First Investment question

Buying & Selling Real Estate
13yFollow

First Investment question

Javier Molina
Port Ludlow, WA · Member since 2013 · 29 posts · 7 votes

So I have been wanting to invest in real estate for a while now, as it is part of my retirement plan. Been waiting for a good time and have finally decided to pull the trigger. Worked quite a few numbers, and found a home that I am about to put an offer on. Well untill yesterday that I was doing a bit more reaserch and found this 2% rule and 50% rule. Now I don't know... With those rules it is impossible to buy a house in this area. Also, I am seeing that the 2% rule was made back when interest rates were double what they are now. So I am looking to get some advice and see if I should go ahead and pull the trigger or back off before it's too late.

The house is a 3 bd 1.75 bath. 1880 Sq ft. Nice home, half carpet half hard wood. Been on the market for over 200 days. Asking price is 157k. They currently owe 123k on their loan. I am using a VA loan so no down, awesome interest rate. I will be asking them to pay for about 10k in closing costs so I figured 135-140k would be a decent offer as I am not willing to go higher than that. Also the average price for such a home is 150-165.

Having done my homework on rental prices the best I can get is about 1050 for that place if I want any chance of renting it out. So the math comes out as this:

For a 140k loan at 3.5% average
629 P&I
131 taxes
67 HOI
-----------
827 Total a month

That leavs 223 a month for Property management (105 a month) maintnence, profit, vacancy and what not.

That makes is kind of tight. I will be living in the property for about 7 months which will give me some time to put away about 6 months of mortgage. (Whis is what I think I should maintain at all times for vacancy and repair purposes)

I can look at this two ways, 1. (the way most of you might look at it) I have a pretty decent chance of having to put some of my money in to this property to keep it afloat, not a lot but still an amount. Or 2. I don't have a cash flow but hey even if I put in 100 bucks a month in to the property Im getting a 140k house for 100 bucks a month that some one else is paying the rest for. In the long run I am still getting a pretty good deal on it.

A little background. I am in the military so I will not be able to buy all my houses in one location, so they will be spread out as I move around. Figure I wll live it the house for a few years then rent it out instead of selling it. The town I am currently looking to buy in is a VERY small town whos whole economy revolves around the base. (Currently a potential location for the next FAA UAV test site which could more than quadruple the population and bring billions to the local economy over the next 10 years but who knows if they will select this as their next location) And lastly I do not have long to sit on this since I will be moving out of the location in about 8-9 months and want to be out of my current rental by the end of my lease July 31st. As well as living in the house for a while before I rent it out to give me time to acumilate my 6 month buffer. The current location is probably one of the best chances I will get at buying my first house since it is a fairly cheap market compared to most other places I will get stationed (Such as San Diego where if I buy my first home there it will be 2-3x the cost and if it goes vacant there I will be in deep sh** while if this one goes vacant I can still keep my self afloat)

Sorry for the long post but its the only way I could paint the full picture so that I can get the most relevent advice on my current predicament. Thank you very much for all of your help and time.

0Reply
40 views

Most Popular Reply

Simon Campbell
Miami, FL · Member since 2012 · 612 posts · 189 votes
13y

Wow! Long post. Okay lets see what we can do here. Honestly, the cash flow stinks. Using your numbers and a $140k offer price with 10% vacancy, 10% management fee, 10% repairs and 5% capital reserve; you are looking at a cash flow of MINUS $176 per month. OUCH. You have a cap rate of 4.4%. OUCH OUCH.

Honestly, this just is not a good rental property.

Secondly, VA loans are for owner occupied properties. When you move, you will need to refinance. This deal cannot be refinanced without money down and lots of it.

My advice, keep looking. Nothing is worse than rushing into a purchase decision only to regret it later as you go through foreclosure.

