Spex,

Amazing thread. Thanks.

1. How long does it take you to evict a tenant that stops paying the rent?

2. How old are you, and how long would you say it took you to go from noob to expert?

3. What are the best and worst decisions you have made in REI?

4. What was your initial bankroll?

5. What are the most common things that suckers do wrong?

Jeez, I'd hate to have a lawyer for a tenant. I have no idea what the legal climate for landlords is in London. But the first thing that I would do is revisit my lease. If the lease says that a tenant must pay by date X, I would evict any tenant that did not pay by that date.

I've been in court several times for similar issues - a tenant withholding rent due to problems with the property. I evict them. However, first I try to come to some reasonable resolution. Like maybe offer them a $100 credit toward next month's rent. Any more than that is a tenant trying to muscle and intimidate you with legal action. Little do they know that I'm as much of an expert on my state's landlord/tenant law as any lawyer. But that doesnt' help you at all.

Just evict the guy and be done with him. If you've got a good lease, then normal maintenance should not give the tenant leave to not pay rent. If you made a resonable effort to get the problem fixed in a timely fashion, then your tenant shouldn't have a leg to stand on. If you're really worried about it, consult a lawyer about the situation. Don't be afraid of the guy just because he's a lawyer. Evict him.

This is very jurisdictional and I've got properties in several jurisdictions. In some it takes over 90 days. In others it takes about 30 days. It depends on how backed up the courts are. I try to help my problem tenants by paying them to move out rather than evicting them. Much of the time less than $500 will persuade them and its a lot faster and cheaper than evicting. Plus it makes the tenant feel powerful and smart. I don't care about people thinking that I'm smart. I care about collecting rents.

Well, I grew up in a family of RE investors. My father, uncle, and stepfather were all RE investors and entrepreneurs. So I hit the ground running. None of them were particularly successful, and I learned a lot about what not to do from those three. How long....I dunno. There are a lot of people that know WAY more than me about REI. So believe it or not, I STILL don't feel like much of an expert. I've had more success than some people and less than a lot of other people. But I don't really consider myself any kind of expert.

The first property I ever bought was the worst property I've ever owned. It was an up/down duplex - and 1870s house converted. It took me a year to renovate. After renovation, it had a break even cash flow IF I could rent it, which I couldn't without lowering the rent. At the time it seemed like buying that property was the worst decision that I ever made.

Then my wife came up with a plan for renting by the room to the mentally ill. Doing it that way made us a significant cash flow each month and our rooms were never empty becaue we were the only people the would rent to that population.

That property ended up being my best decision because it taught me more about REI than anything. REI is very much about creative thinking - seeing value where others miss it. That property defined my career in REI and for each new potential purchase, I think long and hard about not only what a property is, but that it could be.

I've never had any huge loss on a property. I've had several break even. I've had a few minor losses. But overall I've been lucky.

I think it was about $15,000. I bought my first property w/ no money down and used the $15k to fix the place up.

Underestimating expenses. By far.

Thats cool. I always tell noobs that they need to think about what kind of life they want and then figure out whay kind of investments they need to make the have that life. I like that this RE mogul figured out that his ideal life involved walking his kid to school. It rings truer to me than focusing on getting a BMW, wearing designer clothes, and buying huge flat screen TVs. Not that there is anything wrong with those things. But honestly REI - at least the way that I do it - is a lot more of a blue collar job than a white collar job. IMO, its for simple people that will work hard and not judge their tenants. At least that's my experience from knowing other successful RE investors.

Are you renting single family homes? If so, have you considered trying lease/options for getting them sold? That works the best for me for getting around realtors and having your property sold for a good price. Also, in the U.S. there are services that will list your house on the MLS for a flat fee ($350-$500) and you act as your own agent. You could try that to avoid nasty realtor's fees. I know a guy that uses RE agents to sell his lease options and he gives the agent whatever option money is collected - usually its about 1% to 2% of the purchase price. But the agent doesn't have to do much either - no paperwork, no closing, to worry about, no advertising, etc.

If you want to retain tenants you have to know what tenants want. My tenants want me to keep my property clean and working and they want me to work with whatever housing assistance program they use. So thats what I do. What do your tenants want? Sorry if that feels generic, but honestly, I know experienced landlords that STILL do not realize that they are offering a service and their tenants are customers. Landlording is just like any other business - if you fulfill the needs of your customers they will be loyal to you.

