Notes about “Meet Kevin’s Guide to Real Estate Wealth – Investing”

https://meetkevin.teachable.com/courses/enrolled/408545

Great foundations course about investing in single family residences in California. Most of this should transfer to other high-equity markets as well.

If you somehow found this page without being a course member, sign up. It’s more than worth it. The notes can’t replace the course content.

These are my personal notes and comments, bullet point style. I hope they’re helpful to you as a reference. If you feel something is amiss, please reach out.

(1) Welcome

(1.0) investing discord
Link

(1.1) RE is the perfect side hustle
RE is the ultimate side-hustle
Use income to qualify for financing
Value of time

(1.2) course intro
Course thoughts

(1.3) opportunity cost mindset
Opportunity cost is important
trade-off money for learning, also consider tax
Prevent being ripped off
Judge quality of work
Interest over time vs inflation

(1.4) establish credit now
Established consumer credit is necessary
Never miss payments, on credit cards and loans
740+ is best, higher interest for each 20 points, down to 600
Savings are necessary
Income is necessary

(1.4) establish credit now
Established consumer credit is necessary
Never miss payments, on credit cards and loans
740+ is best, higher interest for each 20 points, down to 600
Savings are necessary
Income is necessary

(2) Mindset

(2.1) investor mindset
“Passive income isn’t easy”, acquisition is work, long-run return matters most
“Don’t 10x now”, then it’s another job
“Relative performance is toxic”, growth with stepping stones rather huge leaps in scale
Set your own goals

(2.2) dont quit your job
Fulfilling job vs consistent income, 9-5 job is more than fine
Investing is limited by money, not time invested
Need money for real estate financing
Takes long time until side-hustle overtakes main job/income source, only then quit
RE not mutually exclusive to job
single property, single rental, eventually portfolio of properties
Don’t be RE agent unless you like sales, helping others

(2.3) social skills in investing
Don’t be a prick, too much ego is toxic
Being sociable and accommodating helps (but set limits!)
Receive better deals first, this is business
If you get a good offer, take it
Empathy connects people

(2.4) communication
Communication is critical in investing
Reduce stress for people working with you
Volunteer (minor) help on update requests
Empathy first, request second, reason third. Reason optimally outside force
Avoid short, blame, and passive aggressive responses
Word choice

(3) Finances

(3.1) essentials vs luxury
Essentials vs non-essentials
Investment property vs 2nd home
Minimize money spent on rehabsas long as good enough
Avoid unnecessary upgrades, keep down complexity
Market often determines essential vs non-essential

(3.2) credit cards
Credit cards are necessary, consumer credit
Additional safety and insurance from card payment
Secured card to start if necessary
Auto pay in full, no balances, prevent lates, low utilization
740+ is the best loan, 20 pmts steps
Use credit, don’t worry about inquiries
Avoid heavy churning

(3.3) DTI ratio
Debt to income ratio
Front-end ratio, gross income to house payments only, 30% ratio
Back-end ratio, gross income to all debt payments, 40-55%
Every dollar in payments impacts qualification

(3.4) compound interest
Compound interest, geometric
“Get rich slow”
Spreadsheet great for visualization
Exponential curves diverge
Lower interest vs higher return dramatic over time

(3.5) future value computation
Future value computation for investment decisions
Time-value of money, opportunity cost
inflation incentivizes debtors
Often repairs and cheaper options turn out better

(3.6) financial dream calc
Spreadsheets from scratch to avoid surprises
(There’s a counter argument to this)

(3.7) collect pre approval docs
Get list of required docs from lender now, not the last lender ever
Also, list of special programs available
All digital, file folder for qualifying docs, keep updated
Use compatible formats and file names
Speed matters for good deals

(3.8) break even
Selling real estate is expensive, avoid
Commission, fees, taxes, capital improvements, time
Details vary across regions, around 7% US west coast

(3.9) net present value
Net present value for investments
Universal tool to bring future payments to present value for comparison
Especially with leverage

(3.10) credit freeze
Credit freeze
Prevent identity theft from affecting credit file
Identity theft insurance almost useless, claims take long, still bad credit

(4) Circles

(4.1) primry circle
Primary circle of people in geo
Friends and family, once a week interaction
Should be pro real estate
Primary realtor (?), first go-to always, hours response time
person to talk to about most RE advice, source of direction and contacts, not final advice or decision
Retain trust always

(4.2) secondary circle
People exchangeable, limited life expectancy
Contractors and service, other realtors
fluid, quality of service, costs
1-2 days response time
Reliability, heads-up time

(4.3) finding great people
Find people’s reviews, contact info
Schedule meeting, intro as investor, find out fit both ways
ask for their expectations, good or bad client, do they invest themselves?
don’t be a prick, again
Referrals from prime realtor, then family, then 2nd circle, then others, then internet

(4.4) avoid grinding
Don’t complain all the time
Find good price by shopping around, but avoid grinding (i.e. demanding discount)
Ask for alternative options instead, by changing yourself, not all the time
Empathy, don’t convey disappointment with other person on cost

(4.5) mentors and licensing
real estate license not required for investing
Realtor is RE agent association
Just representing yourself doesn’t work, work for others too
Active realtors get the best deals
Referral benefits from other agents
Tax deductions for agents
Mentorship from primary realtor free

(4.6) agent discounts
Don’t grind on price for your realtor
Full price payment brings best quality of service, but doesn’t mean overpaying

(4.7) partnerships
Partnerships take away control, lack of learning
Come out of primary circle, may ruin relationships
Base rules for decision making priority
capital and split of income upfront, pre-negotiate early exit rules
Trust but verify, communication
Outsourcing when possible, tax deduction, liability

(5) shopping for real estate

(5.1) secret agent fallacy
Put yourself out there, investor or realtor
Few additional calls, better than none
Can always decline

(5.2) open houses
Investors for open houses
Not looking for prime realtor, upfront, pass out info
Build understanding for market, judgement and prediction ability
Inspiration for remodel

(5.3) online searches
most properties from online searches
Best search, broad enough, fixer, contractor, handy man, rehab, cash only
Medium search, price range, single family, non-regular sales, non-renovated/remodel
Worst search, information overload, mostly for agent
No bedroom limit, no age limit
High-end renovations may be buyable cheaper than doable

(5.4) title letters
Title records from public source, title insurance companies
Filter for free and clear properties, apartment buildings
Seller carry back is an option, usually don’t care about cash flow, but capital gains
Contact owner via hand-written letter, with family photo, avoid LLC

(5.4.5) risk
Long run price up-move expectancy
Real estate cycles, irrationality is eternal
Artificial intelligence!!!! The opportunity may go away!!!!
Long-term fixed rate financing

(5.5) driving for dollars
High competition
Worn down properties
Roof, window type

(5.5.5) water/electricity provider records
Properties without water service
may be short sale

(5.6) HOAs
Any fee not paid to bank or government
Covers part of the repairs, services, amenities, some insurance
Special assessments, may be limited
Spread risk
HOA fee must be qualified for in mortgage application
No appreciation on dues, but neighborhood ages better

(5.7) Qualifying HOAs
Low fee HOA is great, everyone must abide by rules, fines
HOA is a board, management is contracted out
Contact management company, figure out all contacts, manager, assistant, be persistent
Amenities and services
Sewer, roof, and pool reserves, coverage, termites, upcoming repairs
Dues, limits, changes
Insurance contact, always document in writing
Litigation, 10% ownership limits
Rental restrictions, sometimes approval required
50% tenant ratio restriction
HOA board minutes for current issues

(5.8) leaving the area
If you know the area buy, you can give it to a property manager
Lenders usually expect property upgrade
Watch out for decay

(5.9) forever house
Usually nonsense

(5.10) cheap house with high ROI
Repairs more expensive that house
head aches, attracts bad tenants
Appreciation usually makes the big difference, cash flow enables control

(5.11) climate and location
job growth or decline, Tech!!!!
desirable areas with limited supply
Cashflow is secondary

(5.12) wholesalers
Referral/contract assignment fee, usually cash purchases
Look out for overvalued home values, estimates
“7days cash close”, hard money loans
3-5 day financing, extreme fees and points, short term, refinance
As investor always encourage wholesale deals, low success rate
Most wholesalers don’t know what they’re doing, you’re not the first call typically
If it’s quality wholesaler, keep them around, usually turn investor themselves

