All Forum Posts by: Shyam Panchal

Quote from @David Vanlandingham:

@Shyam Panchal Isn't Spring a little expensive regarding proeprty taxes and some areas have MUDS?

 Spring is definitely a pricey area.  Property taxes including MUDs are now pushing 3%.  I self manage though so am able to make the numbers work.  Depends on what level of return you want.  I am OK with a 7% return if the property is turnkey and I can essentially buy the property and throw the key away.

Quote from @Jacob Hafer:

Hi All, 

I am looking to purchase my first Investment Property as a Long term Rental. I have been working with a Realtor in my area, and he has just suggested looking at new construction homes. I am seeking some guidance as to the pros vs. cons of investing in a new construction home. All guidance is welcome!

New construction properties are difficult to cash flow, but it can be done.  I am buying a new construction property in Spring, TX that is due to complete in July this year (right in time for the summer market) and will cash flow about $300/month.  The benefit of new construction properties is that there could be a greater chance for appreciation.  I bought a new construction property in Austin back in 2018 as one of my first rentals and it doubled in value.  I, of course, bought at the right time.  Generally, good new construction communities will already have some investors buying rentals.  You should be able to find some comps, depending on what stage of construction the community is in.  Some sales people will also be able to tell you whether investors have bought properties in the community.

Originally posted by @Yehuda Shtesl:

@Shyam Panchal Thanks so much for taking your time on this.

So the property in question is a single family, i bought it with a tenant inside, they basically didn't pay for a year and my hands were tied cause of covid. However, I bought it with cash so there was no monthly mortgage payments so I was dealing with it cause I knew I am in it for the long term and eventually be able to cash out refi. Finally the town condemned the house because the tenants were putting garbage all over the place and it was not safe so they got him out.. then I found out that the tenant actually had other ppl living there who paid him while he was in prison. So he is out and I was able to make everything right, which I did (or so thought).

We found a great tenant, and things started to happen. For example some electrical stopped working in the house after I had paid thencontractors electrician at the time of construction to make sure all electricals were up to date to prevent such things from happening, we fixed that.. after that we noticed some leaking in a part of the home which we finally located the problem that the the contractor nailed trim with a nail gun and made a hole in a heating pipe which dripped slowly so no one knew anything until the damages were big, we fixed that.

Now, some pipes they didn't insulate well, have to pay someone to address this.

Also, now, whenever they use the water.. the whole basement gets flooded which seems like there is something with the main line going on.. trying to get a hold of thentoen to address this asap, but you probably know how fast towns could be. Meanwhile I am loosing money and feel kind of embarrassed that so many problems keep arising even though I tried doing everything right.

I'm in the end of process of refinancing (finally) with possible monthly mortgage payments starting soon, inwas counting on this money to invest further, I really do not want to put back in the refi proceeds back in the same property.

Wow, this sounds like a total nightmare! Is there a reason why you bought in this area?  It sounds like the house needed major repairs from the start and the tenant base isn't great.  I can only tell you what I would have done - I would have sold the property instead of refinancing.  Flooding issues are some of the most difficult issues to resolve if you don't know where the flooding is coming from.  Sounds like your contractors aren't good quality if they've caused more damage after repairs.  You also risk mold damage which can affect your tenants if not treated properly.  

Originally posted by @Yehuda Shtesl:

Hi all,

It's my first time posting, I just need any advice at this point.

I bought my 1st deal mid 2020, was a great off market deal, but needed work which isnok because I wanted to do Brrr. We did a great job remodeling made it beautiful, however, now after a few months in, unexpected stuff keeps happening, like stuff that usually never happens only once in 20 years, all happen one after the other. Some are the contractors mistakes and other not, like stuff that I wouldn't even know to look out for because again, it usually really doesn't happen. I feel like fixing one thing and waiting for the next thing to happen.

I want to push through and I hope I'm done with the problems soon, however I was wondering if anyone had a similar experience, how you dealt with it, mentally, physically and emotionally. (Put in so much money and sweat and all this happening) as well I want to keep doing Brrr but not I am more hesitant because at thisnoint I don't know what to look for or if what I see if there is more that I don't see even with inspections and stuff.

Thanks for your time.

 Can you provide more specifics about what is happening?  When I first started out investing, anything and everything that could have gone wrong did go wrong.  I bought an older (built in the 1970s) "multifamily" duplex property in a Class A area in Atlanta (it was all I could afford in this area). The property was already rented, so I thought it was a good deal with very little hassle at the time.

A few months after closing, the property started needing repairs which were manageable, but unexpected as the inspection report came back with minor issues. I started having problems with one of my tenants, who couldn't pay rent two months after signing a lease with the previous owner.  I had to evict this tenant and struggled to find a tenant for this unit for the next four months because my realtor was not putting in much effort trying to rent out this property.  Because I was investing from a distance and didn't see the property in person, I relied to heavily on my realtor and later found out there was an electrical tower running behind my property which wasn't disclosed (a complete n00b mistake I am embarrassed to admit).  I had to "fire" my realtor and managed to find a good one in the area who was more experienced with investors.  I bought this property with cash and was planning to refinance later.  During the refinance, I found out that multifamily properties were not permitted in the county based on zoning laws, and did not qualify for the refinance (another embarrassing n00b mistake..). To top it all off, Atlanta had freak rain that year, and the basement unit flooded and had to be entirely gutted.  I never rebuilt the basement unit after that as the property was becoming a money pit.  

