All Forum Posts by: Karissa Sampson

Wow! Thanks for the quick responses! I had thought about the fact if the fed pushes rates too high, the scale could tip into a recession and they might stop raising rates or lower them in the future to help in a recession. Too much unknown. The projections I've seen out there is that rates will continue to rise over the next 1-2 years but probably not as dramatically as this first half of 2022, then even out or even dip a little. But who knows--I haven't found a good crystal ball yet.

The only reason I wouldn't refi in 12 months would be if rates really skyrocket, in which case I may keep the original mortgage and pull a HELOC for some equity and have only the HELOC at the higher interest rate. (I just did this with my primary residence because the primary mortgage was at 2.6% and it didnt make sense to refi the whole thing to 4% at the time.) @Nick Lippe I am currently under contract on a property that I will move into and BRRRR. Forced appreciation thru a rehab and conversion should bring the value up by $300k conservatively.

I'm just going to stick with the 5.375% rate for now. I had my numbers run for 5.375% yesterday as that was the base rate but this morning rates rose again to base of 5.5%-and well, I've had enough change for one day and like the "mental duct tape" of having a slightly lower interest rate (even if it doesn't make a ton of sense, I could care less about that $560, especially if it makes me feel better to be at 5.375% rather than 5.5% in this moment, just based on emotions, haha)

Of note, the property I have under contract requires some major renovations in order to get it to the point that its rentable so I will have carrying costs to the tune of $3k/month to pay for the mortgage until its rentable. I have $190k in cash available to me for carrying costs and renovations ($50k is a loan from family member that I would prefer not to need, still $140k of my own cash) My scope of work for the reno is $50k.

Thanks again to those who commented! We are out here in Colorado in a crazy in-demand market trying out a new strategy that I believe is going to be very high reward. With higher reward often comes more risk, I'm just trying to keep some balance early on in my investment career.

I understand the fact that my money is worth more now than in the future and will be rehabbing the property (BRRRR). I plan to cash-out-refi the property in 12 months after the rehab. Would like to get my my money back out of the deal but leave enough equity in it that it continues to cash flow.

By not paying points, my rate is 5.5% on $447k and I get $1,110 lender credit at closing.

By paying points, I pay $560 for a rate of 5.375%, or pay $2,797 for 5.25%, or pay $7,271 for 5.0%.

Paying for a rate of 5.0% doesnt make sense to me but is it worth it to pay $560 for a rate of 5.375%? I fully anticipate that rates will continue to go up and by the time I refinance the BRRRR, I could be paying 6,7,8+ %. If thats the case, I may end up keeping the original mortgage that I'm doing today and just finding a HELOC that I can access the equity in for the BRRRR.

Does it make sense to pay anything for a lower rate right now if the intention is to refinance in a year or less? If yes, then how much?

So far on doors 1-5 its been mostly cosmetic rehabs (paint, light fixtures, appliances, sinks, counters, cabinets, flooring) without significant structural changes. Decided to do a single family to triplex conversion this time. The city code and property zoning allows for it and I have already discussed the initial conversion plans with the zoning department who, as long as permits are pulled and its built to code, have given the green light to proceed verbally and via email. We just went under contract on an appropriate property after failing to get a property of any type (SFR or multi) under contract for the past 6 months.

Property: 

Colorado

Contracted purchase price: $471,000

Single family home 2,800 sqFt

Brick ranch. 1400sqft up/1400 down. 2 car attached 450 sqft garage. Nearly 0.25 acre corner lot on quiet street with bike lane and alley access along the back of the property. Surrounded by single family homes and 1-2 blocks away are some small multifamily that are well kept. Nice neighborhood, I would run outside at night alone as a female. Kids playing basketball in the cul-de-sac. Nicely kept yards. Yet...R-MN zoning which allows for SFH, multifamily, apartments, condos, townhomes, co-ops, commercial, retail, mixed retail/residential; literally the most liberal designation out there without many restrictions. Zoning map updated in 2018-city doesn't plan to change it for a long time.

1973. Single owner since it was built. He passed away several months ago and this was an estate sale. Found on MLS. He took care of the property but its very dated. Not destroyed or damaged though. Solid bones. Has a dated (boiler/baseboard) HVAC system (no ductwork, but enough copper piping to sink a ship) and old solar panels but no aluminum wiring, the hydro pipes are copper, drains are cast iron. Inspection in 2 days.

The property works as a BRRRR and a flip. Planning to BRRR and hold long term.

As a SFH flip, comps are going for $650-700k

As a conversion to duplex or triplex, comps are going for $750-825k in un-renovated (sometimes nasty) condition.

ARR (After repair rent) for triplex conservatively $5,100/month (3:2/3:1/1:1)

We have not undertaken a BRRRR this large yet but my partner/fiancé works construction and his GC and subcontractors are onboard to allow us to do most of the work then review and sign off on it. We have jobs that allow us 1.25 FTE time to work on it. We have $200k cash to close the deal and rehab it.