(5.13) wholesaling yourself
Farm area, direct mail, numbers game, high competition
“Service” to home owner, but ethical dilemma for low price
It’s a job, you’ll turn into investor yourself, the rest fails
Agents are usually fighting wholesalers
Lots of noise about wholesaling

(5.14) fallacy: pickiness
Perfect house doesn’t exist, good enough matters
Home-buyer loans are best
Eventually going to be rental, don’t over improve
Buy the median

(5.15) fallacy: ever-wait
Start investing later due to reasons
RE makes money over time
There’s solutions for almost everything in RE

(5.16) fallacy: build new house
Houses rent, land doesn’t
Land is pure speculation
Mobile homes usually prohibited, construction is a beast
(unless it doesn’t)

(5.17) fallacy: magic spreadsheets
False sense of precision, way too many assumptions
Real-world cost is different, non-considered factors
Make it from scratch each time
(Starting from scratch has issues too)

(5.18) fallacy: biggest purchase of life
Nonsense, looking for the perfect house, drama and stress
Good purchase makes equity immediately

(6) Financing

(6.0) interlude financing
Course linear, mindset

(6.1) loan basics
Note is promise, principal plus interest, simple interest

(6.2) origination
Origination date, due date
Balloon payment at end, fully amortized easier, foreclosure risk

(6.3) prepayment
Prepayment penalty, typically not in residential, right to prepay
Commercial usually has penalty
Makes sale, refi, etc harder

(6.4) call option
Mortgages don’t have unconditional call provisions, except on default
Receiving loan call is a very bad day
Due on sale

(6.5) interest only
Simple interest on private-party financing
Always make long-term load amortized

(6.6) APR/APY
APR = Interest rate & fees
APY = interest rate & fees & compounding effects
Daily compounding typical for mortgages

(6.7) discount points
Shopping for loans, must shop lenders, lots of discretion, very high variance
Online offers best rates, low customer service, no local reputation
Local lender has reputation, may boost offer
loan officer cell no is helpful
Interest rates like gas prices, shop during same time
Same type loan, today’s rate, 0 point rate
1 point = 1% of loan amount, fee to achieve rate
higher interest, negative points pay out against closing costs
Point to interest scale is not even, pitfalls!

(6.8) should you pay points?
Rule of thumb, <10yr loan should never pay points
Average length is 5yrs, because refi
Actual breakeven requires spreadsheet
use negative points to get closing money back
Only pay points if you keep it for the whole term, you won’t.

(6.9) free loan on flip
Shop for highest interest rate, use negative points to pay closing costsss
Escrow fees and prepaid fees
few people do this

(6.10) best loan option
Ask lender for options on points, rate sheet points vs rates
Compare costs for pay down
Compare over different terms and rates in spreadsheet vs discount rateif you must
People move after 7yrs on average

(6.11) rate locking
Lock in rate, even for fee
It’s an option, virtually. You could shop lenders if rates go up
Ask for written confirmation
Keep in mind time frames is shopping during escrow

(6.12) loan amortization
always use fully amortized loans, principal and interest payments
Avoid balloon payments

(6.13) prequalified vs preapproval
Pre-qualification is verbal info only, front-end, back-end, FICO, total amount
Pre-approval is verified with docs by lender, technically obligation to lender
Pre-approval letter usually required

(6.14) DU and UW
Desktop underwritten, software by Fannie Mae, pre-approval letter by lender
underwriter approval by loan investor, pre-underwritten loan, waive financing contingency
Confirm that truly underwritten by human

(6.15) gold standard
Long-term fully amortized fixed rate loan for investing
Variable interest rates messes with assumptions
<=10 properties in the US qualify for govt insurance, fixed-rate
ARM is more common globally, use longest run and fix time, worst-case analysis
Choose best option available

(6.16) loan types and PMI
20% Conventional loan is standard, less than 20% incurs PMI
PMI depends on down payment, requires owner-occupied for 1yr
Moving properties every year is amazing option!
Investment properties require 20-25% down payment
Conforming, high-balance, jumbo sizes – smaller is easier
FHA loans higher fees, requires approval, but 3.5% down only
VA loan no downpayment, rental difficult

(6.17) uncommon loans
Specialized loans for areas or social groups
Rental restrictions, ownership issues
Grant programs for down payments, closing costs, time restrictions/expiry, free money

(6.18) FHA reno loan
FHA 203k loan, financing for renovation included
Financing issues, required repairs, budget with contractor proposals
No work yourself
Contingency reserves for repairs and payments
Use wedge property, two appraisals for current and expected
HUD consultant for plans and proposal, consultant cuts the checks, formalized
Contractors aren’t a big fan, should do everything, don’t max out budget
May be coupled with private party financing

(6.19) rental property renovation loan
May work on properties that don’t qualify for regular financing
Requires specialized lender and circle, financing of Reno costs

(6.20) small business admin loans
Big pain, use other options if possible
Commercial properties, 51%+ occupancy
High fees and effort, documentation
May be only option for commercial with low downpayment
Renovation loans

(6.21) affordable housing loans
Rules for affordable housing screw owners
Rental restrictions

(6.22) adjustable rate loans
Varying interest rate, 30yr amortization, no balloon
Fixed rate for first 2/5/7/10 years, then changes every year, max on interest rate
Inflation makes debts easier to pay off, markets balance rates out
Estimate worst-case scenario for cashflow, keep raising rents every year

(6.23) loan servicing
originator/maker, holder, servicer/collector
Origination fees, holder gets interest, servicing fees
subjects change over time

(6.24) loan selling
Most loans will be sold
May change servicer or not, note changed address

(6.25) portfolio loans
Originator keeping the loan (and servicing it)
Enable looser guidelines, make deal happen

(6.26) impounds
Collect interest, principal, insurance, taxes in single account/payment
There may be discount on rates, less stress, can be waived later anyways

(6.27) 20%+ down payment
Benefits to increased downpayment, 2-3points
Usually good return on money, safety for bank
Also appraisal contingency easier to waive
Less leverage/control

(6.28) 20%+ down on principal residence
No PMI, buffer

(6.29) hard money loan
Institutional private lender, short-term financing, advertising
Fast closing, high fees, high interest
Be careful, high fees, points, and penalties
Sharks in the water, may be great

(6.30) private money
Friends and family, moral obligation to pay, simple note

(6.31) note example
Get legal and tax advice
Note is promise to pay, mortgage is right to foreclose on security
Principal and interest, payment schedule, default information, trustee info

(6.32) deed example
Deed of trust, truster is borrower, trustee is note holder, beneficiary, grant transfer
Notarized

(6.33) loan agreement example
Origination fees, recording
Disclosures, payment rules
Can be very short, typically 100ish pages

(6.34) no PMI loans
Banks offer non-PMI mortgages with slightly higher rates
In reality negative points to pay PMI
Doesn’t allow to get rid of PMI via 20% principal

(6.35) owner carry back / seller financing
Seller as the bank, must own property free and clear
Sellers may not want all selling proceeds at once, instead spread out
Note for seller, secured against property, tax implications
Terms and qualification criteria flexible
Purchase money as alternative

(6.36) seller financing qualifying sellers
Buyer typically needs to come up with enough money to cover seller’s debts
Not for large purchases or trust issues

(6.37) seller financing qualifying buyers
After close seller carries most risk
Credit checks, tenant screening, prior references, past properties, public search
Check two IDs

(6.38) seller financing bottom line
Inconvenient as residual risk

(6.39) seller financing sample contract
CAR sample form, terms, disclosures, recording

(6.40) seller financing tax implications
Always ask CPA, no buyer benefits, for seller transforms proceeds into installment sale

(6.41) seller financing benefits
Higher price for seller, buyer qualification flexibility
Easiest financing

(6.42) lease options
Sell property to less qualified buyer, inflated price
Advanced rent, option to sell after time, may use part of rent as downpayment
bad for buyer in practice, inflated rent
Aggressive pricing of option, demand seller maintain property, upgrades
Pre-negotiated transaction may circumvent broker

(6.43) lease option pro & con
Buyer easier to qualify, overpay price, may not qualify in the future
Seller may have to evict, higher price, lose out on appreciation

(6.44) lease option sample
CAR sample contract, renegotiated transaction, in writing

