All Forum Posts by: Leo R.

@Dave Harlan getting the inspection wrong can easily cost tens of thousands of dollars (or more), and can completely ruin a deal. For inexperienced investors with limited cash reserves, mistakes on an inspection could even lead to bankruptcy, so it's not something to take lightly. An ounce of prevention is better than a pound of cure.

Inspectors can vary DRAMATICALLY in their experience levels, and their thoroughness, and even the best inspectors will occasionally miss important issues (nobody's perfect).

Therefore, each time I buy a property, I don't use one home inspector, I use SEVERAL layers of inspection done by SEVERAL pros.

Yes, I use a regular home inspector, but I also have an experienced plumber scope the sewer line on EVERY property before I buy. If I have any concern about the electric or HVAC, I'll bring in my electrician and HVAC guys. If there's ANY concern about the foundation or structural integrity, I call in a foundation pro, or I walk (foundation/structural issues are usually my one total deal-breaker). I have an inspector do a meth test and a radon test (important in my area). We look closely for asbestos and lead based paint (which are not deal-breakers for me, but they're a significant cost to remediate, so I want to know about it before I buy the property). Even my agent acts as an informal inspector (my agent has more property inspection experience than many inspectors). Additionally, I have many years' experience in construction and home inspection, and I personally inspect every property with my agent before buying. The very first day we walk the property, my agent and I spend a LOT of time under the house looking at plumbing, wiring, HVAC, and structure, and we write down a list of all the issues we find. Then, we hand that list off to the official inspector to investigate further.

So, with all that, any property I consider goes through 3-6 layers of inspection before I pull the trigger. 

Is this overkill? Well, would you rather pay a plumber $200 for a sewer scope, or pay them $20k+ to replace a bad sewer main that you didn't catch at inspection? I'd rather pay the two hundred bucks and call it the cost of doing business.

Similar to any other pro you hire, you want an inspector with many years of experience inspecting the type of property you're buying, in the location where you're buying. This is key, because different types of properties, and properties in different locations will have vastly different types of issues.  Houses in Maine are built differently, used differently, and degrade differently than houses in Phoenix, for instance. So, you need an inspector who's familiar with the type of building they're inspecting, and the location, and all the issues that are associated with that type of building in that specific location. An experienced inspector who's only inspected 1960s masonry homes in the desert southwest isn't the most qualified to inspect an 1870s wood frame house in the northeast (and vice versa).

In addition to many years' experience inspecting, you ideally want an inspector who has a background/experience in engineering/building/contracting. This type of experience allows the inspector to spot structural integrity issues (again, one of my few deal-breakers), and it also helps the inspector have an in-depth familiarity of what various issues will cost to fix. 

If you plan to become heavily involved in REI, you probably want an inspector who has built long-term business partnerships with other investors, so ask for those types of references. I've been using the same inspector for years, because not only does he do a good job with inspections, but he also understands the realities of REI, and he understands what types of issues could jeopardize my investment approach.

Hopefully that helps,

Good luck out there!

Quote from @Bonnie Low:

I have a 1/1 in Redding, CA. I sunk a lot of time into the initial set up of the property. However, now that it's up and running well, I spend maybe 2-3 hours when I get a new guest just going through the lease up steps and then maybe 1 hour/month after that to deal with service requests and bookkeeping. Once you have your systems in place, it becomes very plug and play.

Thanks, yes--I've been thinking that startup would be relatively time intensive (furnishing it, setting everything up on the advertising platforms, etc.). Glad to hear the work load diminishes once it's up and running.

Quote from @Erin Spradlin:

@James Carlson @Leo R. - Thank you for the mention, James. 
Leo- If you have done LTR management, medium-term rental, self-management will be very similar. The reason for that is people looking for midterm rentals shop like short-term renters, but they act a lot more like long-term renters... and often they stay for 4+ months, 5+ months, etc. So, you really are not dealing with a ton of turn over or work. It's much easier than an STR and very similar to an LTR. Good luck!

Thanks!

 Hmm...that certainly makes it more enticing...   I collected MTR comps and ran the numbers, and found that I might get an extra 15%-20% from a MTR, but I'm not sure if the vacancy rate I plugged in was reasonable (I'm in a mid-size city and my properties are close to Universities, hospitals, and other things that attract MTR tenants, so hopefully I'd have low vacancy...but I like to play it safe with my numbers, so I try to allow for a good bit of vacancy)... 

