All Forum Posts by: Jason L.

Repairs and Capex at $15/mo is way too low, even for a property that you plan to put $20k of work in up front. One call to a plumber or electrician and you're basically at budget for the entire year. Even for a totally renovated house, I'm still budgeting for around $1/SF or $1000 (whichever is higher) of annual maintenance.

You might also want to double check that your HML has no origination costs. Most of the ones I've heard about have some points up front.

Some credit unions will do HELOCs on non-primaries. Call around and ask.

Easy explanation: the computer doesn't know you just fixed up your house (and if it did, you'd probably have far bigger privacy matters to be concerned about. Imagine if Zillow/Google/etc knew anytime anybody renovated their kitchen or fixed their roof...).

As others have stated, use real comps. Don't rely on the Zestimate.

 I just purchased a new house without using an agent. It's honestly not as doom and gloom as others make it seem. Agents use to be gatekeepers to data and information that is now readily available through modern technology. If you're willing to leverage these tools, then much of the value of using an agent can diminish (I'm sure I'll get flamed for mentioning this here).

Big part I disagree with you on though: the buyer may not pay anything to the agent directly but there is absolutely an indirect transfer going on. The buyer's agent's commission (say 3%) is included as part of your offer. So if you offer $100k on a house with an agent, then the seller is effectively only being offered $97k because they will have to pay the buyer's agent. If you remove the commission from the process, then you as the buyer can now offer $97k and have it be effectively equal to a buyer offering $100k with an agent. The only difference is that now you're actually paying/borrowing less even when making an equivalent offer. So yes it is costing you something to use an agent (which is not say that you shouldn't because in most cases you should).

Another potential benefit to using a HELOC: paying in cash.

The textbook "BRRR" requires two mortgage and/or refi closings, which means double the closing costs (which can run thousands of dollars in overhead). Drawing cash from your HELOC essentially allows you to skip the costs from that first closing (assuming the house you buy can be covered by the total value of your HELOC). It also allows you to present stronger offers to a seller since you won't need a financing contingency.

Back up one step here: why would you want to use the HELOC to pay the interest on the HML instead of just draining the HELOC for every dollar you could before tapping into hard money? You're basically just arbitraging yourself on the interest rate (I presume the HML will be way more expensive than even the strictest HELOC).

Disclaimer that I am not a full-time agent (I have a license, but I have a full-time W2 job outside real estate), but I can offer some valuable statistical insight from other similar industries (since you seem to be snooping around for info before deciding on a career change).

A real estate agent is largely going to be the same meritocracy that most all sales jobs follow (in other words, you eat what you kill). This can be both good and bad. The bad news is that sales jobs have low barrier to entry and thus extremely high wash out rates. In many financial services sales jobs, a firm might bring in 10 entry level recruits expecting that 1 will still be there in 18 months. The good news for those who do survive the pain period is that the upside is technically uncapped but certainly never a guarantee. Consider this study done on real estate agent income versus tenure...

The people who thrive as agents (the people who don't just survive the first few years but actually beat these averages) likely have one or both of the following two things going for them:

1) They also have their broker's license, and thus are also getting small pieces of all their agents' deals too (residual income, which is probably the next best thing to passive income).

2) They have so much tenure and clout in their region that their referral network is almost self-sustaining. This likely takes many years and much dedication to accomplish.

Not trying to persuade or dissuade, but it's just important to understand that any numbers people might be willing to give you on their personal income are going to be anecdotal and not necessarily representative of the industry as a whole. Try to do some broader research on industry standards and best practices, and then use that to decide if this is what you'd like to do.

It's not a conspiracy. It's because Zillow and Trulia have different estimation algorithms. It's not a "one-size-fits-all" model that everybody under the Zillow umbrella uses. Zillow acquired Trulia, which in part means they acquired their own proprietary algorithm with it.

It's the same reason why ESPN owns 538, yet ESPN.com and 538 will have different projections on who will win the NBA Finals. Same umbrella, 2 different models.

 The misunderstanding is that the 5% error is not uniformly distributed based on 5% of the median home value of the area. It's 5% of whatever each home sells for. So 5% error on a $100k home ($5000) and 5% on a $500k ($25000) home would have a different magnitude of errors. It's not just "every house has a $25000 error regardless of size because the median house costs $500k".

You are correct though that Zestimate are definitely not intended for an investor to use as gospel. If you read my primer on the Zestimate algorithm on the previous page, then it shows how the goal is more to create a range of reasonableness rather than a straight appraisal. The upside is that the Zestimate is extremely powerful and thus can generate hundreds of thousands of home estimates across the entire country within a reasonable confidence interval every single day. Think of how long it would take even the best realtor in the world to do that! 

However, where the Zestimate will struggle is in accurately judging ONE house -- that one house you want to flip or make a rental. That requires far more of a deep dive, which still requires that human element. So if a buyer was to use the Zestimate as a pseudo-appraisal before buying that one house, then they are definitely misinformed. However, if they just use that Zestimate as a way to canvas an entire neighborhood to quickly scan for potential value, then the Zestimate can still have value as a jumping off point on their search.

 The heading on the chart reads "within 5% of sale price". So for example:

House sells for $500k => average Zestimate $525k

House sells for $100k => average Zestimate $105k

House sells for $1M => average Zestimate $1,050,000

The way you had interpreted it as "5% of median value" would mean that every house was within 25k regardless of its sale price:

House sells for $500k => average Zestimate $525k

House sells for $100k => average Zestimate $125k

House sells for $1M => average Zestimate $1,025,000