Do you all have any advice for converting a SFH into duplex or triplex? I see a lot of this type of BRRRR happening in Canada but would love comments from those who have done this in the states.

What did you wish you knew going into a big BRRRR? What would you have done differently? What took the longest time or cost more money than you anticipated? Any savings (time or money) tips?

Very excited to take on a large project but also very aware of how it could get out of hand and we could lose money. 

Quote from @Will Sifert:

Quote from @Karissa Sampson:

@Atha Winston Thank you for your response. I'll let you know if I go and what my experience was.

@John Underwood In Colorado, there was a public outrage about tax liens and transfer of deeds so they've added on restrictions over time. We have a 3 yr redemption period. Any premium paid over the original tax lien amount at the sale is not required to be paid back by the property owner. There are minimum requirements for  the number and timing of notifications you must send to the property owner (certified letter or similar I believe). I also believe once you apply for the deed at the end of the 3 yrs, they give one last notice to the owner and they have one last chance to redeem (a month or a few months, cant remember) before the deed is transferred. *If I'm incorrect on any of this, please chime in. I'm not an expert on tax lien sales in Colorado. Im just starting to look into them*

Seems like in Colorado, the laws are such that its nearly impossible to actually get a property deed out of a tax lien sale. I also have heard that many of the liens are going for large premiums and hardly any reasonable interest. Kinda seems to make tax lien sales a moot point. But, I'll see for myself at the tax lien sale.

 Colorado is not a good state to invest in tax liens. I bought there for the first time a couple months ago, about 200 tax liens, I have a strategy but will be adjusting it some next year. The premiums being bid on almost all liens is insane. I had to bid in 13-15 counties to find a few I think will be worth doing again with my adjusted strategy. It hurts every time I get a check because I lose money one every one since it's only been a couple months.

In Colorado you do not get the premium amount back, the county keeps it. The in person auctions are much better but everything online is being bid way up.  For example, a $1,000 tax lien on a decent house will sell for about $1200.    So the high bidder paid a $200 premium (donation) to the county.  The interest rate for 2021 was 9%.  So you making $7.50 a month in interest. If the owner redeems after 2 months you get a check for $1015.00  but you spent $1200.  Even if they home owner  waits till the last month to redeem you would only make $270 in interest. Your net would be $70 for tying up $1200 for 3 years. Most don't wait till last month to redeem a lot redeem in the first couple months. In many cases when you pay a premium you will lose money.  For the vacant land liens that are around $50 - $500    people are bidding way more in premium than you could possibly make from interest. All of those bidders are taking a lose on every single lien that gets redeemed in the hopes of getting a few deeds.

Yes Colorado is 3 year redemption period, after 3 years you apply for a deed usually about $300 and it can take anywhere from couple months up to a year before you could get the deed. The county will try to find the owners best they can once you apply for the deed. I imagine a lot are found and pay up.

You would do much better going to tax sales that are in person in smaller counties. If I lived there I wouldn't even waste time on the online auctions. 

 Thank you for such a thorough response. I had a feeling that tax lien sales in Colorado were not the best deal and probably not a great starting place to begin getting into tax lien sales. Someday I might look into those smaller/rural county in-person sales. 

Quote from @Becky Kowalski:

Hey Luke!

thanks for the reply. I really like your approach but I don't think it will work in my case. My property is in a small, coastal community with high seasonal variation in population. The two long term tenants are maybe only 50$ below market, so not bad. They both take very good care of the property and look after things. I feel much more comfortable with them as known entities.  😊

My plan is to short term rent (airbnb or similar) during the summer high season. I'm hoping this will help me cash flow.  There's also the option to rent to winter Texans - people from your neck of the wood that want to escape the cold. Hopefully next winter I can get a 2 or 3 month renter.

My 3rd unit needs a bit of updating, so i'm taking my sweet time doing it. Definitely need a shower that works properly before renting it out!

Becky

Yes I am reviving an old threat but I am curious if the OP Becky made this work? I bet it worked great! I am currently looking to have 2 long term tenants in the main house (duplex) for stability but to short term rent the 3rd unit (a detached garage conversion) to really boost the cashflow. I'm certain I could rent all units long term and my city allows me to use the 3rd unit as either LTR or STR.

Quote from @Jim Spatzenfeld:

Quote from @Michael Gessner:

…….you will have to hire licensed contractors for each trade to certify all is up to code….

That’s false information. Maybe true in many municipalities in New York, but here in California (and probably Utah as well) the owner can do all work himself without any licensed contractors. 

