All Forum Posts by: Joe Scaparra

@Rebekah Noriega Howdy!  I read your profile!  I like it when people utilize it, especially looking for advice.  More information allows for a more complete response.  

Even though I read your profile and now your question in this forum, I still have some questions and without knowing them completely my advice may be off.  So I am going to lay out a few assumptions before I give you my answer.

You're from Houston, but want a place in Austin?  Might that be, because, you have family in the Austin area and you plan on visiting them and want to use your investment property and rent it out when not using it?

I assume you don't have a lot of extra money but some.  Meaning you don't have deep pockets should the investment get off to a cash flow negative start.....or one that you may not have the determination to see a long period of financial stress that negative cash flow could bring.

A better question might be should I consider a duplex vs a SFH. I don't think you are actually comparing buying an apartment building so maybe you're thinking CONDO. I don't like CONDOs as an investment type because the CONDO association fee cuts into your profits and ultimately you lose control to the condo association committee and possible capital assessments that be leveraged on the CONDO owners. I do understand how a newbie could get a false sense of security by having the association take care of the common area. For a lot of other reasons, i would rule out a CONDO for a first time real estate investor.

I also would rule out investing 3-4 hours away from your home base on your first investment property.  It is hard enough and stressful to buy and operate your first investment property and then do 3-4 hours away with little to no experience.  So your thinking, I will have a property manager (PM) do all that work.  Most likely if you hire a PM for your first investment property, you will hate real estate and be out of the game in 5 years or less.  It is hard to make a profit using a PM starting out.  

Now, lets get back to what I would recommend if you still want to buy an investment property.

1.  Buy in your local area.  

2. Consider a duplex. It is all about cash flow and duplexes cash flow better than SFH with less risk. You still need to be smart as to WHICH duplex you buy but there are so many good reasons to pick a duplex over a SFH. I could type for days but I don't have the desire to do that.

3  If you want to learn more about duplex investing, go to my profile and start reading responses to other threads I have responded to through the last 10 plus years I have been posting on this site.  My answers will give you a better appreciation for duplex investing.  

4.  Lastly, if you want to ask me more questions, it would be better if we talked on the phone......too much to type.  DM me and we can set up a time to talk should that be something you want.  Just a reminder, I am neither a real estate agent nor am I a lender.  I have NOTHING to gain financially for you to take my advice.  I also do not have a 5k training program to sell you.  But, I am a 70 yr old fart who has been doing this for 20 plus years and certainly have my own bias, but they have worked well for me.  In any case I wish you the best.  Cheers.

@Don Konipol definitely sounds like analysis by paralysis. 

@DARIUS SMALLWOOD use some good logic......I used the 1% rule as a guide.  If you don't know that rule......learn it.  

One of the ABSOLUTE BEST THINGS you can do is go to your local real estate meetings, FIND the OLDEST person there that OWNS 4-5 SMALL multi-family properties and ask him if he would be willing to mentor you.......hopefully for coffee or lunch.  No need to pay for a training/coaching program.  

Aside from that learn how to evaluate deals.  I think here on Bigger Pockets they have some calculators that can help you.   Also check out Coach Carson on Youtube.  I think he has an excellent on the back of a napkin how to evaluate deals.  

Lastly, If you can find a $400-$600 positive cash flow on a small duplex it will get you in the ball park of a decent investment.  But still a lot to evaluate.  Don't forget to put in reasonable assumptions for VACANCY, and  Maintenance.  One area you should plan on NOT PAYING is property management.  Do it YOURSELF or you will NOT BE HAPPY and you will be out of real estate within 2 years.  In most markets today there is just not enough meat on the bone to pay a property manager.  Don't think you're going to make a lot of money off the bat that is ok but don't plan on enhancing income by renting out by the room or short term rental as a newbie.  Keep it simple.....stupid until you get a little experience.   Cheers and Good Luck.

@Don Konipol definitely sounds like analysis by paralysis. 

@DARIUS SMALLWOOD use some good logic......I used the 1% rule as a guide.  If you don't know that rule......learn it.  

One of the ABSOLUTE BEST THINGS you can do is go to your local real estate meetings, FIND the OLDEST person there that OWNS 4-5 SMALL multi-family properties and ask him if he would be willing to mentor you.......hopefully for coffee or lunch.  No need to pay for a training/coaching program.  

Aside from that learn how to evaluate deals.  I think here on Bigger Pockets they have some calculators that can help you.   Also check out Coach Carson on Youtube.  I think he has an excellent on the back of a napkin how to evaluate deals.  

