spex x,

Great thread. How do you write a note? Do you need to hire a lawyer?

Thanks,

Soh

how can you find out how long a property has been on the market and how much the owner owes on it? is this public information?

The key is to buy the property for a price the will allow for rent less expenses less mortgage payment to allow you to make a positive monthly cash flow. If you know you can rent a property for $1000 per month, how much can you buy it for and make money? Most properties sell for prices that will NOT allow for positive cash flow. It is the job of a savvy RE investor to find the properties that WILL cash flow.

I think that you're confused on the appreciation issue. I'm not saying that appreciation is not important. Appreciation of my properties is very very important to me. However, I don't buy properties PRIMARILY for appreciation. Appreciation is like a bonus. I buy properties that will add to my monthly net income. The problem with appreciation is that the investor has NO controll whatsoever over whether a property will appreciate. Investors DO have control over cash flow. That is the difference.

This is not as easy as it sounds. Most flippers need to churn through a lot of properties to make the monthly nut. So to most flippers selling that property and getting the cash out to use in more deals is of primary importance. I don't think that that strategy is very smart, however.

The other problem is that a lot of the time flipping is done with hard money loans. HMLs are normally short term - 12 months or less. So in order to rent out a property the flipper would have to refinance into a more conventional loan. My feeling is that the best way to make money in REI is to buy distressed properties cheap, fix them, refinance, and rent them. So the short answer to your question is yes, often flippers must refi and rent properties. I see that as smart though rather than as a bad thing.

I'm sure that there are situations where adding square footage could be benficial. However, flipping is a time game more than anything. When you're paying 12-15% interest on borrowed money, you want to get the house up and sold ASAP. The hard money will kill all of your profit in a deal so fast if you can't move the property. So there is almost no way that I can see anyone adding square footage to a property in a flip. Thats not to say it doesn't happen though, but my guess is that its pretty rare.

If they aren't willing to negotiate then they are not motivated. Remember, REI is not about finding properties. Its about finding motivated sellers. In your situation you're obv not hoping to buy a property off the MLS for $127k - you already know that the seller owes $150k! Plus that seller is going to have to pay the costs associated with selling the property on top of that debt. But also remember that at $150k that property is costing them $1000 per month or more plus maintannce and utilities. The average middle class family can't afford to pay out an extra $1200 per month to hold a property. And if $127k is the only offer they've had in months, well, they'll surely counter with something. Also, I'd bet that sellers are really freaked out right now. That fear works to your advantage.

Another thing - seller's initial reaction might be very negative and they might get really mad. Its the realtor's job to talk some sense into the seller. The realtor will be in there saying, 'look, this is just a starting point, maybe we should counter and see where it goes.'

If you know that a seller owes $150k and they're asking $200k, you already know that the seller has $50k to play with. Its your job to get as much of that $50k as possible. Good luck.

All liens on real estate are recorded at the county courthouse. Call them up and they can tell you the amount of the mortgage on the property at the time the lien was recorded. Then you can guesstimate a reasonable interest rate - maybe 6.5% or so and make an amortization table to find out how much is still owed given the amount of time that has passed.

Also, look at the tax history on the property (usually available online). The years that you see a major increase are the years that the property has sold. If you know the tax rates for those years (inquire at the courthouse) you can guesstimate at the amount the property sold for when it was bought all those years ago.

It depends. A lot of MHP owners have realized that renting MHs is a great cashflow generator. So more park owners are going that direction. Still though, the vast majority of MHPs are land rent situations where the actual MHs are owned by the tenant.

If I were looking for motivated MH sellers I'd first talk to the park manager. the manager will know immediately when somone is moving out of the park. Also, it probably doesnt' hurt to just drive around and look for signs.

I live near a city of about 2 million and another city of about 250,000. My actual residence is in a city of about 80,000. I live in a college town, so the market has been largely unaffected by the current problems. I believe that we've seen a slight dip in comp sales and inventories are up a bit from last year. The highest end properties are taking it the worst here, but I don't pay much attention to that market segment anyway.

No, i'm not really involved in the foreclosure business at all. Most foreclosures are in small properties and I'm really trying my best not to buy anything less than 10 units. If someone brought me a killer deal I'd probably take it. Otherwise I'm not looking for foreclosures at all.

I don't market. The properties that I find normally come from other investors.

mmm...I''ve been doing one larger deal every three years or so. I am developing that subdivision though, and so I've usually got one of those being put together. I refuse to have a ton of empty inventory though, so I usually try to do only one of those at a time. I sell a good portion of them on lease/options too, and I'm not really keen on having a bunch of lease/option properties. So I try to make sure that I don't have more than 5 or so on lease/options at a time. I want my leasee/optionees to ultimately exercise the options and cash me out. II think that I've been doing maybe 4 or 5 of those manufactured homes like that per year.