(6.45) all-inclusive deeds of trust
Usually illegal or frowned upon in CA
Wrap-around loan, without informing original lender
1980ies all the rage

(6.46) appraisal of market value
Highest price anyone is willing to pay when properly marketed, publicized
Otherwise probably below market value
Typically a range of potential values until sold, high/low comps
Multiple offers may help action above

(6.47) appraisal misconceptions
Appraiser not interested in actual market price, just up to sales price
Adjustments only if contract value above comps

(6.48) refi appraisal
Loan amount target instead of purchase contract
Less pressure on appraiser to make deal happen

(6.49) appraiser interaction
If not an agent, do not interact with appraiser, it’s for listing agent
Less people, less pressure and ways to go wrong
If you’re selling agent, and have to show up, short welcome but no interference

(6.50) appraisal coming in short
Seller can drop price, buyer can come in with additional money
Switch lender to restart appraisal process, not on FHA loan
Appraisers are humans too

(6.51) appraisal on REO hack
Bank-owned property under contract
Repairs done only for appraiser-requested items
If buyer meets appraiser, may point out issues
Tread lightly, might bomb the deal, compare to banks past behavior

(6.52) communicating with appraisers
Short interaction, basic information, offer help and data if needed, comps
Minimize pressure, no demands
liability for appraisers, blacklisting

(6.53) pitfalls of refinancing
Resetting amortization schedule
Only cash-out unless new deals available
Use secondary loan against property

(6.54) filing system for loan approval
Scan everything
Cross-qualification with new lender may be necessary for specific deals
Shared folder in cloud, tax returns, account statements, credit reports, licenses, insurances
Keep updated, add requested docs to folder
Avoid upload-portals, share link instead

(6.55) cross qualifying/new lenders
communicate with listing agent and lender to make it happen
Sometimes may be necessary

(6.56) broker vs lender
Borrower wants money, in exchange of note
Wholesale line of credit, from direct lenders
Loan broker shops direct lenders, may be lender himself
Online loan shopping effective, best deal not necessarily broker
Direct lender has advantage of in-house processor, underwriter, funding integration
Portfolio loan possible but rare

(6.57) loan level price adjustments
Complicated loans are more expensive, points
High balance loans, self-employed, condo/hoa, credit score, lower downpayment, ….

(6.58) calculate loan payments
PITI, principal, interest, taxes, insurance
PMI, HOA, Mello-Roos
Amortization table complicated, others simple
Property tax in CA about 1.25pct, purchase price div by 1000
Amortization table differences additive on interest rate

(6.59) fast payment calculation
Adjustments for smaller numbers, 1k around USD 6 / month in payments

(6.60) PMI metric
Downpayment percent proportionate to PMI rate
more money down equals less PMI
No PMI loans buy out premium with discount points

(6.61) getting rid of PMI
Automatically when 22%+ in equity, midpoint amortization schedule
Apply when 20%+ equity, 30% of original price
Appraisal after 2+ years
refinancing

(6.62) VA loans
Have to be part of VA, honorably discharged
No downpayment, VA 20% equity guarantee, not PMI
VA funding fee 2.5%, attached to loan balance
Get a good equity deal, use discount points

(6.63) VA investing
1-4 units, using VA loan
VA entitlement guarantee to cover multiple properties
Buy and move after 1yr

(6.64) VA No-No loans
Waiver only on disability
Finance funding fee and closing costs with seller rebates
Requires appraisal slightly above home value
Limits on cost credits, use or lose

(6.65) refinance reasons
Reduce interest rate, low LTV
Remove PMI on FHA loan
Cash out refinance, take out equity as cash

(6.66) refinance pitfalls
Resetting amortization table, use cash-out for other deals only, secondary instead
No free lunch, fees, time
Increased risk, leverage, less margin of safety
No motivation to pay off additional principal vs secondary financing

(6.67) no free refinance
Fees, maybe compensated by discount points

(6.68) Mello-roos
Additional property taxes in specific neighborhood
Some bonds expire, others don’t
Wedge opportunity few years before expiry, check with tax collector

(6.69) depreciation
TIMMUR+D (tax, insurance, maintenance, management, utilities, repairs)
Depletion, amortization, depreciation
Paper loss on improvements, not land
27.5yrs for residential, 39yrs for commercial
Compensate for property income
Big tax benefit, BUT recaptured on sale

(6.70) fully depreciated
Tax benefits lost, unless capital improvements
Sale and purchase of new property
In combination with tax-deferred 1031 exchanges

(6.71) capital improvements
Extended functional life of improvement
Repair maintenance related, immediate expensing
Capital improvement depreciate over time, either 27.5yrs or 5yrs system, CPA question
Depreciation comes back in on loan qualification
Write-offs more valuable the higher your tax bracket

(6.72) lenders qualifying rental income
Fannie-May based approach
Rent income, minus tax-listed expenses
Add-backs, insurance, interest, tax, depreciation
Result is adjusted income
PITI removed again later, but NOT depreciation
Repairs lower available income, depreciation helps qualification

(6.73) rental property loan qualification
Depreciate as much as possible, not repairs
Less tax write-off, but higher qualification amount

(6.74) business depreciation
Depreciation of equiptment
Similar expense vs depreciation

(6.75) depreciation hacks
Simplicity, as general improvements
Faster depreciation as systems, CPA question

(6.76) use rent to qualify for purchase
Works with current property and move
Usually from tax return, alternatively projected rent minus projected expenses
enables qualification for higher overall loan balance
Profit x DTI ratio is additional payment qualification
Significant boost

(6.77) rent qualification requires lease prior to closing
Find tenant for 30days after closing
Signed lease required about a week before close
Start advertising during escrow
Some people get a straw man tenant with down payment …
Alternatively qualify for both payments, then take time to find tenant

(6.78) reserve money
Financial reserves for rental properties qualification
Cash equivalents, even stocks and retirement accounts
Use 401k as reserves, with tax free piled-up money

(6.79) cash-out vs secondary financing
Refinance is least favorite (of Kevin), changes overall interest rate
Private party lenders for secondary, high interest, interest only possible, caution

(6.80) HELOC
Home equity line of credit
Secondary financing, local credit unions, shopping, up to 90% LTV
credit card on house, low annual fee for availability, only interest on used portion
10yr draw period interest only, 20yr repay period after
Variable interest rate, higher than regular
Open HELOC before moving on

(6.81) RELOC
Rental property line of credit
Fewer lenders, 60% LTV
mostly for paid off properties

(6.82) BLOC
Business line of credit
10% loan to revenue
banks discourage real estate transactions, but usually possible

(6.83) 80-10-10
More expensive, fees, two loans, higher leverage
Mortgage plus secondary HELOC

(6.84) (missing)

(6.85) early loan pay-off
emotions may depend on age
If returns are the goal, leverage is helpful
Rate of return on payoff is around interest rate
consider taxes, inflation, and opportunity cost
Time-value of money

(6.86) refinance mentality
Kevin doesn’t like resetting amortization table
(Does it really matter across a portfolio? Seems psychological)
net worth vs tax write-off, rate change, fees vs savings

(6.87) action on loan docs
Review email before notary sit-down, review and highlight, needs request
On review with notary, use your notes
Sign, but request changes
Always some kind of actions

(6.88) loan estimate and closing disclosure
Standardized form to shop lenders, all relevant terms listed
Closing disclosure vs original loan estimate
GFE and HUD-1 replaced

(6.89) estimated closing statement
shows all flows of money in the transaction
Check all credits are on there, garbage fees
Usually have issues

(6.90) call provisions and technical defaults
Loan calls are very bad for borrower, acceleration of note
Technical defaults, callable but does not guarantee action, especially if payments are being made
Ask lawyer, e.g. transfer to family trust

(6.91) contract assignments
Person and/or assignee for buyer, typical for wholesaling and syndication
Enables selling of rights in the contract

(6.92) leveraged returns
Real estate doesn’t make sense with cash deals
5x leverage changes this dramatically, especially on re-appraisals
Cashflow mainly covers loan payments

(6.93) overleverage
65% LTV very safe (according to Kevin)
On acquisition will go up
Great financial crisis had 40-50% swings
Age matters, 7yrs for bankruptcy wipe-out

(6.94) never give a lender non-required reports
Never mention reports on paperwork, contracts, unless lender demands
Lender will demand repairs if report provided
Lender wants to make loan, rely on appraiser
Ask for report on repairs from seller, or nothing at all

