*** Official Real Estate Forum *** (2 Viewers)

[jeff_eaglz]

Hey guys this thread is full of great info! Really cool to read.-------I have a question. Last April I bought a vacation home in Gatlinburg, TN for $269,000. The house is 5 years old now. At the time of the sale we were told that the home for the past two years brought in $42,000 and $57,000 in net income from rentals. The worst year the house had was its first year and that was $37,000. We get 60% and the manager gets 40%. With our mortgage payment of $1390 per month we would have been making BIG MONEY. In fact the worst year we would still have profited. Last year of course the house only brought in $20,000. We lost money on the year. We of course put the house up for sale in August and have had 3 offers to buy at $299,000, but the deals (all 3) didn't go through because of financing on the buyers end.

At first I was like at the 40% - then I saw the key words ... VACATION HOME. Vacation homes are a pain in the neck for PMs due to high volume of turnover, bookings, etc. etc. A PM should get around 10% of the rent and 1/2 to 1 month of rent for the placement of a new tenant.Also - don't just blindly accept a PM's tenant OR lease - have final approval of both (or at least until you're happy with the PM).

We feel we should get out of the house while we can before interest rates go to high and we are stuck with a house that insn't generating a positive cash flow. Do you guys think this is the correct way of thinking?Also, do you guys think the agent could have received bad numbers from the rental agency to try and get the house sold? I have asked to see numbers from previous years and they refuse. I think we could have been led into a trap with this house. It doesn't make sense to have the house fall 17k short of its worst year. If they indeed did provide false numbers can we force the rental agency to buy the house?

I'll speak in general terms here.Always get the past info on a property. Never accept anything less on an EXISTING rental property. I say existing because on a new one, you'll have to figure out what the market rents will be and evaluate it that way.I think the "bad numbers" were likely juiced up to sell the property, making it look attractive. If the prior owner wouldn't give legit info, I'd walk. I ask for tax records - at least the pages that are pertinent to that property (I don't need their whole return). Investors can lie to buyers, but they are far more leery of lying to the IRS.As for legal rounds - it's usually "caveat emptor" ("let the buyer beware"). That is what the "due diligence" phase is for - to investigate the initial numbers you were given (and permits, and zoning.....).

 

[jeff_eaglz]

Hmmmm..... Just throwing this out there but, don't you save money when you find your own renters?

Maybe we should have a rental forum - I'd personally rent a ski house in NY or VT... My sister has a ski rental in Utah..... I'd also rent Beach places in and around NY if I could find a good deal.

We had one in NC Sugar Mtn but, just sold it and also were negative on the income but it did appreciate from 90,000 to 130,000 in a short time.

Good idea we could rent out to fellow FBG's... I like that idea.

You can negotiate a reduced fee with your PM for anyone you set up there, but who wants that day-to-day hassle?I wouldn't.

Time = money to me. Plus, the PM has a business sense (hopefully) and is more prepared to handle rental issues.

This is true especially if you are not local.

 

[jeff_eaglz]

One last thought - can it be a seasonal rental? Renting it out furnished or by month-to-month or even timeshare style (weekly) may yield more $$. Talk to the PM. You may even be able to take a week or two yourself (I believe the limit is 14 days for a rental property that you can use it yourself).

I spoke to an accountant about this a couple weeks ago. I am not a tax accountant, and I am not offering tax advice, but what I have heard is that you have 14 days to utilize your property, but there is no limit for the amount of time you can spend doing repairs/upgrades on your property.Take the vacation, catalog what you do to the property daily, and not only do you get to use it longer, you get to write a lot of it off.

I'm not an accountant - but here's a thought.If you have a few empty weeks or hard times renting - give them away for future client building. Offer the spots to local PMs or even hotels that tend to overbook - that way you may get a rental you wouldn't get any other way down the road.

Also consider raffling off a week or donating a week - again to get either a writeoff and/or future clients.

Any accountants in the house?

 

[jeff_eaglz]

One last thought - can it be a seasonal rental? Renting it out furnished or by month-to-month or even timeshare style (weekly) may yield more $$. Talk to the PM. You may even be able to take a week or two yourself (I believe the limit is 14 days for a rental property that you can use it yourself).

I spoke to an accountant about this a couple weeks ago. I am not a tax accountant, and I am not offering tax advice....

I need to add this disclaimer:

Note that I'm not a lawyer and am not offering legally advice. Consult an attorney or you state's real estate commission to determine your legal recourse.

Please afford me the same courtesies.But I do accept small gifts of appreciation

 

[jeff_eaglz]

Here's another idea. One of the guys living here, we'll call him Q, has expressed an interest in buying the place. It's a 4br colonial from the 60s, like most of the other houses in the area, and he has heard through neighborhood chatter that the going rate is around 500k. However, we think our house is likely one of the worst on the block since it has no carport, an unfinished basement, a poorly manicured lawn, a furnace that's about to croak, and several cosmetic blemishes. In other words, we're thinking it'll be in the 400s.

So, Q makes about 70k, has no depedents, and has very very little debt. What are the chances he could qualify to buy the place with me and the other roommate agreeing to pay about 1k per month as lessees?

And furthermore, do you think the owner would be receptive to such an idea or are they more likely to want to make their renovations and sell higher?

At 70K, that's about 6K a month (rounding, work with me people).You can probably afford about 1/3 towards a mortgage. Not sure how you would get $2K to cover a 400K mortgage - except for an interest only loan, possibly.

If the lender knows that a portion will be covered by leases, you would need to produce new leases for the 2 friends toward payment as tenants. That could work.

Rule of thumb - 6% = $6. That is, a 6%, 30 year mortgage payment is equivalent to $6 per $1000 of a mortgage. So a $100K mortgage at 30 years, 6% costs $600 a month. Principle and interest only, no tax or insurance.

7.5% is $7, and you can interpolate / extrapolate to figure out the rest.

To be painfully blunt here, your LL is a moron. EVERY time I look to sell a house, I offer it to the current renters first. Then again, I am proud of what I do, and my places are in top top shape. I wouldn't rent out a dog that is not a top market value. If the tenants buy it, I don't have to advertise, hire an agent, and My costs are next to nothing. I can also provide a history of good payment, and suggest that they use my Mortgage broker to make things sail right through.

Sounds like Q would easily qualify for a loan under the current lending practices. I will say that the Fed is expected to raise rates today/tonight with the news that Americas personal savings was in the negative in 2005 for the first time since the great depression. Greenspan is retiring, and I admit that I am not as confident as I was a week ago. Anyway, talk to a mortgage broker now, and get locked in to a rate. They can hold a rate for 30 days at minimum.

Only issue I have seen with these deals in the past is that the other guys need to remember that Q owns the house, and you are tenants. Once you figure out that you are buying him a house, resentment sets in when he lays down some law. These things go sour more than you think.

You guys need to get everything in writing so Q doesn't go off like a dictator, and the other guys don't abuse/take advantage of him.

Should everyone move out in a dispute, can Q carry it by himself? His loan officer is going to want written leases for all the guys in house to help show income for Q. Is that going to be an issue?

As for the seller, if he has not yet hired an agent, it will go easier. If he has, HOPEFULLY he has an Open or Exclusive-agency listing. Agents fight hard to get an Exclusive-right-to-sell listing. These are TERRIBLE, but most sellers don't understand that they have options, and accept what is put in front of them.

EVERY SELLER should hold out for an Exclusive-agency listing contract where the agent only gets paid if they generated the sale. If someone calls off the sign, the agent is paid, but if the Owner finds a buyer while at Walmart, the Agent deserves no compensation. The agent is still protected, and will get a commission 99% of the time, but if the Owner is entirely responsible for the sale, the Agent is not compensated.

If it is an Exclusive-right-to-sell listing, the Agent costs must now be accounted for, and it will cost you more.

I agree with Mike (see a trend yet? lol). Avoid a RE agent if you already have a buyer. A title company and/or an attorney can settle a RE transaction. Attorneys can also provide a contract to use.Please don't use Staples / Office Max for your contracts. Way too general / vague.

Also - this is important - in Baltimore, Maryland the tenant has the first right of refusal if a property is about to be sold. So a tenant actually is the first in line to buy a property, and has to be asked.

Consult local laws regarding it, but that law is out there.

 

[jeff_eaglz]

I would want to talk with Bass, PM him or hope he sees this, but 60/40% seems way out of whack. Way out of whack. Bass would know, I do not.

