All Forum Posts by: Marcus Auerbach

It is very considerate of you to be respectful with everyones time, but in the end it is your money on the line and you need to make sure you invest it right. The old rule is look at 100 properties, offer on 10, get 3 accepted and close on one. If you have not bought many properties you definitley should stick to this rule. If you want to be respectful of everyones time here are two things you can do. Find a realtor who can set you up with an MLS search for properties in your target area and price range. This is not actual MLS access, but will give you real time updates by email about new properties that come online. Very little effort for the realtor, a matter of setting it up once. the quality of information is much better than Zillow. Second make a list of a dozend potential properties and visit all of them in an afternoon. Most of them you will not like from the outside, the location or the curb appeal. The ones that you like you should schedule a showing and take a close look on the inside before you make an offer. Like @Mindy Jensen said give it your best shot, but don't be afraid to offer less than asking if this is what your math tells you. The listing agent has often no idea what a seller is willing to accept, especially as the motivation to sell for a lower price often grows over time.

OK, I can only tell you from my experience in Wisconsin. Sellers who have been arround the block once or twice have been burnt by buyers that could not perform. few things are more frustrating than finding out the day of the closing that your buyer cannot perform. Back to square one: MLS, showings, offers, counter offers and a lot of time lost before the potential closing. Sometimes its an inexperienced wholesaler, who can't find a buyer. Or a rehabber who was counting on hard money and could not make it happen. On one of my current deals HUD requested my bank to confirm that they actually have pulled my credit score - it's calles a comfort letter and gives the seller more certainty that the deal will go through. For basically the same reason we always attach a letter signed by my realtor introducing me as a buyer and confirming that i have been buying properties since 2010 and never walked away from an accepted offer. Don't be offended, your bank will be happy to assist you with a POF letter to support your offer.

depends on the size of you RE portfolio and your net worth. My personal opinion is that if someone needs this level of protection he probably has a law firm permanently working for him anyway and does not need a contract sold on a webinar. I would just find a recommended local RE lawyer and set up a regular LLC, but that is only my personal opinion and no legal advice.

an LLC does not provide legal protection against a law suit, it just limits the amount of financial damage to what the LLC owns. If the LLC owns the property you can still lose the property, but it offers some protection for any assets held outside the LLC. It is your last line of defense after your property insurance has not protected you and your umbrella insurance has failed as well. Most important thing is to provide a safe rental property and practice good business so you don't get sued in the first place. Next absolutely get an umbrella policy. Your lawyer will advise you about the LLC, but as far as I know it does not matter who is on the mortgage in terms of asset protection. However your bank may not like it if you hold title in an LLC. In the end it is a judgement call you and your partner have to make. Being on the title comes with rewards and risks.

That depends on where you are and what type of rentals you have. Most people I know will tell you $200 per door after PITI, reserves, vacancies and property management is a reasonable number. You can get a little more on a good SF and a little less in a competitive market. I would not do it for less than $200.

If there is less than a year left I would probably not even change the lease, especially if it is a good tenant. In most cases they have been living together anyway for a while, so it does not change much. Getting married is a lot of paperwork and I am not sure if I would feel that the legal advantage would be big enough to trouble a good tenant. But then I don't know the background and why you want them to be on the lease.

Knowlege and experience help you sleep at night, paying down debt doesn't.

After I bought my first rental property (a duplex in West Wilwaukee) I could not sleep at night. I always had the feeling that I had to go there and check if everything was ok. I woke up in the middle of the night and was worried it could be on fire or under water. I would worry about the tenants moving out or the sewer line break, but mostly I did worry about what I did not know. I was clearly above my sleeping point (I like that quote a lot @Trevor Ewen ). And it had nothing to do with debt. My PITI was just $690 on a 30 year fixed mortage and 2x$750 in rent. Even totally vacant I was making good money at my corporate job having to pay $490 a month out of pocket would not have been an issue at all. Yet I was worried and it was not the debt that worried me, I think it was just the new responsibility.