1Reply
See this reply in the discussion

30 Replies

Jump to latestLatest
  • Simon Campbell
    Miami, FL · Member since 2012 · 612 posts · 189 votes
    13y

    Wow! Long post. Okay lets see what we can do here. Honestly, the cash flow stinks. Using your numbers and a $140k offer price with 10% vacancy, 10% management fee, 10% repairs and 5% capital reserve; you are looking at a cash flow of MINUS $176 per month. OUCH. You have a cap rate of 4.4%. OUCH OUCH.

    Honestly, this just is not a good rental property.

    Secondly, VA loans are for owner occupied properties. When you move, you will need to refinance. This deal cannot be refinanced without money down and lots of it.

    My advice, keep looking. Nothing is worse than rushing into a purchase decision only to regret it later as you go through foreclosure.

    1Reply
  • Javier Molina
    OP
    Port Ludlow, WA · Member since 2013 · 29 posts · 7 votes
    13y

    Sorry about the late reply, had to run out of town last minute for family issues...

    I see how you got the cash flow rate, how did you get a cap rate? Does that not require a positive cash flow rate to calculate otherwise it would be a negative percentage? Sorry I am new to the game and trying to learn as much as possible.

    Regarding VA loans, as long as you move out due to orders you don't have to refinance. I am just not able to take out another VA loan until that one is paid off.

    Quick update: I have found a 3 plex home total of 4 bed 4 bath (so 1,1 1,1 2,2 I am assuming) that looks pretty decent and clean via pictures. It is starting auction at 15k and I don't think it will sell for more than 80-90k Using the 50% rule that is just about my limit on how much I should buy it for as well. Problem is that they only take cash, no financing. So I don't know how I could get my hands on this home. Do hard money lenders count as financing to the seller? Any ideas would be greatly appreciated!!! Thanks

    0Reply
  • Simon Campbell
    Miami, FL · Member since 2012 · 612 posts · 189 votes
    13y

    The cap rate is figured before taking out the mortgage payments.

    You are correct in stating that you can only have one VA loan out at a time. If you want to buy property #1 with VA and then use the credit somewhere else, you will need to get conventional financing to pay off the first to recover your VA approval.

    The quad is a good idea. VA does finance these if you live in one unit prior to deployment. The rental income should cover all of your ownership expenses. If you are going to deploy, make sure that you get a really good property manager to take care of the place for you.

    On auction properties, you can use financing, but you have to have your money within 24 hours of the winning bid. Hard money is an option as is personal loans with a flip to mortgage after the closing.

    0Reply
  • Javier Molina
    OP
    Port Ludlow, WA · Member since 2013 · 29 posts · 7 votes
    13y

    Problem with the auction is that I wasn't able to take a look inside of it, and needed quite a bit of work from looking thru the windows.

    So I have taken your advice and moved on and found a 3 bed 1.75 bath built 2007, 1300 sq ft. Very nice. Asking 130k Thinking about offering 110k and see if they accept it. Agent laughed at me. Thing is crunching the numbers I can't spend much more. Rent will be about 1000 to 1100 a month. So even at 110k I am barely making a profit. Reason I am considering this place is because it is very new and nice so it will be much easier to rent than other places. Also I will be VERY hard pressed to find a place in similar condition for the same price even more so cheaper.

    I am looking at exit strategies as everyone says. All I can think of is the current buy and hold, (if thats my main strategy can it count as a exit strategy?) or sell it... I won't be any good to refinance the first couple of years, as the refinance costs will end up more than what I have paid off in principle so far. Any other ideas?

    Regarding price should I be willing to go to 120k? Them paying all closing costs in the price. House is owned by the VA.

    Thanks again!!!