This number acutually seems reasonable and I've heard of 50/50 in ski and beach markets. I know it seems high, but that should include the cleaning and turn around. On weeklies that means you need someone there on Saturday cleaning and doing an inventory. You also have a contract for each transaction and credit card processing expenses. I've considered getting onto the market, but would have to give up my fbg posting, NFL football, hunting, and wimmens to make it work. Now that I think about, giving up those things w/o adding new business would still be a huge windfall.

Is a 60/40 split about the norm for residential property rented out yearly? Is using Property Management only beneficial if you plan on owning the property long term or live far away?

6% to 12% plus a lease fee (maybe a half's month rent) is a more common range for a yearly rental. You need to see what's included...signage, advertising, MLS listing, referrel fees, etc. 10% may actually be cheaper then 6% depending on what's include. Best two reasons to use a property manager...1) You live a ways away from the property, 2) Your time is worth more in your primary career then handling showings, screening tenants, collecting rent, arranging repairs.

There you have it.

 

[jeff_eaglz]

I raise.

 

[jeff_eaglz]

This thread is fantastic! Now if there was only an *** Official Re-habbers Forum ***, I'd be sporting Mahogany all day long. That is my true passion. Buying, selling, renting, all good, but I mostly like putting the places together and what goes with that.

Keep it going

(are smilies busted?)

 

[jeff_eaglz]

This thread is fantastic! Now if there was only an *** Official Re-habbers Forum ***, I'd be sporting Mahogany all day long. That is my true passion. Buying, selling, renting, all good, but I mostly like putting the places together and what goes with that.

you're a mod, make it happen

See?smile.gif??

 

[jeff_eaglz]

If the lender knows that a portion will be covered by leases, you would need to produce new leases for the 2 friends toward payment as tenants. That could work.

Actually, Jeff, I've got to correct you on this. A paper lenders don't allow you to count rental income in your primary residence. A stated income loan is always an option, however, and if you've got good credit it's not that much worse than going full doc.

Good clarification, thank you.Stated may have to be the way to go.

Can get creative of course, if the seller is willing to do a "wraparound" or hold paper.

(private money from the seller).

Example:

Assume owner has a $200K mortgage.

Sales price is $500K.

New first mortgage to cover his mortgage, say $250K.

Seller carryback for $250K.

Owner gives $50K towards closing and repairs.

Buyer walks with repair $$, and owner walks with a 2nd mortgage for $250K.

Buyer owes $500K ($250K to first lender and $250K to owner on 2nd mortgage).

Can sweeten the deal with a higher interest rate on the 2nd.

Just an example.

 

[jeff_eaglz]

Jeff, the smile is : ) without the space

Not working on my laptop for some reason.....I type : ) without the spaces and "smilie.gif" appears.....

Odd.

 

[jeff_eaglz]

Keep it going folks. Back later.

 

[jeff_eaglz]

bump

 

[rpreswood]

Great post Jeff. I'm planning on buying my first investment property this year. A couple of questions for you and the other guys that want to respond.

How much of your own money do you typically put into a property? I know every situation is different but is there a rule of thumb you use? 10%, 20%, etc? Have you ever been able to finance 100% on an investment?

What is your view on investing in rental properties long-term vs. flipping? I like to idea of flipping for the quick $$ but in my situation I need some tax write-offs so I would think I would be better off renting and taking the depreciation every year. Do you own any rental properties or do you just flip them?

Have you ever had a deal where you came out losing money? If so what did you learn?

 

[jeff_eaglz]

Great post Jeff. I'm planning on buying my first investment property this year. A couple of questions for you and the other guys that want to respond.

How much of your own money do you typically put into a property? I know every situation is different but is there a rule of thumb you use? 10%, 20%, etc? Have you ever been able to finance 100% on an investment?

Short answer, as little as possible. 20% is VERY easy to finance, 10% a little more challenging, and 0% still more.Many advanced investors get $$ back at the closing table.

I can go over an example if you like, but it is possible. Not every deal can be done like that, but it certainly is possible.

What is your view on investing in rental properties long-term vs. flipping? I like to idea of flipping for the quick $$ but in my situation I need some tax write-offs so I would think I would be better off renting and taking the depreciation every year. Do you own any rental properties or do you just flip them?

Rentals / buy and hold / long term investing is a "get rich slow" strategy that does work, but you need to stay on top of your investments. You can only make a few $100 a month per rental unit (usually) - some do better, some barely break even, some go negative (ouch) - but that's a typical goal.Tax benefits abound for owning investment properties.

I changed strategies a few years ago and moved away from rentals due to (1) my market changed from a decent rental area (where you can rent for 1% of the value of the house or more) to a buy, rehab and sell market, and (2) I grew weary of the get rich slow idea personally and didn't want 20 renters.

I've since gotten a PM for my few units left, but I'd like to sell all of my rentals by end of year.

My overall strategy is to buy, rehab and sell single family homes, and buy and hold commercial space. I'm also going to begin to get into building from scratch and land transactions - not an easy area to start in as a new investor.

Have you ever had a deal where you came out losing money? If so what did you learn?

I think every investor that has been around for a while has (at least) one albatross property. I learned that partnerships are tough, ALWAYS get everything in writing, and have a clear plan of the project from start to finish.

Since then I've only partnered with banks OR new people that are learning from me and I pay them something on the back end and with experience. I have clear SOWs (statements of work) for contractors to work towards and also have clear milestones for everyone to get paid.

Hope that helps.

 

[Mike Anderson]

Great post Jeff. I'm planning on buying my first investment property this year. A couple of questions for you and the other guys that want to respond.

How much of your own money do you typically put into a property? I know every situation is different but is there a rule of thumb you use? 10%, 20%, etc? Have you ever been able to finance 100% on an investment?

What is your view on investing in rental properties long-term vs. flipping? I like to idea of flipping for the quick $$ but in my situation I need some tax write-offs so I would think I would be better off renting and taking the depreciation every year. Do you own any rental properties or do you just flip them?

Have you ever had a deal where you came out losing money? If so what did you learn?

Early on I did a number of no money down, 100% deals. I also did some creative Financing that is not easy to pull off anymore.Now I use Wells Fargo most of the time when I need a Loan. Wells has a Non-Conforming program where they will lend as little as $20K (You will find that most lenders won't touch anything under $50-60K as RESPA laws have made small loans not worth while). In Non-Conforming, you don't have to prove income (Sometimes difficult to do as a Professional. If a lender looks at my Paper Gross, I am huge, if he looks at my Paper Net, it's tight with 40 loans already on the books). Non-Conforming is a step up from Stated, and I still receive worthwhile interest rates. I am not the guy to explain this, but it's between conventional and stated.

There is CERTAINLY going to be some statements following this post about how it is foolish to go with Wells, and not chase the VERY BEST interest rate. The reason I use Wells is that they don't have a credit card mentality. Wells likes Money, and they want to make the most of it they can.

The average lender doesn't look long term. THEY SELL YOUR LOANS into the secondary market. Fannie Mae, Freddie Mac, all of that guarantees up to 10 loans for an individual in the secondary market. So as an investor, if you chase the lenders for the best rate, they turn around and sell you off for a payday TODAY, not capitalizing on the full term of the loan where they would make more money. They sell your loan, free up resources, and re loan to another, and the cycle continues.

No big deal you think, except that only 10 loans are guaranteed on the secondary market. Your home, and 9 rental properties, and then you are completely cut off as they won't (NONE of the secondary sellers) will float you another loan period. Then you head out towards a lender that doesn't sell into a secondary market, and they are extremely rough in qualifying you as you have no relationship, and are a pretty bad risk as you are extended in their mind with 10 loans on the books.

I have seen MANY MANY an investor shut down at 10 loans, and not under any avenue been able to continue without paying 10-12% interest in this market.

I did my first 3 loans outside of Wells, and became to understand this lending fact as I saw others completely crushed as they wanted to expand. I started working with Well, and have 30+ mortgages with them now. At this point, I call Wells on the phone, and they give me money without question. I just have to swing by later and sign some papers.

Real Estate is a PEOPLE, RELATIONSHIP BUILDING business. The more people you get along with that can help you, the stronger you become.

The program I run under goes as low as $20K loan amount (I don't know about a ceiling, never had an issue), is about 1% over the going rate, 10% down, No pmi ever, no verification of anything.

I could do 100% at lower interest, Heck, I used to walk away from the table with money than I came to the table with. My biggest walk away from the table money was $19K.

