Real Estate 101 for the Tech Entrepreneur

by NextMontreal on September 1, 2011

real estate

Discussions are going back and forth if we’re in a bubble. Irrespective of your position, there’s no doubt we’re at a point where its never been cheaper to start a software company.

Startups now have access to cheap or free:

  • Development tools – Eclipse, Sublime Text, Textmate
  • Servers – Google AppEngine (personal favorite), Amazon AWS, Heroku.
  • Distribution channels – Apple App Store, Android App Store, Web.

Taken together, you can literally create a professional, competitive product with the sole expenditure being your time.

Sounds great, however I want to address the unspoken cost which the entrepreneur must address – Housing. The reality is an entrepreneur still has to deal with personal costs that have remained stable or increased over the years.

What to do?

Live rent free. Sounds simple, but depending on your situation there may be a way.

Living at home (with your Parents)

On almost every vector this solution makes the most sense. Only issue is that you’re living with your parents.

  • Cost: Cost savings are unbeatable. In most scenarios you get free board at the same time.
  • Time: Low maintenance, a couple of hours of face time with your parents per week.
  • Ride this out as long as you can.

Renting

Even if you’re currently renting an apartment, there are paths to monetization. While I don’t have personal experience with it, some colleagues have had very good success renting out their apartments (or sections thereof) on AirBnB. This works economically, and is how the AirBnB guys made rent before starting AirBnB.

  • Cost: Cheap to get started. Free to list, AirBnB takes 3% of bookings.
  • Time: Some required. You’ll need to create a compelling listing, manage communications and clean up after people.
  • People Skills: You should have some. You’ll want to meet people before they stay with you, and this strategy implies meeting lots of people.

Easy to do, but not for everyone.

Buying Property:

This option is a little counter intuitive. When buying property you have many costs: property taxes, condo fees, interest payments so its easy to assume you’re going to be spending more than a comparable renting position. In many cases of single family dwellings such as houses or condos, that would be true. However I think there’s still opportunity to live in a nice place for little or no rent through the purchase of a multiplex:

I’ll give you a real world example from a few years back.

Asking price: 570,000 $
Purchase price: 555,000$
Down Payment: 155,000$

Mortgage amount: 400,000$

The buyer chose a 5 year variable mortgage term amortized over 25 years. The monthly mortgage payment is 1,742$. The kicker is that the property is a quadruplex, with a monthly revenue of 2,289$ even though a unit is occupied by the owner. The surplus of 547$/month is sufficient to cover the yearly tax/insurance cost.

  • Cost: More expensive to “buy in”. You need 20% as a down payment and should have a few months mortgage in the bank.
  • Time: I’ve read a statistic that you should expect each rental unit to take 4.6 hours of your time a month. In my personal experience I’ve been under that, but it’s a reasonable estimate.
  • People Skills: While you won’t spend much time with your tenants (they don’t really want to see you either), you should spend the necessary time in the beginning to meet with them before they move in. Having the right tenant is extremely important.

My personal strategy is two fold:

  1. Before buying a property I need to really understand the motivation to live there. That can mean access to a metro, proximity to schools, cachet of the neighborhood. Whatever the reason, it needs to resonate with me personally.
  2. Spend time evaluating prospective tenants before they move in. The leg work up front can save you enormous amounts of time and discomfort down the road. A friend of mine was so hampered by bad tenants that she had to sell her building prematurely.

If it’s unclear from the above, I’m a big proponent of multiplex ownership. I’ve found it a very effective way to subsidize my immediate housing needs, with longer term savings. If you’d like to discuss this topic further or have other thoughts on the matter get in touch @doooov.

Dov Amihod is an recent entrepreneur and co-founder of HappyStuff. He has an engineering background with experience in digital video software solutions, UI engines and Pharmaceutical processes. He is an avid fan of martial arts, especially Capoeira and Wing Chun Kung Fu, and is really good at improvised meals. He can be reached @doooov.