All Forum Posts by: Doug Shapiro

Hi Greg,

I would definitely look into the possibility of splitting the house into 2/1.  Each "unit" should have its own entrance and essentially be separate from one another.  As Simon Campbell said, this should increase what you can rent the property for.   

Another possibility would be to remodel the 4/2 so that you can again charge more for rent. If you remodel and increase the value of your property a lot, then your lender may remove the PMI after an appraisal.

Considering how little equity you have in the home, selling is almost silly.  If you can make your net income positive, then definitely keep the home.  You paid only a few grand to own a $93,000 home.  I mean, even if you just hold on to the home until your loan is paid off in 27.5 years, that return is amazing...in theory you invest maybe $5,000 (down payment + closing costs) to purchase, and assuming that there is no appreciation and you can keep the place rented so that all costs are covered, then your initial investment will increase just over 18 times.  

If you purchased the house with both you and your partner on the loan, then you should look into refinancing under just one of your names.  Couples should always try to keep loans separate because then the non-loan holder can still buy with a new loan.  

Also, you may want to speak with a real estate tax specialist about this, but remember that if you change a primary residence into a rental, then you can count the net income as an addition to your salary and the loan is not counted against your credit.

I looked at your spreadsheet and noticed that you may be able to cut costs by looking into different insurance companies with lower rates, but equal coverage, and also by appealing your property taxes.  Do a search for "How to appeal your property value NYC" to find out information about this.   

Hope that helps.   

Jay

I'm a huge fan of asking the tenants to pay online with recurring payments.  Collecting checks is a hassle, especially if you are collecting in person.  Nothing breeds resentment more than a tenant late on rent that you live with and see daily.  

Screening tenants to assess their cleanliness, habits, and personality is very difficult to gauge in about a half hour.  I personally choose my roommate tenant based off of mutual acquaintances who could vouch for them, as well as getting a sense of their daily routine.  They were early risers who spent much of the day out and about, and went to bed early.  Some days I just never saw them, which was great.  We both had our own space and time.  

Hi Justin,

If I were you, I would definitely strike up as much conversation as I can with the previous home owner to try to find out all those details that inspections and walk-throughs don't cover.  Ask if the house is really hot in the summer, if there have ever been leaks, if you should know anything about next-door neighbors, and other conversational questions in-between that still provide you information about the property:

• What did you like best about the property?
• Does having the windows open in the summertime create a nice cross breeze in the house?
• Would you recommend any companies/contractors you've used while living here, such as termite exterminators, plumbers, electricians, etc.  If so, who did you use?  
• What work, if any, have you done on the property since living here?  
• Any cold drafts by windows/doors that I should worry about when its cold?

A conversation with the previous homeowner may help a lot.  Just be mindful on the reason why the previous homeowner is leaving.

Lafontant, 

Never give up hope.  Start small and grow to reach your $5,000/month goal.  The earlier you start investing, then better.  Being a real estate investor is a big commitment, so if you do get involved, then realize that it is a career.  

If I were you I would pay off my student debt as soon as possible - whatever makes sense for you.  This will improve your credit and increase the amount banks will let you borrow for real estate investing.  Most lenders require 25% down payment for investment real estate, which is a significant amount of cash.  There are other options available to you though. 

Are you set on buying in low income/working class neighborhoods?  Do you want to do this because properties are cheaper in these types of neighborhoods?  I would recommend buying a primary residence in a better neighborhood that you are comfortable living in.  If you can afford to buy a multifamily or a duplex then that may be best.  When you buy a primary residence, then the lending requirements change - if you are a first time home buyer then you may quality for 3.5% down payment, but most lenders will require between 5-15% down payment.  This allows you to purchase a lot more real estate with much less cash down.  Also, the reason why I suggested multifamily or duplex, is so that you can live in half of the property, and rent out the other half.  This will cut your mortgage payment down a lot.  Furthermore, even if these types of property are above your budget, the lender will include the anticipated rental income you will get into their guidelines for lending, so you may very well qualify for a much more expensive property than you thought.  

