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Biggest Real Estate Investing Things I Learned – The OG Edition

Real estate investment properties will teach you many things. Through my journey in purchasing 4 real estate investment properties I have learned many things. For each of my real estate investment properties I am going to outline some of the key learnings I had. Every day I continue to get more knowledgeable and get just a little bit better!

Before reading this article, it is important to understand more about The OG! Below is my first post introducing The OG and talking about all the details of the property.

Time to jump into one of the first major things I learned from The OG!

Lesson #1: Understanding How Tax Assessments Work On New Builds

This is honestly something many people may not even know about when investing in real estate. When you purchase a home you will owe taxes each year on the property. The taxes vary drastically depending on where you live in the country. While I was going through to get an understanding of how much I could afford in a monthly payment, you want to ensure to add taxes to the overall cost.

Here is the major kicker and thing I learned about taxes though that kicked me in the butt after year 1! Let’s say you are buying a newly built home. When you go to purchase the home you are going to see the projected taxes from the previous years tax assessment. This is where it bites you in the ass though.

For my example with The OG, I purchased the property in August of 2016. This means the taxes I was looking at from the property was the tax assessment from 2015. Well, in 2015 the land my home was built on was just land. There was no physical structure on the land. For that reason, the tax assessment will always be less. I believe the tax assessment is less because the lands value increases when a home is built on it.

The worst part of the whole situation was the fact my real estate agent didn’t talk me through any of this. So here is what happened. I purchased the property and expected the taxes to be roughly $1,700 a year. Remember, the $1,700 a year was the tax assessment based off the lands value with no home on it. 6 months go by and I am thinking all is well and good. Then I receive something in the mail from the county appraiser’s office. The letter states my property was reassessed for 2016 and the next tax amount per year increased to $3,500. WHAT!?!?! That is going to increase my overall payment by $150 per month. Even worse, I had to pay back taxes in arrears for the previous year because my escrow account was short. So overnight my monthly payment increase by $300.

Lesson I Learned: If I buy a new build property again in the future, make sure to understand what other homes in that area pay in taxes per year. Use that as the baseline for running my numbers. Simple lesson, but an expensive one to learn.

Lesson #2: Have A Plan Before Buying

This one sounds so simple yet I cannot reiterate the point enough on how important it is. I knew when I was moving down to Florida that I didn’t want to rent anymore. This came from reading the book ‘Rich Dad Poor Dad’. At the time I felt like renting was just throwing away money and I wanted to be a homeowner.

The problem I had though was I didn’t have a plan. I knew I wanted to buy, but I didn’t even think of house hacking of any sort. I didn’t even know what house hacking was at that point in my real estate investing journey. I was lucky enough that a friend of mine kind of helped me stumble into house hacking after living there for three months.

Lesson Learned: Buying a home is all well and good, but make sure you have a plan with it. I always recommend house hacking! Always! To learn more about house hacking, checkout this article.

What I Would Have Done Differently: If I were to go back and do it all over again, I would have been prepared to house hack from Day 1 of moving in. I would have also added the fourth bedroom from day one and looked to add one additional bathroom. I think when my next guest moves out, I am going to look at adding an additional full bathroom.

Lesson #3: Don’t Just Buy Because You Think Renting Is Just Throwing Away Money

You often hear people say they want to buy a home because they feel like rent is a waste of money. The simple fact of the matter is this is not true. There are many reasons that renting is better than buying a home. There are also many reasons why owning a home can make sense for you. Renting allows you freedom and flexibility. Owning a home doesn’t.

There are a lot of additional things you have to pay for to maintain a home. Insurance, taxes, capital expenses, and HOA payments to name a few.

Be very careful to not fall into this trap if you are currently looking to purchase a home. Buying may be right for you, but make sure to understand the cost of home ownership. I highly recommend adding on 10% of your mortgage payment in unexpected expenses that will come up each month. For example, if the home you are looking to buy has a mortgage of $1,000, I would expect to pay $1,100 a month total. There is a high likelihood of the home needing $100 of unexpected expenses each month.

Lesson Learned: Buying can be extremely powerful when done right. Especially if you decide to house hack. Just because you rent doesn’t mean you are throwing money away. Renting usually allows you to live in a nicer area and allows you much more flexibility than owning a home.