I teach my managers to stay connected with tenants. Every time a tenant calls the office the manager is to chat with them - find out how their apartment is, if they've had any problems, if they have any suggestions, how their neighbors are, etc. Once in a while if I've got a long term tenant and I want to paint the unit, I'll allow the tenant to pick the color. A lot of my tenants have NEVER been able to pick the color of their interior before. If a tenant has a complaint, my managers fix it immediately. Immediately - as in within one day. Whenever possible the manager personally goes to the unit with the handyman and tells the tenant how much we appreciate them telling us about the problem. I ask my tenants to fill out comment cards that I mail to them. Basically, if you treat your tenants how you'd like to be treated, they will stay loyal. If you are an absentee landlord that doesn't care about anything but the rent checks - as many are - then you'll have a high turn over.

Its funny - I was chatting with a loan officer from Bank of America the other day, and he related this story to me. He has a friend that contracted a company to build him a $230k house. By the time that the house completed, it was only worth $130k. So the guy can't get financing for the $230, bails out on the builder - who is holding the construction loan on the property - and buys the house from he builder for $130k. I'm not sure that the legal ramifications are for this action, but I thought it was funny and kind of disturbing at the same time. Tough luck for the builder. I think that was in Michigan, but I can't remember now.

Spex,

What are your thoughts on Loopnet.com? Have you ever used it or ever heard of it? What are the odds of finding below market deals on it?

I spend a lot of time on loopnet. I think that its a good resource. I've never found a deal on loopnet, but I like to keep abreast of what is on the market and what has recently sold. I think that there is potential to find deals on loopnet if you can find properties that have been listed forever or if you are looking for redevelopment projects. But loopnet is mainly retail priced properties. Don't hold your breath on finding a good bargain on that site.

I too have been looking on loopnet. I found out there is a BIG difference between the free searches and the member searches. Here is how I understand it.

If you are selling loopnet offers you two choices. You can just list your property there for free, or you can sign up for their full package and pay them to list.

As a free member when you search you ONLY see the listings of the people that pay for Loopnets full package. In order to see the other listing you have to have a paid subscription. I got a "free weekend trial" and saw far more properties that looked like the numbers could work. My gut feel was that free members see about 1/3-1/2 of the total listings out there. So I was gonna give it a 1-3 month shot later this month as I am hoping to find 2 rentals before June. I will probalby buy a full quarter sub as they will refund the full remaining months if I find my 2 before term is up.

So pick your markets and then when they contact you go ahead and talk to them and try to get a free trial. See if you find better results on the full access trial day. Oh and make your trial day a Friday so you get the whole weekend.

Spex,

Quick question -- when you ask a potential seller to carry a note, do you generally expect them to carry it at a rate less-than, equal-to, or greater-than prevailing bank mortgage rates for the same period?

I generally submit several offers to a seller at once. I just figure how much money I need to make each month to cover the expenses and get ROI I want. Anything that is left over can be paid to debt service. That number is constant - so I don't really care how we whack up the debt service in terms of rate. I've got a fixed amount that I can pay. If the seller feels better taking more interest and lowering the principle, thats fine with me. One thing to be aware of too though is that the terms might have different tax consequences, so on a large investment you should probably consult a CPA.

Spex,
Thank you for doing this thread, some really great info in here. I have a quick question, I am moving to a fairly hot market (Raleigh, NC) in a couple of weeks where there are a ton of opportunities.

Eventually I plan on flipping, refinancing and holding (with plans on starting a management company) like you suggested, but I don't have the capital to really jump into that at the moment. I plan on wholesaling for hopefully a year and really learning about the market and hopefully have a decent chunk of capital to work with. What do you think is possible for a hardworking wholesaler who has his stuff together? I plan on joining all the clubs, putting together a website, advertising via direct mail, signs, etc. Do you think 2 deals a month is possible?? More?

Thanks

Wholesaling is not easy. You have the right idea but it is also very expensive to do it right. Direct mail is very very expensive. We spend 80k a month on direct mail to get 20 houses under contract. A few bad months and your out on the curb. A lot of the little guys put out road signs, pass out cards at grocery stores and do ok. I rarely come across a little guy who has deals that make sense. In todays market you have to buy properties cheap, REALLY CHEAP. It is not easy finding someone who owes less then 50% of their house value and is also willing to sell it for 50% of it value. The biggest mistake I see beginner wholesalers make it put house under contract for too much money. They don't understand how a "flipper" or landlord investor works his numbers. The general rule of thumb is 70% of TODAYS value (not 3 months ago) minus the rehab.

