All Forum Posts by: Matt Vezina

One thing to remember about taking stock market advice from Dave Ramsey is that it is all meant to steer you towards one of his "Endorsed Local Provider" financial advisors selling you mutual funds at higher fees than you could achieve buying low cost funds from a firm like Vanguard or Fidelity on your own.  There is a reason he will only tell you the general market segments he is in and not the specific funds, the advice is supposed to be shrouded in enough mystery that you don't feel confident doing it on your own.  As a few have mentioned, his consistent push that you can expect a long term 12% from a mutual fund portfolio is likely a little on the high side.  He also takes the position that past market performance not being indicative of future returns is "bull crap," which many including myself would disagree with.  

For me the answer is both. I love buying real estate with leverage, getting myself into a multi family house that more than pays for itself with 5% down out of pocket. I also love using the extra room in my monthly living expenses to max out my Roth IRA and save for a timely retirement. After all the stress and headache that comes with rehabbing property it is a nice change of pace to build wealth with a few clicks of the mouse every month. There's also zero chance that anybody will ever trip on the front steps of my mutual fund portfolio and drag me into court over it. It also makes me a stronger candidate for financing when I can show ample reserves to a lender instead of being down to my last dollar, highly leveraged and barely scraping by the minimum reserve requirements for a loan. This will continue to be my basic strategy going forward, buy real estate with leverage and plow a good chunk of the free cash flow into diversified mutual funds.

Every problem except location has a price tag to fix, so there is a number that will work for this property.  That said, it looks like your offer is based on the  1% "rule" considering the $120k contract price against $1200 a month rent.  If you offer 1% of rents on a property in need of major rehab you are likely to massively overpay.  

As best I can tell from your description it sounds like this property needs to be vacated and gutted to fully address the issues.  The presence of knob and tube wiring and galvanized plumbing "throughout" is difficult to fix with tenants in the apartments.  With problems of this magnitude I would prefer to negotiate a price reduction rather than have the sellers fix anything.  It's been my experience that sellers find the cheapest way possible to do inspection repairs, which may not be what you want with the electrical and plumbing.  Also, I doubt they would be eager to go out of pocket for the major repairs needed while still under contract.   Based only on your description, if this were my market I'm not sure I'd even be comfortable paying 50% of the current price at those rents. 

I am currently wrapping up gut renovations on the three unit I bought for my first property.  It has taken way longer and cost way more than I ever could have anticipated.  Because I DIY as much as I can I'm coming out of it OK with a good chunk of sweat equity, but this house would have nearly bankrupted me by now if I were hiring contractors for everything.  So it's definitely possible to be successful starting out with a property like this, but you are signing up for the School of Hard Knocks approach vs. getting your feet wet with something in better condition.  

@Hayden Moeller Generally no, with the exception of some specific loan products with first time buyer requirements that you won't be able to utilize.  Once you have met the period of owner occupancy required by the loan terms you are free to move on to a different property.  It's certainly possible you could encounter a particular lender not willing to work with this but there is no hard and fast rule about having multiple owner occupant mortgages if you are abiding by the required occupancy period every time. 

It's true that you can't move from one property to the next with an FHA loan but you can still benefit from owner occupied terms on your next purchase. Last time I checked 15% down was the conventional minimum for an owner occupied duplex, and the rate will be lower than an investment property . If you buy as an owner occupant, most mortgages require that you live in the property for one year before moving on to the next.

For water/sewer it's tough to do more than guesstimate if you are just looking at the listing and not getting actual expenses from the seller.  I know that my three unit tends to be around $200 per quarter for water/sewer so that's what I would plug in  for a similar building but of course that's location dependent.  Maybe you could find some landlords in your area who would share average expenses.  

Electricity depends on the building and whether or not the units are separately metered.  I prefer to steer clear of landlord paid electricity in the apartments as it's subject to such variation depending on the tenant's lifestyle, but it is possible to build it into the rent.  Like the sewer though, it's a guesstimate until you are looking at actual expenses on a building.  Finding the rate at which utilities are charged only gives you part of the answer.  

I am house hacking a triplex that ended up being a full gut rehab, personally I've learned my lesson with sheetrock and prefer to hire that out if it's a significant project.  Everything else I'm all about the DIY but sheetrock just sucks in my opinion.  I'm physically not built for it (especially all the sheets of 5/8 going on the current project to meet multi family fire codes), and I can struggle through the mud work and end up with a decent product but only after splattering it all over the floor and redoing mistakes way more times than I should have to.  Then I find myself just feeling exhausted and depressed instead of accomplished at the end of a day's work at it. I really hate writing big checks to contractors, but it's hard to put a price on the feeling of coming home from work and seeing a day's worth of someone else's progress hanging on the walls.  

With that particular property if it were mine, would probably leave it alone as far as a refinance and just start stacking the monthly cash flow towards another purchase. The current $800 a month over the mortgage and HOA is a nice spread, wouldn't want to stretch myself that thin on a monthly basis for the cash today. A line of credit may be something to look at, still a payment increase but you could access some of that equity on a shorter term basis without increasing the first mortgage at that nice low rate.

I graduated high school in '08 so my understanding of the whole thing was pretty poor at the time.  I knew the economy was down and lots of people were mad about a bailout but didn't really have my head wrapped around the idea of a housing bubble at that time.  What I remember most is the gas prices in 08-09 when I was a college freshman not allowed a vehicle on campus, and thinking to myself with prices like that I don't even mind not having the car. 

On my three unit I chose to stick with one common boiler and include heat in the rent.  To me it's a "pick your poison" kind of situation in cold climates, either include heat or roll the dice on frozen pipes when tenants turn the heat down/off because they are short on cash to cover fuel for a cold snap.  I installed a high efficiency Buderus boiler and each apartment is getting insulated as I renovate.  If you are looking at a multi family with included heat it's important to verify the utility bills.  In my area many of the multi family conversion houses are late 19th-early 20th century construction and will not have any insulation in the walls unless they have already been renovated.   

Two of these beer bottles in almost pristine condition came out of the wall during demo, I searched the label and found that the brewery did not survive prohibition so these had been tucked away quite a while.   Then I found the bee hive, fortunately vacant, in another apartment