Always Have Tenants Sign A Lease

Okay, I have to admit again, I was a true rookie when it came to managing my first house hack. I started with Airbnb and then transitioned to long term rentals by the bedroom in The OG. A huge mistake I made when pivoting to renting out the bedrooms long term was not having tenants sign a lease.

I mainly found people from Airbnb who then wanted to stay for months on end. I was very happy with it at the time because it was then guaranteed income. Here was where I messed up. I always just agreed with the tenants with a handshake on what the amount was going to be per month. No contract. Nothing in writing.

I know I know. Very much a rookie mistake. I learned my lesson the hard way with my first tenant when they decided to just pick up and leave after staying for 6 months. I couldn’t do anything or charge them anything because we didn’t sign any contract. I will say that is the last time I ever made that mistake again!

Lesson Learned: Whenever renting your place out long term, make sure to draft up a lease agreement. Personally, I use the base form from eforms.com for Florida Residential properties. This has helped me have things in writing and make sure there are clear things in the lease that help to protect me in case something happens. Do not make the rookie mistake I made of a gentleman’s handshake!

Additional Item Learned: Florida AC systems

A little bonus item I learned the hard way in Florida about AC systems! Florida is an extremely humid state. With that comes some fun challenges with AC systems. Most AC systems have a condensation pipe that goes from the AC unit to outside the home. What I didn’t know about this was the fact that this condensation pipe is supposed to be flushed out and cleaned once a month. If you don’t clean it, it will back up into the AC unit and shut it off.

I learned this the hard way at The OG. I forgot to do this on a monthly basis to the point where the condensation line backed up twice. After spending $350 on the AC guys to come out to service the unit, I was finally not going to make that mistake again. Just an extra small tip for those out there who live in humid areas.

If you aren’t already, don’t forget to follow me on Instagram!

Thanks again for all the support and continuing to come back for new articles!

Enjoy this article? My goal is to continue posting about my real estate investing journey and path to financial independence through investing! I want to share my journey with real numbers to people can see exactly what I am doing. Are there other ways to get to financial independence? Absolutely, this is not the only way. But this is the fun of personal finance, it is personal! Checkout more of my content here!

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Real Estate Investing Strategy – The OG Breakdown

Time to do a full real estate investing strategy breakdown for each of my properties. I started giving a few teasers in my Highlights on instagram, but thought giving a more detailed breakdown on my real estate investing strategy is critical. I want to provide my real world experience with actual numbers for each of my real estate investment properties. I have a variety of real estate investment strategies ranging from house hacking to long term rent by the room to short term rental properties.

Time to dive into my rental properties in the order in which they were purchased!

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When I Purchased The Property

I talk about stumbling into house hacking in my first ever podcast with @househackingsuccess and if you haven’t checked out the podcast yet, you can find it here! I was in the process of a big change in my normal day job. I had just been offered a promotion to move from the cold Bethlehem, PA down to warm and sunny Orlando, Fl. This was going to be an extremely big move for a few different reasons.

First, I was transitioning from an engineering role to an operations role. This was a massive change in potential career path with a lot more upside for income and personal growth.

Second, I would be moving to another state where I didn’t know anybody! Moving to an area where I don’t know anyone doesn’t really bother me too much. I did love the thought of moving to a warm part of the country again though!

Lastly, this was a big risk for me. I had never really taken big risks with my career and potential moving opportunities, but it was finally time to take a leap of faith.

I ended up moving from Bethlehem to Orlando in August of 2016. When doing my pre-move trips to Orlando I knew I didn’t want to rent from someone anymore. To me, renting is a quick way to just throw money down the drain that you never see again. One thing is important to point out though, renting isn’t a bad thing. I want to make sure that is clear. There is a time and place for renting versus buying. There are plenty of unexpected costs that come with buying real estate. Don’t let my context here fool you, I would rent in the future depending on my life situation.

Strategy For Property

Black and White Forest Minimalist Instagram Story (6)

So I was on the lookout for properties to purchase in Orlando on my moving trip. At this time, I had no intention of house hacking or even knew what house hacking was. What ended up happening with this property ended up being a blessing and has led me down the path I am on.