Example : house is worth 200k fixed up. It needs 20k work.
it has to sell for about 120k or even slight less in todays market. That means you have to put it under contract for about 110k to have a deal and then assign it to an investor for 115k or so.

Again finding someone who is willing and able to sell you their house for 110k when its worth 200k is a very hard thing to do.

The second mistake is underestimating rehabs amounts. 10k rehab is a clean house. 20-25k is average rehab. Any more then 25k is a big rehab job.

Any more questions about wholesaling let me know.

I'm going to defer to GiddyUp here since he is the wholesaling expert.

Thanks for getting back to me, I do have a few question though. In your example you say that a home with a 200K ARV should be put under contract for 110k and assigned for 115k. Isn't that a bit low? So the investor purchases for 115 + 20 in rehab work and maybe 10k-20k in carrying costs (interest, insurance, commission if selling via a broker, etc) and sells the house or refinances for 200k for a 45-55K Profit?

Why wouldn't a rational investor pick up the property for 130 (65% of ARV) or even 140 (70% of ARV), giving himself a 20k-40k profit based on a 200k ARV? Am I missing or underestimating any major costs?
Thanks

Rational investors use 70% ARV - rehab. In todays market a lot of guys are using 65% - rehab.

ARV =200k
*70%=140k
- 20k rehab=120k

if your trying to wholesale it and make 5k for yourself you need to put it under contract for 110-115k.

Also banks today are only letting you refi at 80% LTV so if you have an investor who is in the game to suck out equity then the numbers really have to make sense.

Another thing you have to remember is that after an investor fixes up a house they want to flip it quick. If a house is worth 200k on paper doesn't mean your selling it for 200k. Most likely sell it for 190k or even slightly less. Investors don't like to have capital tied up in deals especially if they are using hard money-15% interest rate in Florida.

Now sometimes the magic formula, 70%- rehab, can be forgotten if a property cash flows or is in a very desirable area.

A friend sent me this link recently and I figured I'd pass it along to you guys here. I can't say for sure what the deal is on these properties but they appear to be simple auctions for deed. Maybe someone can find a deal.

Link

spex, what were some of the instances you used a real estate attorney? were some of the times common occurrences, matter of course type things or unusual circumstances? also, about how much did you pay for their services?

edit: double post for some reason

I've pretty much only used an RE attorney to do delayed exchanges. There is too much specificity of the law in the delayed exchanges that I don't really feel comfortable without an attorney.

There have been a few other instances where I've used an attorney but not specifically an RE attorney. For instance, I usually get contracts from other investors and then have my attorney alter them as appropriate. Other times I've had my man read over some contracts before I sign if I feel that I'm not clear on some points in the contract. But normally I try to use my contracts rather than other people's stuff.

My RE attorney charges me $300 per hour. But he does exclusively RE law. He also sat on my state's legislature for many years and helped reformed several of the RE laws. So he is the best bang for the buck. I could find a cheaper lawyer, but then I'd probably have to pay him $100 per hour to learn the applicable RE laws. No thanks.

spex x,

Thank you for this thread. It's always interesting to get an inside-look at an area I know nothing about. I'm going to look into REI some more, if you have any other good starting points then I'd love to hear 'em. I'll be checking this thread religiously anyways

You mentioned that you haven't been sued and have been lucky a few times. What happened those few times (if you don't mind)?

Well, I'm not really sure what the window is for someone to sue me. Since I don't know, I'd rather not divulge anything that could potentially be used against me if a tenant did decide to sue me. Not that its a huge risk, but still.

I can think of only three instances where I was probably at fault for something. In each case either I or one of my managers was negligent in some way and someone got hurt.

In other cases, people probably could've sued me even though the issue wasn't my fault - like the tenant used something on the property improperly and they got hurt. I'm sure that such things have happened a lot of times and I'm not aware of all of them.

I completely understand. How often have you heard about colleagues being sued? Is it pretty common? Are there usually thrown out or result in big fines?

This was a private message I sent to spex, and I am re-posting it here so that his response could be of help to someone else who may have found themselves in a similar situation.

I've found myself in a bit of a situation where I could use some advice from a professional, and if you have a little extra time, I would really appreciate it.

