Aces Up:

1 Haha, no doubt my knowledge is incomplete. I was asking about someone who is talking about how well one particular flip or "particular job" was/ wasn't and not necessarily about how well someone's overall business is going.

2 I'm pretty familiar w/ IRR. I asked this because I've never heard a RE person use an annualized return and you always hear something to the effect of "Yeah, bought a house 20 years ago and doubled my money" and people who know nothing about investing are impressed. This is partly what started the thought that RE is a great investment and always goes up, IMO.

3 I'm not asking if a particular house is a good/ bad investment here I was asking if most other RE guys really look at the investment as a whole. In your exp. talking w/ other RE guys do they really understand investing and realize subtract the buy price from the sale doesn't tell you anything?

4 Again, not asking if a particular investment is good/ bad. So you may have to take into consideration you are living their, the cost of renting a similar home, interest paid on loan, opportunity cost of investing in other investment, ignore inflation as you are either investing this money in a home or some other investment in the same time frame, time frame, money put in home to keep it up, hrs. put into fixing up, etc. So do many RE guys actually do these type of calculations to actually see if it was a good or investment and tell people if it was or not or do they ignore it and just tell people who great a particular house was?

anyone have any books or info regarding foreclosure sales?? ive been going every week to selected ones (mainly tax foreclosures).....havent bought anything yet - one we purchased but the owner came up with the money in time and one we got outbid on and gave up.....curious where I could learn more.

RE investors are no different -- as a group -- than any other group of business people. Some are knowledgeable and experienced and some are flying by the seat of their pants. The ones that have no idea what they're doing will either learn from their mistakes and gain more and more experience as they go along, or they'll eventually run out of money and disappear from investing.

In my experience, most investors who have done even a single real estate deal understand that profit != sale price - purchase price. But, also in my experience, those investors with just one or two investments under their belt don't fully internalize what kind of returns they are (or aren't) getting on their investments. Oftentimes, it takes a couple annual cycles of investing before investors fully appreciate the long-term costs (like taxes and business overhead) and can see the big picture of whether what they're doing is profitable or not.

But, those that stick around for a year or two and can get through a few successful deals start to realize the importance of analyzing the business in many different ways and using many different metrics. Those that get this far are certainly in the minority -- probably less than 10-15% of all investors, but the ones who can do this are the ones that will likely go on to make a lot of money in this business.

Awesome info in this thread! Thanks for sharing it everyone.

Ok ive got a couple questions and would greatly appreciate any help/advice!

Im 22 and live in Texas, like 40min south of dallas. Im wanting to get into REI, its been a goal of mine for a while and is what i want to do. Now that i have a little bit of extra cash i want to see if there is anyway to venture into it with what ive got. I have lots of experience in the contruction trade, tiling, painting remodeling etc.. so that will come in handy. Ive only got about 5-7k to invest because i dont want to use every dime ive got.

Is there anyway to venture into REI with just this much but with the skills that i already have? I also have access to people that can do what i cant do and would do it for cheap or sometimes free. I can basically build a whole house by myself and with friends almost for just the cost of materials... problem is i dont think i have enough to do this right now because i play poker for a living so would be hard to get a loan to build a house i think.

Any advice would be great, thanks!

I read through a lot of this thread and it is great! I got into rei in april here in columbus, oh when online got shut down. I currently have 4 houses and below are the stats. If one of the more experienced investors could analyze and let me know if they think I'm on the right track that would be great.

House #1-Purchase plus repairs-(5500+19500 total rehab) $25,000(2br1ba sf)
Insurance-$600/yr
Taxes-$900/yr
Prop. management-1st months rent and $75/month(1450yr)
Repairs after it was rented($0 so far)
Rent $550/month($6600yr)
Net profit yr without repairs($3650)
Market Value- $49,000
Was 1st house and def. more money went into it than we thought but it was well worth the learning process of a full rehab and finding a good contractor. Def. the worst producing property but good learning investment. Prop management places tenant, takes all calls, and does all paperwork and evictions etc.

