All Forum Posts by: Marcus Auerbach

I am currently working on a deal where the bank requires 10%EM and suspect that they are local. Just like J Scott says REO's have become more competitive and I actually offer usually at least 5%. The majority of the banks seem to be fine with $1000 though.

Nope, and the same with wholesalers by the way. Both sound like a great concept and seem to make sense, but I have not seen a good deal yet. There might be a few great ones out there, but it is a lot harder for a beginner than they make it sound.

Have you shopped for countertops at a contractor supply house? You have to look for them as they dont advertise to the general public. I have been looking for good kitchen cabinets for a long time and tried the different lines they have at HD and M, their in stock quality is junk and the ones you have to order take often six weeks and are not necessarily a bargain. I also tried Cabinets to Go, liked the concept, but had a horrible experience with partial, delayed and then damaged delivery. I finally found a small contractor supplier that specialses in kitchens. Great quality and very competitive prices, they also have two lines that are in stock. And of course they also have countertops and have relationships with stone suppliers. I got introduced through a friend who is a builder and they set up an account for me. They dont sell to individuals, so you have to have a business. Its pretty much like the paint stores, once you are set up with an account they give you 50% off or more. Personally I don't use granit, because in my market I don't get the return. I use high quality laminates instead. I source them through my cabinet supplier and they also hooked me up with great guy who does the installation.

I think it also comes back to tenant training. What is your usual method of communication? Are you using your work email? They may not realize that this is your work email, if they have it saved in their contacts list it just shows up with your name.

My tenats are acustomed to sending me text messages. That already starts before the first showing and by the time they have moved in and all questions are answered they are very used to this way of communication.

I have the same problem as you, I have a work email, which I check all the time, but not so much on weekends and I dont want to mix issues. And I have my RE email, which frankly I dont check every day, especially when I am travelling. So text is for me the best solution, especially because its instant and also because I dont have to deal with looong emails.

Rob, I think an appraiser told me once that a finished basement ads about $18 per square foot. I guess thats a number specific to our area, but I forgot to ask him what the definition of a finished basement is. I think what I have in mind is something like the definition of a bedroom: needs a closet and a full size window. What is required in a basement so it qualifies as finished? 

The way we did it on the last project we ended up spending about $6000 for 500 sft, so about $12 per sft. That included two sides drywall, painted blockwalls, ceiling, cans, outlets, carpet and two prehung doors. Drywalling all four sides would have bumped the cost up to probably $15 or $16 giving me very little return on the investment.

On the other side I do like the fact that I have visibility and access to the block walls. Its always a little scary to inspect a potential deal and not being able to check the foundation walls. I just drafted a layout for another project and wonder if I should go drywall all the way arround or not. In this case we have one wall that has been braced 5-10 years ago. It apears to be stable and I can make a case for covering it up and for leaving it open. what do you think?

Living in Wisconsin I try to finish the basements whenever I can to provide additional living space for the our long winter season. Older houses usually come with paneling which I think is the worst solution. A complete drywall finish is the best, but also the most expensive. On the last house I tried a compromise - two sides drywall and on the other two sides we just painted the block wall which was in nice condition. Once the carpet was in it looked very nice, but the appraisal did not come in quite as good as I expected. Does anyone have experience with different solutions (paneling, drywall, block, mix,..) How does an appraiser look at them?

Dawn, if you can make it cash flow you could rent it with an option to purchase and see if you could get a little more at closing than you currently estimate. Equity seems thin for so much fix up work, but heck, you could even find a tenant buyer who would be interested in doing that himself.  Food for thought maybe..

Time for a little update. I am in the middle of the data entry phase and I am learning the software as I go. With the online help of my CPA I have started to set up a Chart of Accounts, which includes so far my properties, my bank accounts and accounts for security deposits, mortgage payments, interest payments and escrow. We have also set up customers (tenants) and vendors (lenders). We are using Classes to keep track of everything by property. I have spent some evenings catching up on data entry for this year and I can already tell this is going to make tax time a breeze this year! 

The cool thing is that by using Classes I can run reports by property and compare their performance side by side. The different accounts allow me to track expenses like mortgage interest payments and principal pay down. I did not pay much attention to principal pay down and I am pleasantly surprised how much my equity is growing every month. I have always viewed a mortgage payment strictly as an expense, because the principal pay down is a relatively small amount per property - the difference is now I can see the accumulated number from all my rentals and that is a dollar amount that definitely has my attention.

I admit this is not the most fun way to spend evenings, but I start looking at real estate a little bit different now, more from an accountants perspective and that is definitely a view worth your while.

Dan is absolutely right and that's probably the reason why Dawn saw what others couldn't - they probably just ruled out the category as a total (just like I do to be honest) because of HOA. Congratulations not only to the nice cash flow, but for also for thinking (and looking) outside the box!

Thanks for all the great comments and suggestions! It was a difficult process, but we finally found a solution. And like always in real estate I have learned a couple things along the way. When I rent a property I have adopted a standard process that is based on the experience of others and that works pretty well. I just did not realize how well, because I never did it any other way. One of the most important parts of that process is running a full background check very early, actually right after I get a filled out application. In this case I did not do that - we were too busy negotiating the deal. Probably because I was emotionally involved or did not want to insult my potential buyer by questioning his background, after all we were talking about my home and not just some rental property! Of course - not a good excuse. 

Things started to turn around when I began following my process again. Turned out there were some issues from a divorce four years ago that were never properly addressed. My buyer knew that there might be some old issues, but I believe they did never pull the report to actually look at it and address the issues. Cash was not the problem for my buyer, so we agreed on a sizable non refundable option payment (up front lump sum - thanks Brian) and they started working on cleaning up their credit. The rest of the background was fine and the references came back positive, so we went ahead with the deal. The property is cash flowing and between option payment and security deposit I feel sufficiently protected. However, I will ultimately find out if I made the right choice in 6-12 months.

The second lesson here is that when rehabbing a property it has to be done with the buyer in mind. I did not do that in this case, because it the home was designed to meet our personal needs at the time.  The house is short of a bedroom, because we did not need another one. However in this price range and market an additional bedroom is expected. The other issue was the horse set up - most buyers who are looking to have horses at home (for all of you who have never enjoyed this - its a lot of work and a huge commitment: every single day, and there is no vacation day, sick day etc without having someone else to jump in and do the work) are looking typically in a lower price range. People with more money usually have their horses boarded. Once you break the two million mark, horses are again part of the property - but then there is also staff on site to take care of the daily chores. Lesson learned: always rehab to what the market wants - or be prepared to pay the price.