All Forum Posts by: Michael B.

Be very careful. Make sure you understand the risks before going down this road.

One risk is if bad things happen to the deed holder before you take title. If he files bankruptcy you could lose everything as the property becomes his asset and you become one more creditor. That rarely ends well for the buyer.

Another risk is if the seller has an underlying mortgage. Banks almost always specifically disallow contract sales when they write the mortgage. They can call the mortgage due and immediately begin foreclosure if they find out about the deal. You end up with a legal mess and possibly lose all equity.

My advice is to spend $500 with a good real estate attorney to learn the law and risks in your state. I'm not saying don't do it (indeed I've done 4 CFD deals over 25 years). Just make sure you know what can go wrong and what your options are if they do.

I'd say go with your initial thought and buy a house for cash.

Get your feet wet with this property. If you don't like managing it then turn it over to a property manager or sell it. There's always time later to change your mind about flipping properties or acquiring leverage later. Both activities add risk, so make sure you understand both yourself and the market before either. Get a good deal on this one, get a good tenant, and start saving the rent checks. Then contemplate the future.

As you know, investing is about living on less than you earn and making a decent return on the rest while managing the risk involved. In buying a single house it's not that hard to near a 10% return over the long term with a minimal risk. Sure beats the .2% the banks are offering.

BTW, all Brian Hoyt meant by prop. no 5 was property number 5. He was saying that now is the time to start preparing for the next property to be bought, in his scenario property number 5. In his scenario it would take a few year to get to where you're ready to buy number 5 and it would be good to have the down payment in place by then.

Like any big city 'Orlando' covers a lot of different neighborhoods. Some good for what you want to do, some bad. But here are some general thoughts on Orlando and areas where it's a little different than some cities:

-- Orlando has a lot of people with dinged credit. Many are good people who made a bad financial decision to buy at the top of the market and got their credit trampled. They are better risks as renters than their credit score shows.

-- What you want to do is very competitive in Orlando. Many rehabbers were once home builders before they got over extended and lost that business. Don't assume it will be easy.

-- Labor is cheap for some. Lots of undocumented labor used by unreputable operators. You will have trouble competing on price.

-- Demand is good. People from all over the world want to live here, at least part time.

-- Due to the housing boom we had much of the housing stock is relatively new.

So come on in. Just don't expect to be retired to your private island by this time next year :-)

Let me hit it one more time with an example then I'll get off my moralistic soap box:

In an apartment (many units under 1 roof) with an 'ABSOLUTELY NO PETS' policy the tenant repeatedly assures you they have no pets. Later you find out they've been keeping a 10 ft. Burmese python. Are you going to be pissed? I sure would.

Technically the tenant was absolutely truthful. Under virtually no definition are pythons classified as pets. They're wild animals but legal to keep in most places (let's assume legality of keeping the snake; illegality muddies the waters). But the intention was to deceive as to whether an animal was in the place.

Indeed I'd say the tenant was closer to the technical truth of claiming they had no pets than an owner of the LLC that owns the property saying he's not the owner of the property. But the common sense interpretations of both statements put them much closer to deception than truth.

Both in both personal and business dealings we depend on common sense interpretations of virtually everything said. Parsing every sentence to come up with all possible meanings is way too difficult for casual communications. That's an implicit understanding in virtually every dealing. When you violate that understanding with legalistic interpretations you're deceiving the listeners. Even if the statement is technically true.

Sorry, guys. That's too cute by half. Using words that are true but are an attempt to mislead are lies.

In the article cited Brandon uses examples of telling the tenant that he needs to talk things over with the owner. Also he encourages using the following line when you're enforcing an unpopular rule:

Me: “Sorry, I tried talking the owner into it but he is a stickler for the rules.”

That's deception, pure and simple. The words may be technically true, but they're used in an attempt to deceive.

Lies always make things easier in the short run. Whether its deceiving a girl as a teenager about your love for her to get her to take off her clothes or lying to the IRS about income -- lies make things easier in the short run. That's why we use them. And, yes, everybody uses them from time to time.

