If you have done a couple large renovation projects then you know what I’m talking about. When estimating rehab costs – always add a buffer on top of your total number.
Here’s Why You Always Add a Buffer to Your Reno Budget
This isn’t about how good an investor is at estimating the costs of repairs and replacements. Most of us can get good at that with some experience.
This is about the stuff that you generally can’t foresee. The stuff that just pops up, and trust me there will be things that pop-up. Especially if you are working with properties that are much older. In fact, the older the property the more likely you will have “surprises.”
Real Life Examples
I’m going to keep it simple and give you a “cheapie” I’ve personally experienced so not to scare you off. Just know, the surprises can range much higher is cost.
This is one of the reasons I stress performing as much due diligence on a property as you can before purchasing.
There are many “surprises” that can be avoided – then there are some that are just part of doing business.
My latest example fits into that category.
Main Water Valves and Sleeves
We are finishing up a major renovation on a property that was built in 1901. However, along the way we got caught with a few surprises. One of which had to do with the main water shutoff and the sleeve pipe that runs to the water department’s main valve.
Long story short is the sleeve had become so cockeyed that it was not possible to access the valve to turn it back on. Considering you need water in a home this was a bit of a must fix.
The real question was – is the sleeve bad or the valve too. Either way we needed to have a qualified operator come in a do his thing to repair.
After widening the opening to the exterior piping/valve and doing a little digging out the earth he was able to access the sleeve to replace and test the valve.
Good news – valve was fine. Bad news – sleeve needed to be replaced. $1200 later all is good an we can got water turned on.
Unexpected cost, yes, but at only $1200 feelt like a win. Here’s the things though. What happens when you have 4 or 5 items come up that cost that?
Since this property was so old that is exactly what happened because things needed to be up to code. Replacing the side door entrance became a $1500 costs instead of $300 because of all the layers of siding that had been slapped on over the decades. The flashing had been bumped out so far it was a mess and we basically needed to re-frame it.
These examples are the cheap ones. I have heard plenty of stories from other investors that got hit with $5-10K “surprises.”
Add a Reno Budget Buffer
This is why on the majority of big rehab projects I always slap an extra $10K on my total expected budget.
If the numbers still work with that then I know in the end I should come out in decent shape and better yet, if the “surprises” are limited or not existent than the deal becomes even more profitable.
Always be working your numbers and buying right!
To get the full guide on how I buy right check out the videos or the book. Remember to use the property calculator when analyzing deals!
I hope this has been helpful. I’d be happy to answer any questions in the comment section below. Until next time, wishing you safe and profitable trading.
Workin
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Altcoins continue to get hammered. Meanwhile, BTC is plodding along steadily in a sideways direction, the bulls trying to break to new 2019 highs, but not having the power to overcome the bears who could plunge prices back towards $8000. The old 5 August chart (shown below) from THIS POST is still valid from the bearish perspective. I consider the market to be in favour of the bears at the moment, so this is still the chart which I am basing my own BTC buying prices on.
From https://mentormarket.io/cryptocurrencies/bit-brain/btc-beginning-of-the-week-analysis-2/
What we are watching is the interplay of market cycles. Lately I have found myself discussing market cycles in the comments sections of various posts on multiple platforms.
I would like to thank CryptosDecrypted in particular for inspiring this post. If you read his post titled “The Sunday Recap – Down the Rabbit Hole 42“, you will see that he chats a bit about market cycles, a chat which we continued in the comments section of that post. Incidentally you can follow him on Twitter if you don’t already do so. He’s a quality crypto analyst and blogger, so I recommend that you keep an eye on what he has to say: https://twitter.com/GordonBuckley3
Bitcoin price moves in cycles. Altcoin prices move in cycles – generally together and closely tied to that of Bitcoin. The major financial markets of the world move in cycles. In his blog post, CD remarked:
“My two cents – we are a full economic cycle from BTC (and only BTC) becoming established as a reliable counterweight to global market corrections.”
