All Forum Posts by: Bryan Montross

Quote from @Jonathan Pflueger:

@April Birdsong

Home inspections almost always bring surprises, like the plumbing and attic fire remnants you've encountered. Here’s how I see it and a possible plan of action:

Plumbing Concerns:

- The Good: New plumbing inside the house is a thumbs-up. It shows that part of the system is updated and likely to be reliable.

- The Caution: Rusted cast-iron pipes outside are a potential headache. These could lead to leaks or blockages, requiring costly repairs or replacements down the line. I have dealt with this before and I almost always end up ripping them out and replacing.

Action Steps:

1. Get a Plumber: Have a professional plumber assess the condition of those outdoor pipes. They can provide a clearer picture of what you're dealing with and potential costs.

2. Seek Multiple Quotes: Don't settle for the first estimate. Get a few different professionals to take a look so you can compare advice and costs.

Attic Fire Aftermath:

- Visible Damage: Seeing the aftermath of a fire in the attic is a red flag. It's essential to understand the extent of the damage and the quality of the repairs.

- Structural Integrity: The main concern is whether the fire compromised the house's structure and whether repairs were cosmetic or structural.

Action Steps:

1. Consult a Specialist: A structural engineer or a contractor experienced in fire restoration can assess the damage and the quality of the repairs.

2. Detailed Inspection Report: Ensure you get a comprehensive report that outlines what needs to be fixed, if anything.

Gathering More Information:

- Talk to the Seller: Understanding the history of the repairs and any challenges they faced can provide valuable context.

- Review Historical Permits: Check with local building authorities to see if the previous owner obtained the necessary permits for the repairs. This can also indicate the work's legality and thoroughness. VERY IMPORTANT STEP!!!

- Community Insights: Sometimes, neighbors or local real estate professionals can offer background information about the property's history and any significant incidents. Before I buy any property I always door know the neighbors and see what they can tell me about the properties history. You will be amazed at what you can learn. 

This may look and feel like an impossible list, but it is not. Start working through the items one at a time and you will see it is not really that hard or impossible. This is the type of work that sets the pros apart from the novices. Due diligence is so incredibly important. You make your money when you buy, end of story.

Best of luck!

This was some great advice from Jonathan. One thing I might disagree with is that I would think the plumbing issue is a greater risk than the fire issue. Rusted cast iron pipes outside are grounds for roots and other things to penetrate the pipe and cause a blockage. Having water and sewage back up into your house is going to be a costly repair. It is definitely something to get fixed.

As for fire damage. I currently have a place that has charred beams in the attic. Not an issue at all. Most likely you'll never have an issue unless the company/person doing the repairs after the fire cut corners. If a fire restoration company came out to inspect after the fire they would have deemed whether the structure was safe or not for repairs and to continue living in.

Always good to do your own due diligence, but I personally think the plumbing and potential water issues pose a higher risk.

Hopefully you already got the answer you were looking for, but from my experience, it can be either you or the PM. It just matters what authorities you have given the PM in your agreement with them. I don't know if States have different laws, but that is something you would have to ask an attorney. Because the lease is a standard lease with just the names, dates and amounts changed I usually just let my PM handle it and give me a copy. We have already agreed well prior to that what amount I want, and what my criteria for a renter is, so it is just less work for me.

Just like John O'Leary said, many investors fixate on low rates. Instead, focus on your returns. If you pull the equity out through a refinance and deploy it in a new investment, does the combination of the two give you a better return? If it does, the interest rate doesn't matter as it is just a part of the calculation.

You might also look at selling one or both of the properties in a 1031 exchange and buying into a new property (or several) that provides higher returns. Don't get stuck keeping a property, or loan, just because it has a low interest rate. Look at the performance and try to optimize your portfolio from there.

Quote from @Kevin S.:

Quote from @Bryan Montross:

@Mary Jay Real Estate Investing is a long-term investment. You really have to calculate what your return is over the life of the investment. If you only plan to hold it for a short time, I would never go with a negative cash-flowing property. But if you plan to hold it for 10, 20, 30 or more years, just project what you think you will be making. If you buy a property that is losing $100/month, that's $1,200/year or $12,000 over 10 years. If you look at the median home price over a 10-year period do you ever see where it dropped $12,000 over 10 years? Additionally, I don't think rents over a 10-year period have ever gone down, so your $100/month loss is probably less than that.

However, is that the best use of your money? Are you getting the best return you can get with your money? Generally I feel you could probably be doing better with your money and get a better return, but I don't know where you are investing.