(6.95) commercial financing
Sucks compared to residential
35%+ Down payment higher
cashflow vs debt-service coverage ratio 1.25+
Appraisals slow and expensive
ARMs, balloons and call provisions
Only use when necessary on larger deals, after 10 properties

(7) Valuation of Real Estate

(7.1) the market
Publicly traded price, MLS, data syndication
Stocks are commodities, real estate requires more discretion
FSBO not considered “on the market”
No sign, flyers or other actions required for sale

(7.2) not on market
improper marketing, wrong audience
Property not listed on MLS
No pictures, bad pictures
Wrong information

(7.3) days on market
Days on market (DOM) most important metric, “ON market”
Median days on market
If over median DOM, probably overpriced
Good deals sell within certain time window, e.g. 7 days
number of offers from listing date good indicator

(7.4) charting median value
Helps see trends, listings chasing down markets
Monthly data for region with around 1000 sales per month, typically county

(7.5) market value range
Use days on market to plot comp price on box an whiskers
Properties that sit long overpriced, stale reputation, tends to undersell
Properties priced way too low, many offers but limited extension beyond listing price
Properties priced under market value encourage competition, tends to oversell
Properties priced above tend to have buffer for negotiation
Mispriced properties best purchases

(7.6.1) comparable sales
Properties similar to property under consideration
Size (utility), age, features, sales price
It’s always a range

(7.6.2) where to find comps
MLS/market, tax record (private sales), online
0.5ml radius, same subdivision/neighborhood, within 6mo, consider market trend
Same utility, room counts, model match if possible

(7.7) square footage fails
Cost per sqft on space with similar utility, commercial properties, front-footage
Doesn’t work in residential real estate, room type and utility matter
Number of bedrooms, bathrooms
Additional square footage without utility at significant discount (50%ish), $100/ft rule of thumb

(7.8) condition types
Appraisers use C-levels, condition levels, relevant for financing
C1 new, C2 remodeled-all, C3 some remodel, C4 move-in ready, C5 fixer, C6 (partial) tear down
C5-6 not eligible for lending
Ask appraiser what’s required for C4 appraisal, list of requests
possible to perform repairs and re-appraise during escrow
Get authorization from seller
Risky, but way to salvage deal

(7.9) comp adjustments
5-6 comps by default, adjust price of comps
Rooms, sqft, lot size, age, condition, features
Down-adjust other price if its better, up if worse
Ultimately guesses, location specific, be weary of sqft
easier to find model match if doing it for yourself

(7.10) add-on valuation
patio covers low value, sun rooms low value
Family room, living room with real foundation better
extra bed/bathrooms for functional obsolescence
Additions usually over improvements, estimate half sqft price
funky additions, permits

(7.11) cost-to-build approach
Useless in practice, only for special or historical buildings

(7.12) income approach, GRM
Gut check, rough estimate
Gross rent multiplier (GRM), per market and neighborhood
Higher in better neighborhood, e.g. 18-20 for A class in CA
From comparable sales
helps identify neighborhood quality, red flags

(7.13) income approach, NOI
Most common way to value multifamily
Gross rent minus expenses (timmur)
Estimates vary between buyer and seller
Realistically 35-45% rent in expenses
Check expense seller’s expense ratio on up/down outliers
red flags, get statements

(7.14) income approach, cap rate, dscr
Derived from NOI
Cap rate = noi / price, “6 cap”, high cap rate lower appreciation
Neighborhood gauge
Debt service coverage ratio?

(7.15) how much can I negotiate
No set answer, depends on property, market price range
Price vs terms, contingencies, non-refundable deposits, cash offer
Speed matters on underpriced deals
Not every (overpriced) property is on the market to actually sell
Call agent of properties sitting on the market, usually funky terms of concern
It’s not like on TV

(7.16) spaghetti strategy vs intent
Spaghetti against the wall, underbidding everything, waste of everyone’s time
Intentionally call listing agents, figure out desired terms, more long-term success

(7.17) escalator clause
Multiple offer situation, auto-increase vs second, required docs
Legality depends on area, agent
Asking listing agent ahead of time helps more

(7.18) buying normal vs buying yeah-buts
avoid anything that deviates from median
Bad location, noise, modifications/addons

(7.19) things that don’t show up but matters
Build quality, repairs, material quality
Great when bought, wasteful when sold
Roof, hvac, heater, windows, appliances, plumbing, electrical

(7.20) where to invest
Close by, you know the area, A and B neighborhoods preferred, less trouble
Higher chance to get high quality property
Competition is local
Speculation on growth areas, inside information by living there

(7.21) what if price fall
Usually no call provisions on equity, long-term loans
Long-term trend is up, if prosperous region
If rent covers payments, no problem, just wait
Rentable real estate important, properties should carry themselves approximately
Small negative doesn’t matter

(7.22) seasonality
Every year is different, don’t worry
Generically slow between nov and feb
Spring and summer balances out, fall lower activity
Depends on market specifics, active inventory, politics

(7.23) accessory dwelling units, ADU
Premium on purchasing price
not for rental units, if not owner occupied
Permitting, avoid construction

(7.24) after repair value, ARV
Largest source of failure in real estate
Requires lots of experience, practice
realistic comps, as-is, renovated, only this is ARV, always add another 20% costs
Repairs, selling costs, financing, holding costs, taxes
Safety net is holding as rental, conservative financing

(7.25) wedge deals, condition
Spread between original and fixed-up condition
Bad cosmetics, clutter, carpet, paint, ceilings, asbestos, mold, lead, low cost remediation
Good systems, upgraded hvac, ducts, plumbing, electric, roof
Usually from long-term owners
Wedge increase in equity

(7.26) wedge deals, over improvement
property slightly above market value, high-quality interior and systems
Improvements cost more originally, over time pulled down to basic comps
Benefit from quality improvements for base price

(7.27) wedge deals, unit rents
Underpriced rentals, buy for market GRM on low rents, then increase rents
Requires understanding of neighborhood, prices
Usually from long-term owners

(7.28) common utilities, metering
Separate meters highly recommended
no meters sometimes indicate illegal units
Remove liability from owner, pain point, direct billing even
intro of sub-metering typically equivalent to rent increase

(7.29) cash on cash returns
NOI doesn’t consider leverage, debt service
Cash ROI = (NOI – debt service) / (down pay + closing)
Still doesn’t consider principal pay down, depreciation

(7.30) property walkthrough
Plumbing, Electrical, mechanical, roof
Cosmetics easy to fix
Separate meters, illegal units
Check angle valves, Open up cabinets, galvanized pipes
Electrical panels, recalls, zinsko, aluminum wiring
Copper good for wires and pipes, plastic piping
HVAC condition, environments, expected maintenance
Foundation, door alignment, cracking, no problem with minor cracks
Tenant condition, happiness, neighbors, cleanliness vs stress level

(7.31) improvements, forced appreciation
Where is your value-add?
Light cosmetic overhaul, property environment
Tenant longevity, happiness, reduced turnover, hints from walkthrough
Landscaping, feeling of safety, psychology

(7.32) on-site management
In CA 16+ units required, manager is intermediary
Has to be happy person, incentivized correctly, advocate for tenants
Customer service, front-person for branding, likability, reputation, not the cheapest
Doesn’t mean giving in to demands

(7.33) expense cutting
Usually difficult, DIY is fine but compute as if someone else is doing it
Avoid cutting and losing tenants

(7.34) rent increases
Establish habit of increasing rent every year, get tenants used to it, USD 20-50 per year
Unless vacancy required, only bump rents one by one

(7.35) vacancy factor
SFR or condo practically no vacancy, get tenants on board for transition with showings
Lease property 2-3 days after move out
Kevin doesn’t like percentage rule, USD 200 per door

(7.36) estimating rent value
Market value based, different sources
online Hotbeds, Zillow, craigslist, MLS last
Call competing apartment complexes, utilities and amenities
New construction is always expensive, don’t overimprove to compete, lower price instead

(7.37) permitting by others
Liability, also no second check of work, food for attorneys
Get paper records, warranty transfer, pull permit records privately

(7.38) finding market data
Local, county wide data, 1000+ sales per month, median DOM, median sales price, over time
Notional home data useless
National mortgage rates, employment, stock market due to retirement accounts, FRED
Look for change points

(7.39) (missing)

(7.40) additions
Made, permitted, flow in floorpan
Otherwise bad idea, construction risky and expensive

(7.41) exit strategies
Kevin hates them, only reason is usually partners or investors
Loses appreciation, principal, tax benefits
Fantasy IRR, forced timing, lack of opportunism
Sometimes for short-term financing issuei

(8) Negotiation

(8.1) fishing for information
Motivation of seller, write down everything
May go through agent, might be easier than seller directly, you may be lied to
Offers? Over, under?
Considered renting?
Exchange?
Moving?
Other opportunity?
Property problems?
Trust sale?
REO?
How many sellers involved?
DOM? Listed before?
Alternative?
Spent money on changes?

