Thoughts on OOS Investment With a Mentor From DFW area?

13 Replies

All,  

I have been learning a bit from a mentor who is a very active investor in the DFW area while I currently live OOS in Denver area.  Considering the Denver market I was speaking to him about approaches to investing in Denver etc and he suggested I come down and do some driving through areas that he is very active in.  He further offered to help me invest if I found something and would not only have his team (wife is a RA) help with the purchase and all the documentation regarding being a landlord but would also do the management of the properties for me at a price of 6%.

The area he is actually fairly active in is south of the city and east of 35W.  between 30 and 20 east of 35W

What are peoples thoughts on this area or are there some suggestions on areas around there?

What are peoples thoughts on this kind of management fee plan?

my thoughts were to run a family vacation to dallas over thanksgiving and use this time to do some driving around the area to familiarize myself with the properties etc and get to know the mentors team etc.

Just seeking some input as I look towards my first purchase.....it is that 90 day challenge time after all :)

Bo 

@John A vanecko Definitely go visit and drive around. Don't forget to write off the mileage either! :) 

6% PM fee is very good.

I don't know the area. But focus on the quality of your team. 

As long as you have a good, solid, trusting relationship with him, it could be a great opportunity. Also, don't get too excited and overlook the fact he has a financial interest in you buying properties down there. Now, I'm not criticizing that, just saying keep that in the back of your mind.

I agree, 6% is good.  I have seen higher.

It is a good idea to drive the area and see it.  You might love it or hate it.  Pictures and Google maps can only do so much.

I live in Richardson but I make loans all over, including the area you describe.  It is a good area.  You should definitely take a look.

Don't take what anyone says without doing your own research, but I think your mentor is steering you in the right direction.

Neil

@Chris Lopez   thanks for the info.  we have been building a strong relationship over the last 2 months.  he is the reason i am on here and have listened to over 20 pod casts etc.  that said i am well aware of his financial interest in this partnership so that is the item i am focusing on mostly.  i have had three dinners with his wife and him now and this would be the first opp to meet and see his area etc.  
appreciate your honesty here etc.

@Neil Aggarwal   thanks a ton for the advice.  he is bit on the "c" areas i guess (areas that arent "dont go out at night" but may be areas i personally wouldnt live with my fam).  its been his niche when he started and he has continued it.  this area i guess is somewhat in that ballpark. 
im planning a family vaca for thx giv and will likely drive around during that time frame.

thanks all

Bo

In my experience the sweet spot for rentals are houses with an ARV of $150k or lower.

@Chris Lopez  Saw you mentioned "writing off the mileage" etc.  I know that once I am actively investing all these types of trips are tax deductible, but if I do not currently have any, can I still write it off?  Or is a better way to look at it that I simply keep all tabs on a trip down there and if I do end up purchasing, I can then use all this for a write off on my taxes?

I guess I had not considered that even though I don't own yet, when I do, this could actually be something I place on my taxes.  I will begin some good book keeping and also keeping all receipts etc just in case.  

Thanks for making me think of this :)

@John A vanecko First, the standard disclaimer that I'm not tax professional....

The best answer is that I'm not entirely sure. I know from previous businesses that I've run, that if I traveled somewhere (regardless of the outcome) I could write off the mileage and other expenses.  My guess, is that you probably can because you are legitimately looking at properties and doing your due diligence. 

Perhaps someone with more knowledge can chime in.

Definitely, keep track of everything.

If you have the time, read a book or do some research. Years ago I read Sandy Botkin's "Lower Your Taxes Big Time." It's more geared towards the business owner. I can't remember how much overlap there is (if any) for real estate investing.

There are some great apps for smartphones that track mileage as well. Way better than paper tracking.

@Chris Lopez  funny how we have to "disclaim" advice all the time in todays world...another topic ...

thanks for the heads up ...  I am pretty sure we are thinking the same thing and if nothing else, keeping good tabs allows me to write off if it is possible...  so better safe than sorry :)

bo

C class landlords often make the highest CoC returns. Depends if you're good at handling the tenant base. Whichever way you go, be sure to paper yourself! Detailed agreements make for happy partners.

@Ronald Rohde  Thanks for the heads up.  From my research, this is a "niche" that does offer its set of both excellent returns and potential "excellent" headaches.  

Just curious as to how you would do the deal with this investor. Are you planning on having him float you the money and you purchase it in your name and treat his interest as a loan or would you go in as joint owners with both on title? I am curious people's thoughts on what people think is the best approach, understanding there are variables. I think this is a great opportunity for you either way. I have and have had a few rentals in CA in C class neighborhoods and have done just fine. There are usually a lot of repair costs associated so run the numbers and error on the conservative side. I am not in that area but am now curious as well on the value of it. Thanks everyone

@Travis 

@Travis Evenson Thanks for your input.  Basically, this person has lived and invested heavily in these areas for 10+ years.  He is currently actually consulting at the company i work for here in Boulder CO and I met him b/c heard me listening to BP podcasts and he also started asking questions about my thoughts on real estate etc (without telling me he invested).  As we started talking more he told me his story and told me about other books etc to read.  i started bouncing Denver ideas off him and he suggested ultimately that i look elsewhere to start.  That is where i began discussing that OOS would be tough b/c i would have to find a strong PM.  Conversations moved from there.  ultimately, i will be investing my own money and he is willing to drive me around the area to better understand the market, housing, people, etc.  He offered up the discounted PM fee as a way to help me get going and better understand the ins and outs.  We have since spoken about some long term goals and partnering on future investments b/c he loves my academic background and ability to analyze properties etc.

down there i can get some deals in the 15-20% COC range where here in CO it would be extremely tough to do so. Start and learn OOS and then potentially move to some bigger stuff here in CO is what i am thinking.

so for now I am heading down there over thx giv to look around the place and see what is what.  

Best of luck to you. I am a recent resident of the DFW area and I kick myself for not investing here 2 years ago when I moved out here. It's a hot market now which can be good and bad.

@John A vanecko    I will be here over Thanksgiving if you want to meet up.   Everyone has their own strategy and own success.  What I can say is the area you describe can be some of the toughest in Dallas.  A few areas are starting to turn, but it can be tough.   One of my criteria is to buy where you would feel comfortable with your wife going to knock on the door to collect rent after work when it is dark?   Not sure all of that area meets this criteria.

6% sounds way too low to me.  10% is normal.  I don't think anyone gets rich off of property management...although it feels like it sometimes.  If they're only charging 6% they're likely going to make it up from you somewhere else.....like frequent turnover of tenants....or upcharging on maintenance.

I'd be happy to give you an independent look at any of the deals they are offering to you.

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