All Forum Posts by: Ruika Lin

New member here and in the FI community in general. Would love to hear some advice from fellow investors in the community to take REI to the next steps.

Currently, I've been holding a rental property (2b1b tiny garden style condo unit) for 10 years in Northern Virginia (NoVa) with no particular goal in mind, as I've had a comfortable W2 income during this time. Due to some changes in my life & family situations, I'd like to gradually move towards more passive income & optimizing for time with family.

After looking at the numbers of the NoVa unit, I've come to realize just how poor of a ROI it's been. I bought the property all cash in 2014 and have been managing it remotely through a property mgmt company. Despite it being a great location (super close to DC & metro), it's also transient enough that renters come in and out every 2 years on average. Between HOA, 9% property mgmt fee, taxes, insurance, maintenance/repair, advertising fee, etc., the CoC ROI is super low (again because I bought it all cash). It certainly does not meet the 1% rule either.

And according to Redfin/Zillow estimates, appreciation after 10 years has been small as well, since it's a garden style condo. (I heard from a local realtor that town homes & SFH appreciate much better than condo units.)

It's curious to think that it's such a nice location being close to everything (and I used to live in that area myself as a young professional & loved it), but from a REI standpoint, it's not as great.

In 2024, I'd like to re-evaluate this rental and potentially do a 1031X to aim for a higher ROI property, optimizing for higher cash flow and potentially even expanding to more units, if doing financing. Facing this possibility, I'm however stumped with low confidence thanks to ALL the knowledge learned about REI now (but not systematically) & struggling with where to start. For example,

* I'm now even wondering if coastal cities are ever good places for REI, and wondering how to even get started in highly-recommended states like Ohio & Illinois (I have no friends or family in either states).

* Financing is something I've never done before, but would love to start trying. But of course it's a beast on its own given the state of things right now.

* Finding a good deal & managing a rental remotely can be a lot of work. I also was researching a little bit of real estate syndications and heard about a few networks out there for accredited investors. With optimizing cash flow as a goal in mind, I now also wonder if syndications should be my route to take, effectively outsourcing the field work to someone clearly more experienced than me, and I just supply capital. This sounds pretty good to me, except for course it's a whole topic on its own.

I'd love to hear the community's thought on this crossroad and any guidance you could kindly offer. I'd love to gain confidence & take actions to move in a better direction REI-wise next year.

Thanks for reading my post!

If you aren't seeing the returns you want on your condo, I'd go ahead and sell it (using 1031) and invest into something with better returns. You can also look into a Delaware Statutory Trust (DST) This might be the best combination of selling tax free and investing in something passive. It's like investing in a syndication.

It also sounds like you don't want to do much leg work. That is a nice benefit of Syndications. You do have to vet out the deal/operator though so it isn't truly passive.

You can also invest your money with other investors especially fix and flippers and just take a return that way. Some lenders will vet the deal for you, but you should do some due diligence as well. You can get a 10%+ return on your money in the current environment.

Most people look to scale portfolio, so can consider selling your condo and investing in say 2 townhomes a little further out in NOVA. Will need some debt/financing, but numbers will still be close to penciling out and you will get better appreciation in the long run. Does involve a little more effort on your part though.

Hey Brandon, thanks for your input! Let me send you a message & connect as I'd love to learn more.

0 Votes

Fairfax, Virginia

Quote from @Ika Sargeant:

@Ruika Lin This is true that condos do not appreciate at the same rate as SFH or townhouses in Northern Virginia and yes it includes even the ones in great location and access to public transportation. The 1% rule rarely ever applies in this market. What is true is the rising of costs across board eat away at returns. I think this is true in many areas: have a property in Orlando and the taxes and insurance have killed my returns. For example where I was paying $1100 for home insurance, the price jumped to $1900. This is after the insurance required a new roof(they refuse to insure a roof over 10 years old) I can not speak to the MTR because have not dealt with may of them. The few clients I came across were successful because they were connected to companies with people coming and out of the area. But before you go to MTR, make sure the condo allows MTR and check condo move in fees.

Thanks so much Ika! Yeah the more I learn about stuff like 1% rule, the more I'm thinking it might only apply to folks who bought years ago in DMV, OR it applies to buying now in areas that are less coastal. I'm actually trying to gauge whether to sell my current condo since the appreciation is quite poor over 10 years. And I'm also indeed more comfortable with LTR to start out in the effort to expand.

I can only imagine how high the insurance cost has become recent years in FL. My partner's from FL and his parents moved out of the state after decades living there, partially because of this reason.

0 Votes

Fairfax, Virginia

Quote from @Jacob St. Martin:

Quote from @Ruika Lin:

Quote from @David L.:

The first investment property is the hardest one to get, so congrats!

I don't claim to be an expert, and haven't retired off of REI returns yet either. I have a small portfolio of rentals (5) and a non-trivial but not huge amount invested in a fund and a couple of notes, for passive income.

First thought I had in reading your post was: would you be able to substantially improve your returns from your current garden apartment by switching to a Mid Term Rental strategy?

Meaning, do your condo docs allow you to rent on 3 month leases? And if so, is the market rent for 3-month furnished units at that location worth the additional expenses of:

1. Furnishing the unit -- mostly a one-time or at least long-lasting investment

2. Higher property management fee -- you'd have to check, but possibly as high as 15%, rather than the 9% you're paying now

3. Paying all utilities yourself, including internet -- possibly mitigated if any portion of the utilities (such as water/sewer or gas) are already covered in your condo fees

It doesn't make sense for every property, but a garden style apt in a convenient location might pencil out nicely for mid-term, so it's at least worth checking.