The OG’s original real estate investment strategy was house hacking. I didn’t run any of the numbers on this property when purchasing it. I just thought of what the mortgage was and said, “Ok, I guess that works.” I am by no means advocating this, but I literally had no idea what I didn’t know. I had never purchased a real estate investment property. Not only a real estate property, but also something I would be living in. For much more details on what house hacking is, click the link to here of the different strategies that can be used.

For The OG, I have added a few additional things to the House Hack. All bedrooms and common areas in the home are fully furnished. This was a very inexpensive way to add additional cost to the monthly rate for people who rent out the individual bedrooms. It is great for young professionals who are just getting their life together. For those reasons, I felt fully furnishing the home was a good idea.

Breakdown Of The Numbers

Time to break down the numbers!

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Let’s first look at the purchase of the property.

I purchased this home for $292,000 on a conventional 5% down payment loan. Why conventional? Honestly, at the time I had no idea what I was doing and that allowed me to get my monthly payment around what I thought I could afford. When you live in the property you have the ability to do a Conventional loan with a down payment less than 20% of the properties purchase price. There are a lot of financing questions I am not overly familiar with. Real estate investment financing can get very creative and special. For these posts detailing out my properties, I am going to focus on what I did to finance and my thought process for going down that path.

For my expenses on The OG, here is the list:

  • I pay for all utilities and internet each month. This is baked into to the rent price for each bedroom. Utilities roughly $200 per month and internet is $75.
  • HOA Fee: $162 per month. This includes all lawn and other maintenance
  • Expected CapEx: I will put away 10% for Capital Expenses (roof replacement, AC fixes, etc.) each month. This will end up being $300 per month.
  • Occupancy Loss: $150 per month. This is the expected amount of lost income from rooms not being rented.
  • Mortgage payment: $1,754 which includes PITI

All in, expenses will be around $2,641.

Now time for the income. Since this property is a rental by the bedroom, below are the numbers for what I charge for each bedroom:

  • Bedroom #1: $800 per month
  • Bedroom #2: $750 per month
  • Bedroom #3: $650 per month
  • Master Bedroom: $850 per month

Total income of $409 per month. For four “doors” and being overly conservative with some of the numbers, I will take this all day. I expect to keep occupancy even less than this and I also don’t expect any major CapEx soon as the home was brand new when I purchased it. For those reasons, I believe the cashflow will be more around $700 per month, but $600 conservatively.

This doesn’t include the other great things about real estate investing like the principle paydown and the potential for the asset to appreciate.

If you aren’t already, don’t forget to follow me on Instagram!

Thanks again for all the support and continuing to come back each day for new updates in this saga!

Enjoy this article? My goal is to continue posting about my real estate investing journey and path to financial independence through investing! I want to share my journey with real numbers to people can see exactly what I am doing. Are there other ways to get to financial independence? Absolutely, this is not the only way. But this is the fun of personal finance, it is personal! Checkout more of my content here!

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Ol’ Faithful HOA Saga – Final Path Forward With HOA Dispute

It has been a wild journey with the Ol’ Faithful HOA Saga. I have finally determined the final path forward with the HOA Dispute. This real estate investing journey is fun and continues throwing some interesting curve balls. If something like this would break you down, I would definitely say real estate investing isn’t for you. I enjoy going through this process because it is a stepping stone and learning opportunity I am using to become a more experienced real estate investor. This isn’t a short term play. This is a long term play to continue learning from all the situations my real estate investing journey takes me.

It is amazing continuing to see my blog and IG page grow! If you have been following the journey for some time, thank you! And if you are new to the saga with Ol’ Faithful, get caught up on everything that has happened to this point. There has been a lot and many have reached out saying this saga has been better than some of the stuff on TV they have been watching lately 😂🤣

Ok, now time to jump in on the final path forward.

Where We Currently Stand

Ok, here is where we currently stand. I was awaiting a response from the Board and HOA president. They have been poor at best in responding in a timely fashion to my concerns with not being able to rent my place out. I believe this is mainly due to them knowing they are in the wrong, but more fun will continue below!

