Your Very First Investment Property

In Episode 2 of The Arcfluence Podcast, hosted by Nick Karakaian, Paul Fatkins, and Nino Samardzic, the discussion centers on the strategic aspects of investing in rental properties, covering short-term rentals, mid-term rentals, and long-term rentals. The conversation underlines the significance of selecting the optimal property location for investment purposes, emphasizing how accessible design can impact the property's market appeal and value. Listen in!

 

 

 

 

 

Nick: Welcome to the ArcFluence Podcast, where we chat about how design impacts the way we live, work, and play. I'm your host, Nick Karakaian, along with my co-hosts, Paul Fatkins and Nino Samardzic. This is episode two. Today, we have a really exciting podcast. They're all exciting, but today we're going to put Nino on the spot, and maybe even you, Paul, because you're both interested in acquiring your first investment property. Yes, you make a great guinea pig already. Okay, good. We're going to talk about...

Nino: As long as you don't dissect me physically, I'm good.

Nick: Alright. Just stay at least six feet away. So, we'll discuss the best strategy for acquiring an investment property and what design decisions we need to make based on the direction you're going.

Nino: I'm clueless because this will be my first investment in real estate.

Paul: You know, it's not like I've really done this either. I think the only one of us who's even dipped our toe into this kind of stuff is Nick.

Nino: Nick is experienced and well-rounded on this topic.

Nick: But you both have beautiful homes of your own. Let's talk about the differences between a primary residence and an investment property. So, Nino, you have a beautiful home in Westerville. And you've spent a lot of money on that home.

Nino: Yes. It's actually shown me the benefits of investing in real estate. For my previous house, I renovated it myself with the help of my best friends, doing drywalling, painting, and all this fun stuff.

Paul: Last time, I had one of those bunny suits on, with the respirator. Do you have a picture of that? No, I hope not.

Nino: Jeez, yeah, it's a good one. I think maybe somewhere...

Paul: I disappeared down into the basement and came back out, and it was all done. Nino was like, "Wow."

Nino: It was spotless, honestly.

Nick: Well, yes. Putting in sweat equity into your personal home does add value. There are certain things to focus on if it's your primary home. But if you plan on living in your primary home for more than five years, then your whole budget for adding value, like focusing on the kitchen, goes out the door. When designing your personal home, you think about how you and your family will function better in this space.

For an investment property, it's different. You consider how your guests or tenants will function in the space and how to maximize rents. So, Nino, as you mentioned, seeing the benefits when you sold your house and were able to put down cash for a new house was impressive. Now, you're thinking about the next step.

Nick: It's your home, so you're personally invested, right? You might make decisions that aren't necessarily the best financially. For what you put into it, you want to get a good return.

Now, if you were flipping a house, it's a different discussion. We're looking for a property to hold to start building long-term wealth. Maybe you want to buy a house, put some sweat equity into it, make some money, and move on. Or maybe you're considering a 1031 exchange, which allows you to defer the tax you'd pay on capital gains. But flipping is more of an active income, whereas real estate and rentals can be more passive, though short-term rentals can be very active if you manage them yourself.

Nino: As a beginner, my first question is, where should I look for a property? Should it be close to my home? And Nick, you're suggesting buying and holding, right, for my situation?

Nick: Yes, Nino, is that what you're considering for your situation?

Nino: Yes, my idea is to buy a property that is already built and rented out. We've had conversations about whether to go with a short-term or long-term rental. I'm full-time employed and still engaged in ARCfluence, so I'm wondering if I have the time to manage a short-term rental. Can I ask for your help, or should I maybe go for a property that is close to my current home?

Paul: Remember all the nights Nick came to you, Nino, and bothered you about rendering? Now you can go to him and say, "Hey, I need my sink fixed."

Nino: So, no, what is the call? Your handyman. Yeah. I mean, honestly, I can do some stuff, but I don't have much time for it.

Nick: That's great to know. So, if we're going to go short-term or even midterm, you're probably going to need a management company. What does "midterm" even mean? It's really trendy right now and basically refers to rentals that are 30 days or more. If you have a long-term tenant, they'll sign a year lease. If you do short-term rentals, like Airbnb, it can vary. We have tenants who come in for three months, like traveling nurses.

A midterm rental is a furnished space for more than 30 days. People who typically use midterm rentals include nurses, especially here in Columbus with the children's hospital. We also have a lot of folks moving from all over the country to Columbus, house shopping in a market that's a bit unpredictable. We still have a housing shortage here.

Nino: Should I, now intrigued, consider the potential renters if I go into Vesterville? Should I look for a property close to the community college, or one that is close to both the college and downtown Vesterville?

Nick: There are so many variables to take into account. Whatever property class you decide to invest in, whether it's A, B, or C, you can make money. An A-class property is beautifully updated and finished, in a great neighborhood, and will command high rents. A B-class property might be in a great neighborhood but need some updates, still a solid rental. A C-class property is more your blue-collar rental, with builder-grade finishes. In all cases, we want to provide good, clean, solid housing. Design is still an important aspect.

So, depending on your situation, investing in an area you're familiar with will generally yield better results. If you're considering a questionable neighborhood, think about whether you'd feel comfortable having your wife run an errand at that property if you're unavailable. Maybe we should look for a property in a nicer neighborhood, closer to home, especially if it's going to involve family members.

