Investor Agents Podcast: On Site with Sean Deminski

All right, guys, welcome to the Investor Agent Podcast on site with Sean Dominski. We're here at 165 Viaduct in Downingtown. Sean, tell us a little bit about this property. 

All right. So this is actually my first house. Your first primary house. Yeah. So like our starter home. And instead of selling it and when we moved up, we decided to rent it out. 

So we've been renting this thing out for about eight or nine years. Tennis just moved out. It's been the same tennis the whole time. It's a little rough. Let's go check it out. 

So yeah, let's check this out. I love the location. I mean, there is some sentimental attachment here because, you know, we lived here. 

Free shoes. We'll be going on Facebook at some point, so if anyone wants some shoes. So the question here is, like, I got this house. It's not in great shape. There's definitely some stuff that needs to be done, some things that need to be renovated. 

I'm actually, I've actually already started the process of cleaning it. So like, this is actually better than it was maybe a couple, you know, a couple of weeks ago or so. 

But I guess the question is, it's kind of like my big question is, do I rent it out? Do I renovate it, rent it out again? Do I sell it? Who do I sell it to? And, uh, you know, those are kind of the thought processes. 

Yeah. I think we all kind of get stuck in that sometimes when we're like, we look at what we could potentially sell something for versus rent it. 

And one of the things that I always suggest for people, number one is go back and review your long-term goals. 

Because if it's in alignment with your long-term goals to have rental properties, I would say, hold on to it. 

If you don't want to be a landlord and you've had some tenants, you know, tenant issues and troubles along your way, sometimes you get fed up with it. 

But in terms of like, you know, what makes sense from a financial standpoint, if it's going to cashflow, know and then the other question is if you sold it and you were going to walk away with money, how much taxes are you going to pay? 

Right. And then what can you redeploy that into? So if you could take that money and get a higher return on another property, then sometimes it does make sense to sell. 

So it's the, I don't think it's the old attorney answer. It depends. Yeah. But those are the questions that i would ask yourself and say, do i want to hold rentals long term or do i want to put this money somewhere else? 

And, Am I okay paying the taxes? If you sell it and the money sits in the bank and you do nothing with it, it's probably not that great of an investment. 

Long-term, if you hold this, you can refinance it. You could 1031 it into something bigger. So you know the game is accumulate when we're younger, maximize, and then preservation and become more passive over time. 

Rental property is not always very passive. as you can see, because you have to come in and update everything. Oh, yeah. And let's get into that. I mean, let's walk through and kind of get an idea of how much you think you've put into it to rent it versus how much you'd have to put into it to flip it. 

So I got a quote from a contractor basically at the very least. So there are some actual construction stuff that would be done. That was me, by the way. So I was just very curious. 

And when we bought the place, we were curious. When we lived here, I was curious. And when they moved out, I was like, I'm going to do it. I'm going to see what's underneath that. 

But so there's some actual stuff like carpentry work that needs to be done. This is, I think, the result of just spillage in the bathroom. 

I don't think it's a leaky pipe. And then the kitchen needs probably to completely redone. So floors, paint, carpet, you know. Right. So if I was to do like. If you're going to rent it, you could probably work with some of the floors and just patch them up. 

Otherwise, you know, if you're going to flip it, you probably want to. One, that's the thing. It's like, I'm trying to figure out. So I think to get this back into rentable condition, I think 50 grand is probably, I think that's maybe ambitious. 

But I think if I really like tighten up, because I'm not doing the kitchen and the bath. That's the main expenses. Like I could probably paint. I could probably prep and paint. 

Maybe do some of the floors. And you said 50, 5-0? I think 50. I think that's high. You think that's high? Yeah. I mean, on something this size, we would probably honestly budget almost half of that to clean it up for rental. 

Okay. For a flip, and you're doing the kitchen, the bathrooms, I don't know about the HVAC or the windows and the roof, but those are the things that could really add up. 

And you could easily go 50, 75. Right. So what would you keep in this kitchen here? I mean, is it just blank slate it? Yeah, I mean, I would probably do like a, Well, obviously paint. 

I like to do new appliances. The appliances look old. They are, yeah. So even if you spend a lot of money having someone clean them, they're still going to be old and dingy. 

New appliances, I would probably make sure, obviously, the drawers are fixed and everything. But new countertops, new appliances, potentially even painted cabinets just to give it a fresh look. 

A lot of people do white cabinets, quartz countertops, gray floors. kind of grayish, grayish paint on the walls. And it's very neutral and clean. And I think that's what people are mostly looking for. 

You know, I wouldn't change the layout too much just because then you're replacing the cabinets, you're messing with the plumbing, potentially electric, just keep the layout. 

And even though it's not ideal, you know, you don't really have much overhead. So maybe add a couple of overhead cabinets right there. Yeah. The key is not make it what you want and just make it neutral and clean. 

Clean is the key, you know, uh, Tenants, like, they don't want to think about moving into someone else's house that was lived in, so if it looks, everything looks fresh and new. 

