All Forum Posts by: Patrick Chafe

Hi All, 

Looking for some opinions on a situation i am in... 

My fiancee and I recently bought a new home and i am trying to decide whether to keep my current primary and rent it out, or sell it. Here is some background on the property: 

Description: 2,100sf(this includes finished basement), 1/4 acre lot, 4 bedroom, 2 bath, garage 

Info: I bought the house in 2020, the week that the world shut down due to covid and have a rate of 2.99%. Before I moved in, I completely renovated the entire house. I got a market analysis from my Realtor and she is thinking that the house average worth is $700k. I owe $454k on the mortgage and after realtor fees/closing costs, i could net $200k with no capital gains tax. 

My Thoughts If I Sell: I have another single family rental and my plan was always to keep this house as well to have (2) SFH rentals. However, i never expected it to appreciate so quickly. So now, i am considering selling it and paying off the majority of my first rental (I owe about $255k so i could payoff a big chunk and pay off the rest with added payments over a year or two), or put the money into stocks and grow it from there. My rental has a mortgage rate of 3.5%. If i paid off my first rental, it would bring in $2750/mn (before quarterly taxes/expenses) and then i would have a bucket of equity to tap into if i ever wanted to buy more property. If i did sell, i am not sure which way i would go, because the stock market would(hopefully) do better than 3.5% so technically i would make more by putting it into stocks, but it would feel really nice to have a property paid off.

My thoughts If I Keep: I could keep the property and rent it out for around $4,000 it looks like and would make approx $1400/mn before expenses/Cap Ex, assuming I manage it myself. The nice part is, I renovated the whole thing in 2020(new shingle roof, new siding, new heating system, new HW tank, new kitchen, etc.) so I dont foresee any big CapEx expenses in the near future. A couple concerns i have are, with buying a new home and renovating that, i wont have much money to make it rent ready like paint patching, cleaning, mortgage payments until renters move in, etc. Another concern i have is the backyard has a BIG hill which is pretty dangerous to mow and could be a liability, however i could always include lawn care as part of the rent to avoid safety issues. Down fall is now all of the equity i have is split into the (2) properties and would make buying another property in the future a little more difficult.

Any thoughts or opinions are appreciated. 

Thanks!

-Pat

@Erica Allen

Hi Erica, 

I am a commercial construction estimator out of the Boston area, but I have prepared a budget for a residential property based on an inspection report for a friend of mine looking at a duplex. I agree with most people on here suggesting to pay a general contractor or even an independent estimating company to prepare a budget based on the report. But as we know this industry can move fast and sometimes time wont allow to get a GC involved before making an offer, in which case you may need to prepare a budget yourself. If you find yourself in this position, there are a couple strategies you could use: 

1) Historical Data - If you have done work like this in the past but not in Ohio, you can build your budget based on the costs of similar work in other areas. To get the cost into "Ohio Dollars", look at a website called RSMeans. This website (and book) can provide unit cost data as well as geographical cost data from city to city. You can apply the cost ratio to your historical costs to get the anticipated cost of work in Ohio. ** Be careful if you use the unit costs(i.e. flooring cost per square foot) data on small quantities, sometimes the math doesn't work when the qty is to small.  RSMeans isn't a perfect science so i like to be conservative with this. For example from Boston to Ohio, if Ohio typically cost 20% less than Boston per RSMeans, i will only do a 12-15% difference to give myself a buffer.  

2) Labor & Materials -Break down and itemize the scope of work, and then allocate costs based on labor and materials. When looking at material costs on google, be very careful of where you get the information. If a manufacturer is providing the cost of material, remember there will be distributor mark ups and then general contractor mark ups. Labor can be a little trickier, but i like to ask myself "how long would it take me to do this" and then multiply the labor hours by a labor rate. I like to be VERY conservative with this approach, and sometimes the more complicated scopes are harder to do this with. Also keep in mind to add a General Contractor overhead and profit % at the end. 

When i am doing my own budgeting, i often use a mix of historical data as well as labor/materials. Sometimes i will even approach the budget for an in item in a few different ways to see if i get close to the same answer (i.e. Labor/Materials, Historical Data, Unit Price). I will also add a contingency to the budget for unforeseen scope. 

In my opinion when preparing your own budget it always better to be very conservative to make sure the deal works, and if it comes out less than the conservative budget, great! You'll make more money or just won't have to spend as much. 