Nino: That's a really good point, Nick.

Paul: Nick and I, even when we go to some of these places in Columbus, ask ourselves if we feel comfortable going alone. It's always better to have another pair of eyes.

Nick: Let's take a step back. Why are you looking at getting an investment property?

Nino: The number one reason is financial. In today's world, with inflation and economic uncertainties, it seems safer to have money invested in a house rather than sitting in a bank. The market is growing, and as I mentioned, selling our first house and buying this one created significant equity for us.

I now want to diversify my investment portfolio beyond just having a 401k and working for someone else. I aim to have a more diversified portfolio over which I have more control, especially considering the potential for a market crash affecting my 401k.

Paul: Indeed, markets experience fluctuations, but real estate tends to be quite stable overall.

Nino: It's particularly stable in this city over the long term. The trends are clearly upwards.

Paul: I've been contemplating investment properties as a form of security. It's about having diversification and not letting your money idle.

As you mentioned, the future of A, B, C, or D is uncertain, so having investments in different areas is wise.

Nick: You're speaking my language. That's exactly why I invest in houses.

Nino: While it comes with its risks, like any investment, real estate seems promising. Plus, I have my wife's full support from the start, which is significant.

Nick: Getting your partner's support is crucial, as the initial stages of real estate investment require more effort but it becomes easier over time.

Investing is always more challenging at the beginning. Even now, when I refinance a property, like a duplex, the numbers are tight. However, in five years, it will feel effortless due to the benefits of fixed mortgage rates and potentially refinancing if rates drop, while rent prices increase, especially in a high-demand market with growing infrastructure.

Nino: Demand is high because of the residential shortage in an ever-growing city.

Nick: Okay. Well, I want to weave design into all of this on your journey. So, how can design bring value into what you're trying to do here? Let's say, for example, you're probably not going to do a new build for your first investment. It's probably going to be something that you're going to buy, an existing

Nino: home, probably built in the 60s or 70s,

Nick: maybe, depending on the neighborhood. And yeah. And like the first things that struck my mind was accessibility. Yeah. Because if you see, like, we were laughing when we went to Fallingwater, designed by Frank Lloyd Wright, one of the greatest American and world architects. We were laughing because the house feels small; you have to crouch. Yeah, everything's so small. The ceilings are so low, the biggest door is probably like two foot something. Yeah. So, and you see how standards are changing and more, you have a house designed to be flexible to actually accommodate different populations.

So then I have a much bigger audience that can actually be interested in my future house. I've also tried to design smartly so they don't need much money to

Nick: invest. And if you buy an older house, how accessible do you think it is? You just said it's probably not going to be so well,

Paul: it's probably very inefficient in terms of like performance.

Nick: I mean, hearing all this from you guys, and I'm seeing dollar signs. Yeah. Oh, yeah. So if I'm doing a long-term rental, it better be in a good neighborhood, but even then, I'm still kind of like shying away because I can still find a great tenant to get into that space without having to make all these changes. Even though accessibility is by far super important for all types of architecture, I think it's going to give more of an impact in terms of recouping that value in a short- to mid-term stay. Got it. Because, actually, one of our units in this duplex that we just refinanced, we're making it as accessible as possible.

Yeah. I mean, you're not going to have ADA ramps everywhere, but at least some accessibility features.

Nick: Yeah. No, we do have lower countertops, the ADA sink in the bathroom, and the shower that you can roll into. Yeah,

Nino: because we're not just talking about wheelchairs. I mean, if you, you know, break your leg, you're going to need accessibility for at least two months. I'll be honest with you.

Nick: The unit above has an island, gorgeous vaulted ceilings, and everything. For the unit below, which is accessible, we removed the island to make it accessible, resulting in a nice L-shaped kitchen. It's not as visually attractive, but it's much more functional. This way, we can reach and serve more people, especially if we have high turnover in a short-term rental, adding a lot of value.

Nino: From working with you, and previously with nesters and now with Arc Fluence, I've noticed a trend towards a demand for more open spaces. This allows whoever is renting the space to lay it out how they want, giving them more flexibility.

Paul: It's part of the generic playbook. Almost every house has, you almost see

Nino: the kitchen almost always open to the living room. This provides more flexibility and more engagement.

Paul: What are some of the things we do on almost every single property? That's one of them, making them more open, right?

Nick: Definitely, for a flip, that's a must-do. It's also just what people are wanting more and more. But now we're seeing a shift, especially with COVID changing how you use your property. For example, with a midterm stay, which is becoming very popular, all those long-term requirements and rights for your guests and tenants come into play once you're over that 30-day mark.

Nino: So, you have to know all ends of the game?

Nick: Exactly. People staying for three or four months are looking for functionality over aesthetics. It's not about the primary suite, the curb appeal, though these are important for adding value to a home. For attracting good tenants and guests in midterm rentals, they're looking for a place where they can work. An office close to the front door, a bigger entry with a closet for coats, somewhat separated from the rest of the house, allows for business operations. This setup is very appealing for midterm rentals, allowing for client meetings without exposing your living areas.

When you walk into that space, beyond that, having the kitchen and living room connected and designed for entertainment is ideal. When you're not working, you can entertain guests in this beautiful midterm rental. This layout can comfortably host a large number of people, enhancing the appeal of the property.