All of these mistakes were entirely avoidable had I been more diligent (except for the freak rain and flooded basement). Although it was a painful two years of my life, I stuck with RE investing.  I managed to sell the property right before the pandemic hit and broke even on the investment (I was very lucky).  I now have five units in my portfolio and will add four more this year (9 in total).  It would have been easy to blame the people I worked with to acquire this property, but it was ultimately my responsibility to learn from the experience.  Power through, don't give up, and find an exit strategy quickly if the property is becoming a money pit.  

• What lessons did I learn?
• Always look into your realtor. If you are shopping around for realtors, a good realtor who really wants to win your business will look up the records of other realtors they are competing with in the MLS to give you the lowdown on their competitors. I found out the realtor I was originally working with (the one who sold me the house and renting out the property after the first eviction) lied about her experience - she said she had 7 years of experience, but only had 1 year of experience.
• You can force value by purchasing older properties and fixing them up, but if you are investing from a distance and can't handle the ups and downs associated with this strategy, don't buy these properties.  This takes diligence and a build-up skill (which I didn't have at the time) to make a success out of this strategy.  You will most likely spend more than you originally budgeted for.  I now only buy turnkey properties built after 2000 to avoid the hassle of repairs (not always possible but more likely in a newer property).  
• Take responsibility.  There is always something you could have done better.  Don't assume your inspectors, realtors, or contractors are going to be as diligent as you.  

Hi BP Community,

A partner and I are looking for rental properties in Houston or Atlanta. My partner has quite strict investment criteria and is looking for proprieties achieving 15% CoC return, assuming 35% down and 5.375% interest (commercial lending).

I've invested in both cities and am achieving 7-11% CoC in Class A areas (I self manage so no property manager involved).

At a glance, his investment criteria seems unrealistic for these markets. If we invest in Class B-/C+ areas, maybe this would be achievable, but I haven’t been able to find anything.

Any thoughts on areas where I might search?

Originally posted by @Victor S.:

Originally posted by @Shyam Panchal:

Originally posted by @Victor S.:

how did you come up with $500/mo cash flow? honestly, this "rehab" if you can call it that stinks to high heavens. i think your mind is getting clouded with the assumed cash flow amount. i foresee quite a few capex/opex items in your near future. the roof alone is completely unacceptable. they probably had some shingle slappers come out and knock it out in one afternoon. wouldn't be surprised if there are more issues hiding underneath. everything is fixable, but i'd be weary of everything else you cannot see. has your inspector snaked the drains and made sure there are no leaks in water lines? plumbing issues are the worst, and if go unnoticed, can cause a ton of damage.

also, are you paying top dollar (read:retail) for this property? i'd seriously weigh all the feedback you've received here and then make a decision.

My agent pulled recent comps for the area and homes of similar fashion were renting for $1900 a month.  I also verified my agent's opinion with another agent I am in contact with and she verified his estimate is correct.  I was also able to find comps that supported the $1900 a month estimate.  Total costs were coming to around $1400 a month at a $260k purchase price.  

I didn't go ahead with the purchase though.  I received some quotes from contractors that said there are $10k-$15k of additional repairs I would need to complete.  The Seller also refused to reduce the price further so I walked away.

$1400 is PITI, i take it? if so, once you add reserves, you'd be lucky to have $100/mo left. that's why it's so important to have these numbers first and work downstream from there. for such a pita house with minimal cashflow, i think you did the right thing.

$1400 is PITI. I keep everything in reserve for the next investment, but if I was to purchase this property, I would not have profited until year 3.

Originally posted by @Victor S.:

how did you come up with $500/mo cash flow? honestly, this "rehab" if you can call it that stinks to high heavens. i think your mind is getting clouded with the assumed cash flow amount. i foresee quite a few capex/opex items in your near future. the roof alone is completely unacceptable. they probably had some shingle slappers come out and knock it out in one afternoon. wouldn't be surprised if there are more issues hiding underneath. everything is fixable, but i'd be weary of everything else you cannot see. has your inspector snaked the drains and made sure there are no leaks in water lines? plumbing issues are the worst, and if go unnoticed, can cause a ton of damage.

also, are you paying top dollar (read:retail) for this property? i'd seriously weigh all the feedback you've received here and then make a decision.

My agent pulled recent comps for the area and homes of similar fashion were renting for $1900 a month.  I also verified my agent's opinion with another agent I am in contact with and she verified his estimate is correct.  I was also able to find comps that supported the $1900 a month estimate.  Total costs were coming to around $1400 a month at a $260k purchase price.  

I didn't go ahead with the purchase though.  I received some quotes from contractors that said there are $10k-$15k of additional repairs I would need to complete.  The Seller also refused to reduce the price further so I walked away.

