All Forum Posts by: Joe Scaparra

Hi Angela,

Your tech background can help you evaluate the deals but I fear that you don't have a comprehensive plan of what you want to do with investment real estate.  

What is your goal and more importantly what is your WHY?  Without a meaningful WHY, your failure rate will be higher.  I mentor a few investors especially just starting.  

Take a look at my profile and you will get a sense of what a WHY is.   Look at a few of my post to others and if you want some direction or advice from an Old Fart, I'm your guy.  Cheers.

What am I missing here?  Your tenant filed for Bankruptcy but is current on the rent.  Is your tenant month to month or in a long term lease?  Is this a tenant you no longer want because of his filing?  Is he in default of the lease?  

Does he and his roommate understand the rent must be paid in full each month and they are both liable if it is not paid regardless of who has or has not paid their share?  

I am not a bankruptcy expert, but isn't that procedure used to release people from existing debt but not monthly expenses.  Unless your tenant is in default of the current lease, you have nothing to do ( I think, what am I missing).  Cheers.

@Brant Laird, Howdy!

Wow, just getting started with INVESTMENT real estate.  There is a lot to consider before you buy your first property.  From your short introduction, sounds like you are ready for the task.  Since you are on the Austin forum and stated you are from Texas, I would be happy to get on a phone call or have coffee with you to help you focus on the task ahead.

However, let me remind you, I am neither a real estate agent, or lender.  I have nothing to gain other than to feel good in giving back to interested investors.  I am actually an old fart, semi-retired managing my now small real estate portfolio of 16 doors.  I love to talk real estate and could probably give you some good food for thought.  If interested hit me with a DM.  Cheers.

 Hi Fumi, Let me take a stab at your question. 

Lets review some major points as they are pertinent to my advice.

1.  You are NEW to the Game.

2. Your are Singe and have the luxury to be able to work Remote!

3. Deciding to buy a duplex or SFH. Question? Is it only the duplex that you were projecting to live in for one year or either one for one year?

Based on the above points, you asked us (experienced investors) what would WE decide.  

This is an easy answer for me!!!  I will back it up with sound logic.  

Buy the Duplex, NO QUESTIONS ASKED!!  Why?

1.  Duplex give me FLEXIBILITY!  

Life is not static but always changing. With the duplex, you can do both rental options. Rent out one side, either Long term, Short term or Mid-Term. AND the side you live on you can rent out a room or two depending on the number of rooms in your duplex or you have the option to maintain your privacy and sanity and keep it to yourself. What happens if you buy the SFH and hate renting it by the room but the cost to maintain is too much by yourself. Because you are able to work remote, enhances the need for flexibility as I can easily see a time where you want to move someplace else because you can. Someone who has a Great job that does not allow them to move, would never be tempted to move. The fact that you can could create that desire to move. Having a duplex gives you far more flexibility to make that move than owning a SFH. If you don't know why, DM and I will lay it out.

2. Since this is an INVESTMENT website, a DUPLEX is a FAR BETTER INVESTMENT in Austin than a SFH. Duplexes cash flow better, have less risk, AND EASIER TO MANAGE compared to a SFH. Let's take these assertions one by one. I did say I would use logic.....right.

Duplexes cash flow better: Some would argue, I'm wrong, by the room is better cash flow. Maybe, maybe not. I say not for the following reasons. If I am hell bent on renting by the room (I don't think that is a good LONG-TERM strategy, will elaborate later), I can do that on both sides of my duplex as well. However, when you combine the income from both the units, I think you will end up with more income after a year or two than with a SFH renting by the room. Let's assume that rent by the room yields $1000 per room all bills paid for the tenants. Since we are considering a 4 bedroom house, let's compare it to a 2 bedroom 2 bath duplex each side. We are only going to be able to rent out three rooms because Fumi will be living in one. Lets say for argument sake, that I rent out one unit long term for $2000 monthly unfurnished, the other unit, I live in so I only rent out one room for $1000 all bills paid. Income would be the same if I compare to the 4 bedroom house at $1000 per room. Under this scenario which strategy has the highest vacancy rates. Less vacancy means more cash flow.