So the duplex never burnt down and with more experience and more rental properties under my belt I had no issues sleeping. It is a little bit counter intuitive: when you are at the starting point everything is very new, exciting and also concernining. It seems that with more properties these feelings must intensify. But in fact the more experience you have and the more you know you will worry less and plan more. Vacancies become a percentage and are reserved for, the same for repairs and desaster type of incidents (flooded basement etc).

@Michael Henry   is absolutley right about reserves; most conservative banks want you to have at least 6 months reserves. But I have to disagree with him on the question if there is good debt. Being underleveraged is a bad thing in the corporate world, analysts and shareholders will punish a company for not beeing leveraged properly. Good debt comes with prudent business practices and conservative planning. The best definition I have ever heard is self eliminating debt. If an investment generates consistently enough money to pay down the financing and eliminates it over time while growing your equity I would definitley call that a good thing. 

Having too much equity in a rental property will cause some KPI's to go down, most obviously return on investment (or return on equity). Even a 2% rule rental property will not produce very good ROI if financed 100%. Do the math.

Building a rental business requires initially funds from another source like a W2 income. Once the business grows and cash flows it becomes self funding. At some point the next aquisition can be funded partially (down payment) from the free cash flow. At that point contribution from your W2 income is no longer necessary, although it will grow the equity position of the business and support healthy growth.

Dept pay down will accelerate over time and start to pick up after about 5 years on a 30 year note. At the same time you have a good chance for some appreciation and increased rental income. The equity position will start to grow faster at that point and selling off some assets will allow to pay down debt on the remaining properties. But this process takes time, at elast five to ten years. One can either hold a portfolio and simply give it time and wait or continue to ad properties over time to accelerate the process. That's a matter of personal preference I think.

 Nathan, great post and it got me curious -  I have always been fascinated by luxury multifamilily vs. the typical $650 a month apartment building. Would you mind to provide some more details about what you offer as far as anemnities and finishes? I assume its in a prime location of a major city?

@Uyenchi Ho A lot of posts have been written about all the things a good wholesaler has to do and while I have not yet seen one personally I still believe in unicorns.. Kidding aside, I think the best advise I can give you is work closley with your best buyer. Ask him if you can see a property right after he has bought it. Inspect the condition, ask how much he paid, try to estimate rehab cost and see what he thinks. Follow the consruction process. This way you get a good iead about what your buyer likes to buy and for how much. Once you have a clear goal and you know what deal exactley you are looking for you can aim for that and dont have to worry every time if its a good deal or not. And in general, dont worry too much about screwing up, you are learning, be sinciere and open about the fact that you are new and everyone will help you out.

@Brenda Pommer I look at it this way: whats the difference between a $20.000 car and a $40.000 car? Both got four wheels, an engine etc...

ONE: the brand - that's the location. People want to live in a "brand name" neighborhood that they like. Some people like Mercedes over a Cadilac or a GMC over Jeep and all of them more than Saturn. The brand also comes with certain features that are inherited like good schools or shopping.

TWO: livestyle - if you drive a sports car you are "fast & succesful" if you drive a big expensive SUV you are "tough and successful" and you haul arround marine engines and logs of timber all the time LOL. People are attracted by a certain "lifestyle" - it's the life they want to live, based on what they see with friends and in maganzines, TV etc. For a rental that is a nice building, modern features, contemporary design - it tell's their friends who they are.

THREE: new - smells new, looks new and feels new. Who does not like the smell and cleanlyness of a brand new car with leather seats? The same is true for a property: new and clean are always reasons for people to choose a place over another or to pay more.

FOUR: features - heated seats? four wheel drive? V8 engine? People pay more for a kitchen with a security system, a dishwasher, a second or third bathroom, additional bedrooms or an office.

So just like with cars you see all kinds of people being happy with all kinds of cars, the same is true for rental properties. So it depends on your target audience.