All Forum Posts by: Michael Peters

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $189,000
Cash invested: $20,000

Purchased a Property in 2019 with zero down and completed a live in flip over the next 1.5 years. Updated the entire property while house hacking with 2-3 roommates. Post rehab refinanced the property and was able to wipe out my PMI and Closing Costs with the forced appreciation. Brining in over $700 after my mortgage and insurance with minimal maintenance required thanks to the extensive rehab.

What made you interested in investing in this type of deal?

At this point in my career I had been working in property management for a few years with the express intend of learning the processes to start my rental portfolio.

How did you find this deal and how did you negotiate it?

Using my connects in my company I was able to locate an off market deal that had the right type of updates. We shaved 3K off the purchase price, split closing costs, and received a 1 year home warranty, which I used to great effect, with this purchase.

How did you finance this deal?

Zero down with a local credit union. Walked away with a check at closing.

How did you add value to the deal?

New trim, doors, paint, electrical, fixtures, refinished/replaced flooring, refinished cabinets, new appliances, revamped the entire landscaping for improved usage and curb appeal, and completely gutted and remodeled the basement bathroom.

What was the outcome?

Refinanced the property prior to renting wiping out my closing costs and PMI. Currently have roughly $70K in equity, mortgage $1,115 and rents $1,930.

Lessons learned? Challenges?

Self taught rehabber who learned everything takes longer then expected, but am more prepared and excited for the next rehab. Learning small things about what I would opt to hire out in the future or steering towards painting cabinets vs refinishing. Since I was already in the PM world tenants and managing were already a simple affair to add to my plate.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Yes, worked with an agent at my company, who also happened to be my sister-in-law. Since then I have obtained my own license to help others locate their future homes and to give myself more flexibility in my next home purchase.

I would agree that you should serve a notice and renovate the property.  They've had a great go of it but the increased rents alone covers your entire rehab budget on one unit.  Additionally if the unit is trashed there may be other issues you are not aware of.  I would stagger out the rehabs so you don't have multiple vacancies.  I doubt having both empty at the same time would provide enough of a bulk savings to offset the rent loss.  Just give them plenty of notice so they have time to locate a new location if you want to be more generous in the situation.  Also make sure you split the utilities when you complete your remodel.

Carpet has a 5 or 9 year depreciation depending on your tax strategy.  The Department of Housing and Urban Development uses the 7 year guideline which is what we use.  I also include a general rule of 3 turnovers typically means new carpets should be expected.  With great tenants you can absolutely get carpet that lasts longer.

Have your installer to bid both carpet and vinyl.  Prorate the cost to replace just the carpet.  Using the 7 year rule the tenants would be responsible for ~57% of the replacement cost.

Here is a link to the IRS publication.  You can find the depreciation scale on page 9.  
https://www.irs.gov/pub/irs-pd...

@James York I appreciate your integrity here and agree.  I would make contact with the buyer to see if there is anything they can renegotiate on but wouldn't stress the issue.  You'll most likely eat the repair cost and shave off a little profit to get the deal done right.  The tenant may have gotten lucky due to timing unfortunately.

How much in repairs are you talking about?  The tenant should be liable but you should get in contact with the new owner.  You need to balance the cost of the repair with the new owners desire to inherit a hopefully good tenant.  You may be able to split the difference with the new owner.

If you have a clause to apply rent payments to repairs first you may be able to use that to recover the funds, but you may leave the new owner with a past due owner.  You should also weigh the potential profit from the sale against the repair.  Your agent might also have a suggestion on how you could possibly alter the deals structure to cover repairs.

I agree with @Nathan Gesner here.  This is pretty cut and dry especially if they admitted to the damage.  I would be hesitant against repairing the floor of the tub.  Is this a 2nd floor bathroom and future issues could cause additional damage?  I've had one similar experience with a large tenant whose weight caused additional issues.  Those additional issues are no longer their fault if the repair was not completed correctly putting you on the line for it.

I would agree with above and not provide access to the mower.  They clearly understood what type of upkeep the property would require so they need to get their own equipment.  Regardless of what your lease says if there is damage to the property, the mower, or a person you open yourself up to legal liability by allowing its use.  Mowers also break all the time so you'll either add another thing to your plate, which will be an excuse to not mow if it goes down, or you'll find it not functional at the lease end date.

Don't bother entertaining their nonsense.  You won't win this arguments with facts.  Get your work done and document with photos before and after.  Make sure to look at both the state and local laws on what you need to return the deposit.  If this is the only charge send the before and after photos with the security deposit and end all future communication.  

I would check with some local investors in your area on the deposit to ensure you get it correct.  If you do mail it out make sure its certified mail and I would also send them an email copy.  Odds are they will reply to the email which is often confirmation of receipt in many states.

Sounds like a tough situation. Does breaking even include repairs, vacancy, and cap ex? Condo's typically don't appreciate over time like SFR so you're relying on cashflow years from now to hopefully bail you out. Definitely follow @Richard F. advice to avoid a costly assessment down the road.

How much equity do you have in the property that you stand to lose?  You might be able to find a local investor to structure the deal to mitigate your losses or waive the commission to break even.  I wouldn't recommend managing your first rental remotely.  It comes with a lot of extra headaches you might not be ready for and CA is it's own beast.

Overall a waste of money when you could instead but it to your reserves.  Though I would recommend them whenever purchasing a new property for the 1st year to cover you should anything fall apart or have poor "repairs" from the last owner.  I would also advise taking photos of the entire property after taking possession for additional documentation should you need to provide it in a claim, though a good inspection report usually does the trick.  

I had great success with America's Preferred Home Warranty.   If you do pick one up make sure you get to choose your own contractors to complete the work, you pay contractors up front, and get reimbursed after the fact.  I've had some bad experiences waiting multiple days for various warranties who couldn't find any authorized contractors to complete the work which caused us to go outside of the warranty and lose tenants.