Lastly, If you can find a $400-$600 positive cash flow on a small duplex it will get you in the ball park of a decent investment.  But still a lot to evaluate.  Don't forget to put in reasonable assumptions for VACANCY, and  Maintenance.  One area you should plan on NOT PAYING is property management.  Do it YOURSELF or you will NOT BE HAPPY and you will be out of real estate within 2 years.  In most markets today there is just not enough meat on the bone to pay a property manager.  Don't think you're going to make a lot of money off the bat that is ok but don't plan on enhancing income by renting out by the room or short term rental as a newbie.  Keep it simple.....stupid until you get a little experience.   Cheers and Good Luck.

Something does not look right.

Mortgage @ 3% for 30 yrs principal and interest should be around $2300 or more monthly.

Are you doing an interest only loan?

I would accept no less than 1% Earnest money which would be $5500.  

Are you getting any up front money for providing (beside 10% deposit) a loan, like a 1% origination fee? No PMI?

I understand if you're not because it is OWNER FINANCING, but you are taking on a lot of RISK.  Here is how.  For 6 years his monthly expenses is $1500 plus taxes and insurance.  If for example anytime before  6 years, he can walk away and leave you with the home.  If that happens your home will be trashed and you would have collected only a $1500 payment per month.  550k in a bank earning 5% earns you 27.5k a year.

I would try and lower the payback time, for every % below 5% lower the time less one year. In this case payback should be no longer than 4 years.  If it is an interest only loan I would give no more than a 2 year loan before a balloon payment.  

Do you realize that most owner finance deals revert back to the original owner.  That is because usually the borrower is not reliable.  Make sure your documents are rock solid in terms of re-acquiring your home.  If your borrower experiences any financial stress during the 6 years, your are likely to become the owner again.......that may not be a good thing.  Caution.

Listen up and take heed, square pegs do not go into a round circle....period!  Be an investor not a SPECULATOR!  Buying today even with 20% down in the Austin MSA DOES NOT WORK if you require POSITIVE CASH FLOW (unicorns are still possible but not likely).  

@Steven Greenwalt    Now, here is what could work.  If you are currently renting and you are paying $1500 to $2500 rent, then buying a DUPLEX can get you ownership with less negative than you are paying for rent.  However, IMHO we are just in the beginnings of a significant downturn in residential real estate.......buyer beware.  Real estate prices have stagnated but so have rents.  I have been a buyer in the Austin market beginning 2005.  I own/manage 10 units (5 duplexes) and this YEAR is the first time I have lowered rents.  What used to take 1-3 days to fill a vacancy is now taking 2-3 MONTHS.  

What used to be net 150 new arrivals daily is now ZERO. Austin population at the moment is only growing by new births not new arrivals. Additionally, the Austin MSA has overbuilt apartments. Competition for tenants is at an all time high. Some apartments are offering 6 weeks free with $50 deposit with good credit. If you have never done STR, there is a learning curve and vacancy rates are higher than LTR.

IF you are hell bent on investing, look 2 hours away to Bryan-College Station.  You can still find value there. I have another 12 units there and that market is still very viable for investors.  Good luck and cheers!

Quote from @Ali K.:

DUPLEXES IN AUSTIN SUCKS! They are the ugliest properties I have ever seen! You go to Houston or Dallas, or any other city in the US, and you can find great duplexes. Here in Austin? Duplexes are horrible, ugly and old. 

Quote from @Ali K.

Also, in my opinion, duplexes don't necessarily make better cash flow. I can show you with numbers and mathematics that many single-family homes create better cash flow than duplexes

Wow, your comments might indicate you have the wrong focus when investing in real estate.  You seem to concentrate on the looks, I concentrate on the profit potential.  Ok my friend, let's take 5 seconds assuming you're right that Austin duplexes SUCK because they are the ugliest duplexes especially compared to Houston and Dallas (this assumption only last for 5 secs because it is purely subjective).  Ok, I have some of the ugliest duplexes that have made me a multimillionaire.  If that is the case, I love my ugly, old duplexes!!!!!!!  Maybe that is WHY I am successful as I can make a HUGE profit going UGLY and OLD; I guess compared to BEAUTIFUL and NEW.   Maybe, I just identified a flaw in your logic!

Now let's go to your second quote about better cash flow. SFH vs Duplex. If you find a rare SFH prospect, you might find something comparable, especially if you get creative and rent by the room and charge double on Saturdays. However, if we work on a bell curve and we stay vanilla, you know like long term rentals with 12 month leases, as a group, duplexes will trounce SFH both in Cash Flow and LOWER RISK. But you would be correct the SFH might look better and possibly be newer. I have owed/managed 9 duplexes in the Austin MSA and another 10 outside the Austin MSA. I have owned INVESTMENT REAL ESTATE for over 23 years. I consider myself just a small fry compared to a lot of others on this board, but I think I know more about duplexes than just about anyone. Why, because that is all I buy for the last 23 years. Not only do I buy them, but I also manage and rehab my OWN duplexes. I secure my own tenants from advertising that I generate. I know what type of duplexes to buy, the type of tenants I desire, and the locations to hunt. My 23 years of managing duplexes have given me the knowledge and experience to do all of these things. Duplexes cash flow better than SFH, generally!

