All Forum Posts by: Benjamin Aaker

Take the time to educate yourself about real estate investment first. Do a lot of reading and get involved with your real estate investors' association. Put that money somewhere safe while you learn. Start thinking about what type of property in which you want to invest. Many start with a single family house, but not everyone. Consider whether you are interested in moving into your new rental property or not. Determine what amount of money you can invest as a down payment. Start with something you can lose money in and won't mind looking at it as education. Build your network of real estate agent, banker, accountant, attorney, and insurer. Let us know how you progress and we can help with individual issues. Good luck!

Another thing to determine is whether the knob and tube is energized (in-use) or if it is abandoned and disconnected. Many old houses with new wiring have the old knob and tube because it was too expensive to remove the old wiring. It is no danger if disconnected. If a municipal inspector demands removal/replacement it's time to determine if it is even in-use in your house.

Good job keeping your cool and getting this worked out. You'll have a better plan for what to do when you buy your next one.

I'm pleased to here that you have criteria for your tenants. That's a great start. You developed these criteria for a reason - minimizing issues later. While criteria can be changed from time to time, I don't recommend changing criteria on the fly. This is still the off season in the Midwest so I think it is too soon to get discouraged with two weeks' vacancy. If anything, your criteria might be too loose, for instance, I don't interview anyone with evictions or foreclosures.

To your question: Don't revise your criteria just to get the unit occupied, ever. Take a look at why it isn't renting. How many looks are you getting vs applications? Lots of looks but few applications means they like the location but get in and don't like the neighbors or smell or color or layout. If they take the application, but don't apply, then it might be the terms of the application that are turning them off. Are you adequately informing people of your criteria before having them apply? What is your marketing strategy? Are you unwittingly marketing to people who don't meet your financial criteria?

Remember that there are good tenants who have bad credit, but a bad tenant can ruin a year's worth of profit or more whether or not they are month-to-month. An eviction lawsuit will wipe out gains for at least a year. Use this time to revise how you are presenting your financial criteria to prospective tenants as well as you advertisement.

Hi Emmanuel,
Glad to see you here asking the right questions as a rookie. This is a great place to start. It looks like you are considering buying a condo. You will still have to manage the property, just not maintain the exterior of the building. You still have to do maintenance on the inside and deal with tenants. You'll pay the same management fee, but your repairs and cap ex budget can be lower, while the HOA fee is higher. As long as you don't mind having a board that might not do what you want, you can look at condos. Else, don't even bother.
You should really consider putting some of your own money in the deal. This shows confidence in the deal and aligns your interests with your lenders. Let's get to your questions:
1. Being conservative when starting is to your advantage. Especially when using other people's money. If you lose their money that will strain relationships and limit you in the future. Consider whether cash flow is even an issue for you. What are your (and lenders') long term goals? Will you sell in 5 years or keep it for many years? Many of us care more about equity gain than cash flow. Have you interviewed property managers? 10% is pretty high. Perhaps self-manage?
2. Not being able to return the borrowed money is a major concern. This needs to be discussed with your lenders before moving forward. Again, consider making this a 5-year project that you intend to sell. Make your lenders investors and promise them no return until the end. Give them a percentage of the profits on sale. Or, give them the profits of a refi where they exit and you stay on as sole owner.
3. I answered this above. The condo can make it easier, but adds headache. Just starting out, I'd lean toward a single family house.
Let us know what you decide to do. Good luck

Hi Lawrence,
Congratulations and well done! Start building your systems now to keep the momentum.

To recap: You'll pay in cash with a HELOC. Some time later, you will get a mortgage on the purchased property and presumably pay off the LOC. A few details you will need: How long do you project it will take for the rehab? The interest cost on the LOC must be factored in. If you are a new investor, be careful about taking a LOC on your primary residence. If the rental fails for any reason, you must be able to pay back your LOC.

All in you will be $117,000. You will need the property to appraise for at least as much, but you have stated ARV minimum is 152k, meaning you will be able to take out up to 121,6000 when you finance. Using an amortization schedule, you'll have $662.47 in monthly payments.

You will need to have a good idea of your expenses before making the decision. In my area using a rough calculation, I budget the same amount as mortgage for property tax and insurance. This won't be the same in your area as my property tax and insurance are very high.

Back of napkin, I worry that you won't have much left over after expenses. Of course, you won't have to take out that much in your mortgage. Dial it down to what works and gives you enough reserves for the property and you should be able to make it work.

I'm not an attorney and it is dependent on the laws in your municipality, however, I can tell you the following: Not paying rent is generally the most likely way that a landlord can evict a tenant. Once you start the eviction process, you will usually not accept rent from the tenant unless it pays in full all of the back rent. If you do accept a partial payment, then why are you evicting?
Have you spoken with the tenant? You might also be able to come to an agreement on a payment plan and keep them in the property.
Many times I've had tenants simply leave after I give them a Notice to Quit due to nonpayment of rent.
Make eviction your last resort. It will cost a lot of money.

Are you willing to house-hack and live in one unit as you rent out the rest? This opens up the FHA loan possibility for a much lower down payment. Without living in the property, you are looking at putting down at least 20% and probably 25% since you are new to investing.

You mentioned HELOC. I love this type of loan, but you will need to have a property to obtain the line of credit on. If it's a HELOC, then it is your primary residence. I caution you against doing this just starting out. You don't want to tie up you house into a property that fails and then you can't make the LOC payments.

I think a sensible car says that an agent is frugal and will be a good partner to have in a real estate transaction. The car should be well-taken care of, just like you want in that house you are going to buy. Same as your clothing. I personally would avoid the agent with the expensive car and watch. That tells me they put priority on making the deal close rather than putting my interests first.