Of course all of the advice above assumes that you are financially responsible and are good with how you spend money.  I understand your friend's concern about adding debt to your student debt.  

I have experience with investing in stocks and real estate.  I definitely like real estate a lot more because you have something tangible and can manipulate so many factors such as what you charge for rent, how you can improve the property, how to market the property, etc. You have much less freedom with stocks and I personally think stocks are much riskier.  Agree with Michael Germinario about diversification.  

Jay

Hey Carson,

If you plan to rent to college students, then the closer to campus the better. Walking distance is best if that is possible.  

If I were you I would consider buying a multifamily house or a duplex, triplex, or quadplex. Living in the same house as college students will probably require a lot of patience and flexibility.  There will probably always be tension surrounding the shared elements of the house such as bathroom, kitchen, and common room, and most issues will involve cleanliness and noise.  Are you prepared to deal with a sink full of dirty dishes on a daily basis, or your tenants having friends over late into the night?  

If you are set on buying a house - then you may want to consider buying one that has a walk-in bathroom for the master bedroom (if this will be the room you would be living in).  I would also consider doing a little remodeling to really soundproof your room so that you can get a good night's sleep even with a party in the house.  

As the landlord, I have lived in the same house as my tenants before.  It is a more delicate living arrangement because you are essentially a roommate and a landlord at the same time.  If you think you can manage this, then go for it. 

As for location, buy in a good neighborhood close to a good school.  Can't go wrong with those two criteria.  

Jay

Nathan has some good points.  When you do your property analyses there are 6 major items to include:  principal, interest, taxes, insurance, maintenance, and vacancy.  

The first four are also known as PITI. The maintenance is more difficult to estimate, but I'm sure you can reach out to some contractors or experienced real estate investors in your area to help you estimate those. Also, don't forget to include vacancy into your numbers. I typically estimate by assuming that the property will be vacant 10% of the time, but again, this estimate varies.

You've done a lot right so far and I think you are headed down the right track.  However, you may have jumped the gun by looking for investment real estate before securing financing.  If your goal is to own the property, then you are setting yourself up for a painful experience by potentially finding great property deals that you don't have the money to buy.  

I highly recommend talking with several different banks to see how big of a loan you can qualify for.  Also try talking with credit unions as they tend to have less strict guidelines for lending.  

I'll try to answer some of your questions:

1)  If your wife gets her realtor license then this will only help you as a real estate investor, especially if you don't have your license.  

2)  sure

3)  I don't know

4)  I personally like the monthly cash flow strategy vs. the large $ you can make from doing flips.  But this depends on your situation and your real estate market.  If doing flips is lucrative, then by all means - do them.  Having hard cash is never a bad thing.  But if you want to replace your 9-5 job with a consistent stream of cash flow, then start buying rental properties.  

If I were you, I would start by calling some Cleveland based realtors.  Just make sure you speak with several realtors.   Tell them what you are looking for and see what they say.  You should also be able to identify the great realtors from the not-so-great ones.  

Hi Chad,

Michael has a good point about the building next door...

In your calculations, I noticed that you were missing some costs to acquire the property such as the closing cost and inspection cost.   Also, I would recommend hiring a real estate attorney to help with the offer, negotiation, the loan, and closing (hopefully it won't be too expensive, maybe a few hundred dollars?).  In my experience hiring a real estate attorney is well worth the money.  

Also, when you do your calculations, always use safe estimates.  For potential rent, I would definitely speak with at least two realtors to see what you can definitely rent the units for, and what the possible range is.  I see that you calculated 8% for maintenance and repair - it may be better to get a more accurate $ for what this may cost.  I personally would try to use line items to break this down (ex. snow removal, landscaping, etc).  Some of the maintenance is more of a fixed cost while other maintenance is difficult to estimate (roof repair, plumbing issues, appliance replacement, etc.).  

Jay