All Forum Posts by: Joe Scaparra

Quote from @Jordan Moorhead:

@Dave Foster is the guy to talk to!

@Jj Horst why not just sell it, claim the exclusion on half and then move into the SFH?

My accountant told me I can only exclude the half I lived in.

 Jordan, he is NOT interested in selling the duplex he currently is residing.  The other duplex is not eligible for the primary resident exclusion because too much time has elapse.  Dave Foster has the  correct approach.  Cheers.

@Guillermo Rozenblat this is not as hard a decision as it looks.  Let's break it down.

1.  You bought a house in Austin that you planned on living in it.  A brand new built at that!  Great, you locked in a price in October and almost a year later it will be move in ready.

2.  Due to new circumstances, you no longer want to live in Austin, what to do, lose 6k walk away, buy it and rent it or buy and sell it.

Before I give you my opinion ask yourself this question. If I were to buy a property for the sole benefit of renting it out, would I buy a new SFH new built? My answer to that is absolutely not. As you are finding out it is harder to cash flow positive on a new built SFH than an existing small multifamily duplex. Not to say in the Austin metro that you would be positive with a duplex but you would likely have a better chance to be positive with a duplex. The other issues are many when it comes to renting a new built home. You are getting a very nice home that renters will definitely abuse. Are you ready for that. Smaller duplex units are easier to keep up and thus rented. It is far easier to find two, $1200 renters than one $2400 renter. Lastly you might have HOA issues as well, don't really know, but since renters are not overly concerned with HOA rules you might be having some issues with the HOA. Sounds like you are not very experienced with renting to tenants and that is a whole new can of worms at this point, especially if you plan on moving overseas. I would definitely rule out renting.

Now, do we lose the 6k or buy and sell.  Usually this is an easy decision as most cases trying to sell a brand new built and compete with builders on their own product is very difficult to due............unless the market has blown up from the time the contract was executed and the acquire time has experience a huge appreciation.  In your case you might be lucky that this is the case.  The easy thing to do is just walk with the 6k loss, but if I had significantly more to gain by selling then I would sell. 

You might not even half to wait for the house to be built.  You might start looking for a buyer now.  I don't know if the builder can prevent you from marketing the contract but if allowed I would start investigating sell it and walking away with some extra $$$.  If not start marketing 45 days out from expected closing and sell if you reasonably expect to make a profit.  If after trying to sell it becomes a bigger issue then before the house is finished give up the 6k and walk away.  We are entering a new phase with this market and it might not be as bad as some people are predicting or it could be worse but you hold he options to either buy and sell or walk away.  Make the decision that nets you the most money or if you are a non-hassle person take the 6k loss and walk.  In the big scheme of things 6k loss is not a big deal.  

Remember to include the cost of selling which includes the cost of getting your loan AND the cost of selling too.  You probably need at least 10% more on the sell side to break even.  Above that it may be best to buy and sell, below that I would walk away.   Good luck!
 

Quote from @Travis McGray:

Quote from @Scott Trench:

If I earned a median income and didn't want to house-hack, I'd find a partner to help me finance the purchase. For example, perhaps you could find a person to guarantee the mortgage, provide the down payment, and they receive a preferred return of 8% per year. 

For example, the financing partner provides a $100K down payment and a $400K loan on a $500K duplex. 

The financing partner receives an 8% return ($8,000) from the property prior to the new investor getting any profit. 

After that, additional profits are split 50/50 between the financing partner and our new investor. 

This allows the financing partner to get a good return and have protection of capital, while heavily incentivizing the new investor to get the financing partner's money back, and provide material upside. 

For good measure, the new investor could put in $10,000 of their own capital to show that they are going in with what they can reasonably afford, so that they have meaningful skin in the game as well.

This is an awesome example! How do you go about finding someone to be willing to take on a brand new REI and go in with them on something like this?

I am sorry to throw cold water on the hot idea, but you can't fit a square piece in a round hole.  This is NOT going to work for several reasons.  If you want a realistic answer to this question then you have to look out side of the Austin MSA.  This involves moving to a more affordable location.  Here is why the above example is not a realistic possibility.

