All Forum Posts by: Ron Averill

In the areas where I invest, a small percentage of houses (that get tested) have a radon level greater than 4. The actual percentage might be higher, since many people do not even test. Nevertheless, radon is not a significant issue in this area, so many people do not have much knowledge about it.

I recently walked through a SFH that I am considering buying as a college student rental property, and I noticed that there is a radon mitigation system installed. This is not a common feature in this area.

My gut tells me that the presence of a radon mitigation system may be a deterrent to renters, even though the property "may" be much safer than surrounding properties. The natural instinct may be to assume that the house is unsafe because it requires a mitigation system. This is a naive position, but one that will be difficult to overcome without educating each prospective tenant about radon. 

Ironically, renters never ask about radon, so the property would probably rent just fine without the mitigation system, even if the radon levels were high. Of course, that would be highly unethical. I only mention it to emphasize the lack of attention that people give to radon in the area.

1. Considering the lack of local knowledge about radon, do you think a radon mitigation system would scare off potential tenants?

2. Are there any liability concerns in renting such a property?

Thanks in advance for your insight and advice concerning buying this property.

Rob,

I have a great mentor who will help with the property management, but I may still use professional management for the reasons you imply.

As for the deal, I think there is just too much competition in some college towns. Apparently there were great times to jump into these markets, and now is not one of them.

Ron

Bill and Michael,

This is great advice. Just what I was looking for.

I do include the loan paydown in my calculations, but not depreciation. I will add it in.

I will try submitting a low offer and see what happens. The justification may not be accepted, but the offer might be. If not, then nothing lost on this one.

Ron

Thanks Paul. Do you think my reasoning is valid on the deal analysis?

Ron

I live in a college town, where both rents and property values on rental properties are stable and relatively attractive. It seems like it should be a great place to own rental property. But when I run the numbers on duplexes in my area, the COC is in the 4-7% range and the total ROI is also rather low. The ratio of rent to purchase price is pretty good, so the poor return is largely due to the very high property taxes.

I could easily conclude that this area is not a good one for buying rental properties (at least not for me), but I thought I would first try some creative approaches to making the deals more appealing.

For the sake of this discussion, assume that the purchase price has already been reduced as much as possible based on all other factors, and that the numbers used for rental income, maintenance, etc. are conservative. In other words, remove all other issues from the equation.

Here is the proposed concept:

1.Calculate the amount of additional monthly rental income that would be needed to achieve the desired COC return and total ROI.

2.Multiply this monthly amount by a suitable number of years (say 5?).

3.Reduce the purchase price by this amount.

4.For the sake of assessing the deal only, count this price reduction as additional income that makes the COC and total ROI attractive. In other words, amortize the price reduction over the assumed number of years.

5.Then, this argument could be used in the final negotiation of the purchase price.

If this works in the negotiation, would the deal now be a good one?

For every good idea I come up with, I have at least three bad ones. As a newbie in the real estate investing business, I’m not sure which category to put this one.

Any thoughts or suggestions?

Thanks,

Ron

Thanks everyone. This is exactly the kind of information and discussion I was hoping for.

I was planning to do everything inside an LLC and carry an umbrella policy. Now I definitely will follow through with that plan.

I guess my next step is to find a good commercial lender in my area.

Ron

Joe,

It sounds like you are not a fan of LLC's. Did I misunderstand your comment?

Ron

Thanks Ryan. Your advice lines up with my gut reaction on this topic.

Ron

I've seen some discussions on BP regarding the topic of QuitClaim Deeds (QCD), but I'd like to get more personal opinions and legal opinions from the experts here.

Background: I started a new LLC, within which I plan to buy and hold properties. This is primarily for liability protection. I have not bought my first property yet, but plan to do so in the next month or so.

Situation: Most banks have different terms for commercial loans (e.g., to LLC's) than for residential mortgages. I have found some banks that will offer residential mortgage terms for rental properties as long as I purchase the properties in my name (not in an LLC).

Question: It was recommended to me that I purchase the property in my name and then QCD the property to the LLC. This seems a bit questionable to me, though apparently it is very common. Do you recommend this? Can you provide some insight and legal advice on this practice? What are the ramifications? And do the laws regarding this vary from state to state?

Many thanks,

Ron

Thanks Bill. Good advice.

I used a 20 year mortgage term because this is the best I have found if I run the loan through an LLC. I could probably get a personal loan at 30 years, but I prefer to do it through the company.

I ran the numbers on another property today, with similar results. I'm starting to wonder if asking prices in mid-Michigan are just too high.

Ron