Duplexes have less risk:  Mainly because you have less tenant risk (but we will address that on the next paragraph). Risk goes hand in hand with the amount of money you stand to make.  The more money to be made the more risk you take.  Think about it, why do people do Airbnb........make more money, however they have higher vacancy rates, and more management required.   Remember Fumi is NEW to INVESTING.  Requiring more hands-on management verse less (which is more desirable).  

Easier to Manage: Renting by the room, you are month to month with your tenants.  Tenants USUALLY don't get along, long-term!!!!  Come on think about it, have your brother or sister come live with you after you have been living by yourself for 5 years......it won't be a peaches and cream.  Have you heard the expression "when visiting someone, don't stay longer than 3 days or you begin smelling like dead fish".  Not really the smell, just no one wants to put up with you more than three days.  It is not the number of days, think long term.  Now multiply that by 3 strangers in your house ....good luck with that.  Yes I have known it to work because the owner is not a push over, enforces policy and can make it run good......however, do you have the right personality to do this, AND if you move out can you continue to have the house run smoothly with no one in charge.  You can't just give it to another tenant to run, their leadership and authority will be questioned by your other tenants.  How many tenants will you lose not because they didn't like the property but they didn't like your tenant selection.

Remember my first point FLEXIBILITY, well if you decide to bail on the rent by the room, it is more unlikely that you can cashflow positive with a SFH than a duplex in Austin TX if you move out of the property. It is always easier to find TWO $1000 renters that ONE $2000 renter. Your rental pool is higher renting out at $1000.

Ok, now let's look at where the Rubber meets the Road.  How would I do this!

I would buy the duplex.  I would look for a 2 bedroom 2 bath duplex with a one car garage for each side located between the two units and each front porch on the each end of the building.  This duplex will most simulate TWO INDIVIDUAL HOUSES.  I own two duplexes three properties apart.  One duplex is just how I described it above the other is a SHARED porch.  I have FAR MORE MANAGEMENT ISSUES because of the SHARED PORCH.  I have loss GOOD TENANTS because they shared a porch with people they did not care for.  

I would rent out one side long term and I would keep the other unit just for me as I would want my privacy.  I shouldn't assume Fumi that you are female and if you are, you have to be even more cautious about having strangers in your home.  However, if you have no issues renting a room out, you have the option to renting a room on your side too.  If you happen to buy a 3 bedroom duplex you have even more options, but I like a 2/2 over a 3/2 but that is for another discussion.   Cheers and Good Luck.

@Chan Park Hi Chan, 

I sense you are fairly new being a landlord.  Managing tenants is probably the most frustrating task of all the task associated with owning rental property.  So I get your hesitation to be too demanding and your desire for the problems to go away as fast as they can, however since you have NO property manager ( I don't use one either), it is incumbent that you take a more ACTIVE approach with management of your property.

Let's review your situation.  1st time leak occurred, you sent a plumber over to find the problem.  Problem found by expert, but you chose to not fix the problem by expert but by tenant.  Wrong move!  Now if it was me, I would have gone over myself to initially survey the problem and at the least meet the plumber over there to assess the damage.  Now, I suspect that you had your tenant caulk the tub since it would not cost you any thing or a lot less than the plumber.  Usually a plumber can pull out the old caulk and re-caulk in less than an hour.  Most can do it for the cost of the initial service call, if not it usually would be a slightly more charge.  If it was truly caused by missing caulk, that is on you not your tenant.  I use problems like this to go an check out the problem and then the entire property while I'm there, looking for other problems, but also assessing HOW the tenant is taking care of the property.  I will always look at the air handler and make sure tenants are installing fresh filters (most neglect this item).  Having a tenant do a repair leaves you in limbo should the repair be done half *** or wrong.  You don't have a recourse because you took the liability on yourself knowing that is not his trade.  

10 days later you have a water leak in the SAME bathroom causing the ceiling downstair to leak AGAIN.  I think your first plumber was in and out and probably didn't want to fix the problem because he was unsure of the fix.  Caulking a bathtub for a plumber is the easiest job he could charge money for, short of charging to lite a pilot light on a furnace or water heater.  Water overflowing the sink, seems more plausible than some missing caulk.  

