All Forum Posts by: Seth Hochberg

You are right to be a bit concerned about the contractors when working out of state! Referrals are your best bet. You should ask some investor friends in the area (you've been networking, right?) and ask if they recommend any contractors they've worked with. A good agent should also have referrals with contractors they've worked with in the past. Ideally, the two lists with have some overlaps. I would start with those two avenues, and if you want to be extra careful, you can ask the contractor you're considering for 3 references for projects they've worked on RECENTLY. And call all three and ask them about their experiences with the contractor. 

@Russell Brazil is likely speaking in general about that price point, doubly so because Baltimore can be a risky place to invest. How familiar are you with Baltimore? You mention two neighborhoods, but neighborhoods can have a large range from one block to another. You need to know which blocks to avoid and which are good to invest in.

I have a property in the Belair-Edison area, but I spent double what you're talking about for purchase + rehab. I might be a couple blocks away from where your friend bought, which can make a difference. It definitely can be done, as evidenced by your friend. If your friend is brand new to the game, they probably did get lucky, because usually it's so easy to get burned at that price range - there's so much that can go wrong. Tenant might not pay rent. Tenant might cause damage to the house. Etc. etc.  I recommend you visualize everything that can go wrong, and determine if that's worth the negatives of taking a loan to buy something higher quality, which would allow you to attract more quality, paying tenants. 

Congrats of having 70k saved up - that could buy get you a down payment or two on some of the nicer neighborhoods in Baltimore. Just another option. I think the right parts of Belair-Edison can have excellent cash flow, but I would be uneasy buying a 40k  house that only needs 30k, just because it worked out for your friend. If you do go this route, do your homework, and have an honest visualization of the risk that comes with it.

I'm a bit weary of choosing a property that already has a tenant in place (section 8 tenant or not), because it always feels like a bit of a gamble. For all I know, the tenant is terrible and refuses to leave, and maybe why the seller is even trying to sell. 

I would agree with what's been said. I've also had luck in Baltimore, scoring an extra $300 in section 8 rent because I added a room in the basement. Adding a bedroom will score you more rent then renovating the kitchen and bathroom (although you shouldn't strive for bare minimum).

To determine what portion of the rent the tenant will pay, you can estimate this, by contacting their previous landlord and asking them. 

Spend time on GoSection8.com, that will answer a lot of your questions. Section 8 houses need to pass an inspection in order to qualify for the section 8 rent, and that inspection is a baseline standard the house has to be in. As I said before, a fully renovated kitchen and bathroom will not increase your rent, as much as an extra bedroom will, since the vouchers are determined mostly by how many bedrooms there are. 

A bit off topic, but people tend to take advantage of this by buying in rough neighborhoods and renovating it to the absolute bare minimum and posting it on GoSection8. These tenants might not have any other option. If you're in a reasonable neighborhood, and you are not a slumlord, you can get a lot of attention, which will allow you to be picky. I highly recommend listening to podcast episode 356, with Joe Asamoah in the DC area. Not everyone agrees with him, but I fully support his approach of listing high quality homes on section 8, and treating them like quality tenants, rather than scum only because of a disadvantaged financial situation.

Looks fantastic! Looks like you're slowly climbing to larger and larger renovations. Section 8 can be a great tool, makes a lot of sense to go that route after getting burned by a professional tenant. I'm in the process of placing a section 8 tenant into my property as well, largely motivated by your sucky situation with your first tenant.

How difficult was the half-bath addition? How much did that cost? My experienced investor friend said adding a bathroom is usually not worth the headache, but I disagree. I'm assuming this is a 3 bed + 1 bath, to which I imagine an additional bath adds a ton of value. Curious on your thoughts.

Go @Jeremie Torres for those fantastic photos!

There are several quality ones on Facebook! Join them all and see which ones are the most active =)

Welcome! Baltimore is a tricky area for long distance investors. More specifically, for long distance investors who have never lived in Baltimore. You could ask about good zip codes to invest in, and that won't work. You can ask about what neighborhoods to invest in, and that also won't work. Baltimore is truly block by block, and it's hard to learn "the good blocks" entirely remotely. With a good team that you strongly trust, perhaps it will work! I'm happy to help with my (somewhat limited) experience in the city thus far. 

I have to ask, why not consider Baltimore county? Higher entry price, but the property taxes are less than half of those in the city, and it is without as much of the crime, has better schools, etc.

Welcome to BP Danielle! Getting approved for a loan should be one of the easier steps - just shop around for rates, and then either apply on the bank's website or contact the loan officer. 

I would actually advise you to focus on getting a strong agent, to which there are many good ones who are active on Bigger Pockets. You can reach out to one of them, or network within BP and try to get recommendations for good agents. Once you've got a good agent, he or she will unlock the rest of the pieces for you, as they should have contacts for the other pieces of your real estate team. Not to say they'll do everything for you, but everything gets easier with a quality real estate agent to guide you. Just my $0.02

You probably don't want to hear this, but quality contractors are typically the hardest to find, so when investors find a good contractor, they keep them close and don't often share them on a public forum, like this. Networking and building relationships with other investors who are investing in the same area is one avenue. Alternatively, (or in tandem) you can look into the Maryland/Baltimore real estate groups on Facebook - people are more willing to share contacts there. Hope this helps!

I'm not a CPA, but I would not bother with the LLC.

I'm a new investor, so take this with a grain of salt, but I believe an LLC does not provide any real tax benefit. There are some complicated scenarios where maybe it helps, but if you just own this one property, I don't believe your tax bill would differ much (or at all) if your property is in an LLC. Anything you can deduct as a property owner, you can deduct regardless if the property is in your name or in an LLC.

The LLC serves to primarily protect your assets if you get sued. If you have a million dollars in assets, and then someone wants to sue you for this one property, they can go after your million dollars in assets if the property is in your name. But if the property is in an LLC and you've operated it correctly (look up how to avoid "piercing the veil"), then the damage would be isolated to your equity in the LLC. Umbrella insurance makes a lot of sense in your case, but peruse the plenty of bigger pockets forum debates about umbrella insurance vs LLC's. But you were asking about tax benefits, so I might be getting off topic here anyway...

Some further reading

This would be easier to understand with concrete numbers. So if I understand correctly, you own a house with substantial equity in it.

      Option A: Rent it out, and cash flow 600 after the mortgage. After taxes, insurance, 5% maintenance, 5% vacancy, this is probably closer to $300 cash flow.

    Option B: Sell it to get your equity. This equity could buy you two more properties. 

I don't follow why starting out debt-free is a factor. But what kind of debt are you talking about? Credit card debt? Student loans? Or just the mortgage on your house? If you're just talking about the original mortgage on your SFH, then why does that matter - you're about to accrue more mortgages by getting into real estate. If you're talking about credit card debt, then in the good words of Mr. Money Mustache, "You should treat that like a 'my hair is on fire!' emergency" and by all means pay that off. If it's something in between, like student loans, then think of your interest rate as the guaranteed return on investment.

Without more information, my advice would be to boil everything down to a return on investment. If you can make 100k in cash from selling, then option A is only (300 * 12) / 100k = 3.6% ROI, not good. If you're paying down credit card debt with 19% interest, then that's a guaranteed 19% return on investment (good!). If you invest in more property, then you can figure out your return on investment is for that.

Hope that helps! Hard to give advice without fully understanding the situation.