First, you have to find a willing investor to put up his money on an inexperienced wannabe, usually that right thar will stop things but let's keep moving forward.  But we assume you do.  500k purchase, 100k downpayment and 10k from wannabe to pay closing cost and miscellaneous expenses.   Loan 400k at 5.5% 30yr, 10k taxes, 2k insurance leaves a payment of $3271/month.  Assuming you rent out 2 bedroom 1 bath side for $1,500 a month that leaves the wannabe paying $1,721 to complete the $3271 mortgage payment (mind you this is 41% of his Gross Pay of 50k).  Doe-able, maybe until we take a 5% vacancy, 5% maintenance, and assume wannabe is going to do the property management.  Now with all this said and done there is no 8k in profit to pay the investor.  Ok so now we add in another $500 rent on the other side, so now we are getting $2,000 a month, that only provides an extra $6k but we still haven't covered the 8k profit, nor the vacancy, nor the maintenance, not to mention any monies for CAPEX. 

Now, you say wait a minute, we can Airbnb this for 3k a month.  Ok maybe, but this in Austin has to be a mid-term STR 30 days or more and we have to furnish, and pay utilities, internet and expendables (where do we get the extra money to pay these start up cost).  STR also involves more risk than a long term rental plan.   Could it work, maybe, it the stars line up and you get lucky and win the lottery!  This is not a good plan, but just a good night dream.  Cheers!  

@Antonio Cucciniello, leverage can be a good thing but also can be very bad.  When I think of leverage, I think in terms of personal use and then the business or investment usage.  

Personal side: most mortgage lenders, tell you that exceeding 35% debt to income starts highlighting concern.  On the personal side, wants and emotions drive decisions.  Business/Investment side should follow policy or logic and weed out wants and desires.  Since we are on a Real Estate Investing website, lets concentrate on the Investment side of things.

My rental portfolio consist mostly of duplexes. Leverage has NEVER been an issue as they have all cash flowed positive DAY ONE! Meaning that they are self-sufficient and can survive on their own regardless of my personal life. Because my duplexes are not demanding top tier rent then there is little risk to default from not being able to rent my units, which is the life blood of rental income......being able to consistently have occupied property, producing predictable, reliable, steady income. Not requiring Top tier rent, meaning I am not having to do crazy innovations to make the property cash flow......like STR, or minimum 30 day rental or rent by the room. Although these are GREAT strategies they carry far more risk during an economic downturn than say long term tenants paying $1500 per month here in Austin. In other words, If your duplex rents out for a $1 per month, then the economic environment matters not. Somewhere between $1 and XX amount you should be able to find a renter in any economic environment. For Austin, I would say the top amount is about $1500, but for Bryan College Station it would be more like $800 per month.

Lastly, as a guide ask yourself this question:  If I lost my job would my rental portfolio be in jeopardy.  If the answer is yes then you are overage leveraged.  That might be the case of your personal residence and in most cases that is the risk people are willing to assume, but for your rental portfolio you want to feel secure that in a downturn you are not coming out of pocket to keep your properties afloat.  The double whammy comes when you lose your personal job and that income was need for both personal and investment property.  

This is one reason I LOVE duplex investing so much. When bought right they sustain themselves. What I am finding now is that a few smart first time investors are looking to buy duplexes over SFH. I think that makes a lot of sense. If you buy a duplex and lose your job or have to move to another city for a job you are not forced to sell your property. Simply move out and rent the other side out. A duplex has far better chance of covering expenses that a similar cost SFH. Cheers.

My two cents:  If you are an experienced real estate investor then you probably have the experience, knowledge and scope of work required to find a GREAT property manager.  But most here are probably in the early stages of their real estate investing endeavor.  I only have about 20 years of experience so you should probably take this advice with a grain of salt.  But, in my years of managing my own properties, I have seen far more PISS POOR Management than I have Awesome management.   Many that I have experienced were run down properties that I bought, managed by a few of these managers.  So for newbies the odds of finding the Awesome manager is slim to none and slim left town.

Since we are in the Austin forum, one would have to acknowledge for many or most of us, we need to find those areas that we can help ourselves with as much favorable cash flow as possible.  Self-managing is one of those.  And if you are new to investing, managing one or two units is not that daunting.  Yes you will make mistakes, but you will be better for it.  In the long run no one, no one, yes no one will manage your properties better than yourself.  Now when you get more confident and start acquiring more properties then yes if you choose to find a PM then go for it, as you will then have the experience, knowledge and understand the scope of work required.  

One area I would take exception to might be investing in STR. That is more intense management that may lend itself to finding a good manager. I have seen both work fine. Bottom line is this is a business of sorts and the objective is to make $$$. Take advantage of the things you can to position yourself for greater success. Cheers.