You REALLY need to read the code in your area on this. In my city, for a renovation like this, you need to have a licensed general contractor AND subcontractors (electrician, plumber, HVAC, etc.) who perform and sign off on work done in those categories. Perhaps this isn't true in your area but it varies. In Colorado, you CAN have "homeowner as contractor" but this only applies if the property is your primary residence and what you are building/renovating is for personal use (your own dwelling or an ADU to your own primary residence) and is not intended to be rented out as a separate unit or as an investment property. You still have to have some electrical work etc. done and inspected by the appropriate people (ie: you can run the electric through the walls and install outlets and light fixtures but an electrician has to be the one to connect the house side wiring to the electric box and inspect your work. The city has to be the one to connect you on the city's side.) For instance, I was going take a duplex which was considered my primary residence and finish the basement into a 3rd unit to rent out. It was completely allowable per zoning but because it was a separate unit to be rented out, they would not allow me to do this because of the above reasons. I considered doing it anyways without permits, but to code, and hoping the city never found out or going to them afterwards and claiming it was already that way when I bought it but for my risk tolerance at the time, I was not willing to take on that risk. (Risks include but not limited to: Expensive fines, city makes the tenants move out, city makes you tear it all out, city then goes on to deny your permit applications in the future, a tenant or neighbor reports you to the city, an awful event occurs like a fire and your tenants are injured/killed or your house is damaged and now your insurance wont cover it, etc.)
The point being-everything is potentially different depending on your area. If I were you, I would decide to either A. Take the risk and don't go to the city, just rent it and move on OR B. Contact the city with a ton of humbleness and just tell them you want to make it right. Hubris and ego don't go far with them, but they are way more willing to work with you usually if you apologize and "just want to make it right". They're not terrible people, they are just trying to do a job, make sure the building is safe for occupancy, and yes, collect some fees for the city. 

I think the comments about Fair Housing Act are valid but the concerns about this applicant are valid too. This is why its SO important to have a process you follow every single time for every single applicant. Mine is as follows, I would love to hear others:

Post the listing online

-I post on housing sites that do not publicize your email to the applicants. I stopped using Facebook because of so many unreliable inquiries.

-I have a separate email set up for tenants and applications and do not provide a phone number to applicants

Once there are interested parties, I let them know a rough timeline that we are accepting applications and when we expect to offer the lease to someone. This motivates people to get their application in and follow through and helps weed out window-shoppers.

1. They MUST fill out an online application including income, background check and credit check

-To be fair, if someone needed a paper copy, a braille copy or a different language, I would provide one. Just haven't encountered this yet.

2. AFTER the application is complete, they can proceed with a showing. 

-I tell them what dates/times we are available to show it, not the other way around. I try to schedule people in blocks back-to-back. I like to give people their own time to view the property but I do overlap the showing times by 15 minutes so I usually have the next person arriving as the prior person is leaving. If they're not primarily English speaking, I'll ask them to bring someone to help with translation with them or I can call a 1800 translation line if needed-again being fair. (only needed this once)

3. Once the showing is done, I let those people know that we will conclude showings by X date (end of the week typically) and then we will offer the lease to the most qualified applicant (based on credit, income, and criminal history requirements etc. which are all within the boundaries of the Fair Housing Act and my rights as a landlord. The Fair Housing Act doesn't mean you have to offer a lease to someone just because the applied and viewed the property.)

4. We tell that applicant they have 24 hours to respond and sign the lease and the security deposit is due AT THE TIME OF SIGNING THE LEASE. If they sign and do not provide security deposit, they are immediately in violation of the terms of the lease. First month's rent due on the day of move in. No keys on move-in day until that rent is verified in my account. (ie: don't take a check and handover keys--> cash and deposit the check and then give keys)

Never give them your cellphone number.

Don't waste your time on crazy stories. Occasionally one will turn out to be true, but rarely. Cancel the showing and move on. If she persists to bother you, then have her complete an application, pay for a background check and credit check, provide you with paystubs showing she can pay the rent, a reference from past landlord or letter from her mortgage lender reporting on time mortgage payments if she claims to have owned this referenced house, and provide you with documentation from her legal team with contact information so you can confirm her story with them. Let her know that you are interviewing other candidates and need to make a decision soon so she needs to get all of this to you asap/give her a short interval date. More than likely she won't follow through. If you feel like you're being mean, then lookup some resources for homeless or displaced women in your area and provide that resource to her and tell her you empathize with her.

I don't know this persons story but it could be anything from true, to having personal life drama that you dont want in your rental, there could be illegal activities/drug use involved (pressured speech, confabulation of wild stories) or perhaps just unfortunate uncontrolled mental health disorder. I find that a lot of people who "suddenly lost their housing just today" was because of their own fault either actively or passively. Possible that she was evicted from the last property she was staying at (renting, squatting, staying with a "friend"). She can't be honest with her own reality and situation so she has to make up a story about it to alleviate herself from any responsibility for her loss of housing.

I like to believe that people are inherently good and try to give them a chance before I doubt them, but that's for you and your personal life, not a creed to hold to in your business life.

I looked back at my notes and we actually did use Zinsser Bulls eye primer. We used the Valspar which I liked. 2 years later and no chips or flaking. Looks great! That primer is awesome.

Not at a rental but in undergrad, my roommate had hung alligator and deer skulls on the walls prior to my arrival. (female roommates BTW)