That got me thinking a bit, to the point that I believe I must share my own views on the topic (hence this post). Note: I’m not saying that CD is wrong, his opinion carries weight and is probably at least as valid as my own. Realise that none of us analysts own a working crystal ball, we all just call what we observe as best we can. Here is my take on it:
Traditional Markets
I doubt that we’ve seen a proper global stock market crash since The Great Depression. Bear (pun intended) with me here: I realise that the 2008 crash is spoken about in hallowed tones. But 2008 was akin to a failed suicide attempt: a dramatic cry for help, but a cry which averted the disaster. You see: the markets bounced straight back. The reason that we don’t call it “The Great Depression II” is that it was nowhere near that scale or duration. Yes, it has absolutely had a lasting effect on some asset classes, look at precious metals for instance, but the fiat based assets recovered and moved on!
We must now ask the “How?” and “Why?” questions. The answer is not pretty.
Zooming out on the situation and looking in retrospect, we can observe how fiat saved itself. Contrary to reason and sound financial practice, solid assets – good stores of value – were sacrificed in order to prop up the failing fiat house-of-cards. As analogies go, I don’t think you can do better then comparing fiat money to a house-of-cards. Ironically, the booming housing market played a role in the last “crash”, ironic because property is typically a good store of value. Regardless of the cause, the markets took a big dip, but they were prevented from crashing entirely. Governments stepped in to protect their house-of-cards from being blown down by the Big Bad Wolf. Unfortunately for them, there was no Big Bad Wolf. All there was was a very shaky arrangement of unbacked fiat-based derivatives built on top of an unbacked fiat money system.
The markets dipped simply because investors were no longer confident that what they held was worth what the markets said it was worth. That’s bad. That means that the fiat foundation of the house-of-cards has cracked. But fear not! The government came along and applied liberal doses of Quantitative Easing plaster and patched over the cracks. Then they painted it with a big tin of debt coloured paint, the special kind which contains micro-particles of Fractional Reserve Banking.
So we’re all living in the same house-of-cards which we lived in a decade ago, only now it is much MUCH bigger, is covered in considerably more debt, contains a wealth of inefficient private entities which should have died (but which were bailed-out with public funds), and is generally looking about as sturdy as a crowbar made of cheese.
This matters.
The reason this matters is because the really big crash has not been avoided, it’s been delayed. A healthy corrective crash – a correction which would have weeded out much of the unsustainable fiat rot – was prevented from occurring. What has happened is that the market’s have been set up to fail, far more than they ever would have a decade ago if they had just been allowed to crash organically.
That matters too.
That matters because it means something very important to us: There is no precedent for what will happen next.
We can talk about market cycles, but we will be kidding ourselves. What happens next will break new ground. Our best bet will be to look at what happened during the Great Depression. But even that was almost a century ago and in a very different world – there is only so much that we can take from that example. 2008 may look big to us, but that’s only because we don’t have something bigger to benchmark it against. We haven’t seen a proper crash since the establishment of Bretton Woods. That caused an upset of its own, but that was just the market reestablishing its footing at the time. Everything since then has been a mini-crash or a temporary correction, much like 2008 – fiat has yet to fail, so far it has not been allowed to do so in an unrestricted fashion.
Look at the cryptocurrency market of 2008. that was a crash, a proper crash. All the little altcoins that should no longer exist due to poor management, lack of funds, lack of performance or just poor marketing – they were wiped out. Nobody bailed them out, and the altcoin world is now far stronger for it. The fiat markets took the exact opposite approach, they did the equivalent of bailing out the shitcoins which should have died, be it the tiny little ones or BITCONNNEEEEEEECCCCTTT!!! itself!
From the public domain; modified by Bit Brain
Take home point: the market cycles may well soon “break” and behave unpredictably. The current system is an unsustainable house-of-cards. Something has to give, and when it does, it will definitely have enormous repercussions.
End of Part 1
Let that sink in a little. In Part 2 we will look at crypto cycles – BTC and the altcoins. Then we will determine if and how these cycles may influence one another.
Yours in crypto
Bit Brain
“The secret to success: find out where people are going and get there first”
~ Mark Twain
“Crypto does not require institutional investment to succeed; institutions require crypto investments to remain successful”
In today’s video we discuss bitcoin’s micro and macro trend. We’ll talk about potential next moves, key areas to watch and so much more. I hope you find it helpful.
I hope this has been helpful. I’d be happy to answer any questions in the comment section below. Until next time, wishing you safe and profitable trading.
