All Forum Posts by: Jeff Schemmel

@Tony Schmucker happy to weigh in on Saint Paul!  I live here and househack as well - can provide a first hand perspective.

@Matthew Posteraro I'm a big fan of starting with the 5% options. I see little benefit in the FHA as an option as long as the 5% conventional loans are available now. The only real advantage to using an FHA loan is to offer only 3.5% down payment, which in my opinion is barely justified as an advantage. There are quite a number of things that can make utilizing an FHA loan more difficult such as more barriers during appraisal, appearance of low qualification/little cash, typically longer closing period, likely higher interest rate, and PMI cannot be dropped without a refinance if 3.5% down.

That said, just chain 5% down conventional loans, and make sure your duplexes pay for themselves.  Keep in touch with your lending partners for each one so you can understand whether you need departure residence income to qualify for the next or not.

Finally, if you're investing with a Significant other, I recommend considering a "leapfrog" strategy where you buy one, then your partner buys the next, and so on.  Ideally you would put only one persons name on the mortgage unless you absolutely had to have both to qualify.  Just some basic stuff you should try to follow if able.

@Heather Bailey they will ask you what style of renting you plan to do. To the insurance company they will view an STR differently than a LTR. I am not privy to the details of that from their perspective, but I would hesitate to assume the policies are the same; I don't believe they are.

@Heather Bailey while I live in my duplex, I have a standard Hazard insurance policy and I also carry an additional 500k umbrella policy (optional); both policies cover the entire building, but there's no separating it.  I started planning to move to my next property and my company decided they wouldn't cover me anymore once I left.  as a result I switched to a new company, and I will have to adjust it again to a landlord policy that comes with a slightly higher price tag when I move out.  The biggest factors, from what I can tell, are age and rebuild cost.  It's worth mentioning I also require tenants to have their own renters insurance policy with at least 100k minimum liability.

@Tenzin Lhanzey a duplex is a solid place to start; there are dozens on/off market in minneapolis.  Look at a few each day online, or catch up with an agent who knows their stuff and househacked to give you some pointers.  Analyze the property's income potential and expenses and see how it shakes out while you live there and when you eventually move out.  Stick to areas you're comfortable with, and try to steer away from other people's "deal calculators"; you'll overwhelm yourself.  Just keep it simple with this... "What's coming in, what's going out, what's left?"  Take it one question at a time and build out your analysis in a spreadsheet of your own.

While you're doing this, speak with a mortgage lender or two who know investing.  The right lender will be able to advise you on what options you have after getting some info from you and taking an application.  This costs you nothing, and it will be your first real action step in the process.  Once you know you can get a loan, then it's time to start hitting the streets and making it real.  Partner with an agent, who hopefully you've found by this point, and get into some duplexes for real.  This part will really make it real for you, and you will pretty quickly have an idea whether this is right for you.  Have a good dialogue with your agent, ask all the questions, and make sure you're transparent about what you're liking/not liking about the properties.  Take great notes, and bring those back to your analysis.

When you are getting closer to the right property, get informed about what an "offer" looks like, so when the right one is there in front of you you are ready to take action.  From there, your agent should advise you through the rest of it.

if you haven't already, do a Capital Expense/Deferred Maintenance analysis of all six properties.  This will help you understand if you've weathered the storm, or if it's just starting.

Walk the properties, and look at all the major stuff... here's a quick list, below, to get you started.  From there, form an estimated replacement cost, and write down the estimated remaining life left.  Then, separate that list into urgent (need to replace now), 3-5 years life left, and 10+ years remaining.  From there, it's already too late for the urgent stuff, and you'll need to chalk that up to a hard lesson learned about due diligence up front; trying to sell a property with urgent deferred maintenance is most likely going to punish you.  the property with the most 3-5 year stuff should be on your short list to sell now if you're cash-strapped and you can at least cut your loss without having to inject more cash.  Anything with mostly 10+ years of life remaining you can probably feel good about.  

Of course, you can't protect yourself completely, but this will also help you prepare for buying the next properties a little better, and it's an exercise I generally do when I'm on a showing for a property I'm serious about so that I'm factoring this into my analysis to some degree in a "capex" reserve.

@Lisa Oliver I put electronic deadbolts on my unit doors.  This allows entry without a key, and allows me to change the lock as needed if I don't want someone in there.

As an agent, I provide contacts to my clients who will do these things, and occasionally I will do favors for past clients who need someone to open the door or quickly supervise an appointment; of course not all agents will do this or for free.  You could start with your agent or a local agent who supports investors and could have contacts to refer to you.

Lastly, you could consider negotiating with a local PM to take on a hybrid approach to management.  I have some clients who prefer to have a PM for maintenance/contact/rent collection/general management and will place tenants and write leases for themselves in exchange for a reduced rate.  Most PMs, especially the well established ones, will not always flex for specific clients like this but it could be an option.

hope this helps.

@Daniel M. take a close look at your 401k plan's language around "loans". Many 401k plans offer a loan option for a real estate purchase if you plan to live in it. You still have to pay it back, of course, and typically with a small amount of interest but at least you're paying yourself back. Read about what happens if you default on that. The 401k I used to have said if I default it didn't negatively affect my credit, but that it would become a taxable event like a withdrawal (come tax season) and I would have to pay penalties for the amount I had remaining. I know you're asking about 75% LTV and non-owner occupying so perhaps this is not that applicable, but considering a househack might not be out of the question.