House #2-Purchase plus repairs-(8k+7k) $15,000 (3br, 1ba single family)
Insurance- $600/yr
Taxes- $600/yr
Prop. Management-1st months rent and $75/month($1,500 yr)
Repairs after it was rented($0 so far)
Rent $625/month($7,500 yr)
Net profit yr without repairs($4,800)
Market Value- $40,000
Close to the new casino going up in town and got a tenant in there who wants to purchase it for $35,000 if he can get approved for financing which having problems with because of not having 2 yr employment history but has a good enough credit score. Any recommendations to close this deal?

House #3-Purchase plus repairs($13,900+0) $13,900 (3br,1ba single family)
Insurance- $600/yr
Taxes- $1,000/yr
Prop. Management- $200 1st months and $67.50/month($1,010 yr)
Repairs after it was rented($0 so far)
Rent $675/month(8100 yr)
Net profit yr without repairs($5,500)
Market Value- $51,000
House was originally on market for $42,000 back in december and it was 3 older kids(60ish) whose mother had passed away. A cpl months went by and we offered them $24k on land contract with 6k down and rest paid off in a year. They refused and we ended up getting it for a great deal at $13,900 cash about 4 months later with no work needed and rent ready. We also got setup with a diff. prop management company on this one who only took $200 instead of full 1st months rent for placing tenant which is in there at $675/month. We had an offer for $20k cash right after we bought it but decided to hold onto it because its close to the new casino going up and its got good cash flow.

House #4 Purchase plus repairs (11,900+???) We just started work on this one and should cost about 8k in repairs so about $20k total. The house has a nice block garage,new siding, new roof, enclosed backyard, front and back decks, 3 br, 3bathroom with projected rent at $650/month. Taxes at $1,400 yr and insurance at $700/yr. Was last purchased at $78k in 2006 around housing buble and has a lot of curb appeal. Market value will be around $60k. Let me know what you guys think of all 4 situations and the best way to access money from these. I may also be going in on a big loan with my brother who wants to get involved and can access a good amount of money and move up to middle tier houses along with these types. Any input is greatly appreciated as I am trying to learn as much as possible and expand in this great market here. Thanks!

@ flopp_deuces

Those look like absurdly high property management costs. 12% + first month. Geez.

If the capital would help you find more deals, I would sell house #1 for 49k (If you can't get close to that then your mv is off).

But being able to get into houses for as cheap as you are makes it really hard for you to do too poorly.

yea those prop. management fees seemed ridiculous to me which is why i had another place for the 3rd property which was only $200 and 10% instead of $600+ and 12%. Won't be able to get 49k for house #1 right now, that market value is just what its assessed at for tax purposes. Looking at a buy/hold and rent strategy until the big stream of houses are bought up and the housing market recovers in 5+years. The rental demand is high and cash flow is good in this area. There are plenty of deals around here also.

We had a similar situation with one of our tenants 2 years ago. We ended up just adding a purchase agreement to the lease, crossed our fingers, and waited it out. Luckily, everything went smoothly and they were able to get the loan, and we were able to collect another years worth of rent.

Don't forget to supply fire extinguishers in your units! Mount them conspicuously and give your tenants a tutorial on how to use them.

During the 3rd quarter of the game last night a fire started at one of my units.

Turns out a tenant left the kitchen for a bit with something frying. A roll of paper towels left next to the stove caught fire. When she returned to the kitchen, she, to use her own word, "froze". When the fire alarm sounded, the paper towels had already set fire to the upper cabinet, she panicked and ran out of the apartment. Luckily, the tenant across the hall was having a Super Bowl party. One of his guests grabbed the extinquisher from that apartment and courageously entered her apartment and sprayed the fire. Guy is a hero.

By the time I got there, the local FD had responded with 3 trucks. Lt told me that almost all house fires get out of control because the resident panics. Once the all clear was given by FD, we went in to assess the damage. All things considered, it could have been a lot worse.