    0Reply
  • Brian Mathews
    Contractor · Round Rock, TX · Member since 2013 · 767 posts · 389 votes
    13y

    It sounds to me if you are very anxious to own real estate. That is where people make mistakes. Are you planning on retiring in the military or is this just a few year thing? Either way. I'd live on post, which I think is cheaper and save up some $$$ to get a really good deal. I know a lot of people won't agree, but I personally don't think long distance landlording isn't a good idea. I would want the ability to drive by my place and look at it every once in a while. I've been called by several out of state property owners through the years (in a cleaning/handyman business I used to own), to go by their property and look at it and take some pictures. Don't rush into anything you will regret, take your time. If it doesn't happen where you're at, it doesn't. You don't want a hungry albatross around your neck and you're forced to short sale in a few years. Remember you make money when you buy.

    0Reply
  • William Strong
    Bellevue, NE · Member since 2013 · 72 posts · 29 votes
    13y

    Brian Mathews FYI living on post isn't always the best solution. When living off post a blanket housing rate is given depending on rank and martial status. If housing that meets your needs is less than your allowance you keep the difference. For me living off post has been the best way to save up money and get squared away financially.

    Javier Molina I'm in the military and now have a rental in Las Vegas and live in Omaha. Right now i'm paying for some one else to live in it. I know you mentioned that you moved on but take it from me putting some money to build equity doesn't feel to good.

    0Reply
  • Jerry W.Pro Member
    Moderator
    Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
    13y

    Javier Molina First, thank you for serving. I am not an expert, but I have over 10 rentals that I have accumulated over the last 20 years. First California as a rule has very expensive real estate as compared to rental prices. You will probably never hit the 2% rule, I have only hit it once and it was a very low end property. However, you can buy and make money investing in real estate with not having the 2% rule but it still must have a decent cashflow. I have on at least two occassions bought property that brought in income of less than 1% return per month but would normally advise against it. I bought them at no money down and they only needed minimal work to get them ready to rent. I had renters for each before I closed, and overall they were otherwise top end properties.(I also have enough salary to cover payments if they become empty) I would reccomend you holdout for something at the very least that produces income over 1%(after taxes and insurance) of purchase price per month. If you cannot do this you may have to either buy a house that needs repairs and fix it up, or even consider buying away from where you currently live if thats possible. I think you should stick with your idea of getting a nicer upper end property as my experience shows they rent easier,get better tennants and overall require less work than lower end properties. Any chance you will be get transferred to Texas, the East Coast, the Midwest? All of those are pretty good markets at the moment. No offense intended but California laws stink for landlords, it is a dam hard state to start real estate in. That being said if you really want to start and cannot reasonably do it elsewhere then go to plan B where you look at houses and markets constantly until you find a deal that at least meets the 1% rule. Make it nice enough you would live in it, and enough cash flow to build up a cushion for the 3 months you cannot rent it or new furnace or air conditioning, or new roof, etc. I have found that if you look constantly eventually you will find a deal. In your case maybe someone else got transferred and is willing to sell you their house for whats left to avoid realtor fees and save the 6 months on the market. Be careful, get good advice, hire professionals as needed, title insurance, insurance, etc. Have all of your paperwork in order before offering, and save now for a down payment. Feel free to contact me personally if you wish. (Over half of the men in my family have been in the military) I will be glad to advise if I can. Good Luck and don't quit trying. Thank you again for serving.

    0Reply
  • Jason Minnich
    Investor · Milpitas, CA · Member since 2013 · 95 posts · 12 votes
    13y

    @Everyone, I apologize in advance because this is going to be long (though not as long as normal because I can cite my own rants now).

    First and foremost, as a fellow military member, Javier Molina, Thank you for your service and good luck with your Real Estate investment prospects.

    Next in addressing Simon Campbell, Your info regarding multiple VA loans is not entirely accurate. I explained the possible situation where you can use multiple pulls of a single VA eligibility without paying off your open VA loans - http://www.biggerpockets.com/forums/12/topics/86709-help-analysis-paralysis

    It's the last post in that thread. I think there is information there that might help Javier as well.

