All Forum Posts by: P.J. Bremner

@Jamie Garcia

I hate to do this to you, but you're better off asking a mortgage specialist that is familiar with those sizes of loans. I was not in the mortgage industry long enough to have exposure to multimillion dollar homes and dealing with jumbo loans. Typically when someone inquired about jumbo products, I would do my best to steer them towards a HELOC product and briefly go over the numbers for a jumbo loan. Then they heard the rates for the jumbo product, they often would withdraw from the conversation lol they are just that bad (the ones I had access to).

On the flip side, I would much rather offer you an alternative that may interest you rather than doom and gloom lol.

So in southern California, the rent to price ratio is a joke.  Most people quote the 2% rule as a good deal, but it's virtually impossible through traditional methods.  That means you either:

1. Find a non-conventional method that can achieve that type of return
2. Go somewhere else where that kind of return exists

When I first set out, I only had enough money for FHA loans. I bought my first place with FHA and figured out a way to get 2% out of a SoCal home. Since this is most likely not something MOST people are capable or willing to do, then I suggest the latter option. You can find a $40,000 duplex in Ohio that will rent for $800 - $900 total. If you figure 50% for expenses, you still make a very healthy return on your money for that. The flip side is that you shouldn't expect your $40k property to be worth much more than $40k anytime soon. Your $1M home will never cashflow the way you want it to, but it MAY go up in value to $1.25M within a few years. SoCal is a market that certainly makes that possible. I guess you just need to pick your poison :P

@Greg Horn

That's a good point and they actually had several people at the REIA meeting that they had done deals with or were currently in deals with. They are legit. My concern was more about the structure and if it was worth giving up that kind of profit for their experience and access to capital.

@Steven Leigh

That's another great point to make.  Rental rehab and retail rehab are miles apart!  The kitchen could have used a paint job + new hardware and you have yourself a new kitchen.  Unfortunately, rehabbers in this area are going all-out for kitchen remodels so you better have new cabinets, granite counter tops, backsplash tile work and stainless steel appliances or you will be sitting on the market for a while.  To be quite honest, I'm not sure how most of these people are staying in business... I see what they bought the house for and have a pretty good idea of their rehab costs.  I can't imagine anyone going through months of work and hundreds of thousands of dollars worth of risk to make $10k on a flip LOL.  Who knows, maybe it's just a hobby for some.

So I am looking at doing buy and hold out of state and Ohio is definitely a place I would consider.  What kind of cash on cash returns are you seeing for buy and hold deals out that way?  Maybe you could PM me so we don't hijack this post hehe

@Steven Leigh

Yeah, I couldn't agree more.  I repeated it because I had made the same mistake myself and had a couple BP "wholesalers" approach me with deals that were wildly off.

When I first started, I used a non-licensed handyman (his work was better than most contractors I know) and his cost was $150 per day per person (he usually had a partner or two depending on job size) and I paid all materials separately.  My rehab costs were significantly less than if I had used a contractor, so when I started estimating jobs, I would add up materials and just ask for labor quotes from a GC and ballpark time to complete.  It was definitely a rude awakening for me! Lol

On the flip side, I had someone estimate a rehab of $15,000 on a 1,200 sqft home that needed mostly cosmetic repairs, but needed a kitchen and master bathroom gut.  I dunno about you, but if I could repaint an entire house, put brand new flooring, exterior paint, fixtures, kitchen gut and master bathroom gut for $15k, I would probably have my own guru program to sell haha.  

Because I have made the mistakes myself and have seen others do the same, I try to emphasize them for the newer people.  I made sure to note that you pointed it out, wasn't trying to criticize you; more of an elaboration :)

@Patrick Philip

Sorry for responding to this so late, unfortunately your tag didn't work and I didn't notice it until now.

A partner would be someone you would go into business with with a structure like 50% - 50% split.  You both put work into the deal or a mix or work/funding and profits are shared accordingly.

A foot soldier would be more like an employee or a private contractor.

Perhaps it would be easier for me to give examples to demonstrate the differences.  

I have a business partner that I work closely with.  I work on the marketing, web site, design, have the experience with remodels, etc.  He has more time to answer calls (he is a realtor as well, so he's already fielding calls all day), has amazing rapport skills in person and handles face to face negotiations, etc.  We split up the work load and split profits evenly when all is said and done.  This would be the partnership model.

If I decided to take on "foot soldiers" then it would be more like finding employees.  I would determine which aspects of the work I don't want to do, then either find someone who knows that OR train someone from scratch to do it.  I can either pay them commissions when they do what is asked or pay them salary.