Nino: I like the idea. So, having an office close to the entrance allows for business discussions, and if the meeting goes well, you can move to the living quarters for a more relaxed conversation over drinks at the bar.

Nick: And if it's between April and November, you can extend the entertainment space outdoors. We'll have a grill and seating out there.

Nino: A backyard would be great to have.

Nick: Absolutely. Especially for someone from a city like New York coming to Columbus on a business trip. Having a beautiful home to host people, as opposed to a one-bedroom apartment, can make a significant difference in the quality of their stay.

I want to experience something else.

Nick: Exactly. And what if you have a dog? Yeah.

Nino: Wow, we forgot about what's important.

Nick: Especially for midterms, there are definitely benefits for both long term and short term. But if you are pet-friendly, we need to be thoughtful about the limit issues and the limitations of what pets are allowed.

Yeah, exactly. So then that's a whole other conversation we can dive into. You don't want to have.

Nino: Exotic animals like pythons and stuff.

Nick: Yeah, that's a different conversation. But for example, we're gonna want to see a fenced-in backyard. Yes, I'm working; I have.

Nino: I have a fenced backyard, and I'm just like, I don't let junior out.

Right.

Nick: Right. So those are something you want to have at your midterm rental. Maybe you want to have a nice mudroom where you can wash the dog off. Maybe you're going to want some pet-friendly amenities. And again, making sure that your workspace and your entry are private from the rest of the house.

I see. Also, you can.

Nino: Have options to enclose that if you just like, yep. The business is coming to you, didn't have time to clean up the house, or the dog just came back from the muddy backyard, made a mess. So you have options to enclose that. Yep, I.

Nick: Like that idea. So again, all these are great things for any home, but if you're planning on, "Hey, right now, midterm rental is really exploding."

These are probably some things that should be at the top of your list. Got it. In fact, I'll create a one-sheet together and we'll just throw this up on our website. We'll throw a link in if you guys want to come to our website and download it. It'll be a set of bullet points on ArcFluence, on basically what is going to be the priority bullet points for your midterm rental.

Yeah.

Nino: So do you see rentals switching? Like, how often do you see that? Like, rental switching from midterm to short term, or even later on becoming the long term, how do these things.

Nick: Work. Man, you know, that's a great question.

Paul: Are you focused, you're focused just on one when you're doing this stuff, right?

You're not, it's not like if you have a property and you're set up for one thing. You're not like, "Oh, if a long-term person comes, yeah, I'll take them on for a year and then I'll switch over and do midterm. And then I'll switch over and do short term. And then I'll switch back to mid."

You're like focused on one thing, right? I will say.

Nick: When you try to get it all, you're going to run into problems because if I'm like, "Hey, I'm doing a midterm rental, but now we're getting close to when we have someone checking out and we haven't booked anything yet."

And we're like, do I open up my short-term calendar? But then if you open up your short-term calendar and you get like a Thursday booking or a Saturday booking, the weekends are going to be easy to fill, especially here in Columbus. But if I'm filling out maybe a few days now, I can't have my midterm rental person come in to

Paul: Look at it whenever they want.

Nick: So it's a tricky, slippery slope. You really need to get a feel for what the property is, how it performs, how big it is, what amenities you are offering, who you are attracting, what's your ideal client that you're attracting, and that will play into targeting that

Nino: Narrative that they call

Nick: It. Yeah. Yep, so Yeah, I would definitely kind of make a decision on this is what we want to focus on for this property. This is going to be all short-term because it's in a great vibrant neighborhood, blah, blah, blah, blah.

Or this is going to be a midterm rental because right now it's in a good neighborhood, but it's still kind of quiet, and we don't want it, and you have to make those decisions. Do you ever think

Paul: About some kind of buffer, like if you have like a month where you don't have. Like again, like a midterm person come in, do you say like, "Oh, I want to have at least three months where I can basically afford to have nobody there."

Like, are you ever thinking about buffers like that as well?

Nick: Yes, but we don't always have that luxury. I would say if you're looking at a time where you're going to have a vacancy, then I would, that's been, I would plan to do any maintenance, any,

Paul: You know, maybe another improvement. Like, "Oh, I didn't get to that half-bath

Renovation. Now I'm going to do that for a month before the next person comes. Yeah.

Nick: And I would also say, just say like any business, any venture, and we're treating all of our properties like a business, right? We want them to be profitable. Then you, the market changes, interest rates change, the value of things fluctuates.

And, and you're, I mean, during COVID we. It basically, everything stopped, and all bookings got canceled for two months. And then all of a sudden we had all these folks who wanted to stay for six months a year because they had to quarantine themselves from families. That was totally different. And they wanted it for half the price.

We were renting out before. Um, now, you know, we've, we've exceeded the rates pre-COVID and, and things are booming again. Um, but people are working from home. So now they have a big demand for higher amenities, higher finishes. I think because of all the content that's out there, people actually know what they want now. Oh, yeah, and they're not letting they're telling you as a designer what they want rather than you know, we're still having a conversation Yes, but at the same time, they have a very good idea like they have they have mood boards that they send me to send us Yeah, and then and we and we have our interior design person then coordinate and improve upon that.