But lies have potential to make things worse in the long run. In this case you're asking a tenant to honor his word and pay up to 1/3 of his salary every month. You're asking him to honor a pet clause and a no smoking clause in a contract, both of which he may be able to ignore and get away with. But nearly the first words you say to him are deceptions. Don't go there.

That's a step beyond where I will go as a business partner, which a tenant is. Attempting to deceive with technically true words isn't how I treat people. Especially people that I expect to be absolutely truthful with me.

Apologies to John Winston for the threadjack.

Actually I think putting your title as property manager is a very bad idea. I guess it's not bad to call yourself a property manager, but if the change is an attempt to deceive ... don't do it. Have more respect for your tenant than that. The stakes are just too small.

Like it or not, you're in a business relationship with your tenants. You provide a service, and they pay for that service. It's never good to go out of your way to try to deceive a business partner. There are just too many ways that a little deception like this can spin out of control.

People get pissed off when they're lied to. And a lie like this where you have so little to gain just isn't something to do lightly. Remember, the person you're lying to has control of a really valuable asset of yours. Do you really want him thinking that you don't take little things like truthfulness seriously? That lying is OK between the 2 of you?

I respect what Brandon says here, but if indeed he gave such advice I'd love to know the context and what he was getting at. And that's the truth.

I had an older gentleman that used to do that.

He'd pay a year in advance each year. That was because some government program (possibly the Veterans Admin) didn't count prepaid rent as an asset when determining whether he was eligible for services, but cash in a bank account was counted. So he'd pay up a few weeks in advance of their annual audit of his finances to keep himself eligible for whatever he was getting.

He's also the only tenant I've ever had to die in one of my places. One day his daughter called me because she hadn't heard from him for a few days. I let her in and we found him in bed, dead for a day or so.

Here's a look at the median price of San Francisco SFH vs Condo over the last 10 years. Note that condos have actually appreciated better than SFH's in the last 10 years which included both boom and bust times.

http://re-sanfrancisco.com/10-years-of-san-francisco-condo-vs-house-appreciation/

But all areas are different. Real estate is a business about local factors.

My impression is that condo prices are slightly more volatile than SFH prices, meaning that they rise slightly faster in good times and fall slightly faster in bad. That makes for a different investment environment than the SFH. Not necessarily better or worse, just different.

A lot of people don't like investing in condos, but others do. I really like condos. they tend to be cheaper per sq. ft. than houses. And the rent tends to be a higher % of purchase prices than houses.

One issue that people have with condos is HOA fees, and they are frequently steep. But think about what HOA fees really are. They're primarily maintenance. House buyers pay them also, but they're called different things. They're called 'lawn maintenance'. They're called 'setting aside cash to put on a new roof someday'. They're called 'building insurance'. The economies of scale present in a condo investment reduce the cost of maintenance considerably.

The thing that I'm always interested in is how well run is the HOA. You have a partner when you invest in the condo, and that partner is the HOA. If it's well run then you have people to watch over your investment at little or no cost. If the HOA is poorly run you may have unending issues.

Before I invest in a condo complex I always try to meet at least 1 HOA board member. They're almost always retired guys that love to meet new people, and think having breakfast with an investor is a great thing. For the price of an Egg McMuffin and coffee you can usually get a lot of good information on what's going on in a HOA. It's money well spent.

A couple of thoughts, which you may not like.

First, be careful investing with girlfriend. If things go badly personally that could be a disaster for your investment. If you're not going to 'put a ring on it' you need a formal partnership agreement drawn up.

Second, there's a reason that banks likes you to save up a downpayment. It makes the investment less likely to go down in flames. It shows that you can put long term savings ahead of immediate consumption.

As Jon says the key to wealth is to live on less than you make and invest the rest. Take your time and save the money. A highly leveraged disaster at a young age can affect your financial future for decades. Don't fall for the real estate guru crap about the easy wealth through real estate. It's hard work for uncertain returns.

Pay off commercial debt (car, credit cards, student loans) first. Then save for a down payment. Maybe on your 5th rental there will be room to get creative. But keep it vanilla for now. There's plenty of time later to add risk.