All Forum Posts by: Jeff Ronningen

Trying to buy as an owner occupant, leaving your family behind to live under a separate roof, strains the limits of credulity. Cannot endorse that approach.

Good advice on this thread about risk vs return. Higher maintenance property that attracts high maintenance tenants = Good cap rate but it comes at a cost. You have to decide your business model and how hands on you’re willing to be. That being said, from a pure numbers perspective the key metrics I look at are cap rate and cash- on- cash return. The latter is more important as it represents actual return on investment net of appreciation and debt retirement.

So you want to buy a property as an investment. The hope being that the area will improve and it will become your family residence. Seasoned BPers have consistently advised against buying based on speculation that appreciation will occur. So We base your criteria on how the property would perform today. If it’s difficult to find that, be patient, look harder, and be creative. If you buy and the appreciation happens, you’ll have equity. You can use the equity to buy the home you want. Why do the investment property and the residence need to be the same property? Either way you’re hoping a jump in RE prices gets you into the home. It seems limiting to have the same property serve both purposes.

Your initial budget is out the window. If running over $20K puts you under water you didn’t have much margin built in even if things went well. After this one you’ll know not to work the numbers this way again. Determine which gets you out of it best - sell now as is or finish rehab and sell. Sounds like you’ll take a loss. Cut your losses and get out. Chalk it up to experience. Lessons aren’t cheap.

Sounds like the numbers may not work for you based on other comments. Why not buy a lesser home that is in the sweet spot of the SFRs for the area and cash flows better? Rent the $300k Home you say your family needs and use cash flow from the rental to offset your rent. Might be a lower risk and more sustainable way to get what you want.

Definitely work with an attorney and an accountant before going any further. The odds say this has a high chance of going badly. The operating agreement is critical to keep all parties out of trouble and provide clarity should any disagreements, misinterpretations, or other adverse events occur. You have an opportunity to set you and your brothers up for a bright financial future, but you also have a risk of creating conflict and disputes which are damaging to your family. Seek the counsel of competent, wise, trustworthy people and proceed with caution.

I’m a golfer. There’s a saying that most bets are won or lost on the first tee. Real estate is like that. Do the due diligence and run some numbers. In general I won’t buy anything that doesn’t cash flow $150 per door. The overall monthly rent to FMV of my portfolio is 1.3%. If you’re serious about REI you need to become an expert at running the numbers. Your question indicates you haven’t done that. There’s only one way to learn.

No change here, limited inventory

Renting to tenants without screening. Rented a second floor apartment while my fiancé (now my wife) and I lived on the third floor. The tenant had deposit and first month rent in cash so I took it. He poured gas on his bed and torched the place while we were home. Big fire, live report on local news. This was 6 days before our wedding. I was homeless on my wedding day.

John, find a good financial model and plug in the numbers. BP has income calculators and there are others out there, personally I use an excel template which calculates cap rate and cash-on-cash return among other metrics. Some numbers are readily predictable (utilities, taxes, insurance) while others are not (vacancy, repairs). Think about the information you need to determine good estimates and do your homework. That means getting historical income and expenses. Understanding the age and status of electric, plumbing, roof, furnace/ boiler. Knowing the local rents and quality of tenants the property will attract. Learn this stuff and you’ll do well.