Yes, I actually think that I've reached a plateau. I don't think that I'll be able to move much further up without either committing myself to working for many more years and/or taking on partners, neither of which I'm inclined to do. I do deals that are less than $2 million. I don't have much desire to move much beyond that. I make a good living and I'm financially free now, so I don't have much incentive to keep pushing for more and more and more. I think I've said here that I'm already thinking in terms to selling off much of my stuff and moving into more passive investments like notes, etc.

I think that I've pretty much decided that residential is my niche. I really like mobile home parks too. I'm not pursueing any other commerical except storage. I've never actually done retirement homes, but I have noticed a few on the market in my area recently that seem like great buys at first glance. I'd consider branching into that area, but I don't really know much about it right now.

I wouldn't write a note. I'd find someone that already buys notes and get a copy of his note. You do need a lawyer. Lawyers are a necessary evil in all business. If you use someone else's note you'll want your lawyer to look it over first for any potential problems and to change the note to meet your specific needs.

For the length of time on the market, ask the realtor.

Earlier in the thread, you mentioned some experience in development. Could you talk a little bit about how that process works and how you got involved?

Thanks for a tremendous thread

I have limited development experience. My experience is pretty much in developing a manufactured home subdivision, which I'm in the process of doing very slowly right now. Since these are manufactured homes, the development is really easy - its mostly a matter of building a cinder block foundation and setting the home on top of it with a crane. The homes are manufactured to HUD standards already.

The city/county government is your best friend when you're developing. They can tell you just about everything that you'll need to do on their end and honestly, dealing with all the regulations is the hardest part, IMO. with the manufactured homes I still have to get all the building permits and pay all kinds of fees, and I have to get the house inspected when I"m finished.

I'm not sure what you specifically want to know...

Can you explain a lease option to me?

What is in it for the seller/landlord? What is in it for the renter? How is the purchase structured? Is it more expensive than simply renting? Why would someone lease option rather than purchase?

A lease option is simply a lease that has an option to buy attached to it. Normally the option price is set at the beginning of the lease, so the leasee knows how much he will need to exercise the option. Normally the lease/option contract is a lease for like 3 years or so and I allow tenants to exercise the option at any time. Another way to do it is have a 3 (or X) year lease and allow the tenant to only exercise the option after 12 (or X) months.

The way I do it is I charge a higher rent than market but I give a purchase price credit back to the tenant. So the tenant is essentially saving a small down payment each month by paying rent - that is one benefit for the tenant. I usually give my tenants a $100/month purchase price credit. If the tenant doesn't exercise the option I get to keep the additional rents - that is one benefit for me.

The tenants that I l/o to are people that have enough income to buy the property but not good enough of credit. I've also done deals w/ people that are community college students but have a family. The option period allows them to fix their credit over three years and buy the property with a normal bank loan - that is a benefit to the tenant.

Another benefit for the tenant is the fact that the property might appreciate by the time that they exercise the option. In three years the property could be worth more money but their option price is the same.

The benefit for me is that I make about $250 per month positive cash flow on these by renting them. The lease is written so that all minor maintenance (less than $300) is their responsbility. The vast majority of repairs are less than $300, so they almost never call me. L/Os are very desireable in the area that I'm developing - much more than renting, so I can get the property occupied fast, even if not on the perfect terms that I want. Another benefit is that l/o tends to attract a bit higher quality of tenants, bad credit aside.

Pound for pound, selling outright is better than lease/optioning. I'd never do another l/o if I could help it. But the fact is that l/o is sometimes the best way to get an empty property filled. I also love to go to l/o closings. They're invariably joyful for the buyer and it always gets me a little emotional - thats maybe an intangible benefit. I also get a fat check, which always helps my emotional state.

Can you explain how to go about investing out of state?

What research is necessary to determine which market you will enter?

How do you go about finding agents/contractors/property managers in markets you have no experience or contacts in?

The thought of being an absentee owner scares the hell out of me!!

It depends a little on what you want to do. I'm going to assume that you're investing for income - i.e., you need to get a decent monthly cash flow from the property.

As a general rule, I think that you want to stay off either coasts and the south west. Stick to the areas where property is cheap - the south east, south, midwest, and plains state. Obviously you can't buy yourself a turn around project living out of state.

The specific market that you chose to invest in, IMO, is irrelevant. Personally, I'd rather have blue collar families that stay a while than professionals that will move or buy a house within a year or two. so I'd look for smaller to midsized factory towns like St. Louis, Milwaukee, Cincinatti, maybe even smaller like Topeka or Cedar Rapids or Gary Indiana or Indianapolis. HOnestly if I were considering investing out of state I'd be paying very close attention to Louisiana and Mississippi. Texas is a likely market for income property as well. Ok, that doesn't narrow it down at all....sorry

Call around and ask several commercial RE brokers. When 3 or more of them say the same company, thats probably your pick.

spex, thanks for the replies.

you mention a few times that you refinance your properties after you fix them up. what is your goal? are you pulling cash out or are doing it to get a better rate?