All Forum Posts by: Adam Johnson

First I will say thank you for your service. Civilian or not, there are many of us back home that appreciate those that serve.

I sent you a little more info. regarding the taxes. An important thing to remember is that if you don't like the assessment, try to get it changed! A good property manager can help with this or point you toward somebody that can. Basically, you will need to support your lower opinion of value. If they agree, then you can save a few $$.

The best time to do this is after you close and before you refinance! The reason for this is that the tax assessor knows what you paid for the property. In this case mid-20's. I looked up your property and it doesn't indicate that it is a foreclosure, which the assessor will make an adjustment for. At first glance (and I don't know about this specific property so I am guessing) it appears to be an arms length transaction for a property that has been on the market long enough to find a ready willing and able buyer (you), who has indicated your opinion of the value is your purchase price. The 2012 assessed value is $ 33,200, I would try to get it lowered to your purchase price and be happy if they met me half way if I were in your shoes.

The reason you do this BEFORE you refinance is that when you do so, the mortgage gets recorded and the assessor then knows what an appraisers opinion of value is. For refinancing purposes, you want the appraised value as high as possible to get as much cash back as you can. When this mortgage is recorded, the amount is public record and the tax assessor knows essentially what another professional's opinion of value is, which makes it extremely difficult to overcome. Eventually the tax man will catch up with you after you refi, but if you can lower your operating costs for a couple years, that's a good thing.

The tax number still bothers me. If this is truly a war zone property, 4,800 is a bad number. If you want to PM the address I can do a little snooping for you. Generally speaking, City of Rochester tends to be pretty close with their assessed values (I ALWAYS double check against my opinion of value though!!). So even if the assessed value is $ 30-40K, taxes should not be $ 4,800. Something isn't right here.

I understand the scared and excited part. I get nervous with nearly every deal I do, though it does get easier as you get more under your belt. All of my properties are within a 30-minute drive, which helps a lot too.

Stay in touch. If you ever make it to Rochester, check out Freedom First REIA. Lot's of opportunities to network with other investors.

I operate in the Rochester area on a regular basis, so might be able to help with some more specific questions for the future. I also have a great place to buy used appliances that will save you a ton of money. I can give you the name by PM, not sure if I can post it here or not. I don't have any affiliation with them, but go there frequently.

One item sticks out like a sore thumb - you MUST factor in turnover vacancy repairs, especially in DSS/war zone areas. One of the biggest problems with DSS tenants is that when they get dropped for whatever reason, you only get 10-15 days notice. An eviction takes longer than that and you WILL have repairs to make. This absolutely has to be factored in.

Property taxes seem pretty high for a $ 20,000 property.

Repairs at $ 80/month seems extremely low, especially for a war zone property. Remember, the roof seems ok now, but will cost way more than $ 960 to replace down the road. One bad tenant leaving less than gracefully will eat that money up very quickly.

Does your property manager charge for tenant placement? If so, factor that in, a minimum of one turnover per unit/year. Obviously you don't want turnover that high, but tougher areas have higher turnover. In my opinion, 12% for a war zone property is a deal for a manager. I think it is wise to use a licensed manager too, check references either way though. There are good ones and ones to run away from around here (I'm sure that is true everywhere).

I also don't see a vacancy/rent loss factor. It is dangerous to assume that you will always get paid and that you will have a tenant move in the day after a tenant moves out.

Our area attracts a lot of out of state and out of country investors due to high cash flow possibilities. These are possible, but not without effort. My comments are not intended to scare you away, but to point out a few things to plug in to your own projections to make sure they work.

I assume that you live in Georgia based on your BP profile. Stay on top of your game and you can do very well here, I'm sure. Make informed decisions and verify all information you use to own/manage your investment!

I don't give a lot of thought to whether or not it saves a couple days or weeks or months, honestly. The bottom line for me is that my goal is to sell/rent as quickly as possible. Once I accomplish that goal at a price that I am agreeable with, then I am happy and free to move on to the next project.

BTW, I install this product in every kitchen and bathroom when I redo them in my rentals

I highly recommend VCT (vinyl composition tile) for rentals. They come in 12x12 tiles, the color goes all the way through so wear is forever, they are easy to install, almost no maintenance (clean and go), and you can buy what you need. These are NOT peel and stick tiles, they are about 1/8" thick and they are commonly used in commercial installs. The price is very similar to sheet vinyl, but they last a LONG time, even with tenant abuse.