...plus, all the comps I collected were just listings this month, and I don't know how much they're affected by seasonality, so my rent data might not be super accurate... 

...maybe I'll give it a test run with one unit that's opening up in May, and see how it goes...

Quote from @James Carlson:

@Leo R.

Short answer is: Not that much time. 

I'm sure @Erin Spradlin can weigh in. She consults with MTR hosts about this all day long. 

James, I probably should have mentioned: my bar for what constitutes a "lot" of time and effort is set verrryyy low these days because I spent years refining my LTR operations to get them dialed in...At this point, my LTR operations are such that just adding an extra hour per week of work would be a noticeable increase to me... 

...It wasn't always like this, though--I had to work too hard to get to a point where I don't have to work too hard  :)

Quote from @Nicole Heasley Beitenman:

We have a 1 bd/1 ba SFH that operates primarily as an MTR. When we get awkward 2-3 week gaps and have to switch to an STR model, it's a PITA because we're cleaning ourselves. That's about 3-4 hours of work a week. Otherwise, I spend a few hours on bookkeeping each week, but that includes all my properties and business entities.

It's not THAT much more work than a traditional LTR and it's significantly more money, so we've found it to be worth it. 

 Thanks Nicole, that's useful info...in a typical year, how many gaps do you get between the MTR tenants?   

...and how much more revenue are you usually seeing for a MTR compared to a LTR?  I collected a bunch of MTR comps on furnished finder, ran the numbers, and found that for one my typical 1 br/1ba places, I'd get maybe an extra 15%, but only if I allowed pets (all the MTR comps I saw had noticeably higher rents if they allowed pets...I don't know if that was just a fluke, but it seemed pretty consistent).  ...that extra 15% I found was after I deducted allowances for vacancy and the cost of furnishing the place (though, I'm not sure my vacancy estimates were accurate)... 

Hey folks,

Question for the medium term rental crew: how much time/effort does it take to self-manage a typical 1bd/1ba furnished MTR?

I realize the answer probably depends on lots of things (like the location, grade, etc.), but any info you can provide is appreciated...

I have lots of experience operating LTRs, a bit of experience running a STR, and no experience operating a MTR--but I'm thinking about trying it out! I assume operating a MTR is more time/effort consuming than running a LTR, but I'm wondering whether it's a just little more time/effort, or a LOT more time/effort?

Related questions: How long do tenants typically stay? Where are you finding most of your tenants, and how much time/effort is required to secure a tenant? How much vacancy happens in a typical year? What other things are important to consider before starting a MTR?

Thanks!

@Joe S. I had a girlfriend, but wasn't married.  For a married person or a person with kids, house hacking a small multifam property is probably the move.  Does house hacking require sacrifice? Yes. Most things worthwhile require sacrifice. I didn't particularly enjoy all those years living in tiny rooms, sharing my place with housemates, surviving on a shoestring budget...but I'm glad I did it!

@V.G Jason Yes, the numbers for house hacking pencil differently than a few years ago. That's the case for every REI strategy under the sun--there aren't any REI strategies today that pencil the same today as they did 2-4 years ago. C'est la vie--such is life.

House hacking definitely DOES work in today's market, it just doesn't work exactly the same as it did several years ago, so you have to adjust your expectations and approach to the realities of the market (just like any REI strategy). Some people will be able to acquire a new property every 12 months, but some might only acquire a new property every 2-5+ years...it all depends on their market, and their other sources of income.

When I was house hacking, my w2 income was modest, and a lot of folks starting house hacking today have a better w2 income than what I had when I started.

I have a friend who's about 12 years younger than me, she's just started her career, and she's always complaining that it's impossible to break into real estate. Whenever I suggest she house hack, she says "it's not possible anymore--when you did it, houses were cheaper, and rates were lower", to which I say: "yeah, and my w2 income was a third of yours!" (my w2 career path is pretty low-paying, but she's in a much higher-paying career)...not to mention I have another friend her age who has a lower w2 income than hers, who is literally a year into her first successful house hack, and planning her second! So, while she's busy complaining that house hacking isn't possible in today's market, one of her peers (who has a lower income) is out there house hacking...There's always a million reasons not to invest in real estate, but somehow, successful RE investors keep finding ways to make it happen....