Well, and that's the thing. For me, it's just, like, a lot of little things that need to be done. Yeah. So, like, something like, like, these upstairs rooms, and we've, you know it's it's it's interesting i mean it's just i i feel like a couple hours of, like, really scrubbing things down would bring it back to, like, where it was, but at the same time, you still have the plaster and lath walls and the floors probably still need to be replaced. 

This looked great when it was in good shape. So I don't know how much of that, if I can just replace some of the things. Yeah, like the Ikea closet. Yeah, am I replacing the whole thing or can I just... 

Well, if you can get replacement parts and get it back to where it was, I think it's a nice addition since the closets are small since the building's old. 

But again, up here, if you can, go with LVP flooring, paint the walls, new light fixtures. you know, cleaning up the windows, putting blinds on, that alone would make it look pretty fresh. 

Yeah, I think so. What's your thought on ceiling fans? I've had people say, just get rid of them. I like ceiling fans, but they, for rental properties that, you know, something could break. 

The other thing is, you know, I'm six foot. It's a little low for me in here. Obviously, you know, the bed might be there, but I would, in this particular room, I would just do a flush mount light. 

So you have two bedrooms on this floor and then what, you have a finished attic? Yeah, and that was another thing I was talking about before where it's like, what is this thing? 

We can check it out real quick. The whole bathroom needs to be redone. I don't know if that's... Yeah, obviously I would redo that entire bathroom, just gut that completely. 

When I bought the house, I got up to this step and I was like, oh, and there's a third bedroom. This is awesome. And then I went down and I made an offer. And then when I moved in, I was like, oh crap. 

Yeah, it's definitely not... technically a bedroom. It's a finished attic. From an appraisal standpoint, and then I think from the township standpoint, you could double check with the borough, but I don't think they would allow for that to be considered a bedroom. 

I think we'll want it to be used as like an office or something. office or bonus room. Yeah, it's I actually and I feel like it's better that way. 

I mean, obviously, if you're selling, you want to you want to just just inflate everything and exaggerate everything and make it sound like the best thing in the world. 

But once someone walks through here, they're going to be like, OK, it's not a three bedroom house. No, it's like it's a two bedroom with a finished. Yeah. And and for renting, I realize also like it's not necessarily I don't even know if it'd be in my benefit to try to make that into a bedroom. 

Well, how much can you get for it with the two bedroom as a finished attic? Because it could be like a younger couple maybe that wants it as an office or work from home office. 

That's a possibility. Yeah. I mean, it's decent storage. The crazy thing is right now looking at Downingtown, it's so hard. There's not enough. I don't feel like there's enough data to actually know. 

What number were you putting on it? I think, I think if everything is in like, if everything is renovated, I'm looking at 22, maybe 23. 

I think if we do like a base, like builder grade, like, just like, just keep as much as possible, new, new floors, new paint, clean it all up. 

And then probably do like that low end kitchen and like just, you know, low end kitchen, low end bathroom. 

I think then realistically, I want to say 18, maybe 1850 and maybe a little bit less. So how much is your payment on it now? I owe, we owe, I think I've, I don't know offhand, honestly. 

Approximately? I would say it's about 1200. Okay, so let's just use round numbers. Let's say it's 1200, 1800, that's 600 a month cash flow. Yeah. And let's say, let's say you could clean it up for 30 grand, right? 

Well, then that's going to take, What's that going to take? So say 50 months, right? 50 months of cash flow to get back your investment. Yeah. Is that math right? I believe. Yeah. Six times. 

Yeah. So that's one way a lot of investors will look at it is like my return on my return on my investment that I have to make into it. 

How long is that going to take to pay back? One thing that I think a lot of people miss is how much equity pay down are you going to get during that time? 

How much appreciation could you potentially get during that time? And then what are the tax benefits that you'll get? And if you stretch that out over time, you'll see more and more, it makes more sense to hold it. 

But it's kind of like that instant gratification if you want that cash now. But you could also compare that to what you could invest it and get if you could get an 8%, 10%, 12% return on that money, it might be higher than what you're getting on a five-year projection with this. 

So the easiest way to make this decision is actually put it in a spreadsheet and put it out over five years and see if it's in alignment with your long-term goals. 

Okay. Yeah, I'll have to check that out. I'll send you a template for anyone listening. If you want a template on a Performa, we'll send it to you. 

Now, so I was talking to an investor. I was talking to Rob. And he was just kind of shooting from the hip because, I mean, anytime I tell someone I have a vacant investment property, especially at VRA, they're like, oh, let me see it. 

Where's it at? Where's it at? Where's it at? And he took a look at it. He felt like, in general, a first-time homebuyer is going to want to buy this. 

and put the work in and like, like I don't have to get it all the way up, but like basically he thinks like someone who's going to live here is going to overpay for it. 

Potentially. I mean, you're in downtown and his advice was sell it to someone who will pay a premium on it and look for another deal. 

Um, so I guess, so I think it, it all depends on what your goals are and your strategy and, and can you find another good deal? 