(8.2) best question
If offers, don’t ask “how much”
“Crazy over ask?”, subtleties of response
“Just” over under. Then binary search
“Good amount” 10k
Previous offer fell through, before or after inspection?

(8.3) using seller information
want to rent? bad
started exchange? good
Moving? In process of buying? good
Another opportunity? Speed desired? Terms, good
Problems? May be lied to
Trust? Or was in trust? Good, no attachment, they want to get out
REO? It’s a bank, schedule, not very flexible
Multiple sellers? Good, “just a little less for everyone”
Low DOM? Bad
Alternatives? “Reduce price”. Good
No money spent? No, good, just want to get over with it

(8.4) negotiating with buyers
Pre-approval letter, call the lender, closed before?, escrow before?, reserves?, co-signer?
Proof of funds
Previous purchases
Desires? Pets?
Motivation? Renters?
Other family members?

(8.5) using buyer information
Pre-qualification useless, Pre-approval credit ok, Pre-underwritten strong
Loan before? Good
Escrow before? Why? Inspection issue, might be bad
Low reserves, bad
Co-signers, family members? Usually bad
Previous purchases, check tax records, may push back on requests
Motivation? Should be pro RE investing

(8.6) terms to give as a seller
Simplify, always respond on sales price
Small fees, junk doesn’t matter
Enable closing cost credits
Speed up response time

(8.7) terms to Gove as buyer
Clean terms, speed
Shorter contingencies, waived
Rush fees if necessary, quick bids

(8.8) using deadlines
Always give external reason, financial, tax, etc
Only when you hold the cards, multiple offers and their strenght
If too harsh people recoil

(8.9) in-deal renegotiations with seller
Inspections are meant to protect buyer, spend the money
after inspections, get bids
Negotiation depends on seller’s motivation
Environment, e.g. recent stock market moves
Boil it down to number, single email, proceeded by call to agent
make listing agent ally, “Heads up, signable”
email, “ability to afford hindered”, pre-negotiated number, agent probably forwards to seller
Might get counter, comeback with pre-signed contingency removal
Consider reputation over time, too

(8.10) in-deal renegotiations with buyer
Seller is more at risk, always renegotiate even if you have to sell
Counter, less and if signed contingency release
Bonus close, offer just over half, verbal first then written
If strong alternative, stay aggressive

(8.11) when to run after inspection
Low quality handy work on visible stuff, self-done work
Plumbing, electrical mostly invisible
Also on flips

(8.12) appraisal, assessments, market value
Comps don’t help negotiation, it’s emotional, specific
comps only help appraisal, relevant for loan only
Only if appraisal is low, share appraisal

(8.13) unpriced properties
Not underpriced
In large multi-family, guess-timate based on everyone’s offers
Use commercial broker, use rent and expenses, relative to area, per unit
find background, use commercial broker

(8.14) subject to offers
Common on apartment buildings, commercial
Only after offer set up showing, only if ballpark terms okay
Offer with contingencies

(8.15) length of ownership
Owner occupies property long-term, emotional bonding
Be positive about it, no bad comments whatsoever
Only technical issues

(8.16) “as-is”
Every property is as-is by default, unless agreed in writing, meaningless
Seller doesn’t want to do work
you can always ask anyways, just make sure it doesn’t create contingency
Negotiate as usual

(8.17) credits and limits on credits
Matters for buyer
Closing cost credits, from lender or seller, only up to closing costs
Use it or lose it
Balance seller credits, interest rate points, sales price

(8.18) mentioning repairs upfront
Tricky
In multiple offer situation, might be powerful, “competition will demand later”
In single offer situation, “I don’t like playing games”
will worsen your negotiation chances later
Also mind your reputation, only neg on new issues
Seller may gamble with higher offer anyways

(8.19) asking for repairs upfront
Don’t complicate negotiations
Take it if they offer, otherwise ask for money later
Sellers not inclined to do work, dislike uncertainty
will use cheap repairs anyways

(8.20) floating offers
Low-ball offers, verbal to listing agent, “float, don’t counter”
“I’m here, don’t take a lower offer”
Verbal, then send written and check-in every week

(9) Closing costs

(9.1) title insurance
claim to property transferred via deed
Cloud of title, transferred ownership claim not valid
Exposure to appurtenant claims, run with the land/property
Title insurance protects against some, different types
Usually required by lender, should also get for cash purchase
Tract homes vs rural area different risks

(9.2) escrow
transaction coordinator, escrow or attorneys collect money and docs in trust, fees
Third party will not get involved in any disputes, sometimes partisan attorneys
With third party money may get stuck for long time

(9.3) impounds
Impound account via lender
Lump sum for PITI, mortgage, taxes, insurance
May get rate discount
Convenience, less control
Kevin has impounds for all properties

(9.4) can impounds change?
impound payment can change with rate, tax, interest changes
Even on fixed rate mortgages
Minor stuff, good deals matter much more

(9.5) supplemental taxes, non-disclosure states
On purchase, taxes change, unless non-disclosure state
long-owner property taxes usually lower
Supplemental taxes, delayed taxation for assessment difference in first year
you can force payment by impound account

(9.6) loan fees
estimated Escrow 0.5%, title 0.5%
Loan fees make the bulk, not just points
Beware of appraisal, junk fees

(9.7) title binders
When flipping properties, can extend title policy to next buyer
Binder policy fee
Otherwise pay for entirely new policy

(9.8) tax and insurance as closing costs
Closing costs include pre-paid taxes, dues, insurance
with impounds as closing costs
Can use closing cost credits to offset

(9.9) home owner insurance
Bind insurance at day of closing
May be partially covered by HOA, walls-in insurance
Renters insurance covers personal property of tenants
Check with insurance agent, rental-property specific, vacant home policy

(9.10) commissions
Brokers receive commission on closing, in US seller pays
Good agents and bad agents, representation, advice
Find the right agent

(10) Inspections

(10.1) property inspection
Get all of them (when possible)
You can’t know enough about contraction yourself
Use digital reader and highlight inspection reports
Lots of clutter and small repairs, some red flags
Issue list, send specific pages to contractors for quotes
Agent can advise

(10.2) foundation issues
Most expensive issue, keeps moving even after fix
Earlier houses better, post-tensioned foundations after 70ies better
sloping, larger cracks (pencil size), doors scratching
Hairline cracks, garages less critical
Bolted foundations for earthquakes
Foundation company inspection

(10.3) contractors
Timing for quotes, always deadline, “when should I expect to hear from you?”
During escrow contractor expects quotes not to go through, just for negotiation
From inspection critical issues, ask contractor (and offer inspection fee if necessary)
Basic respect, expect respect too

(10.4) sub-contractors vs contractors
Different etiquette
General contractor has crew, coordinates sub-contractors, big projects
Specific issues can be quoted well by sub-contractos
Send home-inspection report sections, with property information, request options and quote
Usually provide ballpark number
After waiving contingencies, call for specific quote

(10.5) moving walls
Get a structural engineer, USD 300-600 per visit
Usually after property owner, allows holes in the wall
Before close, need written permission from seller
Ask engineer what’s needed, clear plans required
If structural, expensive planning
written verification from engineer that not structural

(10.6) chimneys
Disaster inspection, avoid if possible, don’t use
1960ies chimneys crack, settling
Crazy chimney repair quotes

(10.7) sewers
50yr+ sewer probably to be replaced, cast iron rots out
Camera inspection on purchase
Trenching very expensive on slab, lining of sewer

(10.8) septic
Antiquated, septic tanks area specific, 10-15k fix
Chlorine kills it
Inspection with pumping, crappy