At 35, I am in this for the long haul, and far more interested in Hold and rent. There are times to flip. It is a real balance, and I am sure I couldn't do your market justice.

With that, I would say base it off your personal position. Ideally, you are handy. I was not, and it cost me tons more than a handy person could have gotten away with. After 10 years, I now feel confident that there is very little that I can't do personally in a house. Just about everything, but it builds up over time.

If you are not handy, and you don't have a decent amount of reserves right now AND YOUR MARKET CAN SUPPORT IT, I would say Flip. Get in, get it done, Get out, and let the everyday ongoing issues of property maintenance, renters, utilities, surprises from deferred maintenance, etc be someone's issues.

Flip a few, build up your skills, don't have the headache of tenants who can screw you blind if you don't know what you are doing, and learn. Build relationships.

Not how I started, but times and life styles are different.

If you want to rent, find the book "Landlording" by Leigh Robinson. It's simplistically written, almost a for Dummies kind of book, but it's all the basics. Not everything will work in your market, and it is geared towards the West Coast where there are more renters/competition for housing, therefore you can impose more on the renter. Some of it won't work in my market. It is however absolutely the best book I have ever seen for a beginner, and it gets you thinking about what you need to be thinking about.

If you rent, the best three things you can be told are SCREEN, SCREEN, and know your state's Laws on the subject.

 

[Mike Anderson]

Have you ever had a deal where you came out losing money? If so what did you learn?

NEVER TRUST THE SELLERS NUMBERS!!!!!!! VERIFY EVERYTHING.I bought a property that made $400+ a month on paper, but it actual performance only lost $49.00 in it's best performing month.

Took over a year and $13,967.53 to straighten it out. It clips along at right about $445 a month profit now.

I was just sick at the time from my stupidity. Took almost 2 years of 100% occupancy just to get back to ZERO.

 

[BassNBrew]

I'll add a mini-horror story to the archieve...

Just recently had a homeowner approach me about purchasing his property. We agreed to terms and got on with our due dilgence...inspection, survey, closing attorney, loan processing. We go to closing and the seller is net -$4,000 and doesn't have it after the papers are signed. Deal blows up and sellar refuses to reimburse us for expenses and proceeds to let the house go to foreclosure. Really not much to pursue as we'll be standing in line behind the bank. The deal was kind of tight to begin with, but there was a solid tenant in place. We felt the backyard limited the appreciation so we decided not to eat the additional $4,000 to salvage $1,200. Fortunately I had a partner on this one and only got stuck for $600 which I will be writing off.

 

[Mike Anderson]

You want to talk about Renting? There are certainly pit falls. I've got one for you happening right now.

I screen like crazy, leave my places sit, I do scheduled inspections of the property 4 times a year, I send out rent bills, and make sure everyone understands that I am around and can be seen on a weekly basis. Over time, as Renters prove themselves, I leave them completely alone.

I'm the guy that will come over today and turn a wrench 5 times for nothing, but in 3 months the renter will be paying for a new sub-floor from that water leak. Call me, inform me, tell me, I will come over and fix it for free (Within reason, but I take the short end of the stick constantly)

At the end of the day, I will own most of the properties another 30 years, and I want them to be in tip top shape.

So anyway, you get the picture, I am involved and a presence on the property.

Rented a 4 bedroom house one street off a high end historic district with the largest yard on the street, where this street is primed to explode in value. It went to 3 college students that checked out. Everyone was happy, rent paid on time, place taken care of, everything.

UNBEKNOWN to me, one gal gets pregnant, drops out of school, moves in with the boyfriend. Another moves in with her sister as the remaining two of them can't carry the place.

Somewhere in this process, a Family with 3 kids moves in to take up the slack. I get a call from the last original, who states that this is unacceptable, didn't move the family in, can they please have a rental I had open about 3 doors down.

I'm seriously POed at this point. I do allow this person to move a few doors down, and let all three understand that they are responsible for the remainder of the lease until August. All three are interested in protecting their Credit rating (I pick people who are concerned about these things, I need leverage sometimes when the honeymoon stage is over)

The Family living there is nice enough. In fact I like them. They offer $700.00 in cash (Which I accept as I want leverage, although I will now return if they just get the freak out, glad I have some leverage) and I give them the usual house rules, and that a Background check must be run before they get a lease, anything. All the while, keeping the original three on the hook.

Others might have played it differently, but often in the rental business you are somewhat on the fly when renters start getting irresponsible and you haven't trained them well enough.

Checks come back

HER:

TERRIBLE CREDIT

Several Evictions where a "Writ of Rest" is involved. That is when the tenant doesn't follow the Judge's order to get out, and the Sheriff must forcibly remove her.

Eviction from a Friend of mine who is a LL.

5 Damages hearings from rentals

Cannot put Water in her name with a monster outstanding bill.

Battery 3 years ago.

Fired for Theft from a job.

HIM:

Credit not so bad, most likely because he was in Prison, and couldn't wreck it.

Car Jacking where he pulled a gal out of a car, beat her, and stole the car.

Only 2 Evictions.

Drug Possession charge.

5 years in Prison.

2 times revocation of Probation

4 Failure to appear/Contempts

Held without bond 3 times

Ordered to Home detention

IS CURRENTLY IN JAIL

Since telling her to GET OUT, and filing the paperwork (Which I will point out is named as the 3 original tenants, et all. Where the 3 original are going to get this eviction and huge damage bill) The responsible one from the original 3 has the parents involved and Mom has already written me an $1,100 check.

They should be out Wednesday and I will get the locks changed.

So Far I have a broken Window (Repaired immediately), a Broken Screen, the front glass panel of the stove was shattered, Water damage upstairs, 6 total wall damages that I have found, where one of them is pretty extensive, destroyed Mini Blinds, an attempt to kick in the back door that damaged it to the point of replacement, damage to an interior door, and I am sure more than I am forgetting right now.

The original three are very involved trying to salvage their reputations. Should this family not be out on Wednesday (And really, they won't be), the eviction on the first three happens on Friday. I lost once early on, but not in years and years now, I'll win.

When clicking correctly, this House cash flows at $348.44 a month. Such is the life of Hold and Rent even when you are careful. One climatic event, and you can lose 6 months of ground in the blink of an eye.

 

[Redwes25]

 

[Mike Anderson]

On pitfalls of Buying:

Early on I foolishly figured I pretty much knew a lot, and could handle whatever.

My Wife loves Roses. We have some 45 Hybrid Teas around the yard, and she cuts them and gives them away all season. Because of that, we go to every yard sale in the city looking for Flower vases for $0.25 or less. While there, I see things that can be used in rehabs (Like light fixtures) and offer a buck for anything. Surprising how many times I get great light fixtures for a buck.

Anyway, the wife had just picked up 6 Vases for a buck, and I found a Big Boy bobble head that is sitting on top of the computer screen right now.

This old guy walks up and asks if we want to buy a duplex. Sure, I'll go look at it. End result was $47K for a $180K duplex that needed work. We go FSBO to keep the costs down, and he asks me for Earnest money.

Now, we know about Earnest money, it's just something you do, so I write him a check for a grand.

No, didn't escrow it, didn't protect myself, nothing, just wrote him a check like a moron.

Long story short, he is in foreclosure, and our purchase date was actually 2 days after the sheriff was setting him out.

My title company moved heaven and earth, kept the deal alive, and made it work. I got a killer place at a Yard sale.

But I could have VERY Easily lost that earnest money as he surely wasn't collectible.

 

[Flying V]

This old guy walks up and asks if we want to buy a duplex. Sure, I'll go look at it. End result was $47K for a $180K duplex that needed work.

Ever hear of Gladstone Gander?

 

[Mike Anderson]

Another thought on renting is your wife. Is she going to be your partner in this?

My Wife is a trooper, and is behind this 100%. She sees it as our future. However, my wife did come from a Credit card mentality, where if you had $3.00 in your pocket, surely there was a way you could spend it before the day was out. Got a bonus at work? That needed to be a reward gift to yourself immediately. It wasn't easy to get our mentality on the same page to survive in this business.

In my case, the Rentals get everything. New Carpet, new appliances, Ceramic floors, Refinished hardwood floors, paint, exterior work, everything. I have accounts that build up just to make upgrades. Every tenant that signs a new lease gets an upgrade like a new appliance, ceiling fan, dishwasher, disposal, something. Sign a new lease and get an upgrade to MY property.

