All Forum Posts by: Adam Giles

$425 for a 2/1 cape style single family.  

The point of holding properties in different entities is to separate out the risk. If there is litigation against one of your properties, theoretically only the assets held by that entity are at risk. This protection has been pierced in court before though so it is important to speak to a good real estate attorney. This is also why insurance is critical to completely insulate.

I wouldn't worry too much about setting an entity way ahead of time either. When I find a deal that I will partner on, I work on the deal and then call my lawyer to draft up a new LLC when our offer is accepted. The partnership split is just built into the share structure of the LLC. I can always get my filing certificate and EIN before the closing.

I wouldn't worry too much about a big difference in finding funding between an LLC or having it in your name. If you set up an LLC where you alone are 80% or more of the shares, most portfolio lenders are just going to treat it like it was only you anyway. It will be based of your personal financial statements etc. In my experience the most important part was building relationships. Go talk to local lenders in your area. Ask about different scenarios you are thinking about. Just get to know them and let them get to know you. You will be surprised how far that goes.

I second everything Justin said. I also highly recommend accounting. I did my first deal and then figured out how to get it into quickbooks after the fact. Now that I have the accounting straightened out it helps me make decisions as I progress through deals.

Spending any time you can in the field, even as an unpaid intern, would be so valuable. You will find that almost everyone in this industry "learned a lot the hard way" on their first deal. Getting a head start on your hard knocks is a great investment in you and your future business. 

I've yet to post a success story on BP so I figured I would now since my partner and I have some sweat equity in this one. I will say that our market is small and margins are tight, we typically look to make 7-10% CoC ROI and net >$100 per month. We buy and hold. We stay in the $25k-$75k range and average 70% LTV on new deals to keep debt service reasonable and cash flow existent.

We picked up this property from an out of market agent. I was looking at a piece of personal land and he happened to mention that he had another REO property in my town and I , of course, smiled like the Grinch in whoville. We went over that day and looked at it. It was gutted, sprayed white, floors pulled, winterized, etc, etc....but the bones were good. C neighborhood but in our small town that's relative. I made an offer at 12k, they had multiple bids and asked for best and final, I offered 15k, and we got it. The cynic in me wonders if that was unethical agent work (which is why I only went 3k) but....I digress. My bid was based on the work we thought it would take to get to 70% LTV because we knew we would want to refi and pull out gained equity for additional deals. We ended up putting just over 20k into the property. We did a lot of the work ourselves but did hire out drywall (you know why), painting, and flooring. At refi it appraised just over 50k, so we realized a 15k gain in equity. We ended up effectively using that new equity to purchase a new turnkey property via a blanket loan against both properties. We paid off the original note on the REO property and refi'd it and the new turnkey property into one loan at 70% LTV.

So we turned an REO rehab into two cash flow properties.

Just to give an idea of the original state at purchase:

Bath Room

Master looking out into LR

Kitchen..this was the day we started...that's our drywall...

This is the end result:

Bath (same angle as above)

LR and DR

Kitchen (same angle as drywall pick above)

LR toward heated front porch

Front Porch toward LR

Overall we are very happy. I know we all try to avoid emotional attachment to a property but my partner and I did a lot of this work and we cant help but favor this property. It was ur first deal producing deal. Up to this point we just rely on our incomes to produce deals. This one was a great learning experience from a banking/leverage standpoint, and a remodel management standpoint. The best lesson I can pass on to people behind me on the path is....relationships. Talk to your lenders...your agents. Through the process of completing this deal and just talking about it with our team, we learned our reliable 70% LTV lender would do 75%. Our primary in town agent started talking about more potential deals. And we started logging progress and availability on a company FB page, cross promoting to local swap pages, and now we have people asking when our next property will be available. Great experience all around. Don't be afraid of the ugly ducklings if the deal is good. Build good numbers and trust them. Execute.