Protest yourself take your HUD statement in and they will usually adjust first year's tax assessment to your purchase price however the next year all bets are off the table you will be assessed what the current properties around you are being assessed regardless of your reduction this current year

I think you can protest online and not even have to show up just upload your HUD statement and they will be quick to make judgment in your favor I believe

@Jessica Hamilton, Please do yourself a HUGE favor and do not try flipping a house.  It is high risk and with no experience you will not make any money but you stand to lose a lot.  Not what you want to hear but you should take this advice and advice of the others on this thread.  

Also, utilize the profile page on this website.  Tell us where you are from and what interest or goals you have and experience with real estate.  It will help us when giving advice.  You need a bit of education concerning investment real estate.  You need to have your RICE In order to be successful.

Reserves:   Six months of living expenses to help you get through hard times

Income"  Source of income to make regular monthly mortgage payments in addition to your regular living expenses.

Credit  Minimum of 620-640 to get a mortgage loan. The better credit number the better interest rate on your loan.  Payoff debt that is hurting your credit score first.  

Equity is the downpayment needed that is your portion of ownership.  The more equity you can put down the better loan provisions as well. 

80k is a good chunk of money to start but not too much where you can feel comfortable.  I am very concerned that you and your boyfriend are not seasoned enough to handle the responsibility of making monthly mortgage payments come hell or high water.  You statement "were getting kicked out"  doesn't scream high responsible.  

Instead of flipping work towards taking this money and putting a downpayment on a duplex.  Live on one side and pay rent to his mother, and rent the otherside for his mother too.   Because I don't know where you live, I am hoping you live in a reasonable cost affordable area.    If you able to buy say a 250k duplex and can put 50 down you should be able to have a positive cash flow.  Total payment including taxes and insurance is about $1500 per month.  If you pay $1000 and the other side pays $1000 then you end up with about $500 positive cash flow a month, but will have some loss due to maintenance and vacancies from time to time.  This will also allow you to start gaining experience managing real estate but also give your mom some income while hopefully the property appreciates over time.  Good luck.

@Miranda M. all good advice, but you should be able to evict now!  If not, go with non-renewal eviction, it is not protected by the Covid protocol.  Also do a background check on your Felons.  If they are on probation, locate their probation officer and let him know the issues.  It would be helpful to have specific violation from the lease to provide him.  They don't need a lot of fractions to put pressure on them as they can easily put back to jail if found in violation not of the law but the probation restrictions they agreed to.  They usually are all encompassing.   That may be all you need.

@Joshua Dombal, you're not going to like my answer but I pride myself on telling it as it is.  There are a few things we still don't know and that is did you have a property manager, who showed the unit to the new tenants and was it a friend or a professional that did the walk thru.   Bottom line concerning your current tenants..........You are responsible!  Here are items that don't add up and lead me to believe that someone was cutting corners to get it leased fast!  

Items that don't add up:  You replaced carpet......saw no roaches.......really?   You painted the unit........saw no roaches..........really?  Who ever did the walk thur inspection......saw no roaches..........really?  Yet you say infestation.....even in the fridge and stove might need to be replaced........and yet no-one saw any roaches before the newbies moved in.............really?   Come on man.............somebody or bodies are not being truthful.  

I have had infestations on buying runs down duplexes and on turn over of tenants. What you describe can't be missed from the casual observer.  You need to re-evaluate your policies and procedures!  

Ok, now what to do!  Pay a rock star cleaner to specifically clean the fridge and stove and anywhere else there have been concentrations of roaches.  Don't forget to move the stove and fridge to get behind and underneath the appliances.   Look for grease!  Roaches and rats for that matter love grease.  Grease above the stove on cabinets and ceiling, get it clean.  I would not replace the appliances just for roaches; a good cleaning should do it.  After a good paid professional cleaning go back and put down this:  Advion Cockroach bait buy on Amazon and watch on youtube......this is amazing.  

Lastly, two things left!  Charge outgoing tenants for cost and INCONVENIENCE whatever that may be!  If you have a property manager fire him/her.  If you paid someone to do the walk thur....fire them too.  If you were too lazy to properly see the transition thur yourself then do a better job next time!  This is ultimately on YOU!  Compensate your existing tenants with at least a half month's rent.  Rent you would have lost had you taken a little extra time yourself to kill the roaches before the new tenants moved in!   What you have gone through, all of us 20 year 20 units or more investors have done multiple times, so learn the lesson and move on!  Cheers!

@Scott Burgett may I also suggest you add to your profile.  Introduce yourself to the community.  In the introduction you might include your desires, experience and where you are from.  Look at my profile it might give you some ideas with yours and it may help you focus on a goal and a WHY.  Cheers.