All Forum Posts by: Jason Turgeon

Every property has a price in which it will sell in one day. To my mind, that's the true market price, or maybe just a tiny bit under. Ideally, you price it just low enough to get multiple offers. 

Most sellers want to get more than that, and some of them do, but largely what you get are situations like yours where you ask too much, then do multiple price drops. Often, you end up selling below the price you could have sold it for on day one if you had just priced it appropriately. Plus you get all the anxiety of the waiting game. 

You know the answer. If you need it sold yesterday, drop the price to where it will sell in a day. If you can be patient and want the high dollar, do all the staging and professional photography and decluttering and all that retail crap.

If you are not sure of the price where it will sell in a day, do more market research. I suspect the first agent was right. Impossible to know without the listing info, etc.

First question: Why on earth would it cost $30k to install one boiler and some PEX if you are using the existing cast iron radiators? 

Second question: how much would it cost to do it right and separate the heat systems? Would you have to drop their rents to make up for the fact that each of them now has to spend ~$1000 on heat a year? Or would you be able to charge similar or even higher rents because lots of people prefer to be able to set the heat where they want it? (edit: I can't count)

Third question: Are you in a state where you are allowed to do RUBS to allocate the heat bills? 

All things being relatively equal, I would always rather have completely separate utilities and systems and have the tenants directly pay for all their utilities. But in older homes, the cost/benefit isn't always there. Really comes down to numbers and the intangibles of fewer headaches for you and higher tenant satisfaction for them.

Glad it was helpful. 

If you are between tenants and going to sink money into it, there are other methods of soundproofing. I really wish I had done them when we had the ceilings open. We had insulation blown in so we don't get much of the vocal noise, but we hear all the footsteps. This video is a good primer, and you should be able to do some of the footstep isolation from above if you are ripping up the subfloors. https://www.youtube.com/watch?v=YitQQJrksYI

Best thing would be to rip down your ceiling, insulate, and replace the ceiling with two layers of drywall suspended from sound isolating clips attached to the joists. But since that is a huge PIA, you probably won't want to do all that.

There are also products designed to go in between subfloor and hardwood floor, like this:  https://acousticalsolutions.com/product/iso-step-floor-underlayment/

And of course if you are considering ripping out the subfloors, you could go with a thick wall-to-wall carpet on top of a thick pad instead of hardwood. That will help a lot, although carpet in rentals can get pretty nasty and there is often a preference for hardwood in the Northeast.

Is there an option of fixing up the upstairs so it's nice enough for you to live in and then renting out the downstairs? Then the tenants have to live with your noise instead of the other way around. 

Depends on the property. If this is your first property and it's a SFH or small multi, there's not a whole lot of benefit. Better to just get really good liability insurance.

On the other hand, if you are buying something at commercial scale, then yes, it's a good idea. Keeping investments fenced off into their own LLCs at scale is a hedge against the whole thing from collapsing if one deal goes bad or you have one lawsuit. So when you are dealing with multiple large scale investments, it is a nice layer of protection. But it's not some magic trick that relieves you of all liability, and there is both a setup cost and an annual cost to having one.

You should figure out the tax implications from #1. If you have been depreciating it to offset rental income, you will need to pay that depreciation back at sale unless you 1031 into another property. And if you rolled profit from your flip into this one via 1031, you will also have that to worry about. You will also have capital gains tax on the appreciation related to the rental unit. In an owner-occupied multi, this is usually done by allocating based on square footage.

Tax implications aside, it's hard to know what to tell you to do without more info. If you can refi with cash out and get enough renting both units to make a tidy monthly profit, I would say do that. If you are just going to break even or go negative monthly, you should consider dumping it and dealing with the tax hit.

BTW, I have a similar house in Boston. I hate hearing my tenants stomp around upstairs and they don't take good care of the place. But they provide us with most of the mortgage on a much nicer place than I could otherwise afford. So whenever the noise gets annoying, I just remind myself that the noise is what's enabling me to have my art studio, off street parking, and still put money in the kid's college fund every month. 

As for option #3, one thing we are thinking about is eventually reconfiguring the upstairs apartment. In our situation, it's relatively easy to close off some walls and take back some of the space we rent out for our own purposes. We can make it go from a 4 bed, 2 bath rental to a 1 bed, 1 bath rental. We get 3 bedrooms and a bathroom for ourselves if we do that. Obviously, we'll make less money every month but it's nice to have the option. Having 1-2 people up there will be much quieter and we're more likely to get a great tenant in a nice 1-bed than in a 4-bed, and we will get more space out of the deal while still having some rental income. Is it possible for you to similarly reconfigure?

Not much to report this week. The unexpected electrical work means we need to pull permits, so we had to kill a few days waiting for those. I also found out that we will need to get the gas lines for the garage apartment pressure tested because they have been turned off for over a year, so that adds some time and cost. The final bid for the foundation work came in at $6100, vs the $3500 in the budget. And it turns out that there is a problem with some of the ducting/venting for the HVAC in one unit, so that will add another $650 (but we were under budget to start so it's not as bad).

