All Forum Posts by: Nathan Zierer

Couple of things:

Your ROI is at 5.5% - (average for the stock market is 7% and this can be a lot less work than owning a home)

There is no break out for utilities - does the land lord in Denver have to cover anything.  I am used to paying for Water, Sewer and Trash.  Electric and Gas are on the tenants. 

Are you always going to self manage or will you get a property management company - budget on the high end at 10% until you find one and see what they are actually charging. 

Insurance seems low to me, I would have figured about $140-160 after you have moved out and its purely an investment property.  While you live there it should be higher still. Have you contacted an insurance company to see or is this an estimate from a 3rd party real estate plate form?

Maintenance & Repairs - are you combining the Maintenance and Capex at 5% each. If so, that old of house (unless it was gut rehabbed recently) will require a larger Capex. Cast iron plumbing stacks/sewer laterals, lead or galvanized water lines, fuse boxes/knob & tube wiring, roofing, windows - and if your in a historic district they city/neighborhood will have a lot to say about what you can do and its never the cheaper option. Here in St. Louis, the Cultural Resources Office will make you put in historic looking wood windows that can cost $800-1,500 each vs. vinyl at $400. Also the Repair % will depend on the tenant quality, college students will tend to tear a place up while young families not so much. Also if the house is full of plaster the repair costs can go up because it can unravel from a golf ball size hole to a whole wall if your not careful (I live in a house from 1886)

Not trying to discourage, just laying out some items that I didn't see and don't know if you had factored in. 

Unfortunately, the historic charm really doesn't do you much good if the entire neighborhood you are looking is full of those kinds of houses.  A place where that historic charm really can play big role is in the suburbs, for example a home built at the turn of the century as a farm house is now surrounded by 1960s and 90's house can play off of its old world charm.  But here in St. Louis in the south city area, everything is old so there isn't much to really set your-self apart and the 2 bed up the street will rent for the same price as the one your in no matter if it has a painted wood stair and newer front door vs. the stained wood stair and original front door.  Actually if its apples to apples, it seems people here look for the newer elements because they assume the house is more efficient or up to modern living here. Generally the old world charm here is seen as run down, drafty and in need of an update.  I personally really like the old wood charm though.   

If you already own a home and are doing renovations, its a great way for you to improve your living situation and at the same time build equity. Then turn around and use your sweat equity and get a HELOC to use on future purchases. That is what I am currently in the middle of doing. It wasn't until just last year that I really understood how to utilize the equity in my house. I though I either had to sell it or cash out refi but realized that the HELOC can keep your recurring expenses low while allowing you to live in your "dream home" - considering you just did all the renovations to your liking. Plus, the learning knowledge of working on your own home allows you to gain an understanding of even just the simplest home repairs that you can save money in future work you can do, especially when you are just starting out. I will say that I am already budgeting to get a property management company because I don't want to do all this work myself, but it is great sweat equity - working on your business not in your business.

 I first got started, unknowingly, with the house I currently live in.  Not knowing at the time, this house became a live in flip. When I bought it, the house was livable but had a cheap "renovation" and I ended up gutting the whole house.  Luckily, the neighborhood I moved to was just about take off and through "natural appreciation" and force appreciation - the house has increased by about 350% (about half of that was forced appreciation). The real reason I purchased the house was it being historic ca. 1886 and I think it had a lot of character (see the attached image).  It really started as a hobby... then realized I could make money at it, it also doesn't hurt that I am an architect and my family has a history in the construction industry.  Sorry if that felt like rambling, but it is a ton of fun.

Congrats on the purchase!  I actually live in that neighborhood, I wish I would have see this come up though I don't recognize the building.

Any other time I would say take it just from what I know but right now with the extension of the eviction moratorium to September(?) it changes the game.  The two big questions I would ask your self, is can you afford to hold these houses for at least 9 months with no income and is this an easy market to rent in?  The first is pretty self explanatory given todays conditions, but there could be other deals out there that you can put your money to work in and the cost benefit is you reach back out to the owner later this year.  If the market is easy to rent in but no other deals, then think about cash for keys situation maybe - maybe even more than you think is needed.  Giving the current tenant $1,000 and he will think he won the lotto and you could recoup that before the end of the moratorium with a new great tenant that will pay.

First and foremost is educate yourself and this will help you work backwards from the $15,000 cash flow you are looking at. There are many podcasts that talk about the domino affect, I am just now starting to get the understanding of how detailed this needs to get.  Getting an additional job in the real estate world would probably be beneficial so you can earn money while learning the trade.  If you want to work on flipping, look to work for a general contractor or developer or real estate agent - all of them have their plus's and minus's.  Just educating yourself, let alone getting on BP, is a huge step and one step people never make their entire lives.  It took me until 30 just to find out about BP, though I have always been interested in real estate - BP helped motivate me to actually get started on the path to Buy & Holds.  Good luck and reach out anytime!

You mentioned this was a flip.  Home owners want the shower in the master bath as it looks more updated and not a fluff and buff of an older house layout.  The finishes you picked out should definitely give it that upper scale look and though you are paying for a little more tile and a shower door, all of your other costs should be relatively the same. When looking at houses people want at least one tub for child bathing or soaking for them selves (though I don't think many people end up doing this).  I say go with the shower since you already have a tub in the house.

To add on to what these guys said already, one thing to take into account is the amount you are increasing the rents. For example the current rent is at $650 and market rents are $850 - and the tenant is a good tenant with never getting a call from them - look for middle comprise that doesn't make you more work with a potential bad tenant or even just a "needy" tenant that is constantly calling you for small stuff. But same can go is it worth it if current rent is $1,800 and market is $1,950, bumping that up the $150 shouldn't be that large of an impact on but this is all market dependent.

I would always renew tenants under MY lease terms because its what I know and what I am comfortable with - but I do make a point to keep my leases simple.  I have seen 10 page, Legal size paper leases and that does seem to scare a lot of people off because when they are that long its a land slide in favor of the landlord. Just as an example, my lease is legal size paper, front and back with 12pt font and narrow margins.

21 is definitely not too young.  I bought my first live in flip at 24 and looking back I wish I would have started sooner.  And I guess I wish I would have started with a small multi-family (duplex, triplex, quad).  Utilizing the first time home buyer incentives would have made a huge impact at such an early age.  I know it looks scary and you think you should stabilize your position in life but just keep in mind that at some point, hopefully in the near future, the money your laying out for that first place will seem insignificant.  You just getting on BP and educating yourself is a huge step that most people will never make in their entire life time.  Good luck and reach out any time!