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?

It really depends - the answer is both. Most of the time my properties are seen by the bank as a less than desireable risk. So I have to agree to pay a higher interest rate up front and hope that when I get the property up and running properly a bank will refi me to a better deal. This is somewhat risky for me because there is certainly no guarantee that any bank will be interested when it is time to refi, and beyond that, there is no guarantee that I'll be able to get a better rate later on. So I plan to refi, but I assume that its not going to work out. So I have to be sure that at the current terms I can service my debt and still be okay cashflow wise and still make the kind of ROI that I want - those three are like differnent arms of a mobile and they have to stay in balance in order to work.

What I normally do now is get the property and pay most or all of the fix up out of my pocket rather than relying on the banks. I then refi to get my money for renovations back out. I don't normally refi out any more money until I need it. I don't normally refi my down payments back out, although I know some investors that do.

Something too that you should be aware of is that the vast majority of the time I get a check at closing when I'm buying a property. I get the prorated rents for the month in which I'm buying.

You have to be smart about when you're going to close. Like, if I were to buy a 15 unit building that rents for $450 per unit and we close on the 1st, I should get a check for $6,750. If we close on the 15th, I should get a check for $3375. If the seller is smart then he'll ask you to pay the portion of the mortgage payment for that month - its only fair since he already paid for that month and you're taking part of the rents. That is fine. See, the principle portion of a mortgage payment is made in advance - so you should pay a prorated portion of the prinicple. However, the interest portion is paid in AREARS. There is no reason why you should pay him for any obligations before you took posession of the property.

Another thing. Before you schedule the closing date, find out from your bank when the first payment will be due. If you close on the 25th of January, maybe your first payment will be due on March 1. But if you push the closing to February 4th, your first payment might not be due until April 1. You see the difference? In the first scenario you get to collect prorated rents for a few days of Jan, and full rents for Feb before you've got a payment. In the second scenario you get prorated rents for almost of Feb, and all of March. In a 15 units property that is a differnce of several thousand dollars in your pocket. This is money that you can use to fix up the property.

Ok, so I said all of that to make a more general point. I don't consider the money that I use for fix up in my COCR calcs. That is because I'm planning to refi out all of that money within one year. If it so happens that I can't refi the money out, well, I still make a decent return on my capital, but nowhere near the 25% COCR that I want to get. So I do decent instead of great.

One thing to be aware of too is that when I first started doing this it was a constant struggle to get the banks to work with me. They always wanted 2 years of financials on the property. Obviously I'd just filled the place, so I didn't have those kind of numbers. It helped though that I was still only cashing out a small portion of the value of the property, so the LTV was still somewhat low given the new valuation.

Anyway, basically, if you buy the property right up front that gives you so much more wiggle room to deal with lenders because it limits their risk.

Excellent thread. I have made a resolution to do at least one real estate deal this year. I am a beginner but have started to do some research. I live in a college town, but a friend, real estate agent, told me about a HUD property for sell. I am most likely not going to purchase this property, not confident enough in my RE knowledge yet, it is just the only one I have looked at.
Details
Built: 1978 - Inside renovated last year; outside appears to be in good shape
Rent: $550/$600 = $1150 - 100% Occ last 2 yrs
Taxes $2400/yr
Exp: ~$1200/yr (Total Guess) too high, too low, not enough info?

What price/financing would you look for here? Sorry if this is not enough information to make a judgment.

Would you ever contact the seller directly here and try to setup an owner financing deal even though he is listing with an agent?

HUD Questions
Does HUD provide you with tenants or do you have to find qualified ones?
Pros/Cons of dealing with HUD?
Anything you think is useful to know regarding HUD.

Thread is great and any help is truly appreciated.

One nice thing about college towns is that they tend to have higher occupancy rates over time. The drawback is that usually property is real expensive in college towns. Anyhoo....