I found the extinguisher I supply buried in the back of her kitchen sink base. Behind a bunch of cleaning products and covered by at least 2 dozen plastic shopping bags. Totally inaccessible in an emergency.

I won't make the mistake again of not mounting it in a prominent spot away from the stove, and showing tenants how to use it.

Only silver lining is that as a Patriots fan, I missed the most soul-crushing parts of that game.

Home Depot sells extinguishers starting at $20+/-, they are worth a thousand times more.

Do I have to legally have security deposit funds available at all times? If so, why should we get taxed on them as rental income?

You only need to pay taxes on the security deposit as income when you have to "collect" it due to damage or missed rent. Citation.

Also, why wouldn't you always have the security deposit available?

In NJ they have to be kept in an interest-bearing account. Should be state-by-state, so you should check, but I just googled, and it doesn't say anything to that effect about NE. You should look into it though, as IANAL.

Unless you have some weird state laws where you live, yes, you should keep security deposits escrowed (preferably in a separate account) and available. And depending on your state laws, you may need to keep the deposit in an interest-bearing account with interest paid to the tenant upon return of the deposit.

And unless there is some tax regulation I'm not familiar with, security deposits do NOT count as rental income (unless you retain the deposit for some reason after the tenant vacates).

questions for somebody who might know: My brother is buying out my business partner of his 1/2 of the houses. What is the best way to go about this? Is there a way to transfer names on the current LLC or do I have to transfer all of the houses individually to a newly created LLC. What do we do with the current operating agreement and how would it work for tax implications as we haven't filled them out for last year yet and the ability to access equity from them since they are seasoned for about a year. Ill be talking to my cpa and lawyer on monday but if somebody could tell me what would be best I would greatly appreciate it.

You probably either want to sell your interest in the LLC, which wouldn't trigger a title change, or sell the properties in a traditional sense, thereby transferring title to the new owners.

If you sell the LLC interest, the new owners would probably be smart to ensure that the properties are still clear of liens or claims, as I'm sure they'd hate to purchase those as well...

All that said, talk to an attorney and/or CPA...there are LOTS of details you left out that will make an important impact on your decision.

how many units would you guys say is "enough"?

i was talking to a big time investor in my city yesterday (owns/manages ~500 units) and he was saying that 25 units bought properly usually amounts to what a "normal" person makes.

i thought that was kind of on the low end, but wanted other people's opinions.

Why does it matter?

Enough is a relative question and can only be answered individually.

Enough for Fred Trump was 30 000 units.

i should have asked that differently... enough to quit your day job

or even rephrase once more.. at what point number do you think it's time to seriously consider a professional property management company?

I'm having a really hard time finding out the answer to a couple of questions I have about delinquent taxes and tax sales. I would think this falls under " Ask me about real estate investing". I don't know if it's because these questions are too dumb and people don't want to answer, or if it's because the answers are not at all clear.

Basically, if a property is delinquent for $15k in back taxes and the country holds a tax sale what exactly is being sold? Is it the taxes only? Or is it the entire property?

So now say someone places a winning bid of $50k. Assuming the answer to the first question was that it's the entire property - It's my understanding that the county is not entitled to keep the entire $35k above and beyond the tax amount owed. So what happens to the $35k? Who gets it? Does it go to the last holder of the deed before the sale?

Obviously any mortgages/liens on the property would muddy up the answer, so assume there is no mortgage on the property. I've even called my county assessor's office and they were unsure and acted like I was nuts. Maybe I'm just being stupid, but I think this is a perfectly legitimate question. Yet I cannot find anyone willing to provide an answer. I'd really appreciate it if anyone here can clarify this for me.

Every state has different rules. States typically have either tax liens or tax deeds. Some use a hybrid approach. Where are you at?