My personal opinion:  If you are small and just starting out, take on partners that have skill sets you don't have or don't care to utilize.  It's much easier to manage a partner than it is to manage an employee.  Partners want the business to succeed as much as you (mostly) and so they don't usually don't need to be managed.  Employees are more time consuming, but they also don't financially burden your business as much as a partner would.  When you reach a certain size and can afford to scale up with employees, then that would be the route to go.  If you can to carve up a % of your business every time you needed help, you would be left with 0 equity in the end.  The flip side is, when you first start out, you probably don't have the time or the finances to pay an employee properly.

Something to think about I hope!

@Steven Leigh - Just a word of caution on estimates by square footage for the newbies that might read your info and run with it, I'm quite positive that your estimates are geographically sensitive (which you mentioned).  There is no way in hell I could rehab a home in southern California for $20 per square foot and if I budgeted that price, I would be off by about 50%.  I've found in SoCal it is closer to $30 - $35 for bad shape (maybe not totally trashed, down to studs, but pretty rough).  I definitely like the square foot estimates to get rough idea though, they are usually pretty damn close!  You have some great ideas though, especially for out-of-state buyers.  I'm sure taking tons of pictures and itemized repair lists would make them feel confident in your pricing.

@Cameron C.

I'm not sure how your market it, but here in SoCal around the colleges, room rentals are generally $hit.  Either you live with a family and deal with kids and dogs and cats and mess, OR you deal with a retired person who yells at you for coming home late (yes, 9 p.m. is late to some).  Funny story, I actually had a tenant who was nearly assaulted by an elderly lady because when she came home in the afternoon, she turned the door handle the wrong way, which cause it to make a lot of noise.  She immediately put notice in and moved into one of my homes (and paid about $250 MORE per month).  Even worse are the idiots who buy a house and rent to college kids with 0 structure, 0 management skills and 100% interest in taking advantage of desperate kids.  Eventually their house falls into disarray and they only way they keep rooms rented is by lowering the cost so low, only the deadbeats will live there.

I'm able to charge well above the market rate because I have a really well done house with all the fixings (leather couches in living room, 60" wall mount TV with HD channels, etc.).  All rooms are furnished and all utilities are included in the rent.  I average $700 - $1,000 in bills per month but am able to collect well above that by including it in the rent at a flat rate.  If you want to chase people for their $12.56 share of the electric bill, $4.12 for their share of the gas bill, etc. then be my guest, but it's not scalable and definitely not cost effective.  I also pay a maid to clean common areas twice monthly ($60 per visit, it's a deal for sure).  People will pay the premium to live in a beautiful home WITHOUT BS RULES, PETS AND OLD PEOPLE lol.  I also do month-to-month only in order to keep my vacancy at 0%, which I have done for 4 years now for multiple properties.

If your house has a kitchen, den, family room, etc. then I recommend converting it to a bedroom.  You only need a kitchen, living room, bedrooms and bathrooms (and laundry on site is a huge plus, but for God's sake don't put coin op... if you had 30+ tenants in one house then go for it but for less than 10, just make it free and up the rent).  Everything else is wasted space.  I actually love to knock the wall out between the kitchen and living room and put bar-top seating area.  Nobody wants to sit down at a dinner table with randoms, but bar-top with food cooking, tv playing, its a great social place for them.  I usually put a pool table and laundry in the garage, although you can convert the garage to a living space for more rent (this is definitely more risky, cities don't often like converted garages).

I don't have all the answers, but I'm more than happy to share my experience over the last several years with you and help in any way that I can.

Oh, side note, I living in the first place and rented the rooms out while living there.  Once I moved out, the management was almost the same.  You can do it absentee easily.  Just make sure you have processes for everything before you do and keep a tight control on things because 1 bad tenant can piss off everyone and you'll be filling 6 rooms instead of just one LOL!  Oops :P

@Cameron C.

House hacking is a great way to get extra cash flow from your property, but I'm not sure about how you're doing it.  Are you currently paying all utilities and internet/TV in the house?  Do you furnish the rooms?  What do the other rooms in your area go for on Craigslist?  Are you near any college or universities?

I can speak somewhat to the city regulations about putting a bunch of randoms in your house.  It's generally NOT allowed and you either need to be in the right zoning area (I think R-3?  Don't quote me on that) or you need to get special permitting from the city.  That being said, if you live in a working class neighborhood with reasonable neighbors, you probably have nothing to worry about.  If you live in an upper class area, I would NOT recommend trying it.  I've noticed that the nicer the areas you will come across several issues: restrictive parking, nosey neighbors who call the city on you, code enforcement that prowl for tacky things but will find what you're doing eventually, etc.  In working class areas, its not uncommon to see 5+ cars in front of a house on the daily.  Code enforcement is too busy cracking down on the dumpy houses, they will leave your "residential motel" alone.  And finally, if you get to know the neighbors (maybe send them a gift around xmas time or thanksgiving), they will be your greatest ally with your "illegal rental".  Nobody cares if you are in the right area.  If you're in the wrong area or pick a fight with the wrong neighbor, you will be in for trouble.