So And the way she furnishes our client spaces depends on, again, on their strategy, what we're doing with

Nino: This. What about the one we talked about short term, uh, midterm as the attractive ones, but there is like, uh, things that you have to like, you know, you know, what about. Long term is that the one that we have to stay away or,

Paul: And when you say that in my mind, for some reason, yeah, I feel like again, short term midterm are more attractive and you should be trying to do that.

But again, this is my take. So I want to hear your

Nick: Thoughts on this Nick, because I'm actually surprised to hear you say that because I think you would prefer long term.

Paul: No, not necessarily.

Nick: No. Well, okay. Look, if you have a long term

Paul: Again, I'm, I'm listening to some long term rentals are great

Nino: Long term.

That's one year. Yeah,

Nick: Hopefully, hopefully more if you have a great time, they stay, um, long term rentals are fantastic and they're great. I guess the downsides is they don't necessarily demand the, they don't command a high, the high price point of a short term or midterm rental. Like, you know, your monthly rents would be at a lower, you know, right.

Paul: They're more stable. They sure is what you're

Nick: Stable. They're less, they're less hands-on. They're less active. Right. So you can have more passive income with a long-term rent. And you also don't have to furnish the space. You also aren't paying the utilities. You're also not paying the 5. 1 excise tax but that being said I still like you're also in a market where Real estate real estate's expensive.

Yeah, so you buy a nice home in a good neighborhood because you don't want your wife going to a Bad neighborhood and now you're like well my this rent that the the rent that I can command Isn't paying my mortgage and we're like, okay. Well guess what? We might be forced to doing this midterm or short term stay and then you might fall in love with like I did and now you Have your own short term rental management company and it's actually a lot easier when you hire on a few people So I would say if you're not willing to really invest into a lot of time into it as well You need to hire a company to help you manage it.

Nino: that's that's actually Like, uh, drawbacks from the short term or, or midterm because

Nick: longterms you can manage yourself. No problem. Yeah. Yeah.

Paul: And I understand what you're saying and why you thought that about me. Cause when I came from Chicago, we had our condo, right? Yeah. And so we rented it to somebody again, just to cover the mortgage and we actually plussed up a couple hundred dollars a month.

Right. And then since it was a long term person, they signed a two year lease, right? So we had them in there. We knew the money was coming in, covering the mortgage. I had a little bit of extra money on the side and the whole time I'm building equity. Right. And then I'm in Columbus six, seven hours away driving.

And again, hated it. Yeah. But the amount of things I had to do. Was minimal. Minimal, because it's a long term person that's there. Yeah. And you waited because I'm not having turnover. Yeah. You know?

Nick: And you were smart about it. You waited until the market was was right for you. Yeah. To where you were selling it for a higher price point.

Paul: if we're talking about an investment, yeah. I would buy somewhere that I know I'd buy some more local, and I think I would focus, I would wanna focus more on short-term. Midterm. Yeah. And the long term thing is, again, there, I did it because we were so far away and it just made sense. But I don't think that would be a focus for me.

Nick: Think the most important thing to keep in mind is. With a short term or midterm rental, your ceiling is higher, but, and this is important, your return is higher, your return is higher, but the work that you put into it and, and you know, the amount of time you're going to be investing, or at least the people that you're going to have to hire to help is much greater.

It's, it's, it's much more active than

Nino: long term rentals. It's probably what, another thing that's going to dictate that, and you mentioned that in the beginning is property itself. Like, if it is something like a hot tank that you invested money on it, then it makes sense going to short term. If it is something that is still safe, but maybe my first property and I'm busy as hell, maybe long term is going to be because,

Nick: guess what?

You can always convert a long term to a short term. If it works as a long term, it's definitely going to work as a short term. That's what I was thinking.

Nino: And when I was actually thinking, and that's not thinking, you actually told me that probably my first one

Nick: should be long term. Now I could talk about this all day, but let's, let's dip into the design aspect of these and what's different.

And what are we going to see is different when we're designing your house in terms of you like. Paul, you want, you want a short-term rental. That's what you decided on because you want the income there. You want the higher rents. So what do we need to do from a design standpoint to make it more valuable?

Nino: Curb appeal.

Nick: Not so much, but yes, we do want a hero image. That's amazing, but your hero image can be of your kitchen island or something like that on the inside. So it's not necessarily just the curb appeal. Just keep in mind, like when you're coming, when you're going to stay at a place for a week or even a couple of days, do you want a big closet? Do you need massive closets? No. So we cut on that.

Paul: For me, it's like, I want certain things that are going to make it more comfortable, especially having a family. Things like laundry, right? If laundry is there and available, that's a huge thing for me.

Nick: So, we'll reduce closet size for short term rentals. We'll design it with finishes that are easy to maintain, like luxury vinyl. We're not putting carpet in anything.

Nino: Short term, like pet-friendly should be.

Nick: I love the pet-friendly scene because after COVID, like one out of every three people has a pet. So if you're not pet-friendly, that's okay, but you're going to be cutting out about a third of your potential clients.

Nino: So it should be like a durable finish floor. Just to have options to be, you know, what about garages?

Nick: Especially for midterm rentals. Sometimes, the majority of our people are not local, which is a good thing because if they're local, they tend to be throwing parties. So we try to attract people who are not local and who are staying for more than one night. Off-street parking or a garage adds a layer of protection for their vehicle.

Paul: If you get into a property that doesn't necessarily have a garage but is on the verge of sketchiness, you might consider adding a garage or secure off-street parking. That's a huge win.