After waiting another 48 hours, here is the HOA’s response to my email:

Good Morning,

You had asked for a reason why the reservation request was denied. The request was denied in the spirit of the ban on new vacation rentals  by the Governor of Florida through the end of April.

I have attached a copy of the first amendment that covers the restriction of long-term rentals.

Thanks and stay safe.

Ok, how many times do I have to explain that I am not trying to rent my place as a vacation rental. Now I think this shit is just comical. I can’t and I won’t go away. It is pretty clear to see they know they are in the wrong, but are not wanting to admit it.

So here is another attempt to clearly explain to them what I mean by renting my place out long term.

The ban doesn’t ban me renting out my place long termThe ban you are referencing is speaking to short term vacation rentals.

I no longer have my property listed on any short term website and it isn’t being marketed as short term.
I have read the restrictions, and I have a right to rent from 3-6 months within the community with approval from the HOA.
For that request, why am I being denied to rent for 3-6 months as it state I am permitted to rent?
Thanks, YRB
Again, making my stance clear. I am not sure how many times I have to continue stating the same exact thing to the HOA. It is clear what I am trying to do with the property.
After waiting another 24 hours with no response, I decided to follow-up, again.

I will repeat the question again, as I guess I am not making myself clear enough. 

I would like to rent my place long term
 
This is in accordance to the HOA Bylaws and amendment made in April 2014 allowing 3-6 month rentals (pending HOA approval) which are considered long term rentals. 
 
Question
My request to rent this out long term was denied by the board with reference to banning short term rentals which I am not doing. Can you please provide an explanation of why I am not allowed to rent my home long term?
I hope this clears up continued point I am iterating of renting long term. Again, I want to rent long term.

If my previous 20 emails didn’t make it clear about long term rentals, hopefully this one did.

Another 24 hours go by…no response. So I will follow-up again. This time with a phone call. If you guessed the HOA president didn’t answer my call, you would absolutely be right. So back to email again. The importance of these pieces of communication is documenting the process. This will help me in a little bit when I explain the final path forward.

Here is follow-up number 3 with no response from the HOA/Board. I have waited 24 hours between each follow-up to give them time to respond.

HOA Board and GM,

I have responded to both the GM and the board (copied on almost all the emails) and even called this morning to speak with Conrad, yet I have not received a response.
It is going on 72+ hours since my email with a question asking to rent my place long termLong termnot short termLong termSince that email, you (the board and HOA) have sent an email to all homeowners asking for forms of communication to run through Conrad or the board, depending on who makes sense.
I have done this, and I continue to be ignored. Is there a reason for selective responses to certain individuals over others?
Thanks for your time and I look forward to hearing from you in this time sensitive matter. 
 
Thanks again,
YRB33

I added the piece about them being selective with their responses because I had seen other owners in the Facebook group mention they had received responses from the HOA president.

Another 12 hours later, and finally a response from the HOA president.

Good Morning,

The board is preparing a response, they should have it completed soon.

Ok, a response, but no context. Three hours later their actual response.

Good afternoon YRB,

We note that you are still seeking a way to rent out your property at the resort in the midst of the Covid-19 emergency and rather than continue to go back and forth debating a series of fresh proposals, we felt it might be better to set out our position clearly, so that, armed with this information, you will be able to reach your own conclusion as to how best to proceed.

As you are aware, in 2014, after extensive owner consultation and legal advice, the  bylaws were amended to ban long term rentals i.e. rentals of more than 6 months and additionally to require owners to gain explicit written permission to rent for between 3 and 6 months, which although technically short-term, were also considered undesirable. There are currently no plans to review these arrangements.

Under the current Executive Order, all new short-term rentals are prohibited and whilst the HOA Board has the power to approve rentals for periods between 3 and 6 months, we have resolved to act in accordance with the Governor’s suspension and not do so. Effectively, therefore, only proposed rentals which fall under one of the exemptions under the Governor’s Order will be admitted.

Unfortunately, these are difficult times for us all and we appreciate that this is not the reply you were hoping for but given that the Governor’s Executive Order is very much at the heart of this matter, perhaps you might seek advice from his office regarding whether your proposed change to become a provider of exclusively long term rentals renders you exempt from the current Order. Section 1.A. of the Order suggests that it does not and so you may want to consider carefully before making any decisions re. the future rental of your property.