(10.9) permitting
Be careful with permitting on purchase, easy in the 70ies, not anymore
Will cost you high fees if caught
Reported likely in rental or neighbor conflict
Code-enforcement inspection causes lots of damage
Rural area may have more leeway

(10.10) radon
High hazard zones, radio active turns into lead
Compromised foundation with well-insulated house worst
Ventilation pipes doable
Radon test kits

(10.11) lead paint
Very bad for children ingesting, lead paint renovation dust
flaky, sampling kits
P100 respirator, dust cartridges, capture
sanding or encapsulation, self or contractor

(10.12) asbestos
Bad reputation, cancer if working on daily basis
Asbestos Christmas trees and tooth paste
Inert or encapsulated asbestos doesn’t have obvious problems
P100 respirator, dust cartridges
Contractors expensive for employee protection and liability

(10.13) mudslides
Avoid areas, flood insurance, liquefaction
Re-sale issue

(10.14) earth quakes and hurricanes
inspect property preparation for hazards
Insurance vs retrofit trade-off
Insurance policies have extreme deductibles, online databases with estimates
Newer construction massively better

(10.15) mold remediation, mildew
most mold not toxic
Eliminate source of moisture, then deal with mold
EPA mold guide
P100 respirator, smaller square footage, negative air pressure

(11) Renovations

(11.1) sale renovations, high priority
Cosmetics, linoleum in bathroom, new carpet
flooring as baseboards neutral ROI but fast sell
Interior and exterior paint
Cleanliness, eye level repairs and cleaning, old hardware, outlets, face plates, light fixtures
People date the property based on style, lipstick on a pig works
Systems repairs not worth it

(11.2) sale renovations, low priority
Low cost changes
Toilets working and supplies
air filters, light bulbs, rust, concrete primer and paint in garage
painted fences, weeds, new mulch
clean grout, Wd-40
Rekey all locks uniformly

(11.3) sale renovations, to avoid
no energy efficient stuff, nobody understand after-tax utility cost
No systems, no expensive

(11.4) sale renovations, flips
Go further, overcome buyer fear
New bathroom plumbing
“We did the right thing”, “everything we touched is better now”

(11.5) rental renovations
All high priority stuff, low cost enhancements
Do some systems if kept kong-term, especially if about to die
Do more, spend less, less high-end cosmetic stuff

(11.6) personal renovations
Never over improve, avoid optional upgrades unless cheap or huge difference
Milk property as is while living in property

(11.7) additions
Only to cure functional obsolescence
Missing bed/bath compared to neighborhood
Functional kitchen
Last option, don’t rationalize when you want a project

(11.8) permitting
Pulling permits when unpermitted stuff present draws attention
You either go down one path or the other

(11.9) contractor insurance
Every major contractor, get added as interested party onto contractor’s insurance
Transitive claims (rent) not covered otherwise
only takes one email

(11.10) DIY
Tackle only one project at a time
step by step, then decide whether you want to do the whole job
start small, learn tricks
Don’t buy too much, you’ll go back to the store anyways

(11.11) plan and shop construction jobs
Find contractor who have investor mindset, trustworthiness
Most vendor don’t know what you need
Write down what you want, budget, design decisions, items, color and brand, leveling system
give contractor them budget, leave headroom, who buys what
List important for liability and claims later
Get multiple separate quotes, ask what’s missing, apples to apples

(11.12) grinding vs negotiating
Don’t be taken advantage of, but
Don’t ask for everything lower all the time, do it once
Budget is set, external reason, wait a few days, you’ll probably get a call

(11.13) change orders
they happen, set aside 20% for changes, unexpected problems
Nobody wants to work with inflexible grinder
Some bids are ripoffs anyways

(11.14) staging
median income houses don’t need staging for selling
Different in large or luxury houses, fill the space
Depends on area

(11.15) timeless renovations
Nothing is timeless, everything looks old in 10yrs
Milk it while you can, replace with median thing later, cheaper overall

(11.16) trends and fads
Stay away from it, phases and trends always
Use basic cosmetics as usual, eventually trend changes anyways

(11.17) Lowes price hacking
Lowe’s for pros, Lowes credit cards, 10-20% off, slightly better than home depot

(11.18) extras from Reno
Don’t buy more, you’ll go back to the store anyways
Return line early is short, small returns

(11.19) renovation security
LTE security cameras, solar panels, check property, motion alerts
Cheap, especially vacant homes, no trespassing signs
Check in on contractor

(11.20) paint
Drive neighborhood, pictures of common color schemes
Beware HOA or CC&Rs
Get color palette from online, houzz, etc
Try out top 2-3 choices with quart on walls
Brand doesn’t matter, only work intensity
Use default scheme inside, flat walls, trim semi-gloss, never pure white, ceiling flat white
Flat maintenance paint for garage and close
Sheen shows imperfections
Outside wood semi-gloss, stucco flat
Maximize appeal for rentals

(11.21) carpet
Okay, but wears out frequently
Medium grade 8g pad, go up in quality slightly
Pets destructive

(11.22) luxury vinyl plank
Not tile, laminate, keep hardwood if around
Below USD 1.5/sqft crappy material
Can have single floor everywhere, but need not
Linoleum for bathroom an option
New is better than expensive

(11.23) living through renovation
Don’t, messy
If you have to, go room by room, close door and tape off

(11.24) contractor hates
Indecisiveness, plan renovation first, if changes do it next time
Other contractors interfering, schedule with time buffer, inside and outside, transparent schedule

(11.25) life-expectancy of products
Life-expectancy hardly ever based on price
Don’t get the cheapest stuff, don’t go high-end either
Avoid preemptive changes, you never know

(11.26) surge protection
Large systems draw lots of energy, surge protector against most
USD 300ish

(11.27) before every large renovation
Before last 20-30% payment
Walkthrough, changes and left-overs to be done, only if trusting pay more/earlier
List and tape everything that needs to be done, touch-up before final payment
Otherwise chasing after contractors
On expensive projects, bring in paid 3rd party contractor for touch-up walkthrough

(12) hacks and pitfalls

(12.1) bank hacking
real estate is side hustle, limited by capital
Usually 20-25% down on investment properties, commercial even more capital intensive
Use home-owner financing with 5-10% down, then move after 12mo
Requires “upgrading” type of property, 2br to 3br
Wedge deal with repairs, additional equity

(12.2) rent to rent
Rent property then sublease more expensively, typically as short-term rental
Requires amendment to lease, may or may not be possible
Becomes another job
alternatively move in and lease out rooms
No down payment, but not appreciation

(12.3) house hacking
Buy house, then rent out rooms while living there
Technically requires income to be declared and expensed
Even better with multifamily

(12.4) BRRRR
Buy rehab rent refinance repeat
Purchase wedge property, renovate, rent out, cash-out refinance, repeatedly the process
Buy-and-hold investment low effort
May be negative cashflow after refinance, it adds up
Possible if you have reliable income source to cover negatives

(13) investing methods

(13.1) wholesaling
Write contract on property, assign to investor for fee, protect downplay with contingencies
requires big margin between seller ask and market value
Doesn’t require a lot of capital
Questionable ethically due to low-ball, time-intensive, net comp lower than realtor listing

(13.2) flipping
Buy wedge deal, rehab, resell
Spread between seller and market
Capital intensive, competition, market risk, fees, liability to buyer
Holding, commissions and construction costs, short-term taxes

(13.3) buy and hold
Buy wedge deal, rehab, rent out
Very low-effort and risk if bought correctly
Appreciation and leverage, tax-effective
Property management, less cashflow

(13.4) REITs
Common stock of real estate holding company
Eligible for retirement accounts
Income short-term tax unless IRA/401k
No control, no effort, no real leverage
No wedging

(13.5) syndication
Promoter offers deals through syndication, may be fund based
Larger properties, benefits of scale, leverage, taxation mixed
No wedging, illiquid, massive fees, annual and profit, no control

(13.6) self-directed 401k
It’s possible to buy real estate in 401k, lots of rules
no leverage, sucks
Stocks in 401k much easier, count as reserves, currently hardly no discounting

(14) pros and cons of property types

(14.1) single family
wedge ability on condition and improvements
Tenant longevity
easy financing, leverage
centralized risk, systems capital-inefficient