I was looking into this, so I'll quickly describe the process for Florida. The process in your state may be nothing like this. If the owner does not pay his property taxes (let's assume that the taxes are $1000):
1. The county auctions off that $1000 in debt. The way this happens in Fl is that the auction starts at 18% interest. If you want to bid on the debt, you bid the percentages down. So, you have to bid below 18%. The lowest bidder gets the percent interest that they won the bid, with a minimum of 5%. We'll call the winner of this Bidder A.
2. The winning bidder pays the $1000 for taxes to the county.
3. If the property owner wants to pay the taxes, they pay the $1000 plus the interest, and it is given to the person who purchased the debt.
4. If the property owner does not pay the debt, then the next year the property taxes are going to be auctioned off again (I'm still assuming that the owner can't pay this years taxes since he hasn't paid last year yet). The auction occurs just like in #1. It does not have to be auctioned to the same person. We'll call the winner of this Bidder B.
5. The property owner still has one more year to pay off both years of property tax plus interest. If they pay it off in that time, then they keep their property.
6. If the owner does not pay in the time (two years since the first tax sale), then the Bidder A can begin proceeding to foreclose. I'm not going into the details here, but they first have to pay off Bidder B. Then, they can begin foreclosure.
7. The house will be auctioned off.
8. If the auction price does not cover the expenses plus interest Bidder A has paid out, Bidder A will receive the house free and clear.
9. If the auction price closes higher than those expenses, then Bidder A gets his expenses plus interest. The auction winner gets the house free and clear.
10. I believe the remainder of the auction price goes to the other lien holders, not the county.

Don't look at the 18% in #1 and think this is easy money. In the bigger counties, you are bidding against a lot of institutional investors who who bid it all the way down to 0.25% because they know 5% is the minimum. There are other things that you have to watch out for. You could bid for the taxes on a property and have noone bid against you. Then you look at the map and see that the property is 800ft by 10ft and useless without also owning the property around it. Noone has paid the taxes on it because they don't want the property. You could win the auction but get such a low rate of return that it is not worth it.

I decided not to pursue it, but I'm not trying to discourage anyone. Just do your research first. And, this was a simple example for Florida. Wherever you are at will most likely operate differently.

Thank you stevepra. This is a start! Here's what I'm still unclear about:

7. The house will be auctioned off.

Who is actually auctioning the house off? Is it the county?

10. I believe the remainder of the auction price goes to the other lien holders, not the county.

Sorry for being dumb, but who are the other lien holders? Would bidder B be a lien holder? Remember I started my example assuming no mortgages or liens. And even if there is a mortgage, I don't think they're entitled to make above and beyond the mortgage amount (if it sold for more). This is why I'm asking these questions...

A friend of mine bought a course (I personally think it's one of these 'get rich quick' schemes that I never trust). In it, the person states that there is a way to find properties that are +2 years delinquent in taxes and then buy the property directly from the home owner right before it goes to auction. The idea is that for whatever reason, the home owner has decided to walk away from the property. Now, when the house is auctioned off for more than the taxes, you pocket the overage (being the last deed holder), since the country is not entitled to keep excess profit.

My first thought when my friend told me about this was that anything which seems to good to be true, usually is. I can't imagine that this is a viable way to make profits. Then again, I'm sure there are many people who make a living taking advantage of all kinds of loopholes. But this doesn't seem good to me. Thanks again for any information.

Remember that this is proceedings for Florida, which is a hybrid tax lien/tax deed state. If what I have read is true, no other state operates in exactly the same manner as Florida. But, these are all good questions and it took me a long time to read up on the way it works for FL, so I'll share what I know.

Who is actually auctioning the house off? Is it the county?
Yes. The county is auctioning the house.

Sorry for being dumb, but who are the other lien holders? Would bidder B be a lien holder?
Not dumb at all. Bidders A and B are both lien holders. Bidder A's lien is a higher priority than Bidder B's lien. In this case, before Bidder A can begin foreclosure proceedings, he has to pay off Bidder B's lien. So, at the time of auction, Bidder B is already out of the picture. A mortgage holder would most likely have the second lien on the house. Any other mechanics lien would be prioritized after the mortgage. Any auction price above the delinquent taxes would go to paying off the lien holders in order until the money runs out.