Let me tell you a story of mine where I had a negative cash-flowing property. When I bought the property it was cash-flow positive, but the crash of 2008 hit and I was underwater on my loan and rent dropped so much I was negative cash-flow. Because I was underwater, and had the income to support paying the extra, I kept the property. I still have it today and provides almost more cash-flow than any other property I have. It's gone back up in value so much I pulled an equity line of credit from it that I use to fund repairs on my BRRRRs or flips. I looked at the property as a long-term investment and have done very well with it.

 Just curious Bryan about that property of your held long term.  Did you ever compare it to stocks to see which one comes out ahead? 

 I have not specifically analyzed it against stocks, but when I bought it, it was outperforming stocks. If I sold it once I went negative cash flow I would have had to pay out of pocket probably $30k-$50k. If I lost that capital I would not have been able to invest in the stock market and even more I would not have been able to invest in my next real estate deal, which is now grossing me over $1,000 per month. By holding on to the property long term, even through negative cash flow, I think I am in a better financial position than I would have been in if I just cut my losses and ran. 

Please feel free to DM me. I do most of my investing in the Glen Burnie area and most of my clients are looking for houses in the North Anne Arundel County area. 

Tolu--

BP is the place to be if you want to learn. Check out all their podcasts, blogs, books, and of course the forums.

Are you looking to invest locally in Baltimore or wanting to do long distance investing? I think the first thing you need to figure out is what excites you about real estate and start becoming an expert in one area. There is so much content out there you could spend your whole life consuming content and never acting. That's why picking one strategy and just going with it will help you take action.

Good luck and let us know if you need anything.

Quote from @Samson Oni:

Which type of insurance do you guys recommend for a town house rental property? Landlord insurance or personal home insurance? I wont live there. Planning on renting per room. 

Yeah, if it is an investment property personal home insurance will not cover it. You need landlord insurance. Talk to your insurance company and tell them exactly what you are doing.

Definitely require in the lease that your tenants have renter's insurance for their property. Because you are doing rent by the room, if you plan to furnish common areas, make sure your insurance company knows that you also have personal property there and the value to make sure it is covered. Many people forget about that when they furnish a place and do not carry adequate coverage.

@Kyle Pulleb First, make sure you are following the laws in your area that you can collect first, last, and a deposit. In most places I invest I can't collect last month rent, just a security deposit. I have also never seen a place that collects all three, but I'm not saying they aren't out there. Given that the amount of the last and security deposit are not in question, whether you collect one or both you know what that is. Your question is really what do you collect for the first month's rent. This is how I generally see it done. At the time of lease signing they would give a check (usually like a cashier's check) for 1 full month's rent ($1000 in your example) and then the pro-rated amount would be due on the first of the month with every succeeding month being the full rent.

For my own investing I usually look at it on a case-by-case basis. If they are moving in 3-4 days before the end of the month I might just ask them for the pro-rated amount and the full months rent. If it is a higher end rental where the rent and security deposit cost more I might take the pro-rated amount up front and just have them start paying normal rent from the first full month so they don't have to come up with quite so much cash up front.

It really is your preference and what you think is the best for your business and for your tenants.

@Mike Boss Regarding which might be appropriate in different situations you really need to look at what is happening if one person passes away. Generally husband and wife will do joint tenancy because if one passes away it is still the house of the other spouse. If you own a house with someone that if you were to pass away you would want them to own the house 100% without argument, use joint tenancy.

If you want to control where your percent ownership goes upon your passing use tenants in common. If two friends buy a house together they would be more likely to use tenants in common. If you pass away, you don't necessarily want all of your equity going to a friend. You might want it to go to your parents, or a sibling, or maybe a child you have.

If you're investing with a partner I would use tenants in common instead of joint tenancy; however, if it is an investment I would highly recommend some entity own the property and have the documents for that entity describe exactly what happens to the property in different situations.

I hope that help clarify some different situations when one type of ownership is better than another.

At your age I would definitely recommend keeping both properties. Personally I never look at how much interest I pay over the course of a loan. I don't know why your lender would even be presenting that to you if he truly understood your goals of investing. You have a house that will be paid off by tenants and you are getting paid to have it. Interest is just the cost of business. Additionally, you will now have 3 houses (your primary and 2 rentals) that are appreciating, which is where real wealth comes from, not from the cash flow. Keep building your properties, not trying to get rid of them at this stage.