Now, if you haven't yet, now is the time for you to go see the situation in person.  You should sit down with the tenant and talk this out, EYE BALL TO EYE BALL.  Hopefully your tenant accepts responsibility.  If that is agreed upon, hire a HANDYMAN (cheaper and better at drywall) and fix the problem.  Charge the tenant for the repair.  Fix the caulk on your own dime.  Now that is taken care of; time to address the renter's insurance.

As mentioned by someone above, you can be listed on the policy as insured or interested party.  You can also ask for a copy of the policy.  This issue, if caught early, is probably fixable with out insurance involvement because the deductible might be more than the repair cost.  Any violation of the lease can be used to evict in Texas.  Each state might have different process.  But terminating a lease and require removal of a tenant must go through the EVICTION process if the tenant is not wanting to accept moving.  Also, just because a violation occurred you may not want to evict.  Use your judgment here.  Sounds like a good tenant with an inattentive child.  

Education here is probably all that is needed.  However, your lesson is get more personally involved.  If you plan on buying additional property, you should indeed go on more calls to assess and meet the repair person so that you understand the problems as they arise.  Soon you will be able to take care of some of these issues yourself and save a few dollars.  Cheers.

I second Ryan's advice.  OKC is the best bang for your buck, followed by San Antonio.  

I would not eliminate OKÇ based on tornadoes, that is why you carry insurance.

It will very difficult to find something in Austin that fits your budget.  

Cheers. 

@Susana Alcorta, Howdy, you have a lot to consider, let me give you one man's opinion.

Let's tackle the selling the home or not in Pflugerville.  

1.  You love the house and there is a likely opportunity that you may be moving back to the Austin area.  However, it is an old home and you are thinking about major cosmetic upgrades too.    In most cases, I don't recommend renting out your primary residence especially if you have no rental experience and that is because usually your primary residence was bought without the idea of renting it out.  AS such, you probably would not buy the house you have now as a primary rental from the get go.  There may have been better choices for a rental at the time.  However, what I don't know is how long have you been in your home (how much equity do you have in the home) and what is your current interest rate.  Without this information it is hard to give a GREAT recommendation.   But because this is an older home that could use some renovations and the idea you may move back to Austin sooner than later, I would seriously consider keeping the home for now.  However, I probably would not upgrade it but I would rent it out LONG TERM at least until you know your long term status in Portland.  The reason not to upgrade, is that you won't get that much more income for the cost of the upgrades.  Also, since you are new to finding tenants and renting, should you get someone who damages your unit, probably not a big deal since you haven't renovated it yet.  So Keep your property but don't mid-term unless it is very small house and would appeal to traveling nurses on 3 month gigs. IF so then Furnish Finders might be an option for Mid-Term rental.  I recommend lining someone up before you leave for a 1 year term.  This will give you time to figure out options in Portland.  

2.  To buy or not in Portland!!!!  I feel very strong on this one!!!  Do not buy in Portland without KNOWING you will be there for at least 5 years.  Portland is one of the WORST places to be a landlord should you have to leave early and you want to rent out your home there.  You won't have the options that you have here in Austin, mainly because Portland is Tenant Friendly City and Pfugetville is Landlord friendly.  Look up the rental laws in Portland, it is a NIGHTMARE for property owners.  Additionally, the fact you might be negative cash flow in Texas will give you more flexibility by renting in Portland.  

You NEVER want to put yourself in situation where you feel you have to sell.   Portland could do that to you.  

I could talk to you for hours about real estate.  If interested DM me and we can set up a time.  However, you must know that I am neither a real estate agent nor am I a lender.  My advice come with no bias or conflict of interest.  I am just an ol' fart 69 year old real estate investor.  Check out my profile.  Since I have a lot of grey hair, I tell it like I see and will tell you what I think is best regardless if it falls on willing ears or deaf ears.  Best of Luck.  Cheers. 

Portland tenant laws.......There is no way I would be a real estate investor in Portland.  Take a look.  

https://www.portland.gov/phb/rental-services/documents/tenan...