When buying your first property, especially multi-family, you're bound to frequently come across occupied units and often while the tenants are home.  It's a fact of life in a multi-family property search, and while it may seem uncomfortable for both you and the tenants, you should view it as an opportunity.  I'll explain...

When you purchase a property with existing tenants, who have a lease in place (in MN you can also have verbal leases), you'll inherit those tenants and the leases they signed with the seller on closing day.  It goes without saying that you should get the lease agreements as soon as possible so that you can have some transparency into the number of occupants, the rent, any agreements, utilities paid/not paid by the tenant, parking, storage, responsibilities like lawn/snow, expiration dates, special clauses, etc.  This will undoubtedly be one of the most important steps you take to start your due diligence into a property you like, but there are many things you can't learn from a lease.  Aside from that, if the seller didn't live in the property, and isn't a licensed agent, they don't need to use a full seller's disclosure (in MN).  As you can imagine, this almost completely leaves the burden of due diligence on the buyer, and a lot can go "unmentioned".

You'll often encounter tenants while on showings, and you should take every opportunity to politely introduce yourself (first name) and ask them about their experience there.  You will learn things you could never have expected, and 90% of tenants are happy and willing to discuss, and maybe even show you some things that will help you out later.  If they're happy living there, or not, you'll find out very quickly.  It's also helpful to get a read on someone you have to be neighbors with if you're a house hacker.

Here are the questions I typically ask a tenant at a showing/inspection, and a number of the wild/helpful/interesting answers I've received over the years as an investor/agent.  Sometimes they don't want to talk and perhaps don't want us there, but most of the time it's well received.

1.) What do you love/not love about living here? 
A: "Oh, I don't actually live here, I'm just staying here for a few weeks with a friend"
A: "The seller just asked me to stay here because people kept breaking in and vandalizing the place, that's why the appliances are gone"
A: "I love all the neighborhood pets, but I absolutely hate the business next store because their air conditioner squeals when it runs ALL SUMMER!"
A: "I love it here, you better not make me leave."
A: "I love being able to work on my bikes in the garage."

2.) How do you like your landlord, do they take care of you?
A: "I don't, the basement flooded the day after we moved-in and we wanted out of the lease because he took forever to fix it and we've hated living here ever since."
A: "He's fine, but his kid lives in the other unit and is kind of a terror".
A: "Yeah" (*quickly covers ash tray*) they don't come around much, and leave me alone, and I like that."
A: "That window over there is broken"..... (hadn't told landlord)

3.) How do you like your neighbors (including other tenants)?
A: "they have a dog that will NOT shut up."
A: "The lady downstairs goes outside to smoke (nice), but her smoke lofts up to my open window."
A: "neighbors are super cool, they come over all the time to have fires in the backyard."
A: "they fight a lot, unfortunately." (lower tenant said the same thing about them)

4.) Have you been dealing with any water leaks, drain issues, or delayed repairs? (water is your worst enemy outside of vacancy)
A: "funny you ask, as you can see the wall is patched but not finished or painted from a leak that happened upstairs, it's been that way for... 6-7 months."
A: "YES, PLEASE FIX THE SHOWER"
A: "yeah ever since my landlord was tiling the shower and put some grout mixture down the drain we've been having consistent drain backups (2nd floor!)"
A: *Silence*.....*motions to follow*.....*flushes toilet*....*motions to follow to the basement*....*points at ceiling*.... water dripping through subfloor.

5.) How are you doing? (this is my favorite one, it's such a wildcard)
A: "Actually not too great, my friend moved out on me and left me to pay the rent on my own."
A: "lost my job, so we'll see how that goes I guess."
A: "my eviction court date is coming up."
A: "don't F***ING talk to me."

You may have laughed a bit.  I can't believe some of the things I've heard, but that's the point.  You can learn a lot from someone who's spent a lot of time on the property, and it doesn't cost you anything as long as you're polite and respectful.

Lastly, you'll want to be ready for the tenants to ask YOU some questions as the buyer or agent.  Here are some things you may want to prepare an answer for so you're not caught off guard and so you don't reveal potentially sensitive info.

Q: "are you going to kick me out?"
Q: "when are they going to stop showings?"
Q: "are you the buyer?"
Q: "are you going to live here?"
Q: "are you going to raise the rent?"

Generally, I try to deflect most of these questions.  Simply replying "I am just looking for now" is honest, and enough to stop the questions.  Sometimes you may not want to be recognized as the buyer, or you may not want to reveal that you plan to move in; especially if it means you have to non-renew a tenant.  Being ready for this line of questioning can save you from an awkward conversation.

I've been on many hundreds of showings to compile this, so don't let these wild answers discourage you or make you think all tenants are up to something.  95% of the conversations I've had are extremely pleasant and forthcoming, and I'm positive your experience will be the same. 

Happy house-search!

@Matthew Gilmore specific to Philadelphia, we need to know more about the neighborhood.  Everywhere I lived in urban philly had zero garage, and basically zero yard.  When I lived in suburban Philadelphia, it was much more common to see a garage, although less than here in Minnesota.  

Generally, here's the rule I follow with stuff like this: If every house on the block has a garage and you remove it from your house, that's an expected facet of the home that is lost and you will objectively lose value when comparing to another house from a "market value" perspective; especially from an appraiser's point of view.  If there are no garages on the entire block and you get rid of it, you probably aren't losing as much, but I'd still be wary of using the space unconventionally so as to avoid creating the "weird house" on the block.  "Never buy weird if you can help it" is advice I routinely give, and it goes without saying to try and avoid creating a weird place that sticks out from what conforms to the neighborhood.