Sorry for the long winded response, but feel free to reach out with questions. 

Thanks,

@Jon R. This exact same scenario happened to me about 9 months ago through the Facebook marketplace app. I was very nervous when it was happened for a couple reasons - 1) I didnt want anyone to be scammed and 2) I didnt want to liable IF someone did fall for it. I have a few friends that are policemen in the area so I asked them about it and unfortunately they said it is very common and there is almost nothing they could do. They recommended that I make a sign and leave it on the door and in the windows (making it very clear), that unless they were talking with me directly or they are with me to do a walkthrough then they were being scammed. My rental property is right around the corner from my primary house and one day we drove by and there were people walking around and trying to get into the house. So we stopped and found out that they were instructed to meet someone there, but once they realized it was locked, the guy left "to go get the key" and never returned. Apparently the guy had said he was with a property management group out of Cali. Since then I have learned to never put the actual address in the listing and have them reach out to you for the address. Also, this is a lot easier to happen to a SFH rather than a multi family because the whole property is vacant. I had several serious tenant applications at the time, so I reached out to each of them, let them know the situation and reassured them that I was the actual Owner... especially since I had the keys to get inside and walked the properties with them. Jon, feel free to reach out if you have any questions.

@Heath Thomas Jr Hi Heath, thanks for responding and providing some advice! I also think that a rent decrease of 20% is highly unlikely but was looking to see what other people thought. I do plan on holding the property for a very long time so not necessarily to worried about the value of the home but more the strength of the rent holding in an economic crash. Now, I tend to think(or hope) that we wont see a big crash, but more of a plateau for a while. If I did this cash out refi, I would replenish/add to the emergency fund just for a little extra comfort but would like to use the rest to buy more real estate. $40k wouldn't buy much around me so likely I would have to look out of state which I have never done before.  Have you ever invested out of state? Any advice on that avenue? 

And what is your opinion on where the economy/housing market is headed? 

Thanks!

Hi BP Community! 

I am looking for any advice someone may have for my current situation, thanks for any help!

I own a SFH rental in Peabody, MA which has appreciated quite a bit this past year. Right now the LTV is approximately at 65%, and it cash flows a little more than $700/mn (I manage it myself).

Question: Is it to risky right now to do a cash-out refinance for approximately $40k-$50k and bring the LTV to 75% in this current market? I would like to cash out now, before rates start increasing again to have money ready to buy more real estate, especially if the market dips. I have been reading a lot on the current economic situation, the housing market, and keeping up with the forums on peoples opinions of whether or not the housing market will crash, or possibly a small dip in the market as the rates start to increase. I am learning a lot from reading the forums but it hasn't necessarily helped me make up my decision, and if anything, has made me more uncertain. My concern is that if I do the cash out refi, it will likely put my mortgage around $1900/mn, and the property rents for $2750/mn which still doesnt seem bad. However, if the market/economy were to crash 20%(including rents) it would likely rent for $2200/mn and I would essentially be breaking even, or loosing money if a big cost expense were to happen. And if there was a crash and for some reason was forced to sell, I would likely only break even. I know a HELOC is an option, but that doesn't seem feasible right now with interest rates on the cusp of rising.

So, the main question, is a 75% LTV in this "over priced" market to risky?

Thanks!

-Pat

@Johanna Rodriguez Hi Johanna, my girlfriend and I are thinking about moving and investing in the area as well. I’d love to pick your brain about the area.

@Ian Rowland Hi Ian, thanks for posting this. My girlfriend and I have been talking about moving to the Dallas/Fort worth area ourselves. Seems to be a great investment opportunity area. And a lot more affordable than my current market(north of Boston). Interested to see what people have to say and learn about the area.

Good morning all! 

I am preparing my mailer letter to send out soon and was curious to how some of you structure your letters? For example I know Brandon Turner likes to put a family photo and he has talked about putting (2) offers different offers in his letters, however I am curious if I should put offers in the initial letters or wait until I get a response first. Does any one else have any other strategies that have worked for them? Any input/advice you all have would be appreciated!

Thanks,

-Pat

@Aaron K. Thanks for the advice! The more i think about it, the more i am leaning towards renting. I think your right, there isnt to many properties around here that would produce the same cash flow. Thanks!

@Kody Thompson Thanks for the advice! The more i think about it, the more i am leaning towards renting.