In my home it is another story. Granted we take care of things, and they last, but the carpet is 20 years old, the Stove is just a few years old and is a very high end model, but you should have seen the old one before it gave out. My Fridge is at least 15 years old, and looks TERRIBLE. I drive a 1986 Plymouth Voyager Mini Van and a 1986 Chevy S-10 that doesn't have power steering. There is an old 1979 Jeep CJ7 out back that I drove in College as well. My wife has a 2000 import, but we are certainly not the new car/everything kind of family.

I don't know that you can be if you want to build an empire on Rentals. It's right there long term, and you can see it, but the day to day reality is that you won't be living the high life on a few hundred a rental if everything is going perfectly.

Flip a few or do a big cash out where you could buy a new SUV, and you are posed with the thought of an SUV or the down for 4 new properties. I'd choose the properties.

I guess where I was going is that when you are spending your time fixing a kitchen sink because it's not hard and the flip side is that a Plumber is going to want a couple hundred bucks, so you are not home and she is alone. Then you have to cut back the eating out budget this month because a furnace and 2 stoves went out and you have to replace them immediately as there is no wait for a month to build up money for a renters furnace. Your Wife may not be on board as much as you thought.

I have seen a couple of investors lose their Marriage because the wife didn't have the vision. Hold and rent has the best payoff long term, but is the most difficult to pull off.

I would LOVE to be in a south Florida/CA market where you can buy a flipper, screw almost everything up, and still get $30K appreciation during your 4 month flip that went horribly wrong. In most of the country, you need to have your ducks in a row, set your budget, plan for crisis, and work at it.

Or hire a PM, understanding that you may likely be going for a break even position, where the value is in the tax breaks, owning the property, and rewards after your Renters pay it off for you.

Short of buying a duplex where you actually live on property and can watch out for your interests while you get going (Nothing like living for free as the renters pay the mortgage), I would almost always suggest that the brand new that are really not ready to submerse themselves in a sink or swim set up just buy a house under value and flip it.

 

[jeff_eaglz]

You want to talk about Renting? There are certainly pit falls. I've got one for you happening right now.

I screen like crazy, leave my places sit, I do scheduled inspections of the property 4 times a year, I send out rent bills, and make sure everyone understands that I am around and can be seen on a weekly basis. Over time, as Renters prove themselves, I leave them completely alone.

I'm the guy that will come over today and turn a wrench 5 times for nothing, but in 3 months the renter will be paying for a new sub-floor from that water leak. Call me, inform me, tell me, I will come over and fix it for free (Within reason, but I take the short end of the stick constantly)

At the end of the day, I will own most of the properties another 30 years, and I want them to be in tip top shape.

So anyway, you get the picture, I am involved and a presence on the property.

Rented a 4 bedroom house one street off a high end historic district with the largest yard on the street, where this street is primed to explode in value. It went to 3 college students that checked out. Everyone was happy, rent paid on time, place taken care of, everything.

UNBEKNOWN to me, one gal gets pregnant, drops out of school, moves in with the boyfriend. Another moves in with her sister as the remaining two of them can't carry the place.

Somewhere in this process, a Family with 3 kids moves in to take up the slack. I get a call from the last original, who states that this is unacceptable, didn't move the family in, can they please have a rental I had open about 3 doors down.

I'm seriously POed at this point. I do allow this person to move a few doors down, and let all three understand that they are responsible for the remainder of the lease until August. All three are interested in protecting their Credit rating (I pick people who are concerned about these things, I need leverage sometimes when the honeymoon stage is over)

The Family living there is nice enough. In fact I like them. They offer $700.00 in cash (Which I accept as I want leverage, although I will now return if they just get the freak out, glad I have some leverage) and I give them the usual house rules, and that a Background check must be run before they get a lease, anything. All the while, keeping the original three on the hook.

Others might have played it differently, but often in the rental business you are somewhat on the fly when renters start getting irresponsible and you haven't trained them well enough.

Checks come back

HER:

TERRIBLE CREDIT

Several Evictions where a "Writ of Rest" is involved. That is when the tenant doesn't follow the Judge's order to get out, and the Sheriff must forcibly remove her.

Eviction from a Friend of mine who is a LL.

5 Damages hearings from rentals

Cannot put Water in her name with a monster outstanding bill.

Battery 3 years ago.

Fired for Theft from a job.

HIM:

Credit not so bad, most likely because he was in Prison, and couldn't wreck it.

Car Jacking where he pulled a gal out of a car, beat her, and stole the car.

Only 2 Evictions.

Drug Possession charge.

5 years in Prison.

2 times revocation of Probation

4 Failure to appear/Contempts

Held without bond 3 times

Ordered to Home detention

IS CURRENTLY IN JAIL

Since telling her to GET OUT, and filing the paperwork (Which I will point out is named as the 3 original tenants, et all. Where the 3 original are going to get this eviction and huge damage bill) The responsible one from the original 3 has the parents involved and Mom has already written me an $1,100 check.

They should be out Wednesday and I will get the locks changed.

So Far I have a broken Window (Repaired immediately), a Broken Screen, the front glass panel of the stove was shattered, Water damage upstairs, 6 total wall damages that I have found, where one of them is pretty extensive, destroyed Mini Blinds, an attempt to kick in the back door that damaged it to the point of replacement, damage to an interior door, and I am sure more than I am forgetting right now.

The original three are very involved trying to salvage their reputations. Should this family not be out on Wednesday (And really, they won't be), the eviction on the first three happens on Friday. I lost once early on, but not in years and years now, I'll win.

When clicking correctly, this House cash flows at $348.44 a month. Such is the life of Hold and Rent even when you are careful. One climatic event, and you can lose 6 months of ground in the blink of an eye.

This is why I like to rehab and sell.....Making a couple hundred a month and worrying what the place will look like when they're done.... no thanks.

Lease option is better, as they think they are buying and are less likely to screw the place up. But it can and does still happen.

Commercial renters are far better - they actually have an interest in the place as the address is part of their corporate identity.

 

[jeff_eaglz]

This old guy walks up and asks if we want to buy a duplex. Sure, I'll go look at it. End result was $47K for a $180K duplex that needed work.

Ever hear of Gladstone Gander?

who?

 

[jeff_eaglz]

Short of buying a duplex where you actually live on property and can watch out for your interests while you get going (Nothing like living for free as the renters pay the mortgage), I would almost always suggest that the brand new that are really not ready to submerse themselves in a sink or swim set up just buy a house under value and flip it.

A word to the wise if you think you want to do this - DO NOT TELL YOUR NEXT DOOR NEIGHBOR THAT YOU OWN THE WHOLE DUPLEX.

Just let them believe that you are renting / leasing just like them. The last thing you need is a nightmare tenant who lives and breathes right next to you and your family.

 

[SofaKings.]

What do you think about Wells Real Estate fund?

 

[jeff_eaglz]

Early on I did a number of no money down, 100% deals. I also did some creative Financing that is not easy to pull off anymore.

The right broker can still do it with you, even with a conventional loan.Example:

Agree to buy a property for $100K - on your terms. The property will appraise for $130K.

Tell the seller to agree to hold a $26K second mortgage and get a new $104K first mortgage. Closing costs (all) will be paid by the seller - $4K.

You get the property for $0 money down and owe the payments on $104K first.

So - what about the $26K?

Well you agree that AFTER THE CLOSING you will buy back the mortgage at a discount - as little as you agree.

This requires some trust between strangers (buyer / seller) so I usually buy something of value to them (pool table, dining room set, big screen tv, etc) for $1 when I sign the contract. Then they can buy it back for $1 once I get my second mortgage back and paid off.

Yes - creative. Yes - legal. Yes - not everyone will do it.

Yet the deals are out there.

Does this happen all the time? Heck no. One out of 20, maybe. But that one can be valuable, if you know how to do it.

I don't like to use mortgage brokers that much, as your name goes on the property (bad for legal protection and for credit reasons, as Mike later mentions the 10 mortgage thing).

Now I use Wells Fargo most of the time when I need a Loan. Wells has a Non-Conforming program where they will lend as little as $20K (You will find that most lenders won't touch anything under $50-60K as RESPA laws have made small loans not worth while). In Non-Conforming, you don't have to prove income (Sometimes difficult to do as a Professional. If a lender looks at my Paper Gross, I am huge, if he looks at my Paper Net, it's tight with 40 loans already on the books). Non-Conforming is a step up from Stated, and I still receive worthwhile interest rates. I am not the guy to explain this, but it's between conventional and stated.

