All Forum Posts by: Tony H.

Hi BP,

I am interested in a duplex property in Carmichael, CA. The seller refused to take any offers that have "subject to inspection" clause in it.

I take this as a big red flag that he is hiding something.

Fast forward 2 weeks later, they informed me that the tenants at the duplex are opening their doors for any potential buyers to look at. I didnt have to go there since it was such a short notice. So, I asked my agent to go there and look.

He told me that the units look good and that he doesnt see any major repairs needed.

So, why is the seller not wanting any offer with "subject to inspection"?

Is he hiding something? 

Also, I got copies of the tenants lease agreement. One of them violate the agreement by having a HUGE dog in the unit, while her lease says NO PETS. - lol..

Thanks BP.!

@Michael Heredia I have share water sewer garbage bill at my duplex. There is only 1 water meter. So I charge them flat fee per unit. Any overage, I cover for it. To this day the most I cover per month is $30. Most months only $15.

@Darrick LoweIt really depends on your goal here. Even if you pull money out of HELOC, can you pay it back in less than 5-10 years?

I used HELOC out of my primary residence as a down payment for my rental property.

I had a spreadsheet and planned to pay it off within 4 years. So far it's been on track. And I even beat the goal by half now. (i put my bonuses from my day job to it).

The HELOC rates kept increasing almost every quarter and that scared me.

Part of the reason I was able to pay quickly - between me and my wife, we opened 3 Balance transfer credit cards with 0% interest and $0 transfer fee.

I transferred my HELOC balances to the credit cards and paid no interest in the last 15 months or so - and I plan to keep bouncing them between cards until its paid off.

This method really plunged my credit score though. I went from 800s to 500s.. in a matter of days. lol

But as long as I dont plan to pull more loans, I'll be fine.

Now, my credit score is back up to 700s..because I have paid most of the balances.

Disclaimer: I dont suggest anyone doing the same way as I did. 

@Ho Eun Park I self manage. My rental is about 2 hours and the last time their toilet clogged. I called a plumber and paid $200 for it.

Yes it is expensive. But really, I dont want to drive 4 hours roundtrip to try to unclog their toilet.

And I was right by not driving there, because when the plumber called, the issue was further down the sewer. My effort driving there would have been useless.

My advice, if you have some bandwith in your cash flow, you should just call a handyman or have your tenants do it (and give them a rent credit) .

I had one of my tenant install to 6 fence boards (literally just buy the materials at home depot and hammer nails on the fence posts). I could do it.

but again not wanting to drive 4 hours roundtrip for that. I told my tenant to do it and gave him $50 credit.

He was very happy and I was happy too!

Wow.. I didnt think we are all divided here for a fridge!.

@Marci Stein I would think you should do what you and the tenant agree.

Honestly, I dont think it's that big of a deal for you. Your old fridge probably have less than half of its useful value to begin with (am i correct?).

Let's say that useful value before they put it in the shed was $200.

Then you should probably charge no more than $200.. but again, everything has its own life. The useful value may have been exhausted by the time you took it out from the shed.

In my case, I had an old fridge in my tenant's unit. He complained his foods gone bad cuz the fridge was not cool enough. I inherited the fridge when I bought the property. 

So, I just bought him a new one, and I have no plans to deduct his deposit, unless he beat it up.

All in all, just get an agreement with your tenant. (im sure they will complain regardless how much you deduct)

@Brian Pulaski Agreed. I didnt want to waste time either. Plus, I'd be embarrassed to offer that low in the Bay Area market.

As comparison, a complete burnt down home in Oakland here in Bay Area sold for $350k lol..this is why the 70% rule doesnt make sense here.

Thanks everyone for the reply. I kept using that rule to analyze and drove me crazy. But I guess now I can rely in my own spreadsheet and figure out my own profit goal.

@Matt K. 

@Vick Galu Thanks,  that makes more sense to me. 

I created an excel spreadsheet with more detailed calculation. If I use the 70% rule... I would make close to 50% ROI, which doesnt make any sense and will never happen here in the Bay Area.

Plus, my lowball offer (based on the 70% rule) will just be laughed at. lol.

@George Pauley

Thanks for input!

Hi BP,

I have been reading about this 70% rule for house flipping. I analyzed a few fixer properties here in Bay Area and Sacramento.

Honestly, I dont understand how the 70% rule will work.

Here is an example:

A property here in San Jose ask for $680k. It's pretty run down.. I wont be surprised if it will cost me $100k to rehab.

Now with the 70% rule, my offer for the property should be at around $425k..(and that's not including additional profit).

If I am analyzing correctly, the ARV should be around $750k. With the 70% rule.. that means I should offer ($750k x 70%) - $100k Rehab = $425k.

I gave this rough $425k number to my agent and he think he should not waste time putting together an offer.

I did the same rough calculation on a house in Sacramento. 

A house listed at $200k.. Need $25k repairs (estimate) and ARV is about $260k.

According to 70% rule.. my offer should be ($260k x70%) - $25k rehab = $157k.

Again.. the offer seems WAY too low.. and there is no way me (or my agent) should waste time putting together an offer.

What am I doing wrong here?

Dislclaimer: I am still learning how this all works so I can pinpoint a more accurate calculation before jumping in. 

Thanks!

@Raymond Murray Heloc rates are variable though. You may want to keep an eye on it.

The rates keep going up lately and it will eat up your cash flow sooner or later.

@Brian Kwan I used HELOC as down payment to purchase my duplex. I had $25k cash sitting around, but I decided not to use it since that's my emergency fund (personal money).

Using HELOC fully to fund my down payment allows me to keep the books "separate". - so I can see how my investment is doing.

In your first post, you said you will have to pay $250/month, if you use $60k HELOC. Are you sure about this? As far as I know, most HELOC's requires 1% payment every month ~ $600/month in your case.

To be honest, after I pulled $80k HELOC and tried to pay it back. It's not easy. All of the reserves money for (capex, etc), I put it all in HELOC because I am trying to minimize the interest. - if I ever have to spend money on capex, or roof..in the next 1-2 years. I will definitely pull it out from HELOC again. Otherwise, I will take my chances and hope for the best.

My Heloc is almost done. $20k left to pay (in credit card with 0% interest). After this, I can start accumulating my reserves.

I also put all my cash flow income to pay the HELOC down. every penny goes into it.

My strategy to minimize the interest is to open a Balance Transfer credit cards with 0% interest and $0 fee. I opened 3 of these between me and my wife and transfer my HELOC to those cards.

Yes, it dinged my credit score pretty hard (went from Excellent to Poor in a like a week LOL). but for the last 15 months. I paid $0 interest. (saved about $5k in interest at least).

All my HELOC payments in the last 15 months went to Principal. Now my credit score is back up to the "very good" ratings.

Anyhow, just giving you ideas. I am not suggesting at all.

Good luck!