We buy by the case and keep 2 colors on hand. Leftovers from 1 job start off the next job and we mix/match to make patterns. Tenants think the designs are cool and I know they can't ruin it unless the set it on fire! Since the color goes all the way through the tile, wear is less noticeable, which is why they are common in commercial locations.

I don't use this technique exclusively, but I really like the idea and use it when the right opportunity presents itself. I primarily buy/hold apartment properties, but recently started dabbling in buying SFR to lease/option. I just closed on one last week and had walked a potential tenant/buyer through before closing (be careful doing this due to liability). I walked a second one through right after closing and before doing any work. I should expand on this by saying this particular property was not in offensive condition. It needed attention, but was not hammered.

In the past, I have "pre-marketed" apartments before closing on the building. I don't show apartments too early, but I love the idea of having applications coming in before they are ready.

In my opinion, the idea is to reduce marketing time. I will trade off "top dollar" for "quicker sale" in most cases. This also allows you the chance to get feedback before you overspend. If there are certain things you aren't sure whether to fix or not, guage the end-users reaction. If they don't object to a kitchen that is a little bit dated, don't tear it out! Sometimes I will say - I was planning on painting the cabinets just to see what the reaction is.

Jeremiah B. makes several good points. Unless the agent is also a contractor AND representing you as a buyer's agent, I wouldn't trust any repair estimates! The agent has nothing to lose by throwing out a number and being wrong, the property will already be yours by the time you figure it out and the agent will have already earned the commission and moved on.

To add to the comments already offered, if the big ticket items were done in the 90's, then you can figure they are over 50% worn out and you will soon find yourself writing big checks to replace them, or at the very least keep putting on band-aids to stretch their life a little more. This means that your maintenance reserve should be higher for your projections.

Regarding the location, I have a very unscientific way to guage neighborhoods, but it generally supports other factors as well (crime figures, lower values, etc.). I look at the following factors on NEIGHBORING properties and the street in general:

1. Is the street and sidewalk covered in litter?
2. Are the roofs on the other houses maintained in decent condition? If not, what percentage are in fair or poor condition?
3. What kind of furniture is on the porch/in the yard? Is it patio furniture or the old couch picked out of the neighbors trash?
4. What do the cars look like in the driveways? Are they average or do many have aftermarket rims and custom paint jobs uncharacteristic with other factors in the neighborhood?
5. At around 1 or 2 PM on a weekday, how many people are there walking around? If the street is overly active during hours when people should be at work/school, this gives me a feel for how many are working and how many have "other" income sources.

None of these are foolproof and there are pluses/minuses for investing in different areas. Lower value areas tend to have very high cashflow. However, they also have higher demands for maintenance and active management. I think it is important to keep that in mind. When I look at properties in marginal areas, I always tack on larger expenses for these 2 items. There will be more drama, but there could also be higher returns.

I'm not familiar with your area, but a quick glance at the numbers tells me it might be worth digging in a little deeper to verify some of the figures.

Maybe somebody else can come up with a better idea. My first thought was also to recommend walking away. People in his situation are almost always motivated. Unfortunately, there isn't always a way to make a deal work for everybody. Don't forget, he made the mistakes that put him in his current situation, not you. Don't take on his problems by way of setting up a deal that solves all of his problems by making them yours.

Best I can think of would be something where he gets paid after the flip when it has been repaired and resold. Honestly though, it seems like a lot of work for a thin profit. By the time you factor in holding and resale costs, 175 plus the 30 doesn't leave much for the guy that is going to do all of the heavy lifting.

Another idea might be to suggest a short sale. I don't know enough about his situation to know if the tax bill is going to affect this property or not. This route is quite a bit of work too, but might open up a little more on the numbers side to give a workable deal.

@Brian Mathews - initially the 15 year note was not my choice, but the lenders. However, as I gain experience, I prefer the shorter note. Our cash flow is still strong due to lower values in my area and it is nice to watch the equity build quickly at the same time. As long as we remain in the "buy" mode, we will do cash out refi's to recapture that equity in order to create cash to do more deals. Just another way to build our portfolio with OPM.