Adam

I would be interesting in seeing the numbers broken down a little more as well. I am always interested in seeing where peoples numbers differ from my own, especially when they are getting better result ;-). It sounds like you are executing the same strategies on the same property levels that I am but in my market, with rents similar to yours, $200 cash flow is tough for us to pull off. Prior to the refi maybe, but after would be tough due to the debt service. We typically try to purchase homes we can get in the 30-45k range that will appraise in the 60ish range after some minor work. With our current portfolio lender we are getting 5-5.5% and able to borrow at 75% LTV. We typically cover for replacement only so our insurance costs are pretty low. Taxes are average. I have a pretty thorough analysis form that I built to use when deciding which properties on which to make offers. It has formulas built in to automatically calculate insurance premium estimates based on my existing quotes and coverage, tax levy based on my local rates, %15 occupancy and 6% repair reserves. When I plug in a $52500 refi amount into my spreadsheet I would only cash flow about $52. Are you not including occupancy and reserves perhaps? That would get me up to $140.

Correct, but we are allowed to verify the validity of the of prescription. That is where I was in this situation. It does not seem probable or reasonable to me that a single person was prescribed 4 different animals for the same treatment. I told this prospective tenant that we would wave the fee for any animals prescribed with a letter and that I would just need a reasonable amount of time to validate the letters. This was done based on my conversation with my lawyer and with my local HUD office. For everyone's reference, the tenant responded once to ask again how much my pet deposit was, I reminded her it was $125, and she has since stopped responding. I continued on with my showings and applications and now have a great young couple in the property.

This will be my process going forward:

1. Notify prospective tenant fee will be waived with valid letters
2. Request letter(s) and notify prospective tenant that I will need a reasonable amount of time to validate letter(s).
3. If unable to validate letter(s), request prospective clients assistance in validating (contacting office etc)
4. If validated, waive fee
5. If unable to validate, charge fee

Again, I am basing this off multiple recent conversations with my lawyer and with Omaha HUD office. I would say that using this process, and my due diligence in creating it, I should be able to make a reasonable case if a claim was made against me.

The lady at the HUD office seemed to think that was the best bet. Attempt to contact and verify. Ask for the tenants assistance in doing so if necessary. While verifying employment, credit, etc, etc, it seems perfectly reasonable that we verify a request for reasonable accommodation based on a disability. At this point I will feel comfortable charging my deposit if I am unable to verify any of the letters.

Thanks for that, but again, most of the available information, and even cases, associates the language of ADA and FHA or discusses the differences between ADA and FHA. I am actually fairly comfortable with all of that. My particular issue/question resides with the multiple animal for a single diagnosis part of the problem. There isn't much out there that provides guidance on how to handle a tenant that has 10 letters for 10 pets, for a single disability. Of course we would all make allowance for two different animals that perform two separate tasks that require separate training; one to wake for the door bell, one to remind for meds for instance. But what do we do when a tenant has multiple animals that all perform the same task, for the same disability, and the tenant has separate notes, from seperate providers for all of them.

This is the nature of my concerns.

I have to spoken to my lawyer and my local HUD office and that is the key Scott Weaner. The law requires us to make an accommodation when the animal provides a service for a disability. Therefore we have the right to a letter from a provider that states those two things:

1 - there is a disability

2 - this animal serves in the treatment of that disability

It is also acceptable for us to validate the letter. In my case I will also be trying to validate that all of the animals are prescribed for the treatment. Especially if the notes all come from separate providers. We are allowed to discuss reasonable alternatives. For instance, if a disability required wheelchair access and you have another similar unit available tat already has access, it is ok to suggest the alternate unit instead of accepting the cost of modifying the requested unit. It seems reasonable that if 5 different providers prescribed one support animal for anxiety, and not suggest additional animals are needed, it should be a reasonable alternative that one animal be allowed. 

And it seems to be generally accepted that this relationship between an animal and the condition should be stated in the provider letter. It seems in some of the ESA cases the tenant has failed to prove a "nexus". Saying "Billy needs a walrus for his anemia" hasn't been adequate.  Unfortunately, as previously stated, the strong majority of these new ESAs simply state "needs dog for anxiety". Hard to fight that. 
Again, my current situation however, and where I really need clarity, is....."needs 4 cats, a ferret, a pig, and a giraffe for anxiety". One would think that managing a zoo in a 2BR 800sq ft home would be quite stressful.  Apparently it's therapeutic.