All Forum Posts by: Adam Johnson

I am with K. Marie Poe, make your deal today, try to avoid them writing in a pre-payment clause, and if the property sells in the future, cash out and pay them off and let them worry about the gains tax. Remember, you are investing for YOUR benefit, not theirs.

It is admirable that you are trying to make the deal balance so that it is a win-win for both you and the seller. The point about recommending that they seek their own professional advice is important too. At the end of the day, however, you need to make the best deal for you.

Personally, if this were my deal and somebody offered to buy it out at a profit in the future (after considering tax implications for gains) I would prefer to simply sell it and pay the note, even if the deal structure allowed me to do otherwise. The only exception might be if the exit involved a wrap-around, lease-option, or similar financing arrangement between me and the buyer.

Personally, I look at flipping as a "job" and rentals as an "investment" or "retirement" plan. I do both but have started looking at increasing how much flipping I do as I look to reduce how much I am doing in my other day job.

Rentals will not get you rich quick, but when properly purchased can provide long-term stability. You will need a lot of them to live off of. If you have not yet found a place to live, strongly consider buying a multi-unit property and living in one unit. This will reduce your own cost of living, making it easier to get ahead faster. I wish somebody had suggested that to me a long time ago.

Another thing to consider is how YOU live. As we prepare to "retire" into real estate within the next few years, my wife and I continue to trip our household budget. I really don't know how we do it, but every year we find ways to reduce what it costs us to live without sacrificing quality of life. We drive used vehicles, mine has almost 400,000 miles on it, and don't buy what we don't need.

Another thought to strongly consider - try to do deals with as little of your own money as possible. Be careful and make sure every deal makes sense, but this will allow you to ramp up a lot quicker. It will take a while to recover your cash when you put it into real estate, and this can make it more challenging when you hit bumps in the road.

You are wise to plan, but don't get caught with analysis paralysis and sit on the side lines too long.

Good luck!

I think you have already decided with your gut, trust it. Instinct is a powerful force that I don't fully understand, but put a lot of faith in. I do recall one particular situation that I didn't listen to my gut instinct and it cost me $ 150,000, my business, and nearly my family. I still can't explain why my very strong gut feeling came about when I still had the opportunity to back away from the situation. In hindsight, I should have gone WITH it instead of AGAINST it.

My two cents worth of opinion is that underneath it all, you and the seasoned investor have a fundamental difference between what is right/wrong and how the 2 of you prefer to do business. The opportunity may be a very good match for you, BUT if it is with the wrong person, it will not yield the result you wish for.

I would gracefully bow out of the situation without burning bridges. Take some time and get to know the other investor better while keeping your eyes open for other opportunities. My bet is that as you get to know the other investor, you will start to see what your gut has already sensed.

His methods may work for him, but if they don't work for you or what you are comfortable being involved with, then it won't be a successful venture.

Brian Porter - I don't know exactly how to advise here other than to say that if what you are doing isn't working for you, do something else.

When I started out, I did a LOT of what you are doing for a would be partner. I drove a lot, spent a lot, and we finally did a property together. He financed it, I did all of the work. The rehab turned out terrific, but we had a difference of opinions on listing price. His was go for top dollar, mine was price it to sell. Since it was his money, he won. In the end, holding costs ate up all of the profits and we split a LOSS instead of a GAIN.

In hindsight, however, the experience and insight that I gained from working with him proved to be very valuable. We don't work together since that deal, BUT he is somebody that I still enjoy talking real estate with. I now look back and consider this part of my education. Having the opportunity to have done that first deal with somebody with so much experience helped me gain confidence in both my own abilities as well as the experience to see that you really can make money in real estate.

Maybe it is time to start looking at what the next step is going to be for you. Take a piece of scrap paper and a pencil and scratch out some goals. Where do you want to be this time next year, 5 years from now, and further down the road? After doing that, take a look at what you are doing that contributes to your goals as well as what is holding you back from achieving your goals. That will help you figure out what the right next move will be.

Sounds like you have a somewhat sophisticated seller, which may allow you to be more creative, but may also force you to get tied up more.

How about if the seller won't finance it, you simply by an option to guy at a future date? If you aren't familiar, you give the seller "x" amount of dollars and you own/control the purchase of the subject property for a specified period of time. He remains the "owner", but you are the "controller" during that period of time. You should also consider writing in extension clauses so you don't lose your option money should you not be able to close within the specified period of time.

I am not experienced in this type of deal, but have heard/read about them and they are not uncommon. Check with your attorney too. One risk to mitigate is that since you aren't the owner, you want to prevent further encumbrances (tax liens, mortgages, etc.) against the subject property during your option period that would inhibit your ability and/or the owners ability to transfer clean title when you take ownership.

