All Forum Posts by: Jim Costa

I agree with @Joe Splitrock You have to look at the big picture.  You are paying "market rent" of $1195 +300 for a $6000k piece of property.  When you take into consideration your $8-10K in principal depreciation ...first year, as well as your $30K interest write off, not to mention depreciation ... your property will cashflow.   @Steven Smith   Be sure you check the leases and tenant laws of how much you can raise the rent.   It seems you are buying right (from an owner who hasn't raised rents in awhile). be sure you know your numbers.  Are these studio apartments? $1200 sounds very cheap for Castro Valley.  Not from area but familiar with it.  A quick Zillow search shows cheapest rent in all of Castro Valley at $1650 for a 450 sqft studio.  I think you are undervaluing your rents.  I'm sure you have done the research but seems like a lot of opportunities in rent.   If market rents are truly $1600-$1700 you can really house hack and live for free.  

Most buyers make the mistake of undervaluing CAP EX. However, if you have recent updates , roof, appliances, windows, interiors, Your CAP EX will be cheaper. Seems like a good deal to me for the area you will be buying in.

@A G.undefined  You and/or your neighbor should look at joining the Washington Landlord Association.  It is only $45 a year and will give you access to Washington state specific forms (for free) and to tons of information. 

In full disclosure I am a member because I own rentals in Washington but am not employed by them or get any kind of kickback. 

They are quoting:

RCW 59.18.900 Severability—1973 1st ex.s. c 207. If any provision of this chapter, or its application to any person or circumstance is held invalid, the remainder of the act, or its application to other persons or circumstances, is not affected.

This is what I would send them

RCW 59.18.200 Tenancy from month to month or for rental period—Termination—Armed forces exception—Exclusion of children—Conversion to condominium—Notice.

(1)(a) When premises are rented for an indefinite time, with monthly or other periodic rent reserved, such tenancy shall be construed to be a tenancy from month to month, or from period to period on which rent is payable, and shall be terminated by written notice of twenty days or more, preceding the end of any of the months or periods of tenancy, given by either party to the other.

Unless they are in the armed forces and deployed,  they only need to give you a 20 day notice from the end of their lease.  My understanding is if they are in a month to month lease they will basically have until the 10th of the month to notify you of moving out at the end of the month.  However if they are in a year contract they notified you in the minimum of 20 days before their lease expires but they are still responsible until their lease expires. 

My leases (WA State)have an option for month to month or annual.  My month to month is a 12 month commitment with an optional release fee (I usually fill out 1 months rent).  They can break the lease at any time and only be responsible for the release fee and not the remaining months.  protects both of us and explained when they move in.  Everyone is excited and happy when they move in.  If they still the full year it doesn't come into play.   

It doesn't look like he is in the right.  I would inform him and see what he wants to do.  I will usually say If we get the unit rented early before your lease is up we will refund the remainder of your rent.   

@Kevin Romines Please explain for all to learn.  

@Francisco Hernandez Just wanted to check in and see how the Puerto Rico thing is working out?  How was your potential investments and the recent hurricanes affect your options.  Curios for updates

Sure feel free to PM me and send me the information.   I am very comfortable in my area of expertise 1-4 units buy and hold, all aspects from evaluating to financing and increasing value.  I know very little about flipping and buying property in another country.  I can hopefully share some universal information and that will help guide you to more information. 

@Francisco Hernandez That is what Bigger Pockets is for.  Give you some ideas and what to look for.   There are so many niches for investing in real estate.  You have to read what people are doing and look for those that our successful in it.  Then you have to determine what is best for you.  Do you want to buy single family, multi family, buy and hold or flip.  What is your comfort area and how much do you want to be involved.  I lived in Sacramento area so a little familiar.  Not as crazy as the Bay area but still a high hot market.  

I read your profile.  Not to much information.  Bought first house and looks like recently sold it.  If you have a little bit of money I would hang on to it.  Cash is king.  IF you have cash you can make things happen.  I always would recommend for people starting out to buy an owner occupy 1-4 unit complex.  If you can find a duplex or triplex or 4 plex that you would like to live in, take advantage of the owner occupy financing.  Buy with as little as 3% down get great rates and have a property that you can manage.  

