All Forum Posts by: Adam Johnson

I have not attended MHU, but may in the future.  I do subscribe to their emails and read Frank's articles in a trade magazine on a regular basis.  We bought our first park a year ago in April and are actively seeking more parks in NY.  It is different in many ways from apartments, but not drastically so.  You just need to know which rule book to refer to.

I'm certainly no expert, but our tenants are doing a pretty good job of educating us. :)

A common misconception is that as soon as a home mortgage goes into default and becomes vacant that it is bank owned.  In NY, which is a lien state, the borrower owns the home technically even if they don't live there any more.  Ownership takes place after a very long and painful process which has become longer and more painful as a result of a strong attorney effort to make it that way.  Homeowners in default hire an attorney to fight it, the bank has to fight it, then they file bankruptcy and get a stay in place, you get the idea.  The bank can't do ANYTHING with regards to selling the property until they own it.  They also can't give you any information or communicate with you because the property is involved in a legal process and their are privacy laws in place that prevents discussion without the explicit consent of the borrower/defendant.

In addition to property management, we do property preservation work.  We are the guys you see mowing the lawns, putting band-aids on the roof, etc. while this process takes place.  You may have even seen one of my crews in your area and asked them questions.  We are bound by legal agreement and can only reply that we are there on behalf of the mortgage company to perform services at their direction.  We can't say the word "foreclosure" either.  We get approached almost daily by neighbors and investors trying to pump us for information.  It is frustrating for many, but trial lawyers have secured their careers by making sure that every "i" is dotted and "t" is crossed, then checked and double-checked.  It sucks, but that's just the way it is.  Ownership doesn't transfer until after the property has gone to the auction at the court house steps.  If that hasn't happened, the bank doesn't own it yet.

 You are worrying too much about something that really won't have much impact on your investment success.  Don't let others preconceived opinions change what you do, how you do it, or where you do it.  I will try to correct some people when they make this comment to me.  I won't waste time if I don't think it will matter to what they think.  I shrug my shoulders and simply say "if that's how you want to think of it" and let it go.  I take pride in my properties, but they are not and never will be "A" properties.  Honestly, "A" properties don't offer strong enough cash flow to advance me to where I want to be financially.  I wasn't born with a bunch of cash to park in real estate.  I have earned what I have invest and I want that investment to earn for me.  That puts me in "B" areas and probably some "C" areas.

When I have prospective tenants act toward me as though they think of me as a "slumlord", I add them to the denied pile.  They are future problems and will never be satisfied.  Let them be somebody else's problem.

Unless you have a lot of adjustable rate mortgages, not much changes.  Even if you do, it doesn't spell doom.  Very likely mortgage rates will creep up a bit when the rates increase.  All you really need to do is adjust your analysis for the increase in the cost of the money and make sure the property cash flows to your satisfaction.  If you are selling short term, then just factor in the higher holding cost.

It will affect everybody, but doesn't mean to panic.

@Brie Schmidt - in my opinion, you already have your solution and it simplifies things for you.  It may take a little bit of "re-training" your cash tenants, but just get them to start depositing payments at the bank instead.

We send out monthly statements showing all unpaid balances as well as the new month's charges.  We send them out around the 20th of the month and show the upcoming rent due.  In the envelope, we include a deposit slip already filled out with our account name and number on it, along with a blank line for them to write in their unit and address.  Pretty cheap to do, we pick up a stack of blank slips at the branch once in a while and had an ink stamp made up with our account name and info.

Keep it simple!  It is nice to offer a lot of options, but the cost is that it makes your life more complicated.  When we first implemented our system, we met a fair amount of confusion and resistance.  Now our tenants LOVE it.  They walk away from the teller window with a receipt.  Our bank tellers are now "trained" to put the unit number in the memo line of the transaction, so within an hour it shows up in our online banking portal.  Everybody wins and nobody has to pay any special fees.

You should absolutely discuss this with the broker that will hold your agent's license before you do anything else.  You may also discuss with your instructor, but the person that is most at risk by your failure to disclose properly (besides you) is your broker.

In my opinion, there is not any harm in disclosing, their is potential harm in NOT disclosing.  Why risk it?  I am licensed in NY.  I disclose in my first conversation to get it out of the way.

@Andy N. - I am curious if everybody is missing something here. If I am reading your original post correctly, it appears as though you have either an adjustable rate mortgage, or you have a balloon payment. If it is an ARM, you may only have a rate adjustment at year 10. If it has a balloon payment, you may have to either re-finance or you may be able to request a renewal/adjustment at that time.

If my assumptions are correct, you don't necessarily HAVE to pay it off completely by the end of year 10, you just have to do SOMETHING by the end of year 10.

Please clarify your post a bit.

As to term, I generally run at a 15 or 20 year amortization and buy at aggressive prices to help keep cash flow healthy.

Dust may be another factor to consider if you do carpets first.  I don't think it would be a major factor as long as they take reasonable care to control it.  I would lean toward hardwood first, then carpet.  If could care is used, I don't know that it matters a ton.

@Brian Gibbons - good point. I was thinking exactly the same thing but sat on the sidelines not commenting about it. I have been advised the same way. You don't have to be necessarily leveraged to the max, but enough that it doesn't leave a lot of juicy equity available to an attorney to go after in the event of a lawsuit. I don't know that there is a "magic number", but in my head being leveraged to 60% LTV or more takes a lot of the fun out of it for somebody trying to sue. Since I hold properties in LLC's, doing a refi to cash out some equity, then drawing out the cash until I have somewhere to put it and then reinvesting it back into the LLC just before closing on another property helps to protect my valuable equity. My bankers like it too because I try very hard to be a "good risk".

Not giving legal advice, just sharing a thought.

There is no "right" answer. Honestly, you need to look everywhere. Talk to people in your network (and keep growing your network of people to talk to), let them know what you do and what you are looking for. Put a small ad in a local Pennysaver paper, if there is one around you. Keep it simple. Something like "I buy real estate. Looking to sell? Call me first....." Keep it cheap and simple. Keep your eyes open. If a property catches your eye, find out from the County Treasurer where the tax bill goes. Write a letter stating you might be interested in buying the property, but need to know more info. Talk to a local Realtor (preferably somebody familiar with investing and referred by another investor) and ask if they can set up automated searches to send you properties off the MLS that might fit your search. If they do, it is courteous to have them represent you as the buyers agent so they can make their commission.

That gives you a few ideas, but shouldn't be considered all inclusive.  Keep your eyes open all the time.  Eventually deals will become easier (never easy) to find.

Good luck.  Happy investing!