In a former life, I used to do commercial site construction, which included installing and replacing underground pipe work. Jon Holdman gave great advice as far as consulting the city regarding material for the pipe. One job popped to mind in a local city we were working in. The approved plans called for SDR-21 pipe, which is very heavy, expensive, and tough to find fittings for. We installed a little over 200' of it before our 3:30 PM inspection by the city inspector that would have allowed us to cover it up (bury it) if he approved it.

He did not approve it, city spec was all sewer lines were to be SDR-35, which is lighter, easier to work with, and easier to find fittings for. The next day was spent digging up and wasting nearly $ 4,000 in pipe and fittings, not to mention labor and equipment costs, so we could put in SDR-35.

Moral of the story - ask the city. In my case the engineer that drew the plans screwed up, and so did everybody that reviewed them down the line. I shared it only to demonstrate who has the ultimate authority.

SDR-35 is very common and is very durable. If you can get it to sit still and not roll ahead of the tires, I have driven over it with a backhoe and it is very resilient and returns to it's original shape with minimum deformity. Don't do this with your job, but we have used that material for temporary piping before with great success when we know that it will be severely abused.

Regarding the root problem, my plumber recommended dumping a product down our sewer line a couple times a year at a property prone to intrusion. I think it is called Root Destroyer but you may find a comparable product at a local commercial plumbing distributor. The object is to kill the roots before they get heavy. You may also want to look closely at what landscaping you have near where your line is. Roots from bushes and trees "seek" water and will find any pipe. These roots will travel a remarkable distance to get to the water. It is possible for roots to penetrate PVC pipe (SDR-35, etc.) at the gasketed joints, so regardless of what pipe ends up being used, be aware of the surroundings as well and be prepared for minimum maintenance.

One final parting thought - consider an extra cleanout, maybe a 2-way cleanout just outside the house foundation, even if it is not required! Around here, the only cleanout required is at the edge of the street right of way in most municipalities. Adding a cleanout, and especially a 2-way just outside the foundation, gives you SO many more options in the event of a future problem. The extra fittings and labor required are minimal if you are already digging, and will be money well spent if this is a property you plan to keep for a while.

Run it by your LOCAL attorney. I highly recommend an LLC formed somewhere, but your attorney can and will advise you . My LLC's cost right around $ 1,000, maybe a little more. My business attorney is NOT cheap and I probably could have shopped it down, but I trusted him to make sure they were properly formed. However, an improperly formed LLC is as good as the dirt on your shoe if you are ever in court trying to cover your assets. I look at it like insurance, I hate paying the money now, but if I ever need it, I will REALLY need it.

The salesman gave you valuable information to investigate, but I would seek the advice of your own trusted advisers before acting.

There are "kits" to do the LLC yourself, but in my opinion, that is kind of like buying a kit to do your own brain surgery. Not really a good idea.

Wait a second, you are driving backwards and have the cart before the horse!!! STOP!

I once had a very successful investor/hard-money lender give this advice - "Don't worry about finding the money. If it is a good enough deal, you will find the money to get it done".

First thing to do, every time, is determine if you have a good deal. Don't do a deal simply to do a deal. At $ 475,000, this had better throw off a lot of cash every month. This seems very "rich", especially for somebody fairly new, with limited cash. I don't say that to pick on you. I started out FLAT BROKE with bad credit after a business bankruptcy. I still managed to do deals and am a big fan of owner financing, but ONLY if the deal makes sense.

Let's tear the deal down first, then we can figure out if you should be worrying about how to pay for it.

What are realistic market rents for each of the apartments?

What, if any, repairs are needed within the next 4-5 years? Major ones such as heating/cooling, roof, foundation, etc. Minor stuff such as tenant turnovers and routine repairs will be an "allowance", so you don't have to project them specifically, but you will need to plug in an "allowance" for them because you will need and use it.

Who is going to manage it? If you will manage it, you should be compensated just the same as a hired manager, so plug in money for that too.

Don't ever buy a property without first determining, with YOUR numbers, not the sellers, if it is going to help you reach your goals or prevent you from reaching your goals.

Post more information, I am sure that you will get valuable feedback that will help you through this and other deals.

One more thought, another lesson learned. For rentals and even flips, find 3 or 4 max colors you like and use those for all properties. Leftovers from 1 job starts the next job and means zero paint left to dry out and waste. We do that with flooring tiles and other material too!

We use Sherwin Williams Ivoire (or Ivorie, the tags on the bucket spell it one way, the sample chips another) and Medici Ivory for trim if we want 2 colors interior.

If you are a National REIA member, ask for the discount at SW. If you can talk to a district rep and show them how much you will be buying, you may get an even greater discount. We buy a lot and get great pricing, similar to Behr for higher grade paint.

Remember, cheap paint means more coats. More coats costs more labor $$$.

Lesson learned on my part.