(14.2) town-houses
less condition wedging, spread of risk via HOA
easy financing

(14.3) multifamily 2-4
House hacking
Some scale, rent wedging
Easy financing
Competition, less condition wedge

(14.4) multifamily 5-15 units
No onsite management yet
Rent wedge
Commercial financing, variable, shorter, personal liability
Smaller units with turnover

(14.5) multifamily 16+
Some rent wedge, competition with institutional investors
Various sizes, tenant upgrade within community
Scale
Commercial financing, also via insurance money
Requires connections to commercial brokers

(14.6) mobile homes
Cheap, everything else sucks
Depreciation, may not even own land
Worse financing all around
Rent restrictions

(14.7) manufactured homes
Mobile, but on permanent foundation
Some appreciation
Financing meh, but doable
Worse than SFR

(14.8) commercial and industrial
Net-net-net leases, little effort
More sophisticated tenants, life easier
Vacancies come in batch, anchor tenants
National competition pool, commercial financing

(15) investing principles

(15.1) NEXT
If deal doesn’t work out, just move on
Renovation fails, contractors, employees, next
Life becomes easier

(15.2) 30min rule
Don’t invest outside of your area (yet)
You’re on the pulse of the community
Clues on ongoing transactions
You’ll make the best decision locally
Commute, management sucks

(15.3) vacation rents
More money than regular rent
It’s a job, management intensive, extra vs pennies
Management company takes large cut

(15.4) land
Not a productive asset (unless farm)
Speculation, property tax anyways

(15.5) passive income
Cashflow and appreciation, balance depends on area
the net matters, cashflow minus expenses and tax, leveraged appreciation
Ultimately returns are solid

(15.6) partnerships
Control vs investor, find a good pairing between personalities
Clear structure of control, contract

(15.7) employees
If independent 3rd party available, use it
Employees have benefits, liability, overheads, vacation, varying productivity, responsibility
Only make the transition when necessary

(15.8) finder’s fees
Always be okay with finder’s fee if it works out
Pay people what they’re worth, reputations

(16) insurance and legal rpotection

(16.1) insurance
Liability protection, insurance, prevention
Contractor vs employee becomes blurry even if explicit
Check with insurance agent, rental property
Handyman, pets, flips
“What questions are missing?”

(16.2) vacant home insurance
on repairs, “How long on regular policy?”
On flips and rentals specific insurance required

(16.3) extended perils
Flood, earthquakes
Usually very expensive, cost vs low odds gamble, deductible
Dealing with insurance claims also a pain
Newer properties, retrofitting

(16.4) avoid volunteering information
Check with attorney
Don’t volunteer information, only answer what’s asked for
Not knowing is okay, wording matters, insurance will ask necessary questions anyways
Be truthful, but liability is insurance’s problem

(16.5) commercial insurance
Be clear what’s covered, make sure tenants insure themselves as necessary
document details of communication

(16.6) LLC
Check with attorney
Limited liability company
More complexity with taxes and financing, fees and recurring costs
Separation of liability, requires separate accounting
Commingling of funds may lead to piercing of veil, alter ego principle
If LLC managed properly avoids attachment of judgements between owner and assets

(16.7) umbrella insurance
Kicks in above exhaustion of domain-specific insurance, coverage deficiency
Umbrella policies personal and commercial
covers additional loss for originally insured acts

(16.8) family trusts
family living trust, protect assets from probate, take control of what happens on death
estate planning, instructions and will, executor
Ask lawyer

(16.9) hide name from public
LLC is public, family trust is private, trust is managing member of LLC
Common protection, ask lawyer

(17) tax strategies

(17.1) tax strategies
Check with CPA
Deferral, pay (much) later, wiped out on death, temp benefit %marginal tax rate
Savings, deductions to adjust income, benefit %marginal tax rate
Waiver, exemption to adjust income
credit, directly reduces tax liability, benefit credit/(1-%), powerful

(17.2) homeowner exception
2/5 years home owner, 250k single, 500k married exemption on capital gains
Compare against long-term capital gains tax, state tax
Maximize appreciation, live-in 2 years, rent out 3 years, sell
Interleaving of multiple properties, fixer-upper possible
Trade-off with long-run 27.5yr depreciation

(17.3) own vs rent
Rent vs PITI, depends on amortization, requires down-payment
Interest and tax deduction for ownership, SALT deduction limit, mortgage limit, loss of standard deduction
when itemizing, charity deductions become relevant
Tax savings on marginal tax rate
More interest/leverage, higher deduction, plus principal paydown
Consider repairs and maintenance, but huge difference

(17.4) tax on rental property
Rent income – TIMMURD
Reserves only deduction once spent
Repairs vs capital improvements, deprecation without land
Depreciation usually largest number, paper loss, may be taxable loss

(17.5) tax loss carryover
Limit on annual tax loss deduction, rest carries over to next year
Real estate professional exemption, no limit

(17.6) 1031 exchange
On sale, e.g. when fully depreciated
Like-kind property (or multiple) exchange, taxable gain attaches to new property
Repeatable, until death, estate taxes, stepping up of tax basis possible
Exchange procedure complicated, accommodator required to hold funds, time limits

(18) doing a deal

(18.1) offer
Run the comps, call listing agent, find out preferred terms
Write offer, read and highlight contract

(18.2) opening escrow
After negotiation and acceptance
Open escrow, email to all, contract summary, everyone’s contact info, signed paperwork attached, beware disclosures to lender
Requires reading the contract, avoids surprises

(18.3) time frames
Close of escrow most important, usually 30ish days
Contingency time frames
Liquidated damages clause, limits liability to earnest money deposit, otherwise seller can sue
Unilateral cancellation, contingencies, pretty much generic “outs”, read contract, negotiation ammo
CA usually 17 days contingencies, either removal (commercial) or continuance (residential) until waived, may allow seller to cancel

(18.4) lender
Whatever lender demands, you provide paperwork right away, hot potato

(18.5) closing
estimated closing statement most important doc, debits and credits
Review numbers, usually mistakes and junk fees, ask questions
“Please explain fees to hapless me”, taking blame easier than confrontation

(19) property management

(19.1) finding tenants
Depends mainly on rent pricing
List online, sign, no overselling appearance
Clean, no staging for tenants, good not perfect photos
floorpan or tour

(19.2) before showing
Minimize effort on unproductive tours
3d tour, “some people told me floorpan didn’t work for them, you save time”, message with link, call me back, matterport, also documents condition
Limitations on people, in CA 2 per bedroom+living room
Pets, bully dogs, insurance reasons
Verify rent price, against rent scam, income?, familiar with area?, agent?, move-in date?
“after we show, we plan credit screen”, “not sure if profile fits owner’s requirements”, “credit karma then call back”

(19.3) tenant screening
Very important, privacy laws
Requires signed credit check authorization, application, limited fee, collect in cash
Confirm ID in place, scan both sides, actually verify ID and person
“Expect email from TransUnion and Experian”, invite emails
transunion and Experian, every possible report, also identity verification
Check eviction and criminal, credit report
Check social by call customer service for SSN match
Income 2.5-3x rent, neither too high nor low
History of payments, recent or frequent misses red flags
700+, people who take care of credit, take care of property
Verify place of employment
online check, previous addresses photos online, second-last landlord, privacy release
Maybe proof of funds, not too much or too little
Flashing cash ultimate red flag, pacific heights movie
never say anything personal about your own tenants
Deny based on credit only, beware protected classes
Negotiation of terms depends on activity
Lease signing in person, cashiers check for deposit and first rent, second official ID verification, social sec card (?!), then keys

(19.4) move-in inspection
Document everything, detailed 3d scan matterport, hi-res slow-mo phone video
Every surface, mechanical operation in video, appliances inside, toilet tanks, grass, carpets
Cleanliness of windows and blinds, switches, detectors, light bulbs
location from experience of you being a tenant
Document receipts and professional work done
Kevin has OCD about every small item
Keep in mind normal wear and tear, tenant’s own inspection

(19.5) pre-move out inspection
depends on state, mind timeframes
Request fixes and cleaning, opportunity for tenants to get back full deposit
If tenant fixes issues, less effort for you, money less important

(19.6) move-out inspection
After move-out, 21 days to return deposit, depends on state
Issues not discoverable during pre-move out
Use full 21 day period, great if it overlaps with new tenant
Set expectations