Nick: A detached garage is actually less expensive. It adds value to the property, especially if you're planning to refinance.

Paul: Do you have any ballpark numbers? What's the value that comes out of it?

Nick: Yes, it varies, but a 20 by 22 car garage with typical finishes would cost around 30 grand.

Nino: How many rooms do you usually see for short term or long term rentals?

Nick: We're trying to match bathrooms per bedroom. So if you have four bedrooms, you don't need four baths, but I'm not going to be upset about it. Large houses have their place, and they're operated differently.

Nino: What is your target audience?

Nick: We started out with one-bedroom units, which have a lower barrier to entry. Large homes are also popular but operated differently.

Paul: You're probably gonna be tempted to live there yourself.

Nick: Some people rent their own homes and eventually buy another house. It's like dipping your toe in the water.

Nino: Can you tell us a cool or funny story from one of your short term or midterm rentals?

Nick: Don't scare him away though. We want people to be interested in this, not horror stories.

Nick: Stories. I mean, we found guns and pillows and drawers that we had to, now there's, and I didn't know there was a process you have to call the police and it's crazy. No, there's tons of stuff that probably don't need to get into but I'd say what's really awesome is when you have a family come and their stay is so great and they were visiting family for a wedding.

Nino: Do you have repeat clients? Oh, yeah. So that means the level of satisfaction

Paul: is good. Yeah, I can tell you. So I've taken trips and I've sought out the same places that I stayed at before. Because again, if it's comfortable, it has everything I want, of course, of course, I want to go back there.

Nino: Right. And plus like, you feel more secure now. It's well known.

Paul: There's a familiar sense of things. Absolutely, yeah.

Nick: All right. So let's go back to adding value in long-term spaces or even your primary residence. Just actually this, when I say, what do you think brings the most value in general to a home?

If you take renting out of the equation, what spaces do you think bring the most value that we'd want to focus on and dump our money into?

Paul: I mean, the kitchen is probably one of them, right? Yep. That's number two.

Nino: Okay. Backyard.

Nick: Um,

Paul: it's probably lower on the

Nick: list, right? It's lower on the list. Garage.

Curb appeal. Curb appeal, curb appeal. So that's when curb appeal is big. When you is curb appeal, where on the list top? I would say it's number one right now for a long term. Not even for a long term just for your own house.

Nino: Oh, I'm sorry. Yeah. Well

Nick: Adding value to any home, got it, right? It's not gonna necessarily bring in more rent but it's gonna add more value in terms of what the property is worth. So if you're looking to refinance it later or you're looking just to grow your

Paul: Personal wealth, even when people are looking at these things, right?

They're looking at photos on that, right? Like, yeah. I mean, if it's a beautiful

Nino: space, yeah. First impression is the most important impression. Yeah.

Nick: No, Nino, you said you're probably going to be buying an older home where we can, that's going to be dated where we can add some value. We're probably going to do interior renovation.

Yes. So open up the space. What's number three on the list to add value? It's where you sleep at night. Okay. Bedrooms, the primary bedroom. Got it. Primary suite. Yeah, which includes the closet, the bathroom, the whole gambit. Um, we're seeing a lot of wet rooms. We're seeing like how we're, how we're designing that, the, the, the privacy of that bathroom for spouses.

Like what if, what if I want to get ready? Like my, my day starts at eight o'clock, but my wife's. Day starts at seven o'clock and she's getting up making all kinds of rack, you know, noise. I want to design my primary suite in a way that she can get ready, turn on the lights and be comfortable and not tiptoeing around and I'm not going to be disturbed.

So how, so we have to be thoughtful on that too. That's a good, that's a good idea, yeah. I don't want her necessarily having to go through the bedroom to get to the closet and the closet to the bathroom. No,

Nino: that's a good idea actually. I didn't

Nick: even think about that. Yeah. So that space adds a lot of value in terms of resale.

Nino: Does the long term rental ask for more bedrooms? Um, not

Nick: necessarily, not necessarily. There's a lot of professionals that don't have children and they're great. They are great guests and tenants. Yeah. And kids with, and, and folks with children are also great. And there's just certain things to keep in mind with that.

Paul: Yep. I don't think you want to, it's like if you had the choice to try to squeeze in another bedroom versus make this space more functional, like Nick was talking about, to where you're not disturbing the other people that are around you. Right. I don't know.

Nick: It's like you squeeze in the bedroom. If you're selling the property, yeah, you'd have to have a discussion if you,

Paul: but if you're looking at, yeah, but if you're looking at people's experiences, especially in the midterm space, right, you'd probably want more of the comfort and

Nick: usability.

Depending on it, how many bedrooms do we have to start? If we only have two bedrooms, then we definitely want that third. If we already have three, I don't necessarily need a fourth, especially if we're not adding another bathroom because now we're having more guests and less bathroom. You're going to have less satisfied.

I mean, especially for short term too. That's why for short term, I don't necessarily pack in the bedrooms without packing in the bathrooms as well. I'd like to have that ratio.

Nino: So I will say the first thing, location, location, location, the second curb appeals, then the third one will be like a nice master suite.

Nick: Yep. Well, kitchen, kitchen, kitchen, kitchen, entertainment.

Paul: Yeah. You're going to spend a lot of time.