I haven't been in Sacramento for many years so I don't know your market.  But work with a mortgage broker and get prequalified so you are ready to move when you find something.  I noticed you can get a 2 Bedroom duplex in Citrus Heights for about $350K.   3% down is about 10K  your principle and Interest will be about $1700 +$300 for taxes and insurance.  Your payment is about $2000.  IF you can rent for $1200-1300 you can live in the other side for $700 a month.  This is what is now called house hacking.  Get a room mate for $500-$600  and you practically live for free.   This is just one example.  Again,  I don't know your area or numbers.  Familiarize yourself with local rents and areas.  Look at the good school districts if you are going to rent to families.  Look by the hospitals if you are going to rent to elderly.   Know the market and know your numbers so you can tell a good deal when you see it.  Good luck.  When you think you found something post for some help evaluating.

@Aaron Montague Nice to see you are a little flexible.  The point I was trying to make is that sometimes what is on paper isn't what is actually shown in the pocket book (sometimes better sometimes worse).  If people want to be "real estate investors" they need to buy a property and see if it is for them.  Their's no experience like doing.  

Garbage is cheap here.  I have duplexes that are $87.18 every 2 months ( That's for 2 - 40 gal containers picked up weekly and 2 - 95 gallon recycling picked up every other week)   I have a 4 plex in another town that's  $61/month picked up weekly.   

I agree ultimately you will have to put a management fee into your number.  The banks are going to use.  But, I think all owners starting out should learn to manage there property.  You need to know what to look for, how to read a credit report and background check.  How to obtain one.  What is needed to flip a unit.  How to fill out a rental contract.  What forms are required to give to tenant.  At the beginning, for the first one or two properties this is a learning curve and a big chunk of "profit" that goes into your pocket.   You are actually paying yourself to learn!  It is also one of the few expenses that is completely optional by you.  If your roof leaks or toilet breaks, you have to fix it.  Once you understand what you are doing you can either choose to keep more of your profit or choose to hire a property manager and pay a management fee (convenience fee) to not deal with tenants.  You still have to manage the property manager and in my experience this is more work than managing my property.  Most of the forms and information can be acquired by joining your local landlord association usually between $50-$100 a year.  High turnover areas, college towns, vacation rentals I can see dealing with a property manager.  Most of my tenants are 5 plus years, some have been at units over 20 years (love that).  Stay a little under market rents but no turnover expense. 

The only units that I pay the water on are the units that have a combined meter.  One water meter for 2-4 units.  You adjust the rents accordingly and hopefully cover your expenses at the end of the year.   Yes you are ultimately responsible for the water bill but you are anyway if you pay it.  If they bill the tenant directly it helps build their credit (that's how I sell it) and they can control how much they want to use.  If they want to wash their car or take long showers, that's up to them.  You still get a copy of the bill and any notices if bill is not paid.  An "unpaid" water bill for $80 and a notice of "shut off" in 3 days  is a good reason for me to call the tenant and find out if they have paid the bill.  They are surprised that I know they haven't paid the water bill.  It is a red flag to know if I am going to get my rent, but 98% of the time it is paid within 24-48 hours of me calling tenant.    

Man your taxes are high.  @Chris V. The most important thing to know is your numbers.  One of the things you didn't really discuss was the market.  What is the vacancy factor for your area.  We have a really tight market and vacancy under 5%.  What are current rents going for within a few mile radius.  Zillow and Craigslist are a great resource to find out what your competition is.  They both have map features so you can narrow in on your neighborhood.  Are your rents high or extremely low.  Investors in our area that have had property for several years and self managed are several $100's of dollars off of market rents.  I agree with @Aaron Montague know the process and under what circumstance you can evict.  It would certainly be better for you to purchase with the vacant unit.  

Their are many ways to look at numbers and reasons for investing in real estate.  Cash flow is one reason.  Although most don't figure in,  their is appreciation, depreciation, interest deductions, tax write off's, expenses.  

I don't agree entirely with @Aaron Montague numbers.  He took the things to the extreme but are a possibility  You need to look at things the other way and average them out  IF you did get for 70K or even 65K the numbers drastically change because of the small numbers but lets assume 70K:  

Here are the numbers as I see them:

% Down Payment	25.00%                 YES
Down Payment	$ 18,750              $17,500
Remainder of closing costs	$2,000.00            Seller Paid
Total Due at Signing	$ 20,750              $17,500
Mortgage Rate	4.75%                    4.74%
Length of Mortgage in years	30                          30
Monthly Mortgage payment	$293.43                 $273.86
Taxes	$ 217.75                  $217.75
Sewer and Water	$ 50.00                      $0
Trash	$ 75.00                      $50/mo
Heat/Utilities	$ -
HOA	$ -
Cap Ex and Ops	$ 200.00                 $100 (major expense roof done)
Insurance	$ 108.33               $60
Mgmt Fee	$ 120.00               $0 self manage
Vacancy	$ 96.00                 $96
Total Expenses	$1,160.51             $797.61
Unit 1	$ 600.00                $600
Unit 2	$ 600.00                 $600
Total Revenue	$ 1,200.00              $1200
Cashflow/month	$ 39.49                    $402.39
Cashflow/year	$ 473.88                  $4828.68
Cash on Cash Return	2.28%                       27.59%