My Dad and I read a few of the major REI books 3 years ago. We basically got it into our heads that becoming an investor was easy if you have the $ and the balls to take a little risk. My Dad had a little experience flipping houses, and I was just 20 years old and eager to join in.

Over the course of about 6 months, we found 2 apartment buildings, with a total of 18 units between them. At the time, I believe 14 were rented, and there was always at least 1 who was not paying. We assumed we could just fix up a couple of the vacant units, increase the rents, and sell them. A local management company was taking care of them, and we continued to use them after we made the purchase.


Things went downhill very quickly. We made improvements to a couple units, but the management company was obviously screwing us over in a big way. Charging us 10$ to put a flier on a door, 10$ to send someone a notice of a late payment, etc. Less and less units were filled. Random repairs and expenses kept going up. They were basically taking us for as much as they could without putting any effort into renting our vacant units.

We found a different small-time local property manager, who obviously does not care very much about renting out the units, but does not screw us with random fees/charges. She has been in charge since then.

The loans we took out for these buildings were also secured to us personally, not just to our business, so we have been paying the difference out of pocket for at least 2.5 years now.


It is very obvious to us now that we were both in way over our heads - especially me. My Dad has basically been balancing the finances and determining how much we each need to contribute every month to keep the buildings afloat. This amount has increased dramatically over time. We currently have 6 occupied units out of 18.

We obviously cannot sell the buildings with such a terrible occupancy rate.


- The buildings are in a bad part of town in Evansville, IN. Neither my dad or myself would feel comfortable or safe managing the properties ourselves.
- We do not know any reputable or trustworthy managers in the city. Most of them manage their own buildings as well as others - which obviously works very badly for people like us when trying to get units filled. Quite frankly, they all seem like crooks.

I wish I could give you more details - but as I'm sure you could tell while reading this message, I am in way over my head.

Any advice you could offer would be highly appreciated. Even reading material or websites that I could go through that might have suggestions for pulling out of a REI rut. The payments to keep these buildings afloat are high enough to bankrupt most families, and if it weren't for poker, I would be too.

I think about 75% of the problem is poor/apathetic management. They're happy to take 10% of whatever rent happens to be coming in. I've considered the idea of taking over the management myself, but quite frankly I would not feel safe even if I had a gun on me. I don't even want the occupants knowing my address to send me a check. My Dad and I are both fairly small people, and the buildings are in a very low-income part of town.

If you have any other questions, or need any other information, I'll be happy to answer.

Thanks.

In my experience its not that common at all. Most of the time when tenants sue they take you to small claims court for keeping security deposit, or other small issues. I'm not aware of anyone that has gotten sued by a tenant for liability, at least not recently. I carry a lot of liability insurance just in case. I figure that a tenant can go ahead and fight with my insurance company if they want to.

I've had tenants report me to the city for violating some city code or other. Generally, cities just want compliance from landlords. In my experience cities don't really care to impose fines or anything unless the landlord is incooperative. In each case that this has happened, the city official inspects the property and gives me a list of items to change. Normally I've got 30 days to make the improvements depending on the scope of work. Now, if there are any code violations in my properties, they are the result of simple ignorance on my part. Obv I can't be expected to know all the applicable codes. In my experience cities are relatively easy to work with. I've never been fined by anyone.

Right now though I'm hunkering down for a fight. I just got word from a friend that some of the neighbors of my rooming house are not too happy with having that property in their neighborhood. One guy in particular is pretty upset and he feels that his children might be in danger. That property has been operating like it is for a long time. I suspect that he has an issue with one of the tenants more so than the property as a whole. It sucks though because this guy is a well respected restraunteur in town and he knows everyone. I'd hate to have the guy as an enemy. I'm supposed to meet with him next week. Obv I'll do my best to address his concerns.

Fee-based management companies are notorious for this type of bull****. How are you paying your managers? Is it a percent of gross, or what? Normally, if the company is charging you a percent of gross you'd figure that they'd have an incentive to keep the place full. However, its also possible that the place is so bad that you CAN'T fill it without doing some signficiant work.

You can sell the buildings for something. The problem is that it might not be enough to cover your mortgages. That is a big problem, especially if you guys don't have the cash to cover the difference. Bankruptcy might be your only option in that case unless you can find some partner who is willing to do what is necessary to get the place in shape.

You knew where the property was when you bought it, didn't you? If you guys are too scared to manage the property, how did you expect to do all the renovations and everything to get the place in rentable condition?

