All Forum Posts by: Bryan Montross

Just like there are investor friendly real estate agents, I think there should be investor friendly inspectors. Is it going to change your report, no. You should still be inspecting and reporting on everything you find. It comes in the conversation with the client. An investor is probably coming in to understand if there are any big-ticket items they didn't see when they looked at the house that might change their rehab estimate. They're going to take the report and hand it over to a contractor to help inform the estimate of repairs. An investor knows that some things are worth fixing and some aren't. When dealing with someone buying their own home, it really comes down to putting them at ease about all the findings. When they see a long list of things wrong with a house it puts them on edge, but I think we all know most are not really that bad. The stove doesn't have the anti-tip bracket. The faucet handle is loose. Easy repairs, but they add up in the mind of a homeowner. Just help them through the process. I find as an agent I am constantly having to put a client at ease about everything on a report because the inspector didn't explain things well during the inspection.

The biggest thing to consider is what your timeline looks like. If you really are a long-term buy and hold investor, then don't worry about a "recession/correction/crash". You only lose your money if you sell when it is down. If these are new builds, there is probably less maintenance, less need for large CapEx reserves right now, and if the rent is covering the mortgage, you're in a great spot. Just don't over-leverage and make sure you have reserves. You don't want to be forced to sell at a time when you don't want to.

I believe it really is all about the numbers. If you run the renovation numbers and buy it for the right price, there are investors out there that will buy it. As mentioned above, though, your buyer pool is limited. You may want to stay away from those properties until you have a big enough buyer pool that you can find a buyer quickly.

One caution I have is people will state, "the value is in the land." This may be true, but they try to sell it for more than just what the land is worth. If the property is truly a tear-down, it is a negative value structure and you should be paying less than the value of the land to buy it because the structure is adding negative value. It really is hard for some sellers to understand that, but most investors know it. Good luck getting your wholesaling business up and running.

1. My first deal was an out-of-state rental. It was the only way I could afford to get into the market. I lived in San Diego at the time. If you find the right team, whether you invest locally or out-of-state doesn't make much difference. But you need to do your due diligence and find the right team. Personally, I now invest locally, but that is because I like to manage my own properties. But I never would have gotten into it if I didn't do my first deal out of state.

2. Partnering is tricky. I'm always of the mindset if I can do it myself I will. But, as I think Brandon Turner used to say, 50% of 1 deal is better than 100% of no deals. If you decide to partner, make sure your work with a lawyer to draft the agreement. I would recommend having an automatic exit strategy (e.g., after 3 years you sell regardless). Or put in specific provisions such as if one partner wants to sell, then it is an automatic sale (maybe allow current partners to have first option to purchase, etc.). Just be clear so the decision is determined now rather than when there is a disagreement (and there will be).

3. There are always deals to be found out there. No matter the current market conditions. They may be harder to find right now, but they are there. As people are afraid to get into the market thinking they can't make money, or a crash is coming, etc., that is exactly the time to be getting in. Stick with it and you will find a deal that works.

@Andreas W.

I apologize as I put some incorrect information in my post. I was distracted and talking to someone about fix and flips and letting them know that the sale is taxed as ordinary income instead of capital gains and completely messed up what I was trying to point out.

I was trying to say that STRs may help to offset some ordinary income with losses if you actively participate, whereas LTR losses only offset passive income unless you are classified as a real estate professional. Please consult your CPA for the rules so you understand how you qualify.

Again, sorry for misspeaking and thank you Andreas for catching that.

You said you were doing a live-in flip. This would change the costs if you are doing the work yourself or hiring it all out. Generally, people doing a live-in flip will try to do the majority of the work themselves and only contract out things they can't do. They also tend to not care as much about the time because they are trying to hit the 2-year mark so they get the capital gains exclusion when they sell. This sometimes helps because you can wait around for deals. Get those appliances on a Labor Day sale or choose a flooring you want and wait for a price drop while you're working the bathroom. Those are some areas you can save. You can also plan out your budget a little bit better and choose your own materials based on how you are doing on budget.

Last thing I would say is you shouldn't need hard money if you are doing a live-in flip. Usually if a place is livable you could get a conventional loan. And because it is your primary residence would be a lower interest rate.

Sorry I couldn't help with giving you numbers, but it is very dependent on location, size and scope of rehab, materials used, etc. Anyways, I hope the above information has at least helped a little. Good luck.

First, I do question why your current LTR is not rented after 4 months. Is the market dropping off in your area? I feel like that probably isn't the case based on all the posts I see from people investing in the Ohio region. Are you getting showings, but no applications? Maybe the house doesn't show well and you need to put some money in to spruce it up and make it show well. If you're not getting viewings maybe you need to change up your marketing. How much is your Agent really doing to get your property rented? Do they have any incentive or are they making money regardless? It might be time to look for a new property manager.

Now, onto your question as to whether you should sell and move on to STR. Make sure the numbers make sense. Are you going to self-manage or hire a management company? A management company can cost significantly more than you are used to with LTRs. And self-management might take significant time. Where will your listing fall if you are a new owner manager and have no reviews? Start-up costs are always higher because you have to furnish the rental. You could buy a current STR and you might get all that included, but it also sounds like you have equity you can afford it. I would caution on the tax treatment of STRs. Your income is treated as active income and taxed at ordinary rates instead of the passive income we are used to with LTRs, but there might be more deductions you can find as well.

After all that, if you know you want to do STRs in the long run, now might be the best time to make the jump. If you are unsure, selling your LTR and getting into a bad STR might just take you out of the real estate business until you can regroup and go back to long-term. Really think about your future goals and decided if the next step you take is getting you closer to that goal.

This does not seem like it is that smart of an investment. First, if you spend $450K to add a unit, it doesn't sound like you are adding $450K in value based on the comps for a 3-unit property. So if you are starting from a negative equity position it takes a lot of time to build that up. It's probably not a good return on your money. Also, it is very difficult to find funding to build on a property you already own, especially if it is also leveraged. If you were building it with cash and had $450K to play with, I would look at buying 1 or 2 more duplexes for $900K at 50% or 25% down and you are probably making more cashflow and you are building equity on multiple properties instead of just the 1. If your goal really is a long-term strategy, having more properties is usually better. I would really look into what else you could buy with your money and see if it would make you more money.

Let me caveat by saying I do not know the Cleveland market. In my personal opinion, if I was renting a room with a group of roommates, I would want more than one bathroom for 4 rooms. I don't think that is a great ratio for unrelated (even related) people. However, you would have to look at your market and see if people are interested in renting by the room and how much they would pay. If there is demand and you could get more for 4 rooms than section 8, go for it. You could even look into companies like PadSplit that help with renting by the room scenarios.

First, Sam can probably help you for anything local, but let me weigh in on a couple of options. 1) List it with any agent and just have them put in the remarks there is a tenant with a current lease until April 2025. This is not my favorite option as most real estate agents wouldn't know how to handle the marketing of a property with a tenant currently in it. 2) Find an investor friendly agent who might already have buyers looking for that type of property. This is a great option, but you are still limiting yourself to investors who want to buy an already occupied home. That pool of investors tends to be smaller. Less demand usually means lower price. 3) Have a conversation with your tenant to see if they would be willing to break their lease and move out. Offer some incentives like paying for their move or covering the security deposit and first months rent at their new place. Then you can sell to anyone looking for a home, but your tenant may not agree. 4) Just wait until your lease is up and do your 1031 exchange at that point.

I am sure there are probably some more creative strategies you could use, but hopefully that gives you a couple of ideas. Good luck with the purchase of the multi-family.