Your estimate of expenses is pretty low. As a ballpark, I would estimate closer to 45% expenses. That 45% includes professional management. You'll be tempted to leave that off since you're new to investing. I'm pretty sure that no matter what I say you won't include that 8% in your expense, so i'm not going to spend lots of time trying to convince you. When you buy bigger properties the bank will make you include that management fee in your expenses though, just so you know.

Ok, so you can get about $1100 in rents and your expenses are 45%, leaving you with $605. How much positive cash flow do you need? Lets say you want $50 per unit. Now we've got $505 left to pay the mortgage. If you've got a financial calculator, punch in the numbers. if you have to pay 6.75% interest, you can pay $77k. If you have to pay 7.5%, you can only pay about $71k. Or, another way to do it: at a 10% cap rate you could pay $72,600.



No. Even if the seller could legally go around his agent (which he can't) it'd be incredibly rude and you'd make no friends. This business is, IMO, very much about friends.

By HUD, I assume that you mean primarily the Section 8 program? Section 8 is HUD, but HUD is not Section 8. Kinda like in the way that poker is gambling but gambling is not poker.

S8 doesnt' really find you tenants - you have to still find your own tenants. However, if you take S8 vouchers they will put your property up on their local website and usually they'll make the available properties known to S8 tenants that want to move. It helps too indicate that you accept S8 vouchers when you put your ads in the paper.

I very highly recommend S8 and other community programs. The pros, IMO, far outweigh the cons. First, having a community program involved helps you control your tenants - in my experience a lot of people are competeing for limited housing aid. So no tenants wants to lose their spot at the trough. Second, in these programs the tenant is not responsible for paying the rent - it comes directly from the program. Third, for some programs you've got a case manager that you can talk to if there is a problem - lots of times these programs will pay for damages inflicted on your property beyond the scope of the security deposit. Fourth, you can charge above market rents.

The downside is that you have to comply with some relatively strict guidlines if you want to participate. The house will be inspected by a S8 inspector. Of course, unless you're a slum lord you would have the property more or less in the kind of condition that S8 wants. Its not that big of a deal. The property will be inspected every 2 years or so. It seems like a pain the first time you do it because you don't know what to look do to pass. But after that its pretty easy.

spex,

Great thread.

Question...how easy is it to get setup to accept S8 vouchers, and where would one start to get a property qualified?

I assume that in your analysis of tj00’s property you are using 100% financing. How would you go about the calculation accounting for a down payment?

Hi,

I've done a couple double closings and L/O's (tried only cooperative assignments). Was thinking of getting Dave Lindahl's course, Apartment house riches. Can I get your opinion about his course/ideas?

Thanks!

how much more expensive is it to build a house than to buy a house (assume that your design is not overly complicated). would it be cheaper now that the housing market is struggling?

Its pretty easy. All you have to do is contact whatever authority handles S8 in your area. You'll have to fill out some paperwork and get the property inspected. Thats about it. These links should help:

https://pic.hud.gov/pic/haprofiles/haprofilelist.asp
www.hud.gov

Sorry, I'm not familiar with Lindahl's stuff. I heard him speak once and overall I wasn't impressed. If I remember correctly, this is the guy that never talks to his tenants and he was trying to get people to not only to buy his overpriced course, but also to buy into the apartment complex partnerships that he puts together. Overall, I didn't hear any unique insight that justifies the price of his materials. But I've never actually read anything of his, so I'm no expert.

I found this review of Lindahl by John Reed (who I respect and recommend, and whose books only cost about $35 each):
http://www.johntreed.com/Reedgururat...anchorDlindahl

I am investing my money with a guy who owns a renovations company in Canada. What he does is he flips homes (cheap, unattractive homes) and sells them for a profit. He says he needs investors because he's used his name to buy mortgages and he can't get any more houses. First off... is this a scam? I guess you can't know until he shows his true colors. What can I do to protect myself from scams? Is there a group that will help incase it is a scam? Please let me know your thoughts.