Workin
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It’s amazing how many tools there are at our disposal when it comes to real estate investing. I’d like to talk about one that can come in handy when dealing with the issue of getting loans, but wanting to have your property in an LLC.
Note: this is not legal advice, please check with your attorney when making any such transactions.
Get the Loan – Then transfer into LLC by way of Land Trust
Using a land trust is always a good idea, regardless. It provides anonymity for the owner which protects you because you can’t get sued if it cannot be proven you own the property.
Additionally, when a title is transferred to a land trust it doesn’t trigger the due on sale clause that is part of a traditional mortgage.
Generally when title changes hands it triggers the loan to be paid in full.
Now push it to the LLC
Once the property is in your land trust you can then transfer the title to your LLC. Then make sure your LLC has an operating agreement in place to manage that property within the trust.
Basically this gives us a way to take a property that we buy in our own names, usually in order to qualify for a traditional mortgage, and move it into our LLC.
Remember – owning investment properties in your own name is a liability risk. Yes, insurance is great but only goes so far. Having properties in entities like land trusts and LLCs provides protection for you and the assets you’ve worked so hard to accumulate.
One of the good things about real estate (and there are many) is that the government generally creates incentives for investors and developers to provide housing in certain areas.
This is the case with the fairly new “opportunity zones” initiative that launched in December of 2017 with the tax cuts and jobs act legislation. Let’s discuss what the benefits are of investing in one of these areas.
Investing in Designated Opportunity Zones
By investing in opportunity zones you can save a bunch on capital gains taxes. Similar to a 1031, but with more flexibility, you only need to designate the gains from a property into the opportunity fund.
That money obviously needs to be used to invest in one of the many opportunity zones designated by the government entities. You can see a map of opportunity zones here.
Tax Benefits of Opportunity Zone Investing
A basis step-up for capital gains reinvested in an opportunity fund
A temporary deferral of taxable income for capital gains reinvested into an opportunity fund.
A permanent exclusion of capital gains if the investment is held for at least 10 years.
For us buy hold folks that last one is very enticing as normally you will hold a rental for atleast 10 years. Capital gains being excluded permanently sounds nice to me! It’s likely a 15% savings staying in my pocket!
Tax benefits are just one of the reasons rental properties are so awesome.
Active trading is more than just reading charts. Sentiment, news announcements and sometimes just simple logic can all play a part in making a trade, especially one that offers a big move.
That’s what Guy Gentile did trading Beyond Meat (BYND)
How One Guy Crushed It Trading Beyond Meat
Beyond meat is a meatless food company (think burgers, etc.). They had an initial public offering back in late May and the stock had basically skyrocketed since.
The hype around the company and stock was a big part of that. Kind of like anything “new” that gets the “this is the next big thing to boom” vibe throughout the masses.
Granted meatless food products isn’t new, but they have a burger that is apparently very good and used that fact to expand like crazy and then raise a ton of money to fund it.
Either way there were plenty of signs, that atleast in the near-term the stock was far ahead of itself.
Higher Valuation Than JetBlue and Coors?
As shared in @rollandthomas post has beyond meat seen its best days the value of beyond meat had blown past some rather larger companies that do way more business such as beer maker coors and airline operator jetblue.
I’m sure the meatless burger is good, but can they sell enough to generate more revenue than the two companies above?
The chart also gives us a nice indication that things may be a bit ahead of themselves…..
There is always a Catalyst
As you can see the stock ripped higher into earnings and gave us a nice doji candle meaning the buyers were not fully in control anymore.
Now it was just a matter of what happened at earnings. Here is the thing though, the hype around the stock was so high that even an earning beat might mean a sell off. Buy the rumor sell the news is a mantra for a reason.
Shorting with Leverage and Safety to Crush It
Mr. Gentile made a big play with the use of options (which is good cus it establishes your risk up front) by buying weekly put options heading into the earnings announcement.
If the stock goes down he has the right to buy the stock at those lower prices or he can just sell the put option for the higher valuation it has at that point.
With the stock trading around 230 on Friday he bought 230 strike prices down to the 215’s in 5 point increments, thousands of them. If he was right he gets paid. If he was wrong he loses only what he spent no more.
Well, he was right and the stock is down 30 plus point from Friday’s close. Just booking the profits by closing out those put options is a homerun.
