbers and email addresses.  If it's your own property, chances are the info is public record anyway.  If it's owned in a llc, or land trust or you manage for others, the situation may be a little different.

Second, this statute ostensibly arose out of an effort to 'do something' about all of the vacant properties in the city.  Apparently, this is one of the most frequent complaints Council Members get.  The regulation only covers properties that are rented or intended to be rented.  Thus, vacant and abandoned properties aren't really addressed and it looks a whole lot more like a way to target landlords. 

VERY LITTLE was done by the city to communicate the regulation.  There are over 130,000 rental units in the city, per their own study.  I imagine a great many landlords are going to be surprised.

Joshua,

Because your property is listed, I really cannot comment on the specifics.  That being said, I would note that your listing agreement (assuming it's the standard GLAR contract) specifies terms regarding you advertising the property.  Please consult your agent to understand the guidelines around posting ads and doing mailings. 

Good luck!

Erik

@Ali Khalaf  Based on what you have described, the best property to suit your goals is a 3/1 or 3/2 brick ranch with a basement and/or a garage in one of the following areas, J-Town (40299), Fern Creek (40291), Okolona / Hillview (40229), or along Dixie Highway (40272, 40258, and 40216).  These are solid neighborhoods where you can expect to find responsible long-term tenants.

The primary threats to your long-term success are 1) water leaks of any kind and 2) tenant turnovers.  The first is prevented by not deferring maintenance, tenant education and routine inspections.  The latter is addressed by providing a house your tenants can live in and by providing superior customer service.  In other words, if all you offer is price, they will move as soon as the next deal comes along.  If you can do these things in a home that is flexible enough to accommodate them through various life changes you may have a tenant for life. 

Obviously, your Property Manager or Turnkey Provider is key.  When evaluating them make sure to ask questions such as how many properties they manage, how long they have been doing business, what type of property management software they use, what level of support staff exists and what systems they have in place to protect you.  These should include a well-documented application-lease process, a good turnover process, and on and on.

I wish you the best of luck and please let me know if there is anything we can do to help you get started in your investing career!   

@Rick Frazier  I agree with @James Wilcox. To accomplish your goals, you need to be very intentional about figuring out the highest and best use of your money. There are significant psychological benefits to paying off your personal house. There is also a cost associated with doing so. Your mortgage (or HELOC) may be the cheapest interest loan you can get. As you will be paying a higher rate on investment loans, it would be cheaper to pay them down first.

That being said, the biggest risk may be Opportunity Cost.  If you are willing to use leverage (responsibly), you can get more deals and move faster.  If not, you will have to be more deliberate with your purchases.  The tradeoff is the time it will take you to reach your goals.

I wish you the best of luck!