What about offering free or reduced rent to a part time manager in exchange for management services? That works for many landlords. I wouldn't have the tenants give cash to the manager though. Instead, what you should do is set up a special bank account for the tenants to deposit the rents directly into the bank. In that case, you may consider making the rent amounts unique for each tenant. Like if the rent is $300 per month, apartment #1 would pay $300.01; #5 = $300.05; #14 = $300.14, etc. This way you can log into your bank acct and tell immediately who has paid. Also, there is nothign wrong with collecting rents via mail. The majority of my tenants mail in their rents.

What are the management duties that you guys really need done? Is it only showing apartments? Lawn care? Handyman services? What? Make a list of the duties that the manager is do to. I think that you'll find that you don't really need a management service at all. If you guys can handle calling repair men and deal with tenants complaints about pets and such, then I wonder if a part time live in guy to handle lawn care and simple maintenance and hanging fliers is all you guys really need.

I wish I could give you more details - but as I'm sure you could tell while reading this message, I am in way over my head.

If you're worried about giving your address, then get a PO Box! If you are scared, hire a body guard! You guys gotta take control of this situation. You can't just sit around feeling sorry for yourselves and blaming bad mangement companies. Guess what. Mangement of rental properties is the responsibility of the owner, no one else. If you hire a bad managment company, that is your own fault.

Everyone makes mistakes. The important thing is to learn from those mistakes and move on.



When you guys originally bought the property, you had the plan to renovate the place and get it filled up, less the normal vacancy rate of about 8% or whatever is normal for your area. How much progress have you made here? Are all units renovated? How nice are they? The thing about dealing with low income people is that for the most part they've never been able to have anything nice. Put nice carpet in and new appliances. [I recommend that you don't put in dishwashers. If there is a dishwasher there, remove it]. If you can, include washer and dryers, or at least w/d facilites.

Paint the exterior of the property. Plant shrubs. Fertilize the grass. Coat the parking lots and repaint lines. Make the place look nice. If you do those things, I can guarantee that you'll fill the apartments. You'll have the nicest apartments in the neighborhood by far. These are simple, basic things that are will get you guys filled and keep you filled.

Another very important thing to consider too is that you need to get approved for Section 8. If you're not approved, you're at a huge disadvantage in the low income housing market place.

Here are your priorities:

1) contact your local Section 8 office and get a copy of the inspection list.

2) make sure that your apartments will pass inspection. I recommend that you try to keep you places as bare-bones as possible. You want the make the minimum standard for passing S8, and thats all. remove anything like garbage disposals, ceiling fans, extraneous screens on windows, storm doors, dishwashers, or anything else that is not on the inspection list. If there is, for instance, a dishwasher that is broken, you won't pass S8 inspection. Plus, its another thing to break that isn't necessary. Better to get rid of it now.

3) prioritize cosmetic renovations and develop a plan for execution. I recommend that you start with the interior - apts first, common space second. It'll make a huge difference if you paint and refloor the common space as needed. I recommend that you put cheap tile in your common space - its cheap and lasts forever. It looks nice too. As for apartments, I recommend that you replace all old, dingy appliances, put new countertops, paint cabinet doors in kitchen, paint walls, replace bathroom and kitchen floor linoleum. Lately I've been laying Pergo laminate flooring in some of my living rooms, and its a big hit. Its not every expensive either. There is nothing wrong with doing the renovations one apt at a time. Just renovate and rent and repeat.

After you are finished with interior renovations, you need to do the outside. First, you need to repaint. Repaint whatever can be repainted outside. Repaint the gutters too. Go to Sherwin-Williams and explain what you want to do. They'll help you get the correct paints for the job. I recommend that you use off-the-shelf paints. No special mixes. Off-the-shelf paints can be returned if they're not used. Specials are not refundable.

Cracked sidwalks on the property are a pain because they're very difficult to fix. If you've got old sidewalks that are all busted and ineven, I would probably just have the old sidewalks removed and new ones installed and be done with it. This spring, go to a local nursery (not a box store) and pick up some shrubs. Get all the proper info on planting the shrubs. Also, fertilize the grass and try to make it look decent.

Basically, what you should do is try to make the property look nice. Once you do that, I beleive that you'll find your low-income tenants. If your place looks like crap - like all the other places around the area - then you've got nothing to distingush your property from anyone elses.

I think that if you improve the cosmetic condition of the place and start accepting S8, you'll have a full property in a short time.

Also, try to join an REI club or landlord's association. You need help.