However, he leveled up (and did take on my risk) by selling a bunch of the 220 calls that expire this week. Basically if the price of BYND closed below 220 this friday he will also keep all the premium collected from selling those calls.
Conviction Meets Size
There are times to make regular trades and times to load up. He saw this as a time to load the truck up and get paid. You won’t always be right, but to make real money actively investing you need to take the occasional big swing when all the signs line up.
Just be sure that if you are wrong it doesn’t knock you out of the game. Never put yourself in a position where one trade can blow out your whole account. Always live to trade another day.
You can read a detailed article about the trade including an interview with Mr. Gentile here:
Bears have bulls pushed against major support at $9,950. This is not just visual support, but also the 0.619 fib level of the larger structure. A decisive break (daily open and close) below this area would be significant.
Bulls are still defending the 8 week EMA at the time of writing this.
In today’s video we’ll look at the macro and micro picture. We’ll discuss where price may go from here, key areas to watch, I’ll answer your questions and so much more. I hope you find it helpful.
I hope this has been helpful. I’d be happy to answer any questions in the comment section below. Until next time, wishing you safe and profitable trading.
Workin
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You are not gonna want to miss this one! DLease has made earning passive income off your steem coins easier than ever – and even better, the rate of return is a market best.
Show agenda for…
Interview with Build Team CEO @thecryptodrive as we talk DLease
Let’s make it rain some PAL Coin
The Crypto Market Check (Cat’s Price Chart Calls are on Fire)
When it comes to investing my favorite saying is “experience is the best teacher.” It is something that holds true in much of life, but I love how experience has a positive financial impact on my future real estate investments.
Why You Should Self Manage Your First Rental Property
This is one of the reasons I believe everyone should self-manage their first rental property. This is assuming you can of course. If you are investing out of state to start then it may not be an option, but for anyone with a place less than 2 hours away the experience is valuable.
What does good management look like?
Here’s the thing about hiring property management. How do you know if they are any good if you have no idea what managing a property entails.
Now, of course there is the tag line “no one will look after your own investment as well as yourself” but that does not mean property management is a bad idea.
You just need to know what you are looking for.
Here are a couple examples of experiences I’m glad I had before turning to property management:
1.) Tenant Screening Process
I can tell you first hand – screening tenants is a bit of a pain. However, once you do this process yourself you will know exactly what you are looking for in a tenant.
Granted much of the criteria is dictated by fair housing laws, but there are plenty of variables that you are allowed to decide for yourself. Things such as credit and pets, for example.
More important though is the actions of the applicant. I once had a lovely couple with a young child apply for a property. I was very happy with what I saw from them, but when it came to getting me pay tubs and such, something that should take a day, they struggled to supply them.
It wasn’t like they were lying about employment as I knew where the guy worked and the type of money made in his position. He was just that much of a disorganized mess. Doesn’t bode well for getting my rent on time and the property being taken care of.
After a few days passed by I told them I had to go with someone else.
The tenant I went with was awesome, she supplied me everything right away. Was always punctual and stayed in the unit for two years before moving out of the area.
In fact, when she moved out the place was in such good shape I didn’t have any turnover. No repainting, no wall patching, nothing. Not every tenant will be like that, but what a dream.
You value stuff like that when you have a tenant much the opposite, which I have had. When it came time to turnover the property, it felt more like a rehab. Deposit money only gets you so far. Quality of tenant still counts.
I guess it’s the nuances that make a difference within all the standard criteria.
2.) How is that lease looking?
When you research leases and acquire even a standard one for your state it gives you a much better idea of what you can and can’t do.
I always advise having a lawyer look at your lease to ensure you are on the right side of the law, but remember there are many options you can decide on in your lease.
Along with the aforementioned pets policy, how about things like broken glass, unlicensed vehicles and minor plumbing issues?
These are just examples and are items that may not be in the lease the property management company uses.
Plus, how do you know where you stand on these items until you have had to decide and experience what works.
Final Thoughts…
Self-managing my first three properties was an invaluable experience. It is very easy for me to tell when a property manager is doing a solid job or doesn’t have there stuff together.
Yes, there were times I hated self-managing, like that one month when all three properties had issues. That happened one time though over that three year span.
If you are able to self manage at first, why not get the experience? Good Luck!