Many ways to look at numbers. Yes I took out the self manage fee I manage all my own property and find that I do a much better job than any property manager I hired. I recommend joining your state landlord association. Great wealth of knowledge and will have all the rental forms you need. Ours is like $50 a year. I find that the extent of managing is when someone moves out and you need to flip the unit and rerent. You have two options, you can do all the work yourself and save money or become a general contractor for 1 weeks and manage workers to paint the unit and clean the carpets and do any other repairs. Once units are rented you will rarely get calls throughout the year if units are maintained. The amount of management is no different than researching stocks and investments to get a general understanding so your investment broker or "managed" portfolio isn't fleecing you. Your mutual funds and 401K also have a management fee on top of all the time and research you do. As an owner of real estate you are not managing $1200 income but a $70000 property (many ways to look at numbers). I am assuming your garbage will be $100 every 2 months so I used $50/a month. CAP EX is a tricky one. I believe this is where most people get in trouble because many novice investors have never heard of it or even account for it. Capital expenditures and improvements will happen. The largest expense is a roof. Most people buy a property with a 15 - 20 year old roof and the inspection shows the roof has at least 5 years left which is all the bank needs. 7 years later the roof starts leaking and now the investor needs to put in $10-12K for a new roof. If you saved over the last 7 years that would be about $140 a month in capex just for that expense. You add appliances and hot water heaters you end up at the $200 quick. I agree with his number but because the major expense was just done and many new roofs have lifetime or 40 year guarantees you should only have to budget about $40 instead of $140. That is why the reduction in Cap ex. Insurance seems extremely high for a 70K property but don't know the replacement cost in your area. A quick 15 minute call to your insurance broker can verify that cost for free. Vacancy you will have even if only once every 2-3 years. The longer the unit goes with same tenant the less expense you have from year to year and vacancy number gets added to your pocket but when they move out you can get away with a $90 carpet cleaning. You will now have to paint and in some instances replace flooring like in your current situation with pet man. The ideal situation for a first time investment property is to buy a multi unit (1-4) that you can move into. You are able to get owner occupy rates and as little as 3% down. Run the numbers there! As people get older and begin families it gets harder to sacrifice.

Bottom  line is know your numbers.  This property has the potential to meet your goal for the year.  Screen and pick the right tenant.  If you can't increase your income than control your expenses.   When you sign a new lease have the tenant pay for garbage.  Many places the owner is ultimately responsible for unpaid water and garbage bills.  Be sure you collect enough deposit to protect yourself.

There is a place over by Jantzen Beach by Lowes.  Next door to Cash and Carry.  The Granite slabs starting at about $200

You invest in multiple investments for diversification and protection.  You have an employer match 401K, and all advisors are going to tell you to take advantage of that first, mainly because, as you said, it is a no brainer.   Look at that as your safety net.  It is a retirement account and you are young.  What it does over the next few years is irrelevant.  You are looking at many years down the road to access.  Your wealth account is doing great earning 12%.  Why access/use that money.  It will cost you 12%.  Your savings account is  probably earning under 1%.  That is your go to money.  You didn't say if you were going to invest in realestate or purchase a primary residence (not an investment).  You mentioned @Nam Tran "when the time comes to put the down payment on a property" This leads me to believe it will be your first house. Even if it is an investment you will certainly be able to get a loan below 12% (the cost of your wealth account). If you are not going to or required to put 20% down which will get you out of PMI (private mortgage insurance) than borrow as much as you can. Even though rates have creeped up a little they are still at record lows. An extra 20K in downpayment will only affect your payment by about $100 on a 30 year 5% mortgage. It is much safer and better for down the road, investing in more units, to have the cash reserves. Believe it or not the more money you put in will actually decrease your return on investment.

If you buy a 200K house with 5K down versus 25K down.  

5K payment is $1046.80

25K payment is $939.44

If value goes up 10% and house is worh $220K your $5K has returned $20K a 400% return, while your $25K has also returned $20K it is only in 80% return.  Take your $25K and buy 5 houses.  

Now of course you are not going to buy investment property with 5% down but the idea is the same.  Do I put $80K down on 1 property or split it between 2 properties. 

The key to real estate is leverage and other peoples money ... the success is buying right and making sure you know your numbers.