    Next some advice, Javier, it sounds like you have an idea of what you want, but you aren't sure how to execute. If you want to live in a place and then rent it out do that. If you are planning on trying to do this for a living, you want to make sure you get the best deals out there. It's important to know early on if you want to go into multifamily properties or single family homes. While it is true that you can get more rent (typically) for multifamily units, you run into issues with financing, as well as several other potential local problems. For example, here in Ohio, I have a friend who owns a duplex, they were trying to do simple renovations and run a new drain pipe but the city they are in requires anything greater than a SFH be considered a commercial property and requires commercial contractors. So they literally had to hire a guy for $500 to supervise their contractor to do the work because all the commercial contractors come at a commercial price point. So that's just one potential issue you might end up with.

    You can look back at past posts (including the linked one) and see that my goal is to buy where I'm stationed at "if it makes sense". It sounds like you have a good justification for buying there but I really like to have my houses not be completely reliant on the military for their income. If there is defense industry or other major job sources that makes me feel more comfortable in my decision making process.

    Brian Mathews, I know know what your background is, but if you don't have military experience I would highly recommend not giving advice regarding military specific issues. For example, I have found very few locations where it was actually a good deal to live on base. Most bases, privatized or otherwise, set the rent to be all your BAH and then you have to pay a reduced utilities rate. BAH is typically 70% of the local markets rental value (depending on where you are) so it could easily cover a house off base and all utilities, and it typically can cover most mortgage payments assuming you are buying at your income level. Furthermore, living on base housing doesn't gain you a better house. My last base they were in the process of condemning the base housing because they were that old and fallen apart. AND I had a buddy that was living in housing, they held his security deposit when he left because they said his carpets were not clean enough. They were demolishing the building! And when you sign a contract with most government housing you lose or severely reduce your right to recover your money via the court system because the way the system is set up.

    Everybody values their risk decision individually. This includes the long distance land lording risk and the property being vacant. You have a great positive going for you in if you go VA you will be owner occupied for at least a short period of time. What this means is you can meet the neighbors, grow a relationship and build a network of people you can trust to oversee your property while you are gone. I have contact info for 3 different people around my California property, and I'm building that relationship with a few people here, we have a nice church leader that is a neighbor who is very happy I've been keeping up the house because she grew up in it 30 years ago. You don't get that kind of interaction during typical investments but its nice knowing people who care are around.

    And finally, I have to mention your potential tax liability. California, in their infinite wisdom, has decided to impose a 7% franchise tax board tax on rental income going to out of state investors that use a property management company. This is in an effort to ensure they can collect as much as possible without dealing with silly things like deductions etc. There are plenty of forms to fill out in order to get a reduced or waived withholding, but rather than just filing your taxes minus depreciation/expenses at the end of the year, you would get hit quarterly unless you self manage. If you self manage, you don't have to follow that route, but make sure you know the tax issues. Because you are moving around a lot, it would probably benefit you to hire a CPA in every state you have a property to manage or get real smart on tax codes otherwise you could get a nasty surprise since most CPAs wouldn't think to look into this sort of thing. If you think about it, the way they implemented the tax it's brilliant. They tax you through a Property management company, and only out of state investors. That means your local CPA won't know what the right code is and most California CPA's wouldn't know it because it only affects out of state investors and. Enough about that, but just make sure you know what you are doing before you get into it.

    Thanks again for your service and sorry again for the long reply.

    Sincerely,
    Jason Minnich

    0Reply
  • Brian Mathews
    Contractor · Round Rock, TX · Member since 2013 · 767 posts · 389 votes
    13y

    I'm not sure of "new" military. But 20-25 years ago they had something called barracks where a person could live. If you have a family obviously that is out of the question. But maybe he's single. Sometimes you need to sacrifice a little for what will come down the road. It's like a person owner-occupying an apartment in something they own. Obviously, not a long term situation. But temporary. Especially with Javier since it looks as if he's planning on moving a lot.