Permit delays: + 1 week

Gas line pressure testing and permitting: +$800

Foundation overage: +$2600

HVAC: +$650 (so we are now only $1150 under budget)

Hopefully by the end of this week we can get all the permits pulled, get the work back on track, and don't have too many more big contingency items going forward.

I graduated in 2007 with ~$80k in student debt. I put my loans into deferment for a year and during that time bought my first 2-unit multi family (lived in one, rented the other).I have made a little bit higher than minimum payments on my student loans for 12 years now, and did take a chunk of cash I came into to pay off one of the loans entirely. But I still owe about $30k after all these years and make $400 monthly payments (about $100 more than the minimum).

Assuming all goes well with my current deal, I will soon own 25 doors. Once I finish rehabbing and refinance one of my other deals, I'll have something like $150k cash in the bank and a decent net income from the rentals. I could pay off the remaining $30k at any time, and would love to be mentally free of that debt. 

But it doesn't make sense. I have refinanced to be down under 3% interest on that student debt. I can reliably make ~15% returns by investing in real estate.

Given how much debt you have and your current living situation, I would split the difference. Assuming you net $10k/month after taxes and you can live on $2k/month as long as you are at mom and dad's, take the remaining $8k and save it until you have enough for a decent down payment and reserve funds on either a house hack or rental that will allow you to live for free and get out of mom and dad's. That should be 6-12 months depending on your area, unless you are in one of a handful of expensive cities.

Once you are into a situation where you are on your own and living with your mortgage covered by house hacking/tenants, then you could do something like pay 50% of your $8k savings towards the loans and save 50% for the next investment. Having that $360k hanging over you forever (with the interest capitalizing at your $35 payment level) is not ideal and you need to attack it sooner or later. If you can continue to live cheaply, you can buy another investment every 6-12 months and still be on a path to have your debt paid off in ~10 years.

One thing you should definitely be doing no matter what else you do is trying to restructure that debt to get a much better interest rate. Even if you can only get a portion of it down, it will help a lot. 

As far as finding a lender, I'd recommend that you go interview some local private banks (usually identified by "bank and trust" or just "trust" in their name, or characterized by lots of talk about wealth management on their websites) and talk to them. Lay out your circumstances and your plans just like you did here. You should be able to find a banker who is willing to work with you and wants to build a relationship with you and help you grow your portfolio. It may take a while but there are some excellent private banks out there and they cater to people in your income bracket with custom banking solutions.

@Shubho Ghosh, keep at it! This is a numbers game, you have to analyze a lot of properties and make a lot of offers to get one good deal.

@Adriel Hsu is giving me weekly progress updates, so I am sharing some of what he sent along, with my own edits and notes. 

Progress Week 1:

- Main house mostly demo'd, just need to open up the kitchen and demo the cabinets.
- Stairs to garage apartment completely rebuilt. Just needs painting/staining.
- A/C contractor has already replaced the main house indoor and outdoor unit, he is going to replace the garage apartment units Monday, then all a/c work will be complete.

Good News:
- Savings of $1,850 on AC units vs. our budget!
- Turns out the units had at one point had separate utilities. No idea why they stopped using the second set of meters, but this will save a bunch of money on separating them out. Electric for the garage apartment should be back on this week, water should be on soon, gas needs some safety checks from a plumber and a city inspection, then it can get turned on. 

Bad News:
- Foundation bids came in way higher than expected. Budget was $3,500 based on similar jobs in the past. Quotes came in at $5,500 and $6,500 for labor only. Waiting to meet 2 more contractors next week to get more bids.

- Electrical - Electrician said all the wiring in the garage and garage apartment are extremely old and needs a full re-wire. The main house, the back 2 bedrooms and bathrooms are fine, but the wiring forward of that is old and he recommends a re-wire. After negotiating, got him down to $7,400 for both house and garage for labor and material (excluding light fixtures). With fixtures and additional fees for permitting, electric will be up to $9k +/- in a hurry. There was no budget at all for electric in the original list since we were just going to replace fixtures.

So after just one week, I'm already $10-11k into my $14k contingency! Hopefully there aren't too many more big surprises, although at this point we're pretty much guaranteed to go over our contingency budget. The upside is that having the house fully rewired and having the utilities completely separate should help a little bit with the appraisal and with our actual selling price when I eventually resell it. It should also reduce my ongoing maintenance and capex burdens, since we'll have brand new plumbing, gas, HVAC, and electric along with all new kitchens and baths. It might also help the house sell a little faster if the market is competitive down the line. Unfortunately, most buyers just don't place a premium on having the systems properly upgraded when they are looking and they focus on the cosmetics, so it can be hard to get this stuff to pay for itself.  

On the plus side, I have a great PM, the contractors he is using seem responsive, and the City of Nederland continues to be super easy to deal with.