Nino: Yeah. That's probably should be like a little open area that you can engage and just like have a feel that you have more square footage than you actually have. Yeah, but don't forget now as we creep into the midterm and short term space. Now those amenities become super important.

You want to make sure that they're being wowed by their experience. Yeah, it's not about ease of function in your day-to-day life because they're only going to be there for a few nights. It's like how, like for short term too, we will add in a place that's appropriate for like some type of feature wall or Instagrammable moment because they

Nino: have to fall in love with space.

I mean, because you're going to spend one year, two years in this new space. So you have to fall in love with it. Yeah,

Nick: but if it is just for a night, we also want them to fall in love with it. Yeah, we can be a little bit more risky too. Yeah, because we're selling this to a lot of people,

Nino: we're sharing this with. I know because I was doing the long term rentals and for things I was looking at if it is safe.

Yeah. Yeah, that's what needs. Neighborhood is decent. I have a family. I don't have a decent school system. Also, I don't want to have my car being dinged, like in a parking lot. A hundred percent. Yeah, so there was like, because many of us are like, I have loans on the cars, cars are expensive, it's just getting more expensive.

You know what I'm saying? So I heard a story about people using like saws and cutting out the exhaust pipes because they're made of certain materials so they can actually get good money on it. So you know what I'm saying? So that's like a problem on things, and just like a, you know.

Functional space, good kitchen with all amenities.

Nick: And I'll say this too, whatever we're doing on here still goes back to the fundamentals where space planning, which is what you're really good at. It's key. Like, yeah, we need to be thoughtful

Nino: about all of that. And it was just like a rational utilization of the space too, because sometimes I see in many projects, especially in like a new build architecture, new build residential.

So much space for nothing, honestly, it was just so much empty space.

Nick: They're selling some of these, we went through a phase where they're selling square footage.

Nino: Square footage is pure math.

Paul: Pure math. It's a number, a number on a spreadsheet. Number

Nino: on a spreadsheet, it's important. It's not thoughtful design.

No, it's not thoughtful design. Like you don't have this, like, are you spending all this money for this high level, high number, like a square footage, but you don't have that, like, uh, um, Communication between these spaces. You know what I'm saying? It's just like, uh, something's just not, you're not being

Nick: intrigued.

Well, it's the space almost dies. It becomes non-active and you really want each adjacent space to inform the other and activate those spaces.

Nino: Exactly. It's almost like a, you know, that room, I, I enter it like a once a year, just not once a year, just like a, maybe once a month when I have to go and clean it.

Do your kids, do your kids?

Nick: Which room are you talking about?

Nino: No, if, if you have, like, oh, my house, in my house, all houses are active. Believe me, I have two kiddos and they're running all over the place. And I'm actually going all over the place too. I don't, I don't see any room that is not as active as, maybe the laundry, because my wife's usually doing laundry, so I shouldn't say laundry.

Make sure, make

Nick: sure she doesn't listen to

Paul: this.

Nick: I used to always do the laundry. And now that it's not in the basement and it's on the primary floor, it's a shared effort. Now, if you make it, if you make it easy and beautiful, if you make the space easy and beautiful to access, you're going to get more help.

Nino: One question, master bedroom on the first floor. What do you think about that? I like that. I like that because it's more accessible for older generations.

Nick: Bingo. Yes. It's more flexible. It's more accessible. Depending on your strategy, it checks all the boxes.

Paul: Speaking of kiddos, I have a son myself. I love my kiddo. But sometimes having a little bit of separation from the kiddos so you can have some quiet in the night, you know, relax, like a shot.

Nino: What do you mean by that? When I was designing a house, kids

Paul: are bouncing off the wall, man. You know how it is.

Nino: When I was designing a house for your cousin, Stephanie, she came to me and said, "I want curb appeal. I want a master bedroom on the first floor." That was like a second item. She said, "Yes, I want an open kitchen. I want an open dining and all this, but I want a master bedroom on the first floor." Yeah. It was the first time I heard about it, but yeah.

Nick: I think that adds tremendous value. It depends on your strategy. It's not necessarily needed. No.

Nino: Yeah. It's all, you know, you know. But you're going to get that's the properties. Every property is going to have pros and cons.

Nick: You know, it's funny too, is like, you do a house and we flip a house or you rent a house and you think you got to figure it out, but honestly, every house is different and it has its different challenges and it could be the age, the maintenance could be, you know, there's a whole bunch of different things.

Paul: I mean, if you had a family that was living in there for however many, right. They put their own spin on things, right? So it's like when you finally take it over and come into it again, you need to adapt it to whatever use you're looking for. So of course there's every property is going to be unique. Like I have

Nino: a giant house in my center is giant, but I don't have that Creek anymore in my backyard.

Nick: So you missed the view. Yeah. I missed the view. So you have to sacrifice. But your school system, the schools are better. Yeah. City's better. Everything is really close by. Like a Home Depot is like five minutes, even less. Yeah, because how many times to go to Home Depot you buy stuff return back home and it was like, oh

Nino: my goodness, I forgot this.

Nick: How mad would you be if you had to like make a return and it's 20 minutes away? It was 25 minutes.

Paul: Almost 30. I think.

Nino: It's almost 30 minutes. How many times I made that trip? Oh my god. I was so pissed in the car, yelling at myself, "Why didn't you put it on the paper? Put it on the paper!" And I never put it on the paper.