There is CERTAINLY going to be some statements following this post about how it is foolish to go with Wells, and not chase the VERY BEST interest rate. The reason I use Wells is that they don't have a credit card mentality. Wells likes Money, and they want to make the most of it they can.

The average lender doesn't look long term. THEY SELL YOUR LOANS into the secondary market. Fannie Mae, Freddie Mac, all of that guarantees up to 10 loans for an individual in the secondary market. So as an investor, if you chase the lenders for the best rate, they turn around and sell you off for a payday TODAY, not capitalizing on the full term of the loan where they would make more money. They sell your loan, free up resources, and re loan to another, and the cycle continues.

No big deal you think, except that only 10 loans are guaranteed on the secondary market. Your home, and 9 rental properties, and then you are completely cut off as they won't (NONE of the secondary sellers) will float you another loan period. Then you head out towards a lender that doesn't sell into a secondary market, and they are extremely rough in qualifying you as you have no relationship, and are a pretty bad risk as you are extended in their mind with 10 loans on the books.

I have seen MANY MANY an investor shut down at 10 loans, and not under any avenue been able to continue without paying 10-12% interest in this market.

Good advice, but once you're an experienced investor, local banks will lend you money if you prove that you know what you are doing and that you are able to manage property and money effectively.I have 3-4 banks that will lend me $$ on rehabs, where I can get 80% of the ACQUISITION PRICE and 100% of the repair budget up to 75-80% of the after repair value of a property (ARV).

You can also recover some of your 20% down on the first draw if you price your work aggressively.

I could do 100% at lower interest, Heck, I used to walk away from the table with money than I came to the table with. My biggest walk away from the table money was $19K.

You can still do just that, but it often involves 2 or 3 tier financing (new first mortgage, owner financing, private loans).

 

[BassNBrew]

Jeff...didn't want to quote the entire post above, but you have to disclose a second mortgage along with any deals and discounts to the lender otherwise you are commiting loan fruad.

Well you agree that AFTER THE CLOSING you will buy back the mortgage at a discount - as little as you agree.What does this mean?It's extremely interesting to read about the different approaches you and Mike take.

 

[jeff_eaglz]

Jeff...didn't want to quote the entire post above, but you have to disclose a second mortgage along with any deals and discounts to the lender otherwise you are commiting loan fruad.

Well you agree that AFTER THE CLOSING you will buy back the mortgage at a discount - as little as you agree.What does this mean?It's extremely interesting to read about the different approaches you and Mike take.

Yes, that's why I emphasize that the seller takes back the second and records it.It can then be stamped "paid in full" after selling it a week or so after closing.

100% legal.

Given that the primary lender selects the appraisal company and knows that they are lending 80% of the value, I would argue that this is a moot issue, but lenders are lenders.

By the way - local portfolio lender banks (portfolio means they lend $$ in house and don't sell the mortgage) are far less concerned about that.

But some lenders will allow the 20% seller holdback - some only 10% - but then once the note is recorded with the state and county, ANYONE can buy that note. It is a saleable item, just like a CD or bond. You can buy those at discounts as well.

I just get really really good deals .

 

[BassNBrew]

Mike and Jeff...I have a question about going the LLC route. Right now I'm working as a sole prop. I investigated the LLC route, but the mortgage is still in my name and will continue to have to be financed that way until I carry some more weight. Really the only benefit I saw to the LLC is liability protection. Problem is that you would need a different LLC for each property. In NC that requires a yearly filing with a fee of $250, not to mention the start up costs. Seems like that money would be better spent on an umbrella policy and a lot less paperwork. $250 makes a big difference in the profit percentage on low end properties. What could go wrong that would exceed $1MM excluding willful negligence?

Not sure what I need to do but I see the numbers problem that you guys mention. My primary insurance company will only carry 4 rental units, my bank will only do a HELOC as long a 3 or less real estate loans show up, otherwise it gets kicked to commercial. I've rate chased primary financing, secondary financing, and insurance because I can't find anyone that will handle everything or has all the products I need. Right now I'm even having to work to find a place to by car insurance because that's the origin of an umbrella policy. Get this, I had a ticket for passing on the right 4 years ago and one company won't write an umbrella policy for anyone but a "premier" customer.

Right now my plan is to keep juggling things until I can get the right relationships in place. I have a day job in the same field so I'll payoff the smallest loans when possible, but it will be a drain on capital.

FYI...I primarily pursuing Mike's approach to business. Property doesn't appreciate here and you can't spit w/o hitting an investor. Furthermore, the average price is so small that a 10% profit in 3 months may not amount to much more then you could have gotten welcoming people Wal-Mart. Additionally rent's suck...they roughly equal %0.0075 of the fair market value. I'm banking on the fast growth of the area eventually out pacing supply in the next 10 years and trying to lock up as much cheap money as possible on a 10 to 30 year basis. If rates get back to historic norms, I should be in a superior position to most investors...:fingers crossed:.

 

[jeff_eaglz]

Mike and Jeff...I have a question about going the LLC route. Right now I'm working as a sole prop. I investigated the LLC route, but the mortgage is still in my name and will continue to have to be financed that way until I carry some more weight. Really the only benefit I saw to the LLC is liability protection. Problem is that you would need a different LLC for each property. In NC that requires a yearly filing with a fee of $250, not to mention the start up costs. Seems like that money would be better spent on an umbrella policy and a lot less paperwork. $250 makes a big difference in the profit percentage on low end properties. What could go wrong that would exceed $1MM excluding willful negligence?

Not sure what I need to do but I see the numbers problem that you guys mention. My primary insurance company will only carry 4 rental units, my bank will only do a HELOC as long a 3 or less real estate loans show up, otherwise it gets kicked to commercial. I've rate chased primary financing, secondary financing, and insurance because I can't find anyone that will handle everything or has all the products I need. Right now I'm even having to work to find a place to by car insurance because that's the origin of an umbrella policy. Get this, I had a ticket for passing on the right 4 years ago and one company won't write an umbrella policy for anyone but a "premier" customer.

Right now my plan is to keep juggling things until I can get the right relationships in place. I have a day job in the same field so I'll payoff the smallest loans when possible, but it will be a drain on capital.

FYI...I primarily pursuing Mike's approach to business. Property doesn't appreciate here and you can't spit w/o hitting an investor. Furthermore, the average price is so small that a 10% profit in 3 months may not amount to much more then you could have gotten welcoming people Wal-Mart. Additionally rent's suck...they roughly equal %0.0075 of the fair market value. I'm banking on the fast growth of the area eventually out pacing supply in the next 10 years and trying to lock up as much cheap money as possible on a 10 to 30 year basis. If rates get back to historic norms, I should be in a superior position to most investors...:fingers crossed:.

I understand your dilemma.At one point I was driving down the "Buy lots of rentals" road. I veered off a couple years ago.

You do need to cultivate better relationships. The first place is at your closest investor club - if you can't find one I can help - drop me a PM sometime.

A good RE club can answer these questions, and be a sounding board for any contacts. My local club put me in touch with 3 lenders, all willing to do LLC financing / titling (actually I have a C corp, but that's another story). Lenders, insurance, all these types of relationships can be found at a good club. No sense re-inventing the wheel.

As for a corporate entity (I'll use that term for LLC, S-corp, or C-corp) - it is nice for both legal protection and for not using your own credit. After 2 years you even get more status (most companies fold inside 2 years, so the geniuses decided that a line in the sand at 2 years would define a stable company).

Maryland did the same thing (seems NC and MD like to litigate similarly) regarding LLCs a few years ago. Baltimore slums used to be "123 Main St. LLC" - one for each property - when the LLCs were free. Now they run $300.

I tell people that LLCs are for buy and holders, and "renovators" ("flippers" is still a negative phrase for many, especially in Maryland) should hold title in C or S corps. Talk with an accountant - but that's the answer for the tax portion of what entity to use.

Everyone asks that question - LLC? My name? C Corp? S Corp?

Talk to tax advisors / accountants, and legal wiz guys, and also financing and insurance. The tax answer WILL NOT MATCH the legal guy. Always works that way. The real answer is the best attorney answer - "It depends". All the corporate structure does is gives you some (LLC is limited - not full legal coverage) legal protection, whereas you get more in a C corp. It's complicated, sorry I can't boil it down better.

