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Category Archives: Strategies

Thinking about Rental Properties

When the sale on this one is finalized, we’ll have to decide whether its future is a rental or a sale.

Why am I thinking about rental properties? Well, many of us real estate investors own a portfolio of rental properties. It’s the thing to do, according to all those classes we take and books we read. Because we are good investors, all of us at Hermit Haus have rental properties, both as a group and separately. We have them to provide a steady source of income that we can rely on, or as they say in the biz, cash flow.

A good rental property owner knows to take into account insurance, property taxes, any mortgage on the property, and anticipated repairs into account while figuring out exactly how much cash is going to flow. That’s smart.

Lately though, some of our properties have had one issue after another. The hot water doesn’t work. The air conditioner has a problem. Is that mold or just mildew from the recent rain? We want to replace the floor. Our drainage is bad. As you can imagine, that eats into the old cash flow. It’s hard to guess how much maintenance a house is going to need per year. Houses are like that.

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We say, “Hmm,” and Think about the Future

What’s this? See the end of this post!

We get lots and lots of questions about why we do or don’t do certain things. We appreciate that folks are taking an interest in our real estate acquisition strategy and our renovation plans. Why not share some answers, then?

Why aren’t you buying houses near downtown Austin?

There are a couple of reasons for this. While the properties do continue to appreciate, it’s our opinion that the prices are being driven up by investors who are not actually out to make money. Like what? First, many people who reside outside the US invest in real estate as a safe way to “park” their money, and aren’t concerned too much about the cost. Second, there are many “investors” who are willing to pay retail price for a house to renovate, betting on rising home prices to enable them to make a profit. We simply don’t want to compete with those people. The market will not go up forever, and it’s due to come back down (as we have been saying for years, now).

Why aren’t you investing in multi-family properties in Austin?

See the above. The bargain properties have all been snapped up, fixed up, and renovated to get higher rents. My own son lives in one of those. The investors did a very reasonable job getting the units looking better without spending too much money (the kitchen cabinets look to have been repainted about ten times). We prefer to look outside the big city and the large suburbs and find properties in more-fringe communities, where you can still get a good price and make a good profit after fixing up a multi-family property. Continue reading →

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Crowdfunding for Renovators

Crowd funding enables you to raise money from people you don’t even know.

Crowdfunding seems to be the latest buzz. I thought it would be good to know a little about it from the renovator’s perspective. Eventually, I’ll also write about it from the investor perspective.

What Is Crowdfunding?

In the loosest terms, crowdfunding occurs any time you raise money for a project over the Internet. It is a relatively new phenomena, originating with the Jumpstart Our Business Startups (JOBS) Act of 2012. That act created a loophole—and I use the word intentionally—by which businesses can market securities to the general public over the Internet. The act also demanded a “regulatory structure” to control those activities.

Even though the JOBS Act passed in 2012, SEC regulations—that “regulatory structure” were not in place until May 2016. Until then, companies were strictly forbidden from advertising securities, but it’s still not the Wild Wild West.

Crowdfunding Regulations

You really don’t want to get on the wrong side of the SEC, so you should always consult your own attorney—one who specializes in crowdfunding—before raising capital through this medium.
That said, here is a brief list of the regulations to enable you to determine if getting started with crowdfunding your project is worth the effort:

  • The total value of the project cannot exceed $1,070,000.
  • Individual investors are limited in the amount they can contribute by both net worth and annual income.
  • You must conduct the funding through an authorized online service, and you can only offer your project on one service.
  • Advertising and promotion of the offering are strictly limited to only a few bits of data, primarily where the security is offered and the terms of the security.
  • Once purchased, the securities can’t be sold except to the issuer or an accredited investor.
  • If you are determined to be a “Bad Actor,” you’re still screwed.

That’s not really enough information to go on. It’s not supposed to be. If you are seriously interested in crowdfunding a project, talk to your lawyer. Seriously.

You can also find more information at the URLs provided in the bibliography. You can also find a better overview on 7 Rules for Real Estate Investing podcast, Episode 48. That is a discussion with crowdfunding attorney Mark Roderick. (Roderick, n.d.) If you want to geek out on crowdfunding, you can follow Roderick’s blog. For more updates, follow Roderick’s blog.

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Decision Fluid

Spider Solitaire hand freshly dealt

I used to enjoy playing Solitaire on my phone when I was stuck waiting around for something. Then the sheer number of decisions I have to make in every game hit me. I was depleting my decision fluid for no reason other than boredom. Now I only play a game or two before bed while listening to podcasts.

Several studies have shown that we are capable of only a limited number of good decisions. Being forced to make too many decisions or to acquiesce to the decisions of others can degrade our decision making and ability to control our impulses. Keep that in mind when you consider that we make 35,000 decisions every day.

There’s even a name for this phenomenon: “Decision Fatigue.” Decision Fatigue is “no reflection on the intention, intelligence or effort of the decision-maker, but a simple result of depletion of the brain’s resources. After a barrage of choices, people are simply unable to rationally evaluate the choices at hand,” according to Kate Huley. In other words, we run out of decision fluid and need time to refuel.

Decision Fatigue applies to every aspect of our lives, even politics.

And while Huley states that more consequential decisions deplete our decision fluid more quickly than less impactful ones, every decision takes its toll.

What Can We Do?

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A New Hermit Mobile for Mandi!

My instrument panel. The car is off, I’m not really out of gas.

I’m so excited to have a “new” car!

My van is still with us, as well. It will still be used for “heavy lifting,” but the gas mileage and some other issues have made it an unwise investment to keep on the road full time.
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