Nick: Paul, how are you feeling after this conversation? Where are you leaning towards now? I'm just curious. Still

Paul: short term, mid term. It's still somewhere local, right?

Nick: Do we get a place together? I can help manage.

Paul: I don't know, maybe. Maybe we all should join forces.

Nino: I'm still shooting for a long term because I just want to have that first feel and how I'm doing. But you never know. You never know what life is going to bring. We could

Nick: actually, over the next year, we could work on identifying a neighborhood, finding a place, designing it, and going through and documenting the whole process and then sharing

Nino: it again.

Nick: And you know, plus all this work with ArcFlix is just going to help us understand the neighborhoods and market better. Yeah. I mean, and hopefully our listeners too.

Paul: Nick, how many passes have we done in the last four or five years since you've been here?

Nick: I mean, on average a hundred a year or so, 400 houses.

Nino: Yeah. Yeah. And every, everyone is unique. Like you said, everyone is different.

Nick: From some challenging neighborhoods to Upper Arlington's and stuff. So which are challenging in other case, which is your jurisdiction requirements. We're going to talk about

Nino: that later. That's a good, that's a good topic.

Nick: And also like ADUs in general, like, you know, income where, where it's encouraged, where it's not, I'm starting to see a lot more carriage houses now in Columbus. Oh yeah.

Nino: You see the market shifts and it's like, uh, if you have something on a stock and that is available and it can be easily, uh, like, uh, converted to, to the affordable living and good living.

Here we go. And plus, if you can actually have like that extra space can be studio for like photographers, painters, God knows what.

Nick: Honestly, this is, we could go so deep into this because they're, City of Columbus is now offering low-interest loans to any investment property that you do that involves, um, uh, fair housing or not fair housing, but affordable housing.

Nino: Affordable housing, yeah. If, and it's, it's really kind of insane, affordable, exciting times, like a project we're doing in a new friend in East Franklin. Yeah. That's a very eye-opening project is going on and entire neighborhood is being transformed by the multiple developers.

Nick: I think we're going to see the success that they have. And then the whole zoning initiative that Columbus is going to change. We're going to see a lot more

Nino: density, more, more, more mixed use.

Paul: Yeah. Can I ask one more thing? Just something, something on those. So if you get some property, right, do you try to disconnect yourself from the decisions you're making?

Nick: Honestly, I have friends and colleagues who make a lot more money than I do because they're able to disconnect themselves from it. I just love. Uh, I love it so much where I'll still like overspend and overdo it and put

Nino: your like a footprint on it. So it's visible and

Paul: I mean, coming from the design side, the architecture side, right? Like that's, that's what we do every day. It's like, again, I feel emotionally invested into these things that we work on.

Nick: It's not easy. It's good to have people and a team in place to bounce these ideas off of. But

Nino: you know what? There is always budget. It's always trying to keep you in constraints.

Paul: Yeah, I think that would be the limit. Yeah, that's the thing that

Nino: would stop me. I was like, Oh, okay, let's talk today how I'm going to achieve this with

Nick: less money. And that's the conversations we have. That's also when we're designing spaces with our clients, we bring in the contractor, like, Hey,

Nino: that's a really good topic

Nick: we should talk.

Is this going to be, which is more affordable in your case? Cause some contracts can do certain trades at a different price range, right? They're like, no, I can do this myself. We can do this a lot less expensive. And this is for our

Nino: listeners. This is a really good topic, which is called integrated design. So then you have your contractor early on and you get that feedback.

Nick: So I also have positives and negatives about that, but we can talk about it. I have a lot of experience with

Nino: that contractor right off the bat. Actually can't even give you precise pricing with the drawings, but if we have him kind of lined up and be part of those meetings, do you have someone willing to

Nick: participate?

Which is also called not only integrate, integrate design is a higher level of design built. So we have design built higher level of that is integrated design. So I have really good experience on these two on big projects that we can share with our listeners.

Paul: So, so your advice. If you're getting a property, right, you don't want to be emotionally, you want to get some outside help from a designer architecture firm and get a contractor as well.

Nick: Absolutely. You want to have a team in place. You want to have your real estate agent too because they understand value. And they can help drive that conversation with the contractor and the designer your architect And and really you want to make sure that you and your partner are also involved in that process There shouldn't just be one person making decisions.

Everyone should be on the same page because surprises aren't always good in real estate. No.

Nino: They usually are negative. So, why didn't you talk about it, honey? Why didn't you tell me about this? You're buying an entire house? And you didn't even mention it to me? Good life surviving your, you know,

Nick: debt. I think this is a great place to stop and cover some general topics and we're going to dive in deeper on a lot of these things, uh, later in other episodes.

Paul: But, um, you guys want to wrap up with anything on that or you feel good?

Nino: I feel good. I'll probably going to touch bases. Uh, when we actually progress with our decisions, there was a lot of things to talk and I

Nick: think we might be doing a property together.

Paul: Yeah. We'll do a follow-up session here and there.

Once, once you get your, you know, toe wet. Yeah. Yeah. Dip the toe in, got it? He's gotta start slow, right? He can't dive in head first.

Nino: No, no, no, no, but, you know, and I think through the time we're going to just share my experience and how I actually, like, lesson learned from, uh, from the experience I'm going to have that I'm planning

Nick: to.

