All Forum Posts by: Kevin Powell

Water would be covered in the HOA. You still have to budget a bit for repair/cap ex. So cashflow is probably $100 a month if you don't factor in vacancy.

Said another way, this is less than a 5% cash on cash return. 

Any wiggle room in the price/rent? 

@Joe PrillamanMy advice to myself would be to house hack sooner. We house hacked a fouprlex in 2013(I was 28), and then a triplex a little over a year later and I have been an active investor since then(bought two more this year). I only wish I would have started sooner.

I responded to another guy yesterday about the "seller's market". Here was my post because I think its applicable to you as well. 

"I am going to spend another 5 minutes typing a post trying to change your perspective a bit.

Here is an example. 250K duplex, 25% down($62,500), 15% Cash on Cash Return(Cash flow of $781 monthly). You can wait 3 years and save 108k and be ready to jump in for the perfect deal. Or, in that same time frame you could have cash flowed $28,116, and paid down $8,918 on your loan.

Starting Net Worth $62,500 in cash

Net Worth Doing nothing = $170,500

$62,500 in the bank, plus $108,000 in new savings

Net Worth Doing a Good not Great Deal = $207,534
$28,116 in cashflow, $108,000 in traditional savings,and $71,418 in equity

Now you can wait for a down cycle, pick up assets and potentially catch up net worth. The key word there is could. You are gambling and making assumptions on things you have no control over like interest rates, employment, etc..

Overall you are saving money and it sounds like you are on the right path. Good hunting!"

Part of your application process should be to get three years of rental history and calling the landlords. That would help to make you a less likely victim of a professional tenant. I am amazed that landlords don't call other landlords. 

@Tony OtisYou haven't accepted any application or screening fees and qualified any of these tenants correct?

@Bradley PietrzakI think waiting and calling it a sellers market is bad mojo and I am going to spend another 5 minutes typing a post trying to change your perspective a bit. 

Here is an example. 250K duplex, 25% down($62,500), 15% Cash on Cash Return(Cash flow of $781 monthly). You can wait 3 years and save 108k and be ready to jump in for the perfect deal. Or, in that same time frame you could have cash flowed $28,116, and paid down $8,918 on your loan.

Starting Net Worth $62,500 in cash

Net Worth Doing nothing = $170,500
$62,500 in the bank, plus $108,000 in new savings

Net Worth Doing a Good not Great Deal = $207,534 
$28,116 in cashflow, $108,000 in traditional savings,and $71,418 in equity

Now you can wait for a down cycle, pick up assets and potentially catch up net worth. The key word there is could. You are gambling and making assumptions on things you have no control over like interest rates, employment, etc.. 

Overall you are saving money and it sounds like you are on the right path. Good hunting!

@Bradley Pietrzak I think you touched on something that is important. Because you live in that area you have knowledge that other investors like myself don't have. You know what type of tenant, what type of rent, etc. I can do research, but because its outside of my wheelhouse I will pass opportunities in that area over, and I suspect many other investors feel the same way. That gives you an advantage that you can leverage.

You called it a sellers market, but there are still deals to be had. Keep chasing your first deal, it sounds like you are putting in the work to find it. 

I think we are all approaching the problem that there is a lease in place and the tenants have a right to occupy for the length of the lease. 

I still would be surprised though if you approached them, explained the renovation, and then offered cash, their full deposit, etc. to vacate by a certain date that they wouldn't take the deal. You might even be able to throw in the perk of not having to clean, since you are going to have a cleaner come in after renovation anyway. 

@Account Closed You mentioned an incentive to have them vacate. Have you considered buying them out? If you offered them $1,000 for instance would that do the trick? Like you said you are going to lose out on more than that. 

You don't have to approach it as "hey I want you out", instead you could say you have your renovation team lined up for X and its more expensive to have them out twice. "Would you consider terminating your lease in 60 days if I offered you $1,000?". 

That might help both parties out as there will be more places available in May/June than there will be in April. There are also more potential tenants available later summer if you get your renovation done earlier. 

I wanted to echo Jason's comments about cash flow. Appreciation is the icing on the cake and luckily rent doesn't fluctuate like housing values. Acquisition prices are higher than they have been right now, but that also means comps are great. Can you buy something that needs work and fix it up(BRRRR)? If so you have a great opportunity to build instant equity in a home. That equity can be used to get rid of mortgage insurance, refinance out of an FHA loan, do a cash out refinance, or even get a line of credit.

As an owner occupant you would also qualify for construction loans and other programs that other investors don't.

My experience as a relatively new investor: I bought a fourplex in 2013 that needed some upgrades on an FHA loan(12k down). It didn't cash flow while I lived there but I didn't have a rent payment anymore either. After I moved out it cash flowed about $750 a month. Three years later the comps/market is high so I used it to my advantage. I booted the old tenants, redid the bathrooms, and re-rented at a higher rent than before. The main reason for doing this though was to refinance out of the FHA loan I had which had Mortgage Insurance for the life of the loan. My mortgage insurance was something like $250 a month.

I knew the market would support a higher valuation with the upgrades and I also knew I could attract better tenants for higher rent. So after upgrades my cash flow position improved by $750 a month. On top of that I was able to secure a HELOC for the remaining equity above 25% LTV which I can now use for future acquisitions.

I used the market to my advantage is my point of all of that story.  If the market had dropped instead of improving I would have still had an asset cash flowing $750 a month. 

Hey Brett,

I ran into the same thing with a fourplex with a huge cost to rebuild. I got around that by only insuring for what you owe on the loan. I believe you can do that down to a certain LTV but I don't know the specifics.

I can put you in touch with my insurance person if you are interested. 

Kevin