All Forum Posts by: Matthew Rutledge

The day job is good to me, so I'm not too concerned about the rental income being docked 20%. But that is really good to know.

My current understanding of the rules (which could very well be wrong) are that the 4 years I have demonstrating successful rental of the first place should cover the "experience" requirement. I guess we'll see where that lands. If anything I have another question to ask. Thanks for reminding me.

I will be "buying smart" and not blowing my whole reserve on the purchase price. The goal is to find similar properties the flippers are looking for. Things in distress for one reason or another. The rehab will be funded through the cash reserves and considered when making an offer.

Even if I wind up with a "turn key" place I plan to hang onto at least $10k and probably more. Because stuff happens...

I figured this would be a good place to document what I'm doing. (I'm sure we can move this if we need.) I welcome constructive criticism. I even welcome someone telling me I'm an idiot. The goal is to write it down so I can learn and others can learn from my mistakes.

Where I'm coming from
I am one of the "accidental" land lords you may have read about in the paper. Back in throws of the bubble bursting my wife and I were fortunate enough to find a great deal on a new house and still be able to keep our old place as a rental. Under the watch of a good friend of mine we created an LLC to manage the rental, and all but two mortgage payments and nearly all the maintenance have been covered since. (First when we moved, second between tenants and a way too long mini-rehab.) I consider the old place to be cashflow neutral. On a monthly basis we are ahead, but maintenance and whatnot seems to keep balances for the property pretty near zero. This has been the case for about the last four years. Even when the balance sheet for the property had a ton of cash in an account I didn't touch it. (Thankfully, because we needed that.)

First - there are some things I am doing to improve cash flow. We are refinancing the loan. We are shopping for insurance. Should this tenant move (seems likely) we will probably increase rents to better align with what the Denver market is doing right now.

In the last years I have been doing a ton of research. I've read a lot of books. And I'm ready to step out and purposefully get into another, better cash flowing property. Since Denver is a sellers market at the moment, I am looking elsewhere. I suspect my next purchase will be in the Colorado Springs area. I grew up there. I know the area a bit. My parents still live and work there. And based on the pretty colors in the zillow map it looks like it could be a decent spot to find some cashflow.

And here's the plan.
I am going to tap into the equity of my primary residence. This will put me in a "cash purchase" position. With this I should be able to purchase something that might need a bit more work than most people would accept. I will then get things cleaned up and ready to rent. I work slow. I have a day job. From the time I close on a property to the time I would consider it ready to rent should take just under three months. Unless I manage to find some local help. (I have been talking with my Dad about that.) So my "holding costs" are going to be higher than most people.

Then, the plan is to refinance the newly refurbished place to pay off the equity loan against my primary. Looking at the calendar, I'm guessing there won't really be time to jump on another home this year (trying to rent something between November and January really stinks), but maybe I will repeat the exercise in the spring.

In general, the whole process will look very much like a fix-n-flip, only I will be selling it to myself at the end.

I had a meeting with my mortgage broker yesterday. Things are moving forward, but maybe not as quickly as I would like. At this point I'm not sure if we'll close the refi on the old place first or get cash for the investment first.

The next big step is get money in my account. From there I will start really shopping for houses. I have a couple neighborhoods scoped out. I may try to hit up the county auctions. We shall see what comes.

I won't update this every day, but I'll try to update it every time I feel I make good progress (and am not too wiped out from rehabbing).

Thanks for sharing the adventure with me.

-Matt

I'm a few days late to the party, but Welcome Ryan!

I'm told there is a monthly meet up in the Tech Center. Setting up a key word search for "Denver" should bring it up when it happens.

-Matt

I just re-read my post, and I sound more like a nay-sayer than intended.

@Grant P. seems to have a few things in mind.

In my rather amateur opinion squeezing another hundred in rent should be right at the break even point. And that's especially true if the vacancies stay down.

Off hand, it doesn't look like the numbers work.

Plan for vacancies (1 month per year is decent planning), utilities while vacant, clean out and repair costs at move out, tenant locator costs, stuff that WILL break or wear out...

Don't forget property management fees. Those are typically 10% of rent monthly. In your case, that pretty much negates any cash flow potential. I really can't imagine being able to go without a property management firm living on the other side of the country.

Off hand, it looks like you will be losing money for the first two years until that PMI is gone. After PMI, a wild guess at your cash flow would be as much as $100/month, and even that may be optimistic.

Can you refinance now and drop the PMI?

The Denver market is going gang busters right now for sellers. If your place is move in ready it really might be best to sell it (probably in a week at this rate...) and take the proceeds to your new home and see if you can get into an investment property there.

I have a rental in one of the Northern suburbs that is currently only cash flowing about $25/month after expenses and proper budgeting. But I consider that a "loss" property. It is a very special case. My wife is emotionally attached to the place and we are renting it at a discount to some friends.

The point is, you can do it, just don't expect to make a lot of money doing it. And I would expect the first two years to cost you roughly $3k until you can get rid of that PMI.

Run your own numbers. Figure out your own appetite for risk. Do it, but have realistic expectations.

Good luck.
-Matt

There are three resources I use to do a quick check on expected rent for a property:

1) Craigslist - you did that.
2) Zillow.com - They tend to be optimistic, but it's a good check.
3) County section 8 rates

County section 8 rates should be considered the floor of the market in most areas. If you are renting below section 8 rates there should be a good reason.

When looking at zillow I tend to focus on their "range" rather than their "estimate." The low end of the range is likely to rent faster than their estimate or the high end.

With those three resources you should be able to get a pretty good idea of what your area and home should rent for without pestering a property manager.

-Matt

Thanks for the welcome.

I will be sure to set up the alerts and try to catch a meet-up. Sounds great, and I like the hacienda!

Matt

Long time lurker, huge fan of the podcasts, thought I would make an effort to actually join the community.

My name is Matt, and as the title of this thread would indicate I am an accidental real estate investor in Denver, Colorado.

Wait, accidental? That's right. See, my wife and I had a house that we "owned." (Bank owned it...) and while we were pretty happy living there we were still saving for something bigger and better. Along came the real estate bubble, and we find ourselves in a good position to buy our dream home. So, we jump on it in summer of 2009.

But, the market is down. Really down. And we don't want to sacrifice our old place. So we rent it out. Based on what I've read in the news paper and heard on NPR, we are not the only people to have come into this situation.

And here we are a few years later. Denver is suddenly a sellers market and we are sitting on some substantial equity in both houses.

After talking things over with my wife, my mortgage broker, and re-reading Rich Dad Poor Dad, it looks like we are ready to tap into some of that equity and make the accidental investing a purposeful event.

In a few weeks we'll be aggressively hunting for new places. We plan to keep the buy and hold strategy. Since the Denver market is recovering, we're exploring Colorado Springs a bit. They do not seem to be recovering quite as well, and the single family rental outlook seems to be reasonable.

I'll try to make a few posts now and again so others can track the story. It should be an interesting ride.

So far the site and podcast has been a good source for inspiration. Maybe one day I'll be able to give a little back.

-Matt