In this simple example, you did specify that there are no mortgage/liens on the property. To be honest, I've never considered what would happen to the extra money after the auction in this scenario so I can't answer your question. I would assume that it goes to whoever had title to the place before the auction, but that's a big assumption.

The problem with those courses is it's hard to tell if they are legit or not until you have bought them. I do know that a lot of people who are selling courses/writing books on tax lien/deed sales have never bought one in the state of Florida. I have seen several claim that you are guaranteed 18% return and there is no risk. If that were true, I would have quit my day job long ago. For your friends specific example, I don't know if it's possible where you are at. Here, I don't think you can transfer title without all liens cleared first (I read that somewhere but have never tried to verify it).

For arguments sake, let's assume that what they suggest is possible. Consider everything that you would have to do to find a property that fits the criteria:
1. Look up the auctioned properties.
2. Check every property for who holds liens.
3. For the ones who have no liens other than taxes, assess the value to determine if there is even enough money to be made to bother.
4. For any that would make enough money, work out a deal with the property owner.
5. Hope the auction actually fetches the price you think it will.

That is going to be a time-consuming process. And, the most important question is, why is the owner just walking away? Any owner that was not an idiot would sell the property, pay the tax liability and keep what money was left. You've already determined that the house has value since you think it will fetch a decent price at auction. How many owners are dumb enough to just walk away from properties that they have a lot of equity in? If the owner is walking away, the property almost definitely has a mortgage that they can't or won't pay. Or, the property is worthless.

Cliffs:
- All answers I have given apply to Florida only.
- I'd bet that your friend either has not conveyed the info properly to you or he bought a get rich quick scheme.

Depends good returns you get when you buy the properties.

Focus on finding good deals, this is what this thread is about. Go out there and find the deals. All the other questions are just noise. Take action, find the deals.

Professional property company is personal bias. 50 units is a good time though to start using one.

ty tien

heading to bed now but will post tomorrow about a 4 family we're closing on at the end of march

Thanks again. You've been incredibly helpful and generous with your time.

I agree it's a big assumption, but it has to go somewhere and from the little I do know about it, the counties and mortgage companies are only allowed to recoup their actual losses plus some minor fees, etc. So it does make some sense to me that any significant overage on the sale of the property would go back to the last deed holder.

Exactly. You, me, and why not everyone else?

Well, one of the benefits the course implies, is that you're not limited by the state in which you live to find deals.

This was the first thing that came to my mind. Obviously, you'd have to do a title search and make sure it's clean.

My friend hasn't bought the course yet. He's registered with a website that holds webinars. This was one of them and gave me his password to listen to it. I did and of course at the end of it, they want to sell you the course which includes the databases and how to find these deals.

According to the webinar, this almost doesn't even matter. The bidder who wins the property at auction pays off the taxes and mortgage. Presumably the winning bid will be for an amount greater than the total amount owed, because there is competition among bidders. So if there is a total of $50k owed and the winning bid is $60k, the winning bidder pays $60k for a property he deems to be worth more. But since neither the mortgage holder nor the county get to keep the extra $10k, it therefore goes to the last deed holder, which would be you (assuming you got the previous owner to take a few hundred bucks for a property he intended to walk away from anyway).

Again, this seems like little more than a scheme to me, but I have to admit that I'm having some trouble figuring out the major flaw in it. As long as you do a little homework to determine the property isn't a complete dump (so that someone will be willing to bid on it) and there are no major hidden liens (that you might be held liable for in the interim or would preclude potential bidders from bidding on it), and you can find the needle in the haystack owner who's walked away and willing to accept some cash... Is there any reason you couldn't profit from it? A big concern of mine was what if any damage it could do to my credit. But you would not be liable to the mortgage holder, since your name isn't on the mortgage. You would not be liable for the taxes, because property is considered "in rem" meaning the debt belongs to the property, not the individual.

Anyway, my instinct tells me this is just pie in the sky and a waste of time. But I thought I'd ask people who know more about real estate than me.