That's the question right now. Yeah. Yeah. I mean that, yeah. And I think that's, and I will say being around people who are flipping houses, guys like you and Zach and Rob and Alex and stuff, it's kind of like, Oh, there's, there's deals out there. 

Whereas like you feel like these are like, like lightning strikes, like, Oh, this guy got lucky. They, they jumped on something. So that's where it's kind of like, okay, does it make more sense to kind of get out there and look kind of hunt down a deal or or keep what I have, you know what I mean? 

So how much do you think you could sell it for? I think if I just clean it, I think if I gave it, I think an investor, if an investor walked in and made an offer, I think the offers would be around two, I don't know. 

I think I can get- Around 210, you said? I was going to say 225. 225, is it worth fixed up? I think fixed up we're around three. Around three. So at 225, someone has some potential sweat equity in it, as long as they keep their costs down on the renovations. 

but they're getting into the area at a lower cost. I think so. Okay. So, and what do you owe on it? Approximately 125, 125. So let's just assume 10,000 in closing costs could be a lot more with commissions, but let's just assume somewhere around there. 

Right. Um, not a lot more, but let's say, let's say you walk with 90,000, right? Yeah. Yeah. Basically. So if you could get a 10% return on that 90,000, that would be approximately 900. 

Um, well, no, It's a little less than that because it would be $9,000 per year divided by 12. It's like, what, $787 or something. I don't know. Not doing that math here. But compared to the $600 a month cash flow, that could be where you could have that as a threshold. 

But again, that's not including any appreciation or equity pay down. Right. So you want to calculate that in. To me, it's all math. Mm-hmm. And then again, there's a little bit of future telling too, because you don't know what the appreciation will be. 

Well, over the last, so over the, so from when we bought it until now, it's appreciated a hundred percent, right? 

Which is a lot. It feels like a lot to have some, a place double. I mean, we bought this for one 25. I guess part of me is kind of like, well, how much more can Downingtown appreciate? 

And it's, I mean, I don't know. Do you look at... It's not based upon past performance. It's based upon supply and demand. And if you look at the current numbers, just look how many houses are listed and then how fast they're selling. 

There's still a shortage. There's more buyers than there are sellers. So I still anticipate a demand until that starts to switch around. 

Right. We saw interest rates double and we still saw prices climb. Yep. Think about that. We saw the cost of payments double in this area where we're at has still continued to climb. 

We've seen other markets like Florida start dropping, Texas, different markets that start dropping. 

Prices around here are staying stable and if not still climbing in certain areas where there's an undersupply. 

And I would just look at that. And then I would also look at the fact that you're at the bottom one third of the market in Downingtown. 

Might be below that. There's nowhere to go. When you're at the bottom, there's nowhere else to go. Right, right. Because that's where the biggest demand is. 

All the guys that are filming this video here, they can't buy a house. They want to get into something. Which is the same position I was in 15 years ago. 

It was like, hey, let's find the cheapest thing we can live in, in an area we want to be in. I could go on for another hour on why this is the best place to live in the entire world. 

And that's another personal thing. You believe in the area. I think if you look in 10 years from now and you watch this video, you'd be like, damn, I wish I would have listened to Steve and I would have held this thing if you sell it. 

If you sell it, you're going to be happy now, but you won't be happy later. So which one do you want? Because you can always also wait until you have a little more equity or even if you renovate it and it appraises for 300, you could potentially pull out Cash, you know, through a line of credit or through a refi and then redeploy that capital into another rental. 

Right. So you don't lose an asset. To me, if this is a cash flowing asset, I would hold it. It's a cash flowing asset in a good area, high demand for rent yeah high demand for sale. 

You can always sell it if you got in trouble and you had to, but if you don't need to, why would you sell it? 

Yeah. That's my take. Yeah. Cool. But I'm a buy and hold guy. Right, right. And if, and, I'm sure if I talked to a flipper, you know, he would tell me all the reasons why you can get out. 

Like the flipper I talked to earlier where it was like, hey, look, man, you could sell that and find another better deal and, you know, and keep going. 

And here's my argument to that guy. If the deal's good enough on the next one, you can find the money for that deal somewhere else. 

Right. Okay. You could use a hard money lender. So why trade an asset for a job? Because flipping is a job. Mm-hmm. And if you go back to Rich Dad, Poor Dad, Robert Kiyosaki philosophy, the wealthy work for assets and the poor people work for money. 

Essentially, that's the distinguishing factor. You have an asset, don't go backwards. All right, cool. That's my take. And if he sells it, you guys have the proof. 

And then look back five years from now and say, okay, now it's worth $375,000. Damn, I should have kept it. And then 10 years, it's going to be $550,000. 

And you're going to say, why didn't I keep that thing? Because it would have been almost paid off. Yeah, it's scary. Yeah, I mean, it's just scary to think that someday something like this would be half a million dollars. 

But that says more about our dollar. Yeah, that's a whole other episode. Yeah, that's a whole other episode. I'm going to cut that out anyway. Cool. Well, thanks a lot, man. I really appreciate it. 

Yeah, thank you, Sean.