I advise people to put cheap properties in a grouping of either ones that are about 100-200K in value. That could be one property, or two, or five. Whatever. But $250-300 to cover 200K is just 1/4% of the cost (and a tax expense too) and gives you legal protection. For me, having that added protection is worth it.

Go ahead and form a company. It might cost a little bit, but here's what I would do.

Create a C-corp: BassNBrew Inc. That will be the owner of a few LLCs, that all live under the C-corp. They have a few properties in each of those.

Now, if you decide to sell your rentals - you can sell them as the LLC (that saves taxes up in MD), and keep the C-corp going (hence the >2 years).

This also allows me to write assignable contracts easier. When I write that "jeff_eaglz and / or assigns" is the buyer - and they ask why I write that (actually typed, looks better and draws less attention) - I can legitimately say that I have not decided which LLC / corporation in which to place your property yet. This lets me decide that with the title company and my tax advisor.

Works every time.

Back to your financing question - you can re-title a property to an LLC but the lenders will have a fit if they find out. If I were you I'd work the RE investor angle, find a local bank that is hungry to work with local investors, and work out a few new loans into your company structures.

That will clear up your $$ situation, and get the loans off of your back. Don't sweat if you have to be the guarantor of the loans - they will be in the company name so they won't hurt your credit.

By the way - the "hurt your credit" by having lots of mortgages is a fact and fiction at the same time. The credit (FICO) score looks at debt and income. You can have a good score and multiple mortgages, but your "debt to income ratio" will look way out of whack according to the numbers the computer spits out, and lenders will strike you down after a while (that's part of the 10 mortgage thing).

Lastly - find that local lender. You may need a business plan of what you're doing (and that's a good idea, actually - gets your thoughts and plans on paper and makes you think about it), but it is worth the trouble. Remember how much paperwork each property / new mortgage takes? Develop a relationship with a bank and a lot of that will go down / away.

One more thing - when you find that lender - put together the loans and then ask for a line of credit to go get more. That way you can have financial backing from the bank (stronger than a preapproval) to go get more property.

 

[Mike Anderson]

Jeff...didn't want to quote the entire post above, but you have to disclose a second mortgage along with any deals and discounts to the lender otherwise you are commiting loan fruad.

Well you agree that AFTER THE CLOSING you will buy back the mortgage at a discount - as little as you agree.What does this mean?It's extremely interesting to read about the different approaches you and Mike take.

What Jeff is talking about is 100% legal. You just have to have the smoke and mirrors all lined up. There is actually nothing wrong with it in theory, the only issue is the disclosure laws that came into effect after the Toledo Scams. As long as your lender is aware of it, you can still do anything.

I've seen deals worked from every possible angle.

At this point, I want to buy with cash, rehab the place, and cash out with a mortgage in the LLC's name leaving equity on the table with a $300-400 cash flow at minimum.

 

[jeff_eaglz]

Jeff...didn't want to quote the entire post above, but you have to disclose a second mortgage along with any deals and discounts to the lender otherwise you are commiting loan fruad.

Well you agree that AFTER THE CLOSING you will buy back the mortgage at a discount - as little as you agree.What does this mean?It's extremely interesting to read about the different approaches you and Mike take.

What Jeff is talking about is 100% legal. You just have to have the smoke and mirrors all lined up. There is actually nothing wrong with it in theory, the only issue is the disclosure laws that came into effect after the Toledo Scams. As long as your lender is aware of it, you can still do anything.

I've seen deals worked from every possible angle.

At this point, I want to buy with cash, rehab the place, and cash out with a mortgage in the LLC's name leaving equity on the table with a $300-400 cash flow at minimum.

I was with you all the way until that last part .

 

[Mike Anderson]

Mike and Jeff...I have a question about going the LLC route.  Right now I'm working as a sole prop.  I investigated the LLC route, but the mortgage is still in my name and will continue to have to be financed that way until I carry some more weight.  Really the only benefit I saw to the LLC is liability protection.  Problem is that you would need a different LLC for each property.  In NC that requires a yearly filing with a fee of $250, not to mention the start up costs.  Seems like that money would be better spent on an umbrella policy and a lot less paperwork.  $250 makes a big difference in the profit percentage on low end properties.  What could go wrong that would exceed $1MM excluding willful negligence?

Not sure what I need to do but I see the numbers problem that you guys mention.  My primary insurance company will only carry 4 rental units, my bank will only do a HELOC as long a 3 or less real estate loans show up, otherwise it gets kicked to commercial.  I've rate chased primary financing, secondary financing, and insurance because I can't find anyone that will handle everything or has all the products I need.  Right now I'm even having to work to find a place to by car insurance because that's the origin of an umbrella policy.  Get this, I had a ticket for passing on the right 4 years ago and one company won't write an umbrella policy for anyone but a "premier" customer.

Right now my plan is to keep juggling things until I can get the right relationships in place.  I have a day job in the same field so I'll payoff the smallest loans when possible, but it will be a drain on capital.

FYI...I primarily pursuing Mike's approach to business.  Property doesn't appreciate here and you can't spit w/o hitting an investor.  Furthermore, the average price is so small that a 10% profit in 3 months may not amount to much more then you could have gotten welcoming people Wal-Mart.  Additionally rent's suck...they roughly equal %0.0075 of the fair market value.  I'm banking on the fast growth of the area eventually out pacing supply in the next 10 years and trying to lock up as much cheap money as possible on a 10 to 30 year basis.  If rates get back to historic norms, I should be in a superior position to most investors...:fingers crossed:.

I will have to get back to this. Wife got a phone call, but I am supposed to be spending tonight with her to get tomorrow free. I own LLCs. However, I wrestle with the intelligence of this often. I've done tons of research and given it countless hours of thought. I might actually believe that it is more trouble than it is worth with the super small chance that it will even protect you. I could EASILY argue that say half of the LLCs in the nation provide zero protection.

I'll get back to this with thoughts, but it might not be until Monday.

You are ABSOLUTELY on the right track of thought here though

 

[BoltzNBrew]

What formula do you use when evaluating an investment (income) property? I am looking to buy a fixer that I would rent out and hold but also want a monthly income to make it worth my while.

I know there are many factors to consider. I would like to see what you think the more important factors are when considering a property.

 

[Mike Anderson]

Jeff...didn't want to quote the entire post above, but you have to disclose a second mortgage along with any deals and discounts to the lender otherwise you are commiting loan fruad.

Well you agree that AFTER THE CLOSING you will buy back the mortgage at a discount - as little as you agree.What does this mean?It's extremely interesting to read about the different approaches you and Mike take.

What Jeff is talking about is 100% legal. You just have to have the smoke and mirrors all lined up. There is actually nothing wrong with it in theory, the only issue is the disclosure laws that came into effect after the Toledo Scams. As long as your lender is aware of it, you can still do anything.

I've seen deals worked from every possible angle.

At this point, I want to buy with cash, rehab the place, and cash out with a mortgage in the LLC's name leaving equity on the table with a $300-400 cash flow at minimum.

I was with you all the way until that last part .

Ah, one of the "continually rob the Property of all assets" guys I see. ****EDIT: Here I was thinking from a buy and hold position. Forgot you just want to cash out period.

 

[Mike Anderson]

What formula do you use when evaluating an investment (income) property? I am looking to buy a fixer that I would rent out and hold but also want a monthly income to make it worth my while.

I know there are many factors to consider. I would like to see what you think the more important factors are when considering a property.

Do you have a property in mind? If so, what are your numbers? This is a very broad question. Can you make it easier to answer?SFHs are easier, Multies more profitable. How much skill do you have? Can you do the fix up, or will your "tools" be a clip board, pen, and cell phone? How much is "worth your while"?

If you had a property you were looking at, and posted some numbers and condition, it would easy to get a feel if it is a star or a dog.

I am looking for a property under value where I can pull (in a perfect world) $200 a UNIT after I take a nice cash out. Aren't we all?

I primary buy Multies.

Some of my best success comes off of Undeveloped property, and Commercial is promising, just an entirely different mindset. Commercial is much easier. Not to upset Jeff, but in Commercial you pretty much give the renter a wild contract completely/grossly in your favor for ridiculous periods of time and tell them to deal with it. And they do.

 

[Mike Anderson]

This old guy walks up and asks if we want to buy a duplex.  Sure, I'll go look at it.  End result was $47K for a $180K duplex that needed work. 

Ever hear of Gladstone Gander?

who?

A Duck that kept trying to steal Daisy from Donald.

