All Forum Posts by: Ali Boone

Hi Rav,

I have experience with doing similar to what you said. Before I left my corporate job and still qualified for a mortgage, I would take the mortgage and an investor put up all the cash. It worked great, then we split the net 50/50.

But Leo Cao is right, it will be very hard for someone to just pull out 10 mortgages. After 4, the requirements tighten, so you couldn't do more than 4 at a time and then you have to requalify. And with mortgages, you have to close all the properties at once or one after another. Can't have multiples under contract with different closing dates. Lenders already ask for your left arm and first born child, so doing that 10 times around quickly may be nearly impossible. But maybe not. You can still get around the 4-5% range even for investment properties, but they banks will be hesitant for that many so quickly.

As far as meeting people, you just have to network. Networking to learn RE stuff and find out about deals is one thing, but for what you are proposing, there has to be a pretty high level of trust between you and the other person. You're going in on real estate purchases together. You don't just do that with someone you barely know. So you'll have to start getting to know people!

You don't have to respond to this and it's not my business... but I'm a little leery about how you took out $500k to flip with and are running out of funds! Flipping should have a compounding effect if you are being smart with the money. If I were going to go in on these properties with you, that'd be my first red flag.

Ali

Great reply Erik Kubec!

If you ever get too nervous about the repair work or any of that, I have access to a lot of turnkeys in Houston where everything is already done for you and tenants are even placed.

I do know another guy out there who does a lot of rehabbing himself to hold his properties that I could connect you with as well. He recently moved to Houston from Mexico and is bilingual as well.

Anytime you have a suspicion about someone, go ahead and ditch them. Your gut is probably right.

I bought the first chunk of my rental properties using my credit by taking out the mortgages and an investor put up the cash (down payments and closing costs), and now we split the net 50/50. Great way to take advantage of having good credit and you make infinite returns since you don't have any cash in!

Great article, Seth! I need to start using you as a guest writer when I write my PM articles on here!

Seth Williams What a rockin' post! Couldn't have said it better myself, and nice to see someone else of the same mindset as myself about the benefits of using a property manager.

Nick Meister I haven't been to GR in a few years, but when I was there I remember asking someone why there were so many empty commercial spaces in town and the person talked a lot about how so many businesses have left GR and so much is just empty now. If that's still the case (I have no idea), keep that in mind when investing. If population is consistently declining, you could end up in trouble with investments properties that you are holding. Flips, fine, but long-term can be a doozy. Michigan as I understand it is in general has a declining population trend due to the automotive shutdowns and all that. So make sure people actually want to live there before you buy there! With that said, I do remember being impressed at how cute (yes, I'm a girl, I can say cute) GR is! I loved it.

Hi Jeri Dilts! If nothing else, good for you for asking around as a newbie and being smart about what you're doing! You'd be surprised how many people just dive in. You're asking great questions too.

My few tidbits of advice:
- Definitely don't rely on appreciation, ever.
- Investing in low-income areas is strictly a preference thing. There can be huge returns in those areas but those returns do come with headaches. You're right that people need to rent even in the bad areas, but tenant quality is huge. Tenants who walk out on the property and/or cause a lot of repairs will cost you a ton. I've recently learned the value of tenant quality myself! It matters. That's all I'm saying.
- Zillow values have to be taken with a grain of salt.
- Any duplex that is only $30-40k is probably in a horrible area.
- Live somewhere you will enjoy, feel safe, and your neighbors won't be horrible quality (i.e. sacrifice a little money and returns to be happy and safe).
- If you want to be really slick and know if the property is a good deal, pretend you are renting out both sides and calculate your cap rate and cash-on-cash return. If those are good, you might have a good property!

Hope that helps!
Ali

If it were a single-family rental property, I would:

1. Calculate the total costs to get into the property (purchase, rehab/work, closing costs)
2. Calculate the expenses required to have it (property taxes, insurance, estimate for vacancies on the one side and repairs)
3. Figure out the income you will receive
4. Subtract the expenses from the income
5. Calculate the cap rate based on those numbers. If it's less than 6-10%, I'd say bad deal.

For a duplex it gets a little different. I would almost pretend you aren't going to live there and there is a second tenant in there, and calculate everything on the income from both sides. I'd think that would give a slightly more accurate idea of cap rate. Because if you are living in one side, monthly cash flow isn't as dire because you are benefiting by living there.

Oh, sorry John Chapman. I didn't say that right. I don't mean you can finance the whole purchase price, but you can finance based off the full purchase price. If property is $100k, you can get a loan based on that whole amount (which would trigger a $20-25k down payment and then a $75-80k loan amount). If you spend the same $100k on a house that costs $50k to buy and $50k to rehab, you can only get the loan on the $50k purchase price (then your 20-25% down payment) and the $50k for rehab costs has to be covered usually in cash if for a buy-and-hold.

ROLL TIDE back at you Andy Bankston!

Hi Michael, great question! You know, I don't think it's a big difference. I've never done the math, although now I think I'm going to for the sake of now I'm curious what the actual numbers look like. In thinking about the market I'm most familiar with, Atlanta, I can give you a basic numbers guess (numbers from about a year ago, things there have changed a lot). \

You could buy a foreclosure for say $20k-30k, with about 18-22% cap rate after initial rehab costs. So the investor probably put in an additional $5k-30k in rehab costs, then rents it out which gives him an 18-22% return. Also in that purchase, the buyer had to find tenants and had to find property managers if he wanted one.

If you had bought a turnkey property, which is fully rehabbed with tenants and managers in place, the average purchase price was $55k-100k with 9-14% cap rates.

Also remember too- you can finance full purchase price of the turnkeys. With a foreclosure, you can only finance the purchase price (maybe) but not the construction costs. Construction loans usually only help with flipping, not holding, so that doesn't help much either for a hold. The important factor in how much you can finance, aside from if you only have a certain amount of cash to play with, is leveraging gives you a higher cash-on-cash return. So potentially that financed turnkey with lower cap rates could give you a higher cash-on-cash return than that foreclosure with higher cap rates!

My final answer? About a year ago in Atlanta, you're looking at an average of about a 8% difference on ROI between doing all the work yourself and having someone else doing everything for you.

My last final answer? I hate stress. Doing any of that work I mentioned really stresses me out, so I tell anyone who wants those extra 8% points to have fun with them because I don't want them!

I am going to put more thought into this so I can answer it more specifically. Keep an eye on the blogs as I foresee me being able to write one that answers just this.