Originally posted by @Corey Frank:

Originally posted by @Nathan Gesner:

What's the home worth to you? Talk to a contractor, get an estimate of what it would cost to fix these items and move forward with the purchase, or you cancel and walk away.

Almost everything you mentioned is extremely minor. A home built in the 90's isn't automatically a fire hazard just because it doesn't meet electrical code of 2021. Tiny mold can be removed with a water/bleach solution and a rag in 5 minutes. My office and a vacation rental both had water heaters that were 40 years old and never, ever failed on me. Toilet bolts and water nozzles can be tightened. Roof vents can be installed.

Figure out if you can negotiate repairs so it meets your standard or walk away.

Would home insurance cover the damages from a water heater that failed with that kind of age?

Depends on the home insurance, but I decided not to go ahead with the purchase because there was $10k-$15k worth of additional repairs post the rehab.  

Unfortunately, the Seller is playing hardball and isn't willing to make concessions.  They already reduced the purchase price down by $10k prior to the inspection ($5k below asking).  Although some of these issues are solvable, mold is a serious issue that isn't easily fixable.  The issue probably isn't that serious, but you never know with mold.

After speaking to an electrician, the electrics are not so much of an issue but still costly to fix ($4-$6k).  The roof will be about $1-$2k I assume.  The water heater can be covered by a home warranty.  The dishwasher and disposal don't even work even though the kitchen was rehabbed.  The shower doesn't work in one of the bathrooms. 

Here is a summary of issues from the inspection report

1) No roof vents for attic ventilation (this is a brand new roof barely 2 months old)

2) Satellite dish is screwed directly through roof surfacing (this is a brand new roof barely 2 months old)

3) Some roof coverings are damaged (this is a brand new roof barely 2 months old)

4) Pull down attic stairs not properly insulated (not a bid deal, easily fixable)

5) Missing or damaged soffit screens (not a bid deal, easily fixable)

6) Mold on interior walls behind the kitchen sink (The kitchen was "rehabbed")

7) Firewall behind the furnace was breached in one or more areas in the garage (garage was also "rehabbed")

8) Exterior brick siding has hairline cracks (not a big deal)

9) Exterior trim boards have gaps leading to water intrusion (not a big deal, easily fixable)

10) Wood rot observed on one or more areas of siding (not a big deal, easily fixable)

11) Noticeable repairs made to one or more areas of the ceiling (not a big deal)

12) Wood rot on one or more areas of exterior doors (not a big deal, easily fixable)

13) One or more privacy doors jamb when closing (not a big deal, easily fixable)

14) One or more privacy doors do not latch (not a big deal, easily fixable)

15) Windows have missing screens and damaged springs (not a big deal, easily fixable)

16) Some windows do not stay open (not a big deal, easily fixable)

17) Cracked double-paned window (not a big deal, easily fixable)

18) Dampers are missing required clamps to prevent closure on gas log fireplace (not a big deal, easily fixable)

19) Fresh air vent at chimney is loose at the wall (not a big deal, easily fixable)

20) Wood deck showing signs of deteriorating in areas (not a big deal, easily fixable)

21) Grounding rod near electrical meter is missing the required clamp (not a big deal, easily fixable)

22) Latch for the main electrical panel is missing (Maybe best to replace the whole box)

23) No antioxidant on aluminium conductors 

24) No smoke detectors..(not a big deal, easily fixable)

25) No Arc Fault Breakers in required areas of electrical panel

26) Doorbell does not work (not a big deal, easily fixable)

27) Branch circuits miswired to a single bus bar

28) Gas furnace does not have a sediment catcher

29) HVAC does not have overflow drain pan

30) Water heater is a 2009 model (was "replaced")

31) Corrosion observed on the hot water handle for laundry connections

32) Toilet loose in bathroom (bathroom was "rehabbed")

33) Gap between wall and faucet in guest bathroom shower (bathroom was "rehabbed")

34) Hot water handle in master shower spins and does not turn on (bathroom was "rehabbed")

35) Leaks under all sinks observed

36) Dishwasher drain hose did not form a loop and create a trap under sink

37) Door on dishwasher does not latch 

38) Disposal was not plugged in and was not tested (probably doesn't work)

39) No anti-tipping device on stove, and back left burner does not work

40) Sprinkler system was not tested.  Water was shut off and backflow preventer was damaged.  

You can see it's quite a long list of items to repair from a far distance....I don't think the $10k concession would cover all of it.

The cash flow, however, is quite good..at $500 a month..








      

Originally posted by @Michael Robbins:

@Shyam Panchal I would search if the sellers obtained any permits for the work.  For example, here in Las Vegas water heaters are required to have permits.  And at the very least ask for copies of invoices on the work.  You want to ensure that any work done on the property was performed by licensed electricians, etc... 

This one is a bit of a strange one...but Montgomery County, TX, does not have specific zoning codes, so the only time you are required to have permits is when you are either constructing an extension to an existing dwelling or building a new structure.  Strangely, roof repairs, remodels, electrics don't require permits..never come across this before.