 

[jeff_eaglz]

What formula do you use when evaluating an investment (income) property? I am looking to buy a fixer that I would rent out and hold but also want a monthly income to make it worth my while.

I know there are many factors to consider. I would like to see what you think the more important factors are when considering a property.

Do you have a property in mind? If so, what are your numbers? This is a very broad question. Can you make it easier to answer?SFHs are easier, Multies more profitable. How much skill do you have? Can you do the fix up, or will your "tools" be a clip board, pen, and cell phone? How much is "worth your while"?

If you had a property you were looking at, and posted some numbers and condition, it would easy to get a feel if it is a star or a dog.

Upset me, nah.... but you might get a little Just like Mike can I'm sure, we can give general rules of thumb, but examples work best.

Post your numbers. We can tell you if it is good or not. Seriously.

And as I tell Noobs - it is better for me to tell you that your deal stinks and run now while you can than it is to buy it and, well, you can't run.

I should charge for that but I don't. Good Karma, and occasionally investors throw me a bone now and then, usually deals they can't make happen.

To Mike's point.....

I am looking for a property under value where I can pull (in a perfect world) $200 a UNIT after I take a nice cash out. Aren't we all?

I primary buy Multies.

Some of my best success comes off of Undeveloped property, and Commercial is promising, just an entirely different mindset. Commercial is much easier. Not to upset Jeff, but in Commercial you pretty much give the renter a wild contract completely/grossly in your favor for ridiculous periods of time and tell them to deal with it. And they do.

Multies are just fine, but I prefer commercial space. That's a debate unto itself, but consider this: would you rather have 20 renters (with 20 toilets, 20 sets of appliances, 20 water/electric/heat issues) in a property that pay you $500 a month each, or would you rather own a commercial store (not the business - the building / land) and get paid in one check for $10K?The headaches are far lower. One tenant, who is (usually) more stable than 20 renters. They run a business. They view their location as part of their identity - so they aren't moving any time soon. They sign long term leases as a result - and often pay for EVERY expense there is. Everything. Fabulous deals.

Further still - they improve their buildings, making them their own location and bringing in equipment and changes that they'd hate to move elsewhere. Think of that next time you walk in a dentist office, x-ray lab facility, print shop, or tanning salon. They all have heavy equipment they'd rather not lug around.

My favorite kinds of tenants.

 

[moleculo]

I've been thinking for a while that one of the better investments is vacant land. Please tell me if I am full of crap.

Here's my arguements:

Say I buy a house for $100k. lets say that a vacant lot next to that house might go for $20k. That would make the value of the structure $80k

What happens in 5 years? The property with the house might be worth $200k. What should the vacant lot be worth? The way I see it, assuming putting no extra money into the structure, the structure value should depreciate in value. But, the cost of building a house will go up - say now it costs $120k where it was $80k before. If that's true, the vacant lot sohuld be worth $80k.

So, in this hypothetical situation, the property with the house goes doubles. The vacant lot quadruples from $20k to $80k. Assume at this time a house is built - the $120 is spent. Now, the two houses are in theory both worth $200k, but one is five years newer than the other one.

Add to the fact that during these five years, tax and insurance will be next to nothing, you will never have to replace anything, and you will never have to deal with tenants.

One other point on vacant land - I cannot think of anything in the universe that cannot ever be created besides good clean vacant land. You can only take good land and screw it up - you can never turn developed land into undeveloped land. (Actually, you can, but it is EXTREMELY expensive.) Specifically, I'm talking about desireable land where one might wish to build a vacation house on - coast line, mountain view, riverfront, etc. There is definately a limited supply of good land, and it will only disappear moving forward.

 

[BassNBrew]

I've been thinking for a while that one of the better investments is vacant land. Please tell me if I am full of crap.

Here's my arguements:

Say I buy a house for $100k. lets say that a vacant lot next to that house might go for $20k. That would make the value of the structure $80k

What happens in 5 years? The property with the house might be worth $200k. What should the vacant lot be worth? The way I see it, assuming putting no extra money into the structure, the structure value should depreciate in value. But, the cost of building a house will go up - say now it costs $120k where it was $80k before. If that's true, the vacant lot sohuld be worth $80k.

So, in this hypothetical situation, the property with the house goes doubles. The vacant lot quadruples from $20k to $80k. Assume at this time a house is built - the $120 is spent. Now, the two houses are in theory both worth $200k, but one is five years newer than the other one.

Add to the fact that during these five years, tax and insurance will be next to nothing, you will never have to replace anything, and you will never have to deal with tenants.

One other point on vacant land - I cannot think of anything in the universe that cannot ever be created besides good clean vacant land. You can only take good land and screw it up - you can never turn developed land into undeveloped land. (Actually, you can, but it is EXTREMELY expensive.) Specifically, I'm talking about desireable land where one might wish to build a vacation house on - coast line, mountain view, riverfront, etc. There is definately a limited supply of good land, and it will only disappear moving forward.

Good thought in theory...let me begin to pepper away.1) Vacant land brings in zero income. Negetive cash flow while tying up capital.

2) Interest rates on land are higher. Land costs more to own.

3) Most of the best land deals never hit the market.

4) Insiders privy to potential zoning changes will always have an inside tract.

5) Interest on land is not intially deductible. Land is not depreciable. Not a tax benefit.

6) Land is not liquid.

That said...land can treat you right, but there are plenty of landmines along that road.

 

[Flying V]

This old guy walks up and asks if we want to buy a duplex.  Sure, I'll go look at it.  End result was $47K for a $180K duplex that needed work. 

Ever hear of Gladstone Gander?

who?

Uncle $crooge hated him because he was so darn lucky.

 

[moleculo]

I've been thinking for a while that one of the better investments is vacant land. Please tell me if I am full of crap.

Here's my arguements:

Say I buy a house for $100k. lets say that a vacant lot next to that house might go for $20k. That would make the value of the structure $80k

What happens in 5 years? The property with the house might be worth $200k. What should the vacant lot be worth? The way I see it, assuming putting no extra money into the structure, the structure value should depreciate in value. But, the cost of building a house will go up - say now it costs $120k where it was $80k before. If that's true, the vacant lot sohuld be worth $80k.

So, in this hypothetical situation, the property with the house goes doubles. The vacant lot quadruples from $20k to $80k. Assume at this time a house is built - the $120 is spent. Now, the two houses are in theory both worth $200k, but one is five years newer than the other one.

Add to the fact that during these five years, tax and insurance will be next to nothing, you will never have to replace anything, and you will never have to deal with tenants.

One other point on vacant land - I cannot think of anything in the universe that cannot ever be created besides good clean vacant land. You can only take good land and screw it up - you can never turn developed land into undeveloped land. (Actually, you can, but it is EXTREMELY expensive.) Specifically, I'm talking about desireable land where one might wish to build a vacation house on - coast line, mountain view, riverfront, etc. There is definately a limited supply of good land, and it will only disappear moving forward.

Good thought in theory...let me begin to pepper away.1) Vacant land brings in zero income. Negetive cash flow while tying up capital.

2) Interest rates on land are higher. Land costs more to own.

3) Most of the best land deals never hit the market.

4) Insiders privy to potential zoning changes will always have an inside tract.

5) Interest on land is not intially deductible. Land is not depreciable. Not a tax benefit.

6) Land is not liquid.

That said...land can treat you right, but there are plenty of landmines along that road.

Understood. Assume one has some extra $$ sitting around that they want to invest. I am considering purchasing land outright - forgo financing, thereby eliminating the interest rate issue. I'm not looking for residual income - just a place to park some investment capital for a while. Could the appreciation value beat the street? I think if it is in the right place, it could.There are some other aspects to this - I have been told that if it is considered an investment, it may be possible to use IRA funds, and therefore the appreciation would be tax free. Does anyone know if this is feasible? My info here comes from co-workers, not financial planners or RE agents, so they may be full of crap.

There are other benefits to this - I think I would rather buy nice land to retire to at 2005 prices vs 2025 prices. Additionally, I doubt land holdings can be counted as financial holdings with respect to furure childrens college financial assistance.

I don't know anything more about this. Where can I learn more? Any one have any books they can reccomend?

 

[jeff_eaglz]

I've been thinking for a while that one of the better investments is vacant land. Please tell me if I am full of crap.