But if you have some math you want to share with this group, please do!  Cheers.

Quote from @Rishabh C.:

Do you think, that in a market like this with interest rates revolving above 6 percent, it is possible to get a property with a positive cash flow? 

@Rishabh, it is definitely more difficult to find cash flowing properties in the Austin MSA, not solely because of increased interest rates, but two other major factors.  Price appreciation since COVID and add in the over building of multi-family apartments that are keeping rents down compared to price appreciation.  Truth be told, I bought ALL my multi-family in Austin with the 1% rule in affect.  Cash flow positive was easy to find.  Not anymore in AUSTIN MSA.  There still may be a gem here or there but one usually must be creative in both buying and finding alternative ways to increase cash flow.  Usually increase risk is associated with those creative alternatives.  

However, I am still finding cash flowing duplexes in the Bryan College Station area.  I think you could also find it in other locations through out Texas.  I bought a turnkey duplex in Bryan TX last may for 280k and within a month I had it producing $2,740 monthly rent.  Close enough to call it a 1% deal.   Good luck, and Cheers.

Yes, Rishabh I think you have a point about appreciation, however there is more than one way to make money in real estate.  Another way is cash flow positive regardless of what the underlying value of the home is worth.  Houses have the ability to crash but rents on the other hand generally stay steady and increase over time.

My real point to you is that if you buy in a neighborhood that is predominantly owner occupied and then decide to rent later, it will be hard to find good renters on a consistent basis. Why? Renters generally won't spend money maintaining a yard, so your house appearance declines. The larger the home (4 beds 3 baths vs duplex 2 beds 1bath) the more damage that can be caused by one bad renter. If your home is in a HOA then you might expect more issues from your tenants not complying with HOA rules. Lastly, it is harder to cash flow positive with a larger home due to the higher payments. I can assure you, that if you are in a negative cash flow situation and you start have irritants from HOA, or excessive repair bills and/or extended vacancies, you will want to exit investment real estate fast.

@Rishabh C. and @Costin I.

Rishabh, the fact that you ask those questions on a real estate INVESTOR's website tell me you don't yet understand the goal for INVESTING in real estate.  That is ok, as I think you are beginning a curiosity regarding investment real estate.  

Let me add that EVERYTHING Costin has articulated above is SPOT ON!!!  In a nut shell do not buy a 4 bed, 3 bath home thinking later it would make a great rental property.........It won't and you will learn to hate real estate investing should you go that route.  

Over the years I have mentor newbie real estate investors, many on their first real estate purchase.  If you are young, have no children or children under 5 and you are also thinking about investing in real estate then you might reconsider a 4 bedroom 3 bath house and instead think about buy-in a duplex.  

Yes, it won't be as sexy and it might mean that you DELAY your dream a few years of owning an nice big house, but it could be the wises decision you make, and propel you into a fruitful, successful real estate journey.   

However, if this does not fit your plans then be wise and buy whatever home you want but don't think it of a start to your INVESTMENT real estate journey or it will be a short lived journey, I can assure you that!!!!  If you do decide to at least investigate what I say, you should contact Jordan Moorhead.  He does a class on house hacking and one of his strategies is using a duplex to start your investment journey.  I am sure you would at least find his class informative and beneficial.  

https://www.biggerpockets.com/forums/521/topics/1236761-how-...

Good luck and Cheers!

@Rishabh C. and @Costin I.

Rishabh, the fact that you ask those questions on a real estate INVESTOR's website tell me you don't yet understand the goal for INVESTING in real estate.  That is ok, as I think you are beginning a curiosity regarding investment real estate.  

Let me add that EVERYTHING Costin has articulated above is SPOT ON!!!  In a nut shell do not buy a 4 bed, 3 bath home thinking later it would make a great rental property.........It won't and you will learn to hate real estate investing should you go that route.  

Over the years I have mentor newbie real estate investors, many on their first real estate purchase.  If you are young, have no children or children under 5 and you are also thinking about investing in real estate then you might reconsider a 4 bedroom 3 bath house and instead think about buy-in a duplex.  

Yes, it won't be as sexy and it might mean that you DELAY your dream a few years of owning an nice big house, but it could be the wises decision you make, and propel you into a fruitful, successful real estate journey.   

However, if this does not fit your plans then be wise and buy whatever home you want but don't think it of a start to your INVESTMENT real estate journey or it will be a short lived journey, I can assure you that!!!!  Good luck and Cheers!