Please stay safe

For and on the behalf of Terra Verde Board

Finally a response with a bit of substance! They are still wrong, but I can definitely appreciate the time they final sent to put together a response.

Within 30 minutes of their response, went ahead and shot a response back.

This is what Section A states to qualify in that section:

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This is the clear definition of both Transient and Nontransient public lodging establishments per the
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Could you please help me understand how you are considering how I am trying to rent out my place as being a transient public lodging establishment?
It is clear, to me (and I am open to being wrong) that my place would fall under a Nontransient public lodging establishment. This would therefore mean the executive order does not apply to my rental as I intend to use it.
Thanks for your time, I look forward to hearing from you soon regarding this very important and time sensitive matter.
YRB

I had to again clearly explain what the executive order actually states. I don’t like to get into technical conversations about what things say and don’t say, but feel they still fundamentally don’t understand what is going on.

Final Path Forward

Here is the final response I received from the board after my explanation pointing out what I continue articulating to them.

Good Afternoon YRB,

I wanted to let you know that we have received your email. Our decision to deny entry to new vacation rentals  through the end of April has not changed.

Thank you and stay safe.

No reason to continue hearing them state the same thing over and over. If I am right, I have enough documented responses to do with what I need.

I gave one final response to the HOA and Board before being done with emails back and forth.

GM, I understand the reasoning and position that you guys are taking. I understand that you guys truly feel you are doing the correct thing. What you feel is giong to create “safety” in the resort for the people who live their full time.

It is very disappointing the way you and the Board have handled the entire situation. You fundamentally don’t understand how the virus spreads through human to human contact.
Myself and other investors bought in the resort believing it was a good community for investors. It is now clear that you (and the Board) don’t care about following the law. It is also clear that things need to change with the Board and HOA.
Thanks for continuing to make each of these things even more clear. I get this is unprecedented times, but this is very disappointing.
Will be in touch soon,
YRB
Now, for the final path forward.
I started to do a google search for attorneys in the area who specialize specifically in HOA disputes. Thought this would be a great spot to begin. Google found me exactly what I was looking for.
I created a list of 6 different law firms in the area who specialize in HOA cases. After reaching out to each, I received a free consultation with two of the firms.
During this consultation, the first person I spoke with mentioned it would be easier for me to go to a small claims court since the damages I would be wanting to recoup would be less than $8,000.
The second person I spoke with told me they charge a flat $1,500 to review all the details of the case to arrive at a path forward. Since I am not trying to spend a ton of money on this, I honestly feel like moving forward with going to a Smalls Claims Court would do.
After doing a bit of research, I would need to simply go the right location to file the proper paperwork and would then get a scheduled court date. So that is exactly what I am going to do.
For Small Claims Court I will represent myself and will be prepared to lay out the case for a judge to make the decision on damages incurred. I am fully okay with being wrong in this scenario. If I am wrong, then I learned a crap ton through the process.

Why I Feel This Is The Right Path

I have a feeling this is the right path because it will allow me my day “in court” without spending a ton of money for an attorney. I am more than  happy to bring all the evidence and communication printed out for the judge to see and then we can talk through.

I wish we had never gotten to this point in everything going on, but the HOA and Board have left me no other options. I am still almost 100% sure the HOA thinks nothing will come of this situation and that I will not seek going to small claims court. They would be wrong. I feel there are fundamental principles not being followed here.

Next Steps: Continue Learning How This Sh** Works

The next steps for me are pretty straightforward. It is now time to fill out the proper paperwork to get my day in court. Not only that, but I will also be putting together the information I will use for my date in court.

There will be a lot more I will learn through this entire process and I enjoy the learning part of the process. This was bound to happen at some point in my investing journey. I am glad it happened so early down my path. I am also glad I have set myself up financially to handle all my mortgages even if no income was coming in. It wouldn’t be ideal, but I would be able to do it.

If you aren’t already, don’t forget to follow me on Instagram!

Thanks again for all the support and continuing to come back each day for new updates in this saga!