@Brandon Stelling, thank you for your service. Before you think about investment real estate regardless of being a VET or 100% VA disability you still must consider and evaluate your RICE!

R Resevres: Needed for downpayment and Emergency Reserve. Have enough that after you buy the property you still have 6 months of expenses in reserves that you can use for daily living. Yes I know about the VA loan (no down payment) and VA disability payments, more on that later.

I  Income:  The amount of property you can buy will be dependent on your Debt to Income ratio.  Keep your payment at no more than 35% of your income and minimize your credit card and auto debt.  If you have none of that, you could fudge higher on housing debt.

C Credit. Even though you have a VA loan, you still WANT good credit. Review your score and take necessary step to improve it if you are at 650 or below.

E Equity, how much of the home will you own on day one.  That would be your downpayment and or market value the day you buy.  The more the better.  More equity means lower downpayment.  

Now back to your VA Disability question. Yes you are in a GREAT position to buy property but still need to keep improving your RICE. The fact that you have a TAX-FREE income is crazy good. On top of that if you are able to work.....most can, you are in great shape to buy a property.

Now here is some advice many will disagree with me on but I firmly committed to this: Most people that use a VA loan shouldn't. It is a BAD loan for most people. Why? What may seem like a benefit (NO MONEY DOWN) is actually a curse!! A VA loan is marketed to people who are broke and CAN"T put any money down because they have none to put down. These are people who have little to no RICE. No reserves, Income may be good, credit on the low side and NO Equity in the home. Don't be that person. VA you can avoid the PMI which is good but putting down money will help you keep your payments lower. I am a retired USAF 20 year career and I have never used my VA loan eligibility, because it is a bad loan. It could entice you to buy when you are not financially ready to buy.

The other nice benefit of 100% VA disability is that you pay NO PROPERTY TAX on your primary residence. SO that will result in a lower monthly payment. If you house hack a single family residence by renting out a room or two then you would have no property tax but if you buy a duplex you might have to pro-rate the property tax. Either way you are in great shape to be a property OWNER!!!! Cheers.

There is a multitude reasons why I like small multi-family properties over SFH.

Especially, is you are just starting your real estate investment journey, a small 2 bedroom 2 bath duplex each side is the best. Lower risk all the way around. Myth: Turnover is greater in Multi-family. Not necessarily! Duplexes with separate porches and driveways act as SFH with benefits.

1. Always have rent money coming in from the duplex vs SFH (not).

2.  Easier to find two $1000 renter vs one $2000 renter.

3. Society and demographics favor smaller units since marriage and child bearing are being delayed. Additionally, young adults are living together with no intention of marriage. Duplexes are cheaper to rent and expenses are becoming difficult for the average tenant. Because of cost, duplexes are are a better choice and compete well with SFH and or apartments.

4. Most duplex properties are not in HOAs and usually in a renters street; lawns don't necessarily look great. That actually is a benefit, as no one is expected to water the yard. A SFH in a neighborhood with HOA or owner occupant neighborhoods your rental property can stand out in a negative way because tenants don't waste their money watering the yard.

5. Every now an then you will get a bad tenant (duplex or SFH). But because the duplex unit is smaller it is easier to maintain. Luxury vinyl floors, no carpet means quick turn arounds. AS you get more experience you will learn how to screen better. However, with a SFH you will lower your standards when vacancy arises more than one month as you have no income coming in to male that payment. Not as much with a duplex.

6. Your rental pool is larger with smaller rents than with a SFH. SFH with three bedrooms attracts more people to live in, some times two families sneak in and parking on the grass can become problematic. It is hard to find a 2 bedroom SFH which might discourage more occupants but 2 bedroom duplexes are plentiful.

Now if you are seasoned and portfolio is mature and you are not as concern about maximizing income then I can see a migration to SFH might suit someone. They don't mind higher vacancy rates then SFH might be an option. Cheers and good luck.

Hi John,

Not sure where you are located but if in Austin, I too may USAF retired and probably could give you some pointers over coffee or lunch.  DM if interested.

Joe