(19.7) commonly missed items
Open every drawer and cabinet, everything mechanical
Look behind moving parts, doors, cabinets, blinds, inside closet doors, fans, light bulbs
toilet tanks, appliances, sinks/faucets, warping, shower floors/walls

(19.8) deductions too small
Nothing too small for Kevin
charge parts and labor

(19.9) ordinary wear and tear
Don’t make tenants feel like you’re robbing them
Paint, grout, minor scratches, squeaking, un-aligned doors
pet issues common problem
ensure there’s clear reason, easy to create drama

(19.10) have to make repair on deduction?
Depreciation of items and systems, life expectancy
If you deduct, do you have to use all the money on repairs? Grey area. Kevin thinks so.
Small-claims judge may side with tenant in court if not repaired, keep receipts and documentation

(19.11) how to write deposit deduction letter
Emotionally charged situation
Put all ammo into the letter, prevent litigation
Item by item, evidence, receipts
keep documentation, when litigated bring it
Take pre-move in pictures

(19.12) periodic vs for years lease
Long-term leaves gives security, control, allows 12mo+ expiry during active time of year
30day notice for month-to-month, 60day for landlord after 1st year, less control and predictability
Investors prefer 30day terms to simplify resale

(19.13) property manger
Yes, even if agent yourself
fee is tax deduction, less stress, less liability
Cash flow difference minimal, appreciation and tax benefits matter

(19.14) (missing)

(19.15) advertising unit
Don’t advertise until rehab complete
Prevent surprise and disappointment

(19.16) flashing the cash red flag
Pacific heights movie
Run the credit or run away

(19.17) tenant provided report
No
Easy to fake, happens all the time

(19.18) expected life of improvements
deposit deduction for remaining life only
Use third-party reference, CA state norms
Not companies, biased

(20) how to start

(20.1) start from $0 with little income
No possible, make some money
become wholesaler or agent, get an income, part-time
without savings, use down-payment assistance programs

(20.2) start with $20k
Use 3.5-5% downpayment programs, conventional, FHA
Need income, use co-signer from family or friends
Renovation loans

(20.3) $150k
Investment properties possible, conventional loans
wedge deals, financed flips (with small margin)
Split between downpay and repairs

(20.4) $500k
Flipping properties, but it’s a job, focus on the job you already have
Multiple investment properties, do one wedge deal every 6mo

(20.5) $1m+
Limitless options (?)
Cash offers on wedge properties, cash-out refi
Multifamily and commercial rent wedge deals, avoid market price

(20.6) investing at 19
You have time, build as much control as possible
Avoid severe negative cash flow

(20.7) investing at 30
More going on in life
Stop paying rent, get wedge deal to move into
Move up property size, keep former properties around
Moving with kids sucks, do it anyways

(20.8) investing with 50
30yr mortgage still great, balance will be small down the road
No forever house, keep getting into wedge deals, moving still doable
No beating up for not doing it earlier
Build-up in net worth is bonus to income
avoid 15yr mortgage due to high payments

(21) practical experience

(21.1) comping a deal
Livestreams
Zillow/redfin, ignore estimates, ignore price/sqft
Circle neighborhood, consider development age
Zillow displays stale sales data, use past 6mo
Spread sheets are meh
Look for recent model match, condition, combine with market insights and trends
Get feel for recent sales/DOM in area, consider start of escrow
Gut check of ARV with location, required work, size difference
find upper/lower end with adjustments, use multiple comps
(Very rule of thumb)

(21.2) the youtube flip
New sewer line surprise, repipe everything
Weird floorpan as red flag
Mildew and broken, low-mid end property
Paint, shouldn’t have done windows, use hollow core doors, use less expensive range
Wood molding, bath rooms different from rest, shutters and drive way
Hit the top of the market, pushed for quick finish and sale, bad timing
Always maintain reserve budget when flipping
Forced away request for repairs via putting up for rent

(21.3) before and after $19k rehab
Minimalistic fixup for sale
Old tiles, windows, doors, hardware, cabinets, appliances
Damage behind kitchen, tiles, tub
Paint outside wall and trim, shutters
kept windows, new hinges, switches, outlets
Paint job, kichler light fixtures rustic, new carpet
Painted kitchen cabinets, appliance match
Polish tubs, glazed tiles, install new vanity
10k paint, 3k electrical, 1k appliances, 6k rest, no hauling included

(21.4) before and after $23k rehab
Scraping wallpaper, remove carpet, old switches, outlets, handles, old kitchen
Countertops, sink, tub, shower nastly
new carpet and linoleum, repainted kitchen cabinets, granite countertop
Inside/outside paint, shower glazed and retiled
Minimal landscaping
high ROI on cash invested

(x) bonus lectures

(x.1) what if still in school
If work for contractor, draft proposals, materials, payroll
If work for agent, run comps and valuation, methodology
Then compare with your supervisor

(x.2) infinite banking
Use secondary financing to pay off mortgage
Supposedly psychological, silly since higher interest rate

(x.3) roof repair vs replace
Original ignored added life-time of repair+replace

(x.4.1) cash flow vs appreciation
Cap rates aren’t everything, cashflow and appreciation have a trade-off, total return is their sum
Appreciation, speculative reputation, forced reinvestment
Cash-flow, reliable reputation, freely spendable
Market roughly efficient, high-end areas appreciate, low-end area cashflow
Both benefit from wedge deal purchase
Investment safety depends on desirable area, jobs

(x.4.2) cash flow vs appreciation, tax
Taxation different, appreciation tax free/deferred/longterm, cash flow taxed minus expenses and depreciation
Maintain balance, avoid large negative cashflow

(x.4.3) cash flow vs appreciation, small and big
syndication, large deals usually in cashflow rich areas
cashflow and appreciation is function of down payments/leverage

(x.5) the inverse wedge (over improvement wedge)
Overimproved properties/model homes revert to median price after a few years
May get 80k upgrades for 10-20k

(x.6) everything about real estate in 20min
watch it

(x.7) contractor proposal for construction
240k for new duplex in florida
Run numbers, projected rent, 35% expense ratio estimate
Cash on cash 18.7k per year, could leverage, but depends on rent comps!
Check builder reputation, license, liability and comp insurance
Add yourself as interested party onto their insurance
Get as much details as possible, vague help contractor, clarify
“Paperwork”, architect?, engineer?
Type of concrete slab, post-tensioned
Roofing, types and color of shingles, hurricane
Insulation, foam sealing?
Brand, type, of doors and windows, shutters
Hardware, matching?, either brush nickel or bronze
Floorpan, plumbing simple, electrical is big, switch types, chargers
AC, ducted or split?, exterior portion?
Plumbing, copper? Pex?
Doors, style? hollow core? color?
Painting, color palette, wall, ceiling, trim, semi-gloss for bath
Shower tub, shower pan types, tub? Warranties? Tiling, leveling system
budgets? Material included?
Cabinets, sink type?, hardware included?, counter tops? closets
Landscaping, requirements?, sprinklers?, plants and trees?, drainage?
Driveway, finish?, sealed?
Water heater, meters per unit?, septic system for both?, liability?

(x.8) termite negotiation tricks
Don’t mention termite report in contract, unless work specified, lender issue

(x.9) negative net present value
meaningless, purely function of down payment, only relative mattes in spreadsheets

(x.10) start with cashflow or wedge?
Lower purchase price helps both, cashflow is function of downpayment
Syndications mainly collect fees on investor money, wedge not important for them
Best case is balanced wedge and cashflow, depends on area, use your circle, MLS valid source, off-market possible

(x.11) 5 rules for wedge deals
wedge condition, cosmetic work, ugly and stinky, avoid structural, turn-off for most home buyers, cheap to fix
wedge over-improved, buy for market, improvements for free, model homes
Wedge rent, market knowledge, improvement plus rent bump, circle with property manger
Avoid yeah-but, avoid bad location always, avoid weird floor plan
Have game plan, empty properties lose money

(x.12) inspect kitchen drains
Plumbing backs up after 21 days deposit return
Fill up sink or tub, check flow rate, after move-out

(x.13) rental end date
Always set end date AFTER major holidays

(x.14) 1% rule (and others)
Kevin is not a fan, depends on area
You’ll be overly excited or discouraged about local deals if in different area
You must understand your market, specific rules, may depend on property condition too