    0Reply
  • Javier Molina
    OP
    Port Ludlow, WA · Member since 2013 · 29 posts · 7 votes
    13y

    Brian Mathews Eager, anxious, hungry, motivated. Yes I am. This is a 15-20 year plan that was supposed to have gone in to affect about 2 years ago but due to family matters had to be pushed back. I do plan on staying in the military until retirement, so driving by my property is not going to be an option for me. Also living on base is not an option for me. I am trying to take my time hence why I haven't put in an offer yet and am asking for opinions and advice here as to if I should pull the trigger or not.

    William Strong it’s a half full half empty approach I believe. You can see it as paying 100 bucks a month for someone else to live in it, or you can see it as someone else paying 90% of your mortgage and you only pay 36k over the life of the loan for a 150k house...

    Jerry W. Thank you very much for your offer to help, I really do appreciate it!!! The house I am looking at now is right outside of the 1% after insurance and taxes as you suggested. Thou it does follow the 1% rule before all that.

    Jason Minnich Thank you for all your information for military specific laws. I am going to have to look in to that as it appears nobody else knows about any of these exceptions. My main method of execution was SFH thou as I started to learn the rules and noticed how hard it is to find a home that fits in those rules I started to consider multifamily homes due to it being much easier to find homes that fit the 50% rule. Thou it is not really what I want to do. As multiple people have said they tend to bring a lower quality of tenants and end up causing more issues, compared to a family with 3 kids that can afford a new house with a pool and a Jacuzzi. Regarding multiple industries, the military is the primary source of jobs in this middle of nowhere town. Thou there is the hospital and the college that also employ a heft portion of the population. IF (that's a big if) The FAA decides to put their test site here, it will end up being the best investment I could of ever done. The good news about the tax issue is that I am a resident of CA so I wouldn't have to deal with the out of state investor tax.

    Question about CPAs. How much are they? Is it like an annual thing or a yearlong thing? Not exactly sure how they work, all I know is that everyone recommends getting one.

    To all that are apologizing about long replies, don't. I appreciate the long thought out responses. Longer the reply the more info in your post, and I am HUNGRY for knowledge lol.

    0Reply
  • Jason Minnich
    Investor · Milpitas, CA · Member since 2013 · 95 posts · 12 votes
    13y

    Javier Molina, Good luck with your investing. If you want to go into the SFH market here's what I would recommend, find a house that you would want to live in for 3-4 years, if you can fix places up, find a fixer-upper and make it the place you want to rent out. You can also work directly with flippers and try to get a direct line into a place, saves them finding a buyer and allows you to help work on the property in the process.

    As for CPA's, their rates vary and typically depend on how complicated of a tax situation you are in. If you are planning on maintaining CA residency (a questionable practice), you might be able to do your taxes on your own. If your personal tax situation isn't too complicated, and you are decent at researching your tax needs, you don't need to pay someone 60-200/hour to fill out your 1040s. My military job is as an analyst, so I like detail oriented things, so I figured out what I need to do regarding my taxes and will just continue to use Turbo tax until my situation changes again. The down side of this approach is if I'm ever audited, I need to deal with my own situation, whereas with a CPA they have their records and can typically answer the mail much quicker and potentially less costly than you can (or hiring a tax attorney). Bottom line is you are the only one that can know the complexity of your tax situation, REI gets complex, but since you will be moving often, its very possible you would eventually have to hire a very expensive CPA or several local CPAs just to file all of your state taxes appropriately.

    Any other questions let us know, you have a great community here, I said something ("you don't need a CPA") that many people will disagree with, but everyone's situation is unique, so do what you think is right for your situation.

    Good luck!

    0Reply
  • Tom Goans
    Real Estate Investor · Englewood, CO · Member since 2013 · 988 posts · 258 votes
    13y

    When considering rental property, as a rule of thumb, I always deduct 40 percent from the potential gross rental income - 20 percent for maintenance and repairs and 20 percent for vacancies. If the numbers still work, then I drill down the numbers further. One thing many overlook is your personal time as a factor in the Return on Investment equation. Compare the ROI to other investments, such as buying cash flows.