Let me know some answers to the questions I posed to you and let's see if you are maybe leaving money on the table there (I suspect you are!).

From what Janet Yellen was saying, it doesn't sound like they will be changing the rates by much if they do.  She said that the Trump election should not alter the course they have been on for the last few years.  Here is a great article from NPR that outlines that:

http://www.npr.org/sections/thetwo-way/2016/11/02/...

I think the rates will have to go up eventually, but I think 2017 will see only minor changes if any.  I wouldn't be too concerned :)

@Rick Snow

I unfortunately had to deal with this issue in January of this year (I'm currently in southern California).  The coroner came by and picked up the body, but they didn't have any further involvement so I assume there was some kind of crime attached to your incident.  I think the only time they would investigate is if they suspect foul play or a crime.  If it's suicide, natural causes, drug OD, etc. then they remove the body and move on.  My tenant was a younger college kid who OD'ed on heroin, no foul play suspected.  I cleaned the place, replaced the mattress (I furnish the units) and then continued to rent the place out literally a week or so after he had passed.  I made sure the family had plenty of time to gather his personal things and did whatever I could to help them (I can't imagine losing a child, so I was as respectful as I could be).

I am not a lawyer so it's best that you seek council first, but my understanding of the law is that you should disclose a death within the last 3 years if it's 1-4 units. Commercial you do not have to. For SFR and 1-4, after the 3 years, it's irrelevant and there is 0 liability for you as a landlord. There is some gray area here within the first 3 years of the death though... This is straight from CAR:

"Any death which has occurred within a 3-year period should be disclosed if deemed to be "material." Affliction with AIDS or death from AIDS need not be voluntarily disclosed. Neither a landlord nor an agent may make an intentional misrepresentation in response to a direct question concerning deaths on the property. The landlord or agent should simply refuse to answer a question (about HIV or AIDS) indicating that any such information, if known, is confidential and private or that such an inquiry may constitute an effort to discriminate under federal law."

If you deem the death should be "material" to your new tenant, then you should absolutely disclose.  However, from my understanding of the law, it's similar to "don't ask don't tell".  If the tenant asks you about a death on the property, either you refuse to answer the question OR you tell them the truth.  If you lie about it, you can be sued.  If you don't tell them and they find out later, you can explain that you fixed everything up sanitarily and didn't think it was "material" to be disclosed.

Here is the link so you can read for yourself and use it for future reference:

http://www.car.org/legal/disclosure-charts/pdf-cha...

@Jamie Garcia

Where there is a will, there is a way. The point I was trying to make is that BRRRR strategy is much more difficult to pull off in SoCal. For example, the first house I bought back in 2012 was $250k and had a mortgage PITI (including PMI) of around $1,800. I used FHA. Later, I refinanced to conventional down to about $1,460. The house would have rented back then for around $1,900 and today in the current market would rent for around $2,100. Here is how it would break down, using previous numbers when the market was great and compare it to current market conditions:

Previous Market:

• $250k purchase price
• $1,800 Mortgage
• $1,900 Rent
• $100 net without ANY OTHER EXPENSES (recommendation is 50% of rents go towards expenses)
• If we use legit numbers, I would be lucky to only lose $700 a month but most likely would lose more, especially with a property manager

Current Market:

• $450k current ARV
• $1,460 mortgage (this is with a $240k mortgage payment - that's almost 50% of ARV)
• $2,100 rent
• $640 net with no other expenses
• Using 50% rule, I would lose close to $300 per month + whatever property management would cost

If you do all of the management yourself and handle all repairs yourself, you can make a small profit. Based on the current market, I would have had to buy a $450k house for less than $200k in order to get numbers that are even close to reasonable for a BRRRR strategy. Keep in mind, this is in POMONA lol!! For those of you who don't know Pomona, it is not the best neighborhood in SoCal. In the northern part of the town, it's much better but definitely B- to C class area. Southern Pomona has lots of gang violence and pretty high murder rate. If I did the numbers in a decent neighborhood, you can raise the price by nearly 60% but only get an extra 10% - 20% in rents, so the numbers are even worse! BRRR is difficult to do in SoCal, but it is possible. Either you need to find a house at an absolute steal, or you need to find a way to get more cash flow from your property in order to get good numbers. I have yet to find a way to steal homes, so I've worked exclusively on increasing cash flow in order to have rentals in SoCal. Best of luck to you, I hope this helps! :D