Quote:
Originally Posted by ItalianFX
This is going to end up being very long:
Seems like this thread has really come to a halt lately. Over the past few days I have been reading through this thread. I've actually just hit post #1000 and every so often one of my questions will be answered.
I've come up with a bunch of questions that I've been holding onto, but it's getting fairly long and I'd like to put them out there while I continue reading. I've also been casually looking around on craigslist just to see what is out there and I think I might have found a decent opportunity.
I've always been interested in REI. I used to read the CREOnline website trying to read everything I could. I bought the Carlton Sheets program several years ago on a recommendation. It has been sitting in the box ever since I read/listened through it one time. I think it was 2005 or so. I got in touch with a guy on CREOnline who I actually spoke with over the phone. He helped me structure a lease option deal on a property about 10 miles away. The house was a SFH, but it was fixed to be a double unit with a beauty shop connected to it. I don't even know all of the details, but I think the lady wanted $70k and I think I offered something like $48k. It had just gone on the market so she turned me down immediately. I don't think she understand the whole deal, which I didn't either, but it was progress.
I then looked at another property that was a complete ****-hole. The basement was dirt, the upstairs bedrooms only had like a 7' ceiling. I felt claustrophobic. The property was something like $19k, but it would have been a huge investment to get it liveable, especially with those low ceilings.
After that I just got out of touch with REI because I wasn't really ready for it.
So here are my questions and these questions came to me randomly. Please excuse my ignorance:
1. Where do you get your forms - leases, contracts, if you want to write a note? etc.?
2. How do you buy/close a property without an agent? Where do you file the paperwork?
3. Do you ever check with the local police dept. for any issues such as crime rates or things like what the neighborhood is like, good/bad parts of town - this is specific to areas that you aren't familiar with.
4. When you see a picture of a property, do you ever say, "Wow, that property is a piece of crap!" For example, you see a narrow shot of a property, the property is really narrow, brick, weeds everywhere, looks like a ********, not really sure the area around it, probably would only be rented by a drug dealer, etc.? What do you do with those types of properties?
5. How do you find comparables to figure out fair market values if you're not working with agents?
6. Do you ever fear having drug dealers as tenants, or really shady people? People who you know aren't clean, but you can never seem to catch them on anything? What would you do to screen them out?
7. What is your opinion on investing in rural areas that are small, depressed, more sellers than buyers, not a ton of people coming into the area? I wouldn't say completely depressed, but just stagnant and not a lot of growth.
8. How do you set up financing for your first deal if you aren't sure exactly what your first property will be? Let's say you find a property and want to make a deal. Do you just get prequalified first?
9. Is there an inflection point between making a down payment and getting a mortgage and just paying full price?
10. I was reading information on the Cap Rate and came across this equation:
Capital Cost = NOI/Cap Rate
If you want a Cap Rate of 10%, and you can estimate your NOI, then that gives you an idea of the maximum price you can pay for a property? Does anybody use that? Is that a good way to screen for properties?
That is all the questions I have right now.
So here is a property I was just looking at. I'd say it is about 3hrs from me so I am not familiar with the area and don't exactly know all of the details.
It's a duplex, 2bd/1bth each, separate electric meters, both rent for $525/month each for a total of $1050/month ($12,600/yr).
Seller is asking $45,000. Property was recently rehabbed, new roof, new furnaces, vinyl siding, fridges. It also has a back yard.
I'm not familiar with mortgage rates, so I'm just using 30yr 5% and 20% down.
I'm also not really sure on how to do all of these calculations as I start getting confused.
Purchase Price = $45,000
Down Payment = $9,000
Mortgage = $36,000
Mortgage Payment = $193
Rent = $1050
Expenses = $473
Rent Minus Exp = $577
Positive CF = $384 (577-193)
Positive CF/yr = $4,608
Cap Rate (?) = 51.2% (4608/9000)
So yeah, I'm not really sure if I'm missing something? What am I forgetting?
Thanks for all of your help and sorry for making this so long.
1) REI club is your best bet, get a template and take it to a lawyer for an hour of his time.
2) Title company. Depending on your state you may need a lawyer. Don't forget title insurance (which will be required if you get a loan anyways). An agent isn't the worst thing in the world, especially until you learn the nuances of the area you're buying in. A good one (or a RE investor who knows the area) can save you a lot of money.
3) In St. Louis there's a crime map that you can view to see all crimes. If you don't know what the crime rate is in the area you're purchasing, you haven't done enough research.
4) I'd be less ambitious with your first purchase.
5) Comparable sales, zillow, pay for a broker price opinion, in the end, there is no substitute for experience. If you've been RE investing in the same area for a year and you can't tell about what a property would retail/wholesale for, you're probably doing something wrong.
6) A good screening process catches most people. The ones you don't, you have to be quick to evict. If you catch inconsistencies in their application, just deny it immediately.
7) It's bad, honestly, but it depends on the main industries that provide jobs in that area and the potential growth. If it's in decline for many years with little hope of a sudden revitalization, I would definitely consider another place.
8) If you are buying SFH's for 20k, you probably should be trying to fund it all or have a friend that will finance it. When you get into bigger properties, prequalification is a good idea.
9) Every mortgage is different and every financial situation is different. You can do the math.
10) Just figure out what works for you. Remember, if you are searching for a cap rate of 10%, and retail in that area is a 12 cap, you won't have a very good screening process. Decide your own criteria for investing and go from there.