    0Reply
  • Javier Molina
    OP
    Port Ludlow, WA · Member since 2013 · 29 posts · 7 votes
    13y

    Problem with this small POS town is that there are very limited investors or much of a market for there to be flippers, wholesalers, etc... If I get in to a market where there are a decent amount of people for me to connect with then I will gladly do that, as it is an awesome idea that I didn't think of... I'll keep my eye out just incase there is that one flipper in this town going thru the houses one at a time.

    Ok so CPAs are only for tax season then? Not someone to maintain your bookeeping or anything correct? As for taxes I am relatively confident I can do it myself with the help of tax slayer. If it does get more complicated I can start to use the on base legal tax assistance that the military offers.

    Lastly, regarding that last house would it be that terrible of an idea to go ahead and offer 110k? And am I crazy to put in that offer when they are asking for 130k?

    Again thank you for all your help.

    0Reply
  • William Strong
    Bellevue, NE · Member since 2013 · 72 posts · 29 votes
    13y

    Javier Molina I don't think putting a offer for 110 is crazy when they want 130 i can't remember who said it but on one on of the podcasts, the guest speaker said something to the extent of if your not embarrassed by your offer its too high. Honestly if they want to sell it, i'd say its at least 50/50 that they counter.

    0Reply
  • Javier Molina
    OP
    Port Ludlow, WA · Member since 2013 · 29 posts · 7 votes
    13y

    Just as a quick update, put in my offer last night. Apparently the seller's realtor says that the VA (that owns the home) will only pay 3% in concessions to be used however I please but will not pay any Escrow fees, taxes, lender required repairs or anything, not even their part... My realtor said screw that and put in the offer with them paying everything along with a year of home warranty, termite inspection, and all sorts of other things. :P Can't wait to see how they respond or what the counter offer will be.

    0Reply
  • Simon Campbell
    Miami, FL · Member since 2012 · 612 posts · 189 votes
    13y

    Javier Molina let me know what happens with the offer. Do not be surprised if they shoot it down.

    Here is some food for thought. Since it sounds like you will be moving around, this is going to necessitate hiring a property manager to oversee your properties. This is going to have an impact on the profitability of an investment.

    When considering profitability you need to look at income stream + appreciation. If one is in the negative, it is obviously going to affect the other.

    Right now you can pretty much bank on appreciation. I do think you may need to reconsider your income stream. Your goal should be to walk away with around $100 per unit in your pocket each month. This is after all expenses including vacancy, mortgage and property manager but before income taxes.

    Going into an investment property where you are paying money out of pocket every month is not what I would call a good investment. Do not be afraid to take the time to look for properties rather than rushing in.

    0Reply
  • Jason Minnich
    Investor · Milpitas, CA · Member since 2013 · 95 posts · 12 votes
    13y

    Javier Molina, Just a thought, in order to bring down your principle a bit and have the possibility to refi into a conventional when you leave, instead of paying your mortgage while you are living there (assuming VA), consider paying what you would charge a tenant to live there, with the extra going to principle. This would serve to lower your monthly payments when you are in the house and allow you to target a higher cap because that added principle is effectively part of your down payment now. Take all advice with a grain of salt, and make sure you understand that most investors are not military investors. Also if you target AHRN or military only for your tenants when you leave, its possible you might be able to forgo having a property manager because you know there are other methods of retrieving your rent if an issue comes up (it's almost sad how easy it is to garnish federal wages). Just things to think about and different ways to get yourself into the REI mindset as inexpensively as possible.