Putting that aside, my concern with syndications right now, more than ever, would be in finding one that's exceptionally well run, with a stable pool of assets. A lot of people overpaid for large multifamily over the past 3 years or so, banking on the following, in perpetuity: fast rent growth, historically low interest rates on capital, and historically low cap rates (property values, if and when they resell).

Any of them that are holding assets that are cashflow negative right now must be sweating, and even if they're at least marginally cashflow positive, if they only locked in their institutional financing on their properties on 5 year terms, they're likely about to enter a world of pain when they try to refinance over the next 2 to 3 years.

I'm not saying there are literally no syndicators worth investing with right now. I'm just thinking I would be extremely cautious and exercise extreme due diligence if I personally went that route right now.

If you acquired more properties yourself, directly, are you comfortable with renovations? For instance, if you stayed in the NoVA area, does your property manager have access to reliable contractors who charge reasonable prices?

If so, I don't know the NoVA market conditions very well, but in many areas this is a great moment to pick up a property that needs substantial renovations, whether on MLS or by connecting with wholesalers.

Hopefully others will have more specific advice in response to your questions.

Hi David, first of all, I really appreciate your thoughtful and detailed reply! I see that you're based in Charlottesville. That's actually where I went to college, and frankly, somewhere I thought of exploring rental properties too now as an alum. Do you own properties in Cville as well? What do you think about that area as an investor?

DMV is a different beast of course. Generally more expensive. And I just spoke with a realtor today about the strategy you proposed (mid-term rental). Because I'd be managing it remotely, the listing/leasing fee that's charged by a property mgmt company seems to just be too much if the unit is rented out too often.

What's also curious is that the realtor mentioned in the DMV area, a 5%-6% CoC ROI is already pretty good (mine is lower than this). Whereas in the BiggerPockets webinars and examples, I constantly hear of 10%+ CoC ROI, which is surprising in comparison. BUT, these units are also not in the DMV areas or coastal areas in general (or are bought from years ago). This prompted my curiosity in non-coastal areas but I know little about them, having never lived in one other than I suppose Charlottesville.

Thanks again for your reply! I'd love to connect further if you're open.

I am a UVA alum and investor in Charlottesville. I would be glad to talk about the Charlottesville market more in depth sometime if you want but here are my general thoughts:

1. Appreciation is absolutely crazy in Charlottesville. I bought my first house here a little over two years ago and the value has gone up about 25%.

2. Strong demand for renters from the university, hospital, and a growing list of companies.

3. Strong housing demand from the University, hospital, companies, and alum who want to move back to the area.

4. Home prices have rises so quickly that rents have not really caught up. If you try to pencil out a long term rental from the MLS it is next to impossible to find something that will cash flow, and this was a problem even before rates went up.

5. MTR is a viable strategy, however you pay a high premium for properties close to the hospital and that is where most of the demand is. Also, the ideal size for an MTR is either a 1/1 or a 2/1 as that is what most travel nurses are looking for. You also pay a premium on lower sq ft homes and end up paying a much higher price per sq ft. For instance, my first home 2 years ago was a 6/2 that I bought for $385,000 near the art park and there were 2/1 houses selling for $320,000. Because of this, I have had a hard time even finding houses that would cash flow as MTRs. The best thing you can do is look for an over under duplex that you can make into two 2/1 MTRs but these are somewhat rare.

6. STR is off the table unless you live here due to regulations (which I do) but if you do is a great market for it.

7. One strategy I have used here to boost income and get cash flow is long term rent by the room. Where you will furnish the living spaces and market the individual rooms to grad students/recent grads, or students if you are close enough. This ends up getting you more cash flow than a traditional long term rental.

Overall Charlottesville is an amazing market, you just have to be creative to make deals cash flow. You should ask questions like: Is there unused square footage that I can use to add bedrooms? Can I add bedrooms in the basement? Can I turn the basement into a seperate MTR? Can I build an ADU for MTR or convert a garage into an ADU? Can I mix LTR and MTR in one property to offset the weaknesses of both strategies?

If you are willing to get creative the deals are out there. Let me know if you want to discuss further!

Hi Jacob, amazing (but probably also not surprising) to meet at fellow wahoo on BP. Thanks so much for your detailed reply and thoughts. I'm relatively inexperienced in REI and gradually learning more. And as I thought of expanding my portfoilo, Charlottesville naturally came to mind as I'm familiar with it, have lived there, and know the demand from the university ecosystem. (Although my knowledge is from 10+ years ago now.)

I just looked briefly on zillow for Cville properties for sale, and honestly I'm surprised by the prices I'm seeing. Higher than I thought, but again, given the reasons you listed out and the fact that it's been 10+ years since I lived there, it also makes sense.

To start out expanding, I think I'm still more comfortable with LTR as my entry point. Definitely would love to learn more from you; let me send you a message. I see that you also own a REI portfolio & consulting biz and applaud you for leverage your knowledge/experience as an entrepreneur.

0 Votes

Fairfax, Virginia

Quote from @Diallo Palmer:

@Ruika Lin Hi Ruika. I'm in Florida also and looking to purchase in Virginia. I humbly recommend you look into mtr(Mid Term Rentals). There are several Bigger Pockets podcasts on the strategy.

Hi Diallo, thanks! I'll search the archive and find something. I'm super not familiar with MTR, and the realtor I spoke to today didn't seem to endorse it in the DMV area, citing high leasing fee due to the high turnaround, especially if I manage it remotely. I'll look more into it though still.