And the mindset behind buying. Oh, I'm

Nino: definitely going to be a different person, that's

Nick: for sure. Cool. Well, this was fun, you guys. I had a great time. Yeah, it was a good time. All right. We will wrap it up there then, and we'll see you guys on the next episode. Yeah. Take

Paul: care. This has been the ARC Fluence podcast.

Please subscribe on the platform of your choice and leave us a review. We'd love to hear from you. As always, you can get more information and additional content on arcfluence. com. I'm Paul Fatkins. I'm Nick Karakayan, and

Nick: we'll see you next time.

 

Defining Your Investment Property Strategy

The episode begins with Nick introducing the basics of investment properties, particularly focusing on the differences between a primary residence and an investment property. For an investment, the primary focus is on how tenants or guests will use the space rather than personal preference. This impacts the type of design decisions, such as layout and finishes, that need to be made to maximize rental income.

Key Points:

  • Investment properties should be designed with functionality in mind, catering to potential renters rather than personal preferences.
  • Factors like property location, local amenities, and neighborhood reputation can influence the type of renters you attract, whether short-term, mid-term, or long-term.

Short-Term, Mid-Term, and Long-Term Rentals

Nick dives into the specifics of different types of rental properties, explaining the benefits and challenges of each. Short-term rentals, such as Airbnbs, can yield high returns but often require more management, while long-term rentals are more passive but may not offer as high of a return. Mid-term rentals, often favored by traveling professionals, strike a balance between the two.

Key Points:

  • Short-Term Rentals: High return potential but requires constant management, making it a more active investment strategy.
  • Mid-Term Rentals: Typically 30+ day stays and ideal for professionals who need temporary housing. They offer a balance between high returns and lower management demands.
  • Long-Term Rentals: These provide steady, passive income, with fewer management requirements but lower return potential.

Property Location and Market Appeal

Nino and Paul discuss the importance of choosing the right location for an investment property. They emphasize the significance of safety, accessibility, and amenities, like proximity to schools or businesses, which enhance the property’s appeal. They also delve into property classes, such as Class A, B, and C properties, explaining how each can be profitable depending on the target rental strategy.

Key Points:

  • Location: Safe neighborhoods with nearby amenities can attract long-term renters and help maintain property value.
  • Property Classes: Class A properties are in prime locations and attract high rents, while Class B and C properties may require updates but offer significant profit potential in the right neighborhoods.

Accessibility and Flexible Design for Increased Market Appeal

The hosts explore how design choices, especially those that make a property more accessible, can enhance market appeal. Nick highlights the importance of designing for flexibility, such as creating open floor plans and using durable, low-maintenance finishes. They discuss the potential of accessibility features, like lower countertops or roll-in showers, to attract a broader range of tenants, including families with children or seniors.

Key Points:

  • Design Flexibility: Open layouts and universal design features, like accessible bathrooms, make properties more attractive and adaptable for various renters.
  • Accessibility Features: Adding features like roll-in showers or ADA-compliant elements can attract tenants with mobility challenges, expanding the target market.

Understanding Rental Property Classes and Investment Goals

Nick explains how property classification can influence investment strategies. Class A properties are typically high-end and demand higher rent, Class B properties are solid rentals that may need some updates, while Class C properties can be affordable options that benefit from upgrades. He encourages Nino to consider property classes carefully to align with his investment goals, whether aiming for short-term gains or long-term wealth accumulation.

Key Points:

  • Class A: High-end properties in prime areas; typically more stable but require higher upfront investment.
  • Class B: Reliable rentals in good neighborhoods; often require updates but can yield strong returns.
  • Class C: Affordable properties in up-and-coming areas; potential for high returns with the right upgrades.

Design Considerations for Short- and Mid-Term Rentals

Designing for short-term and mid-term rentals involves creating inviting and functional spaces. The hosts discuss adding features that support tenants’ needs, such as functional kitchens, private office spaces, and even pet-friendly amenities. They emphasize that each rental type requires a unique approach to layout and functionality.

Key Points:

  • Open floor plans and flexible spaces can accommodate a variety of guest needs, from families to professionals.
  • Pet-friendly features, such as fenced-in backyards or mudrooms, add appeal, particularly for mid-term tenants seeking a home-like experience.

Planning for Long-Term Wealth Through Real Estate

Nino and Paul explore how real estate can diversify their investment portfolios and create passive income streams. Nick explains the value of planning for long-term wealth by investing in properties that appreciate over time, such as those in areas with strong rental demand and favorable growth trends. He also covers the potential benefits of using real estate investment strategies like 1031 exchanges, which allow investors to defer taxes on capital gains by reinvesting in similar properties.

Key Points:

  • Real estate can serve as a hedge against inflation and economic uncertainty by providing consistent rental income.
  • Long-term investment strategies, like 1031 exchanges, enable investors to build wealth while deferring taxes, maximizing the value of their assets.

Conclusion

Episode 2 of The ArcFluence Podcast offers a comprehensive guide to starting a real estate investment journey, covering everything from choosing the right rental type to designing flexible and accessible spaces. The hosts encourage listeners to approach real estate as a long-term investment, with design and market appeal as critical components for maximizing returns. By carefully selecting properties, considering different rental strategies, and leveraging accessibility features, investors can increase the value and appeal of their investment properties.