If a person is inexperienced in REI, has a fairly average income, and their goal is to actually own real estate, house hacking is usually the best way to start. This is because (compared to more advanced strategies like BRRRR'ing, flipping, wholesaling, etc.), house hacking is relatively straightforward, relatively lower risk, relatively slower-paced, it teaches you all the fundamental lessons of REI and property management (which is crucial if you want to branch out into more advanced REI strategies), and it simultaneously lowers your expenses while increasing your income. It's not for everyone, but for most people, it's the best entry point to investing in real estate.

@Tracy Scott it's highly dependent on the deal, the type of property and the location.

In addition to the items others have mentioned, here are some of the biggest potential start-up expenses that I study closely before buying a property:

Foundation/structure--this is one of my few "deal breakers", I typically will not purchase a property with significant foundation or structural issues. The costs to fix these problems can be significant, and in some cases, they're not fixable (at least, not without an unlimited budget).

Roof. Replacing a roof is a significant expense, so I look at the age, condition, and quality of the roof closely.

Sewer line. I never buy a property without scoping the sewer line.

Plumbing. The age, type, and condition of the plumbing is a significant factor in whether I'll buy a property, and how much I'm willing to pay.

Electrical. Again, this can be a big expense if you need to make repairs/updates.

HVAC systems & water heater. A new furnace is pricey.

Asbestos and lead based paint. If you need to remove either, it gets pricey.

Meth test--I always do this on any property I'm purchasing. 

Vacancy--how long will I have to hold the property and pay its mortgage before I get tenants? How frequently will the tenants turnover, and how difficult will it be to find new tenants after each turnover? ...if the vacancies are frequent or extended, it can be a big expense, so I analyze this thoroughly.

As for house-hacking specific costs, there are things like furniture/appliances/decor for the common areas of the house, costs of screening applicants (like background checks), cost to advertise, the time and effort required to manage a house hack, etc.  ...although these expenses are worth consideration, they tend to be much smaller and almost inconsequential compared to the big capex expenses that can come with buying the wrong property (e.g.; you might spend a couple hundred bucks on tenant screening, but a new roof might cost $20k+).

Back when I was house hacking regularly, one of the most significant "costs" was the cost of my time and effort to acquire tenants (which includes all the time and effort of posting ads, responding to inquiries, answering questions, doing viewings, screening applicants, managing tenants once they were in-place, etc.). Over the years, I greatly refined my systems so that tenant acquisition now requires much less of my time and effort. For instance, I created scripts to manage all inquiries, and started using apps to automate the initial screening process, so that instead of typing out a response every time someone texted me (a nightmare), it all became very automated. I refined my screening process so that non-qualified applicants got screened out ASAP with no work on my side. I started charging refundable fees for viewings (which wouldn't work for an apartment complex, but if a stranger wants to walk through my house, they need to have some skin in the game!); doing this greatly reduced the number of non-serious viewings...all this stuff saves me a lot of time and effort (which ultimately saves me money, and allows me to make more money).  ...so, I'd suggest studying up on how to streamline your tenant acquisition process--putting in some work up-front on that can save you a lot of time, effort and money in the long run.

Good luck out there!

@Mary Jay generally, I'd only consider it if I knew that I could force cashflow.

For instance, years ago I bought a property that would have been negative cashflow as a rental. I lived in it, and while living there, I built an ADU and did some other improvements. I knew that the ADU and improvements would make it cashflow when I eventually moved out. After a couple years, I moved out, and (as expected) the property cashflowed very well right out of the gate.

There's a BIG difference between forcing cashflow and sitting around hoping that rents will eventually increase enough to create cashflow. I'm not interested in speculation or being dependent on the ups and downs of the rental market (which I can't control), but if I can force cashflow through value add strategies, then I'll consider buying the property. 

@Rodney Love repetitive house hacking.  

I house hacked a new place every 12 months for years, living in the smallest (least valuable) room in the house to minimize my expenses. Eventually, I built up enough wealth and cashflow that I could start occupying the nicer spots, and eventually stepped up to nicer and nicer homes for myself. I was pretty much free of the rat race by about age 32. I haven't house hacked in years, but if I was starting over from $0, I'd do it all again.

Making sacrifices in my 20s and early 30s paid off in the long run.