Here's my arguements:

Say I buy a house for $100k. lets say that a vacant lot next to that house might go for $20k. That would make the value of the structure $80k

What happens in 5 years? The property with the house might be worth $200k. What should the vacant lot be worth? The way I see it, assuming putting no extra money into the structure, the structure value should depreciate in value. But, the cost of building a house will go up - say now it costs $120k where it was $80k before. If that's true, the vacant lot sohuld be worth $80k.

So, in this hypothetical situation, the property with the house goes doubles. The vacant lot quadruples from $20k to $80k. Assume at this time a house is built - the $120 is spent. Now, the two houses are in theory both worth $200k, but one is five years newer than the other one.

Add to the fact that during these five years, tax and insurance will be next to nothing, you will never have to replace anything, and you will never have to deal with tenants.

One other point on vacant land - I cannot think of anything in the universe that cannot ever be created besides good clean vacant land. You can only take good land and screw it up - you can never turn developed land into undeveloped land. (Actually, you can, but it is EXTREMELY expensive.) Specifically, I'm talking about desireable land where one might wish to build a vacation house on - coast line, mountain view, riverfront, etc. There is definately a limited supply of good land, and it will only disappear moving forward.

Good thought in theory...let me begin to pepper away.1) Vacant land brings in zero income. Negetive cash flow while tying up capital.

2) Interest rates on land are higher. Land costs more to own.

3) Most of the best land deals never hit the market.

4) Insiders privy to potential zoning changes will always have an inside tract.

5) Interest on land is not intially deductible. Land is not depreciable. Not a tax benefit.

6) Land is not liquid.

That said...land can treat you right, but there are plenty of landmines along that road.

Additional pitfalls of land:7) Raw land needs to be prepped for habitation - either sewage or septic, water / well, and utilities. The land has to "perc".

8) Zoning must be right

9) Biggest pitfall I see is the cash outlay. Financing on a home can be 80-90% pretty easily. Raw land is typically about 50%. That's a lot of captial to tie up.

So to use your example - I buy a house for $100K and 10% down, you buy the land next door for $20K and 50% down.

Five years from now, in your example, the land is worth 80K. You pay off the $10K mortgage and collect back $70K ($60K profit and $10K down). You return on your $$ is 6x.

I sell the house next door for $200K. I pay off the mortgage ($90K) and walk with $110K - 11x my cash.

Even if you put in higher transaction costs (since I sold at a higher price) - you'd still be at least 10x on your $$ vs 6 with raw land.

House wins.

In my experience you make $$ on land by:

A. Rezoning

B. Finding a better use for it (like using the existing zoning to turn apartments to condos)

C. Subdivision (big $$)

D. Building on the land and selling a house / structure

 

[BassNBrew]

I've been thinking for a while that one of the better investments is vacant land.  Please tell me if I am full of crap.

Here's my arguements:

Say I buy a house for $100k.  lets say that a vacant lot next to that house might go for $20k.  That would make the value of the structure $80k

What happens in 5 years?  The property with the house might be worth $200k.  What should the vacant lot be worth?  The way I see it, assuming putting no extra money into the structure, the structure value should depreciate in value.  But, the cost of building a house will go up - say now it costs $120k where it was $80k before.  If that's true, the vacant lot sohuld be worth $80k.

So, in this hypothetical situation, the property with the house goes doubles.  The vacant lot quadruples from $20k to $80k.  Assume at this time a house is built - the $120 is spent.  Now, the two houses are in theory both worth $200k, but one is five years newer than the other one.

Add to the fact that during these five years, tax and insurance will be next to nothing, you will never have to replace anything, and you will never have to deal with tenants.

One other point on vacant land - I cannot think of anything in the universe that cannot ever be created besides good clean vacant land.  You can only take good land and screw it up - you can never turn developed land into undeveloped land.  (Actually, you can, but it is EXTREMELY expensive.)  Specifically, I'm talking about desireable land where one might wish to build a vacation house on - coast line, mountain view, riverfront, etc.  There is definately a limited supply of good land, and it will only disappear moving forward.

Good thought in theory...let me begin to pepper away.1) Vacant land brings in zero income. Negetive cash flow while tying up capital.

2) Interest rates on land are higher. Land costs more to own.

3) Most of the best land deals never hit the market.

4) Insiders privy to potential zoning changes will always have an inside tract.

5) Interest on land is not intially deductible. Land is not depreciable. Not a tax benefit.

6) Land is not liquid.

That said...land can treat you right, but there are plenty of landmines along that road.

Understood. Assume one has some extra $$ sitting around that they want to invest. I am considering purchasing land outright - forgo financing, thereby eliminating the interest rate issue. I'm not looking for residual income - just a place to park some investment capital for a while. Could the appreciation value beat the street? I think if it is in the right place, it could.There are some other aspects to this - I have been told that if it is considered an investment, it may be possible to use IRA funds, and therefore the appreciation would be tax free. Does anyone know if this is feasible? My info here comes from co-workers, not financial planners or RE agents, so they may be full of crap.

There are other benefits to this - I think I would rather buy nice land to retire to at 2005 prices vs 2025 prices. Additionally, I doubt land holdings can be counted as financial holdings with respect to furure childrens college financial assistance.

I don't know anything more about this. Where can I learn more? Any one have any books they can reccomend?

I recently was dating a lady that saw an $80K beach lot go to a $400K sales contract in 2.5 years. In otherwords, the street can be demolished.Don't know the answer to your other questions...a financial advisor would be the route to go.

If this is a retirement home location and you have the means, why not consider starting the build now and have a tenant pay for your home and upgrades between now and 2025.

 

[jeff_eaglz]

Understood. Assume one has some extra $$ sitting around that they want to invest. I am considering purchasing land outright - forgo financing, thereby eliminating the interest rate issue. I'm not looking for residual income - just a place to park some investment capital for a while. Could the appreciation value beat the street? I think if it is in the right place, it could.

There are some other aspects to this - I have been told that if it is considered an investment, it may be possible to use IRA funds, and therefore the appreciation would be tax free. Does anyone know if this is feasible? My info here comes from co-workers, not financial planners or RE agents, so they may be full of crap.

There are other benefits to this - I think I would rather buy nice land to retire to at 2005 prices vs 2025 prices. Additionally, I doubt land holdings can be counted as financial holdings with respect to furure childrens college financial assistance.

I don't know anything more about this. Where can I learn more? Any one have any books they can reccomend?

Regarding your IRA - I doubt YOUR IRA is configured to do this.However - a few companies (I know of 2) can take an IRA (not a 401K) and do this. It has to be a self-directed IRA, and you make one of these 2 companies the custodian of the account (much like you have a custodian at any other brokerage).

Equity Trust

Entrust

Google might return others, but I know these two.

Rules: Basically, you can't touch the $$ just like any other IRAs. You also can't buy / sell from yourself (called self-dealing). You also can't live in the properties.

But it is a source of funds, and doing one deal a year in an IRA can be very profitable.

You can "partner" with your IRA - meaning that your IRA can buy an interest in the property. Please ask them about it, not me. Don't screw up your IRA, since one bad deal can ruin the tax benefits.

The easiest way to make your IRA grow is to buy a second mortgage or an option, since I'm assuming you can't squeeze a $100K house out of an IRA. If you can, let me know - I got some nice returns for you .

 

[Mike Anderson]

4) Insiders privy to potential zoning changes will always have an inside tract.

The biggest thing I hate about Undeveloped land is that I aquire City lots. Keeping them up to weekly in the summer is a pain. Do it yourself, and you are wasting masive time. Hire it out, and be ready to be let down and waste $.Zoning is your best friend.

 

[moleculo]

4) Insiders privy to potential zoning changes will always have an inside tract.

The biggest thing I hate about Undeveloped land is that I aquire City lots. Keeping them up to weekly in the summer is a pain. Do it yourself, and you are wasting masive time. Hire it out, and be ready to be let down and waste $.

Zoning is your best friend.

you are talking about keeping the weeds under control, right?

 

[Mike Anderson]

4) Insiders privy to potential zoning changes will always have an inside tract.

The biggest thing I hate about Undeveloped land is that I aquire City lots. Keeping them up to weekly in the summer is a pain. Do it yourself, and you are wasting masive time. Hire it out, and be ready to be let down and waste $.

Zoning is your best friend.

you are talking about keeping the weeds under control, right?

Correct. And a prolonged snowfall in the winter will have you clearing sidewalks to avoid fines. Most melt off fast enough, but a number of days in a row you will need to deal with.I don't have many dumping issues, but depending on where you are, you could have a mess.