    0Reply
  • Javier Molina
    OP
    Port Ludlow, WA · Member since 2013 · 29 posts · 7 votes
    13y

    Simon Campbell Thanks again. I fully expect them to shoot it down with at the least a counter offer. I will be thoroughly surprised if they accept it flat out... I will be keeping my eye out for anything better as I negotiate this property. Yes I understand that I should be shooting for $100 a month per unit. From what I have seen on the market the last few months I do not think that will be very possible without dipping in to the lower income houses and neighborhoods, which tend to have more issues with renters and what not. I honestly do not want to touch those properties. My target is middle class. About 40-80K income families. Yes I know this restricts my options quite a bit but it's my "nitch".

    Jason Minnich I have considered that as a way to lower that principle as much and quickly as possible. For two reasons, either to pay that house off as quickly as possible or to refinance it to get better cash flow. Or to just save up the difference so that I have a 6 month buffer for vacancies, repairs, etc... My main reason for using a property manager is to handle finding the renters, interviewing them, and handing all repairs while I am gone. Make my life overall easier since I will be land lording from a distance. If I was able to not hire a property manager then I would be fine with cash flow. That would be 10% more rent in my pocket which translates to about 110 dollars a month. That would push me over the $100 per unit cash flow. Any ideas on how to live without a property manager would me awesome!

    0Reply
  • Jason Minnich
    Investor · Milpitas, CA · Member since 2013 · 95 posts · 12 votes
    13y

    I am doing it now in my Cali property in fact. Many property management companies will offer tenant placement as a one time fee and then offer a full management service for around 10% plus a placement fee. The one time placement costs more (3/4 vs 1/2 months rent) but if they can place well it may be worth it. You can also market on AHRN, Zillow, craigslist, and many other online places yourself. I use an online company to manage billing and tenant correspondence and it works all right, there are many companies and software solutions out there to help with that.

    Finally you have one thing many investors don't inthe house, time living in it. For example, my CA property, the outdoor outlets are run from the main bathroom. Don't ask me why this was but I learned early on that when the power dies, check the bathroom. Sure enough my tenant called that in as a problem and I was able to walk him through the solution. Some times you can't win. My heat went out while I had a property manager, they called the home warranty, but didn't follow up and it was more than 10 days before it got fixed. So the management company fell down by not overseeing the repair and the warranty company failed by not overseeing their contractor.

    Home warranties can help if your house is older and you are unsure about your appliances but make sure to shop around. I ended up firing my management company because of this and micromanaged the warranty company but will be replacing them too. Bottom line if you think you can manage it, and you know how to find good contractors when you are living there for when things break on your tenant there is no reason not to pay someone 10% to collect a paycheck.

    0Reply
  • Javier Molina
    OP
    Port Ludlow, WA · Member since 2013 · 29 posts · 7 votes
    13y

    Quick edit. Came home to redo the numbers on not paying a property manager and found out it doesn't push me over the $100 per unit but it does get me significantly closer...

    Jason Minnich What about background checks, credit checks, showing the property, checking to see the status of the property after someone moves out... If I am able to cover those bases then I just might forgo property managers. Regarding home warranties, I am considering it seeing as its only $300-$400 a year but all they cover is appliances, everything in this house is mostly new. House was built in 2007...

    Also I am looking around for landlord insurance, I haven't found anything that covers move out damages, or vacancies. All I find is insurance that covers missed payments, or appliances. I want something that covers carpet and walls (since that is the main thing people damage from my experience being the renter) And something to cover vacancy if I can not rent it out for several months due to terrible local economy for what ever reason. Any info on that?

    0Reply
  • William Strong
    Bellevue, NE · Member since 2013 · 72 posts · 29 votes
    13y

    Javier Molina have you tried going to a insurance broker who shops a lot of companies for you? I haven't done it my self yet but heard they look at multiple company's to see what coverages and policies each has in the range you are looking for. Also I'm not sure when your seller bought the house but since you are also va eligible they might be willing to let you assume their mortgage. I don't really know how that works but it might be worth looking into.

    0Reply
  • Javier Molina
    OP
    Port Ludlow, WA · Member since 2013 · 29 posts · 7 votes
    13y

    William Strong House is foreclosed to VA so no active mortgage. I don't know of any insurance brokers, I will have to do some homework.

    Update on offer: seller agent says that there is a current offer on the house at full price (131k), they want a best and final. I partially think they are bluffing, not sure thou. Either way I told my agent to keep it at the 110k. I am not willing to do pay 131k for an investing house. I'm already coming too close at 110k. It will hurt to walk away from but business is business.

    0Reply
  • Jason Minnich
    Investor · Milpitas, CA · Member since 2013 · 95 posts · 12 votes
    13y

    Javier Molina,
    When they ask for best and final that's just what they are asking for, so give them your final, if it was no more than your first, that's what it is. Unless I'm mistaken, selling agents are not allowed to discuss other offers, I was actually under the impression that it's against the law, but I'm not entirely sure, consult a licensed Realtor.

    Next your questions - background and credit checks would be done by the management company that would place a tenant. If you want there are services online that would check those things as well. I think I was offered a service like a landlord insurance from my former property manager but I never really looked into it to determine costs, and I imagine that it requires you to use a property manager. And looking at the status of the houses can be made much easier by meeting and building relationships with your neighbors, so you don't have to pay someone to give you a heads up something is wrong. Build a relationship with your future tenant as well so they feel comfortable sending you pictures if there are problems or sending a message on your tenants portal (keep that paper trail when dealing with tenants). Every little bit helps :)

    As for your concerns on carpets and walls, part of that is why you collect a sufficient security deposit. Along with that you could self insure by saving a portion of your rent per month so you can adequately cover major expenses, but I would suggest you consider more important major expenses than carpet and walls, those are minor compared to HVAC and roofs, and while 2007 is relatively new, a water heater's typical warranty lasts 3-6 years for builders models and if that goes out you could end up flooding something badly. Anyway, don't mean to discourage, but just trying to help you understand all the joys of homeownership and eventual landlording.

    0Reply
  • Bill B.Pro Member
    Camarillo, CA · Member since 2013 · 217 posts · 86 votes
    13y

    First, Javier Molina, William Strong, and Jason Minnich, thank you all for your service. God Bless you all. Javier, I may be wrong, but the last I saw Ridgecrest was under the same command as Pt Mugu in Ventura County. It is entirely possible that MUCH of the drone program ends up at the coast instead of in Ridgecrest. I'm sure that at least SOME of the program support would be in Ridgecrest, but it may not be the huge influx of people and capital that you're expecting.

    I'm NOT successful (YET) in RE investing. The one deal I've done went bad. I'm closing tomorrow on a five figure loss because I wanted a deal SO BAD that I had blinders on. I've not been to Ridgecrest in years. But, it is (still, I assume) so small and so remote that its' real estate market is HIGHLY volatile and tied primarily to the defense industry. (much like Lancaster and Palmdale which are larger and closer to L.A. so, arguably Ridgecrest is even MORE volatile than they are...) REI at a very basic level is about supply and demand. I'd suggest waiting for a larger area like (as you mentioned) San Diego.....or...better yet?....somewhere outside California where the market is more efficient. Absent that, make SURE you don't compromise on your numbers. Make sure the deal is CLEARLY in your favor. Wait for "that deal". To say it another way, keep those RE agents laughing with the low ball offers....especially in Ridgecrest. DON'T make the mistake I made.

    I hope this helps. Again, thank you, and your family, for your service to our most wonderful and precious Country. God Bless.

    0Reply
  • Javier Molina
    OP
    Port Ludlow, WA · Member since 2013 · 29 posts · 7 votes
    12y

    Out of curiosity, @Bill B. How is everything going? Have you been able to make more of a profit, and find some sucess? Keep me posted. I am interested in your progress!!!

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free