All Forum Posts by: Jeff Bridges

Definitely feel free to call a broker (buyers agent of your choice, not the listing agent) and have them show you the place first hand. There is no risk or cost to doing this and you could easily rule out the theoretical discussions in this thread if you find out there is a massive sinkhole in the basement or something obvious that would rule it out as a viable sale for you. They can help point out obvious defects and things that might need updating, but ultimately you'll need to pay a house inspector to do a full inspection to get a handle on what repairs are needed (when the roof will need replacement etc). Some are ex-contractors and can give you ballpark estimates for repair costs for the defects they discover. Finally, don't hire an inspector until you have the property under contract and have the sale contingent on a full house inspection for your protection. This way you dont waste your money on inspection fees if a) you cant get an offer accepted in the first place or b) another buyer bids on it before you and your inspection fees are for nothing. Experienced investors here will sometimes be able to bring over a trusted contractor to estimate repair costs before making an offer, but this resource might not be available to you if you dont have a friend with this experience for example.

Again, 13k might be acceptable for estimating maintenance, but it might be less if you do proactive rehab before moving in. Only you will be able to find out if the HVAC is on the 19th year of its 20 year lifespan and same with the roof and choose to delay that replacement. your inspector would be the best guy to see what lies ahead of you in terms of anticipated costs for "delayed maintenance" instead of unanticipated maintenance costs.

You should stop by the property to check if there are 2 electric meters on the property. If there is only one, then YOU are the one that will be paying for all utilities. If there are 2, then the Bank may have been paying for utilities for both of them until it is sold, which you will now be required to pay and the tenant can feel free to abuse, unless you can convince the existing tenant to take over their meter, or find new tenants that will.

Remember, you dont have to take ownership or sign any papers UNTIL you have all of your questions answered properly and completely. If they can't answer your questions, tell them you can put off the closing until they get you those answers. Call your realtor now and have them find out these answers before you show up to sign paperwork.... Ask for a copy of the lease from the bank. If no one can produce one, you'll be going the eviction route that jon suggested above. that or paying the tenant cash in exchange for keys to avoid having to evict them if they are unwilling to pay your new market rate AND take over the utility bills for their unit.

1) You should be fine with a normal mortgage in a 1-4 unit building using owner occupied loan rates.
2) You cant use owner occupied loan products with LLCs at closing. If you buy with LLC as owner, you'll need commercial financing which has higher fees and interest rates. Many are comfortable buying under their own name, using standard financing, and buying umbrella policy on top of regular hazard insurance to the tune of 1-2 million. there are other threads here which discuss the liability concerns of LLC vs. personal ownership. too lengthy to debate here but do your own comparison.
3) You can think of it as subsidizing your housing cost when you have 3 units rented and you are in the 4th one. do some calculations/ analysis and see what your cashflow is like is with rental income of three units with the expenses of 4 units. compare this to what it would be if you just rented a place. Is that difference worth the headache of 3 tenants, unexpected maintenance costs, and administration/ paperwork of rental investment property?
4) I'm not as knowledgeable with older buildings but assume that a good inspector will tell you the age of systems (i.e. roof, boiler, AC) and tell you what needs to be replaced. If you do alot of this rehab before you move in such as replace the roof, and all systems to modern standards, there will be less repair headaches/ costs later on. If you delay repairs or wait to replace a 15 year XXXX with a 20 year lifespan, then account for that possible future replacement in your repair costs... You can call any insurance carrier and get a quote on your exact property with the options you prefer. You'll find out if the property is insurable to begin with (has no major prior claims) and what that cost will be.... do that with at least one to get a ballpark...
5)PM charges 6-10% of your rent rolls. Can you afford to take 10% less each month from your rent and still be happy with your housing expenses vs. renting? You'll be living next door to all of your tenants and can walk by once a month to collect rent. The PM can help with tenant placement/ evictions and other things like maintenance but again, you'll likely become involved anyway since your home is connected to these.
brandon turner put out a great how-to article recently on how to do this yourself without the help of a PM. (you can do it)
http://www.biggerpockets.com/renewsblog/2013/01/04/how-to-rent-your-house/
6) weigh it all out. calculate costs of rent vs. expenses with 3 units rented and living in one unit. then check the cashflow with 4 units rented vs. expenses once you want to move out. then check if you can add on a PM once you move-out to minimize costs. do you break-even for either of these situations? If it cashflows, how much? Would a roof repair or a single system malfunction and replacement put you in serious negative territory? as for property management, many believe if you are living in the property and your commute time is zero, then your time spent dealing with tenants wont be such a hassle assuming you screened your tenants properly and have a good system. Its also good learning experience on how to handle property management when you are ready to hand it over to a property manager.

other relevant articles:
http://www.biggerpockets.com/renewsblog/2012/09/04/why-i-have-to-use-property-managers/

http://www.biggerpockets.com/renewsblog/2012/11/13/managing-property-repairs-keeping-molehills-from-turning-into-mountains/

I annualize my expected income and add in a 8-12% vacancy rate (average for US households). You can then divide up again by 12 months into a monthly basis for your analysis. Spain currently has a 20%+ unemployment rate so vacancy rate needs to be confirmed in your neighborhood based on how fast units rent out but 1 month vacancy rate for example is a good start. it could be 2 months average vacancy rate. We of course do this because a) you'll be doing rehab so the place will be unoccupied for at least a month after purchase and you'll still have to pay expenses (including utilities initially until a tenant assumes those accounts) and b) once a tenant moves out, it is rare for the place to remain to move-in condition AND you to have immediate replacement tenants ready to move in the next day. Assume conservatively that it will take a month to turn around once tenants move out, clean up, paint and find new tenants in your calculations. redo your calculations to deduct the vacancy rate you find appropriate along with adding costs of a months utilities to each year or at least up front. This will prepare you for seeing if you can afford to have the unit vacant for a month or 2 and whether you still earn any profit year to year.... If you do, is it worth your time and effort to achieve that result or can you do something better with your time and investment?

Finally, I admire your courage to invest in your home housing market, but you need to be SURE that this puppy will cashflow and make it worth your time/ money. They dont exactly forgive loans over there in spain if the house is reposessed to foreclosure. That debt will stick with you for life even if they take back the property from you. They have some pretty tough laws over there! You cant afford to make the same silly mistakes that are made over here daily.

I dont understand the after tax rent income part either....

You are likely looking in DC proper where people dont buy a 2-unit rowhouse as a "good investment" but as a luxury that is worth it to them to be in the hot area. The extra unit for those people who purchase might use it to offset some of their expenses with renters or perhaps just keep it as a guest apartment when they receive guests in town. If you are looking for a multi-unit, try looking in NE trinidad or brookland, anacostia, Rosedale/ Hill East etc. for a better deal that would net 2% of purchase price in rent. Even better, buy in DC where you want to live either condo or small rowhouse, and use the remaining funds to purchase a investment property in the periphery. I invest in units in brentwood/ hyattsville/ chillum because they offer reasonable prices but command rent high enough to allow for profit since they border the DC from the North. I live in DC because thats where I want to be. I've accepted that finding a profitable rental in the city is a pretty unlikely prospect without serious investment $$ in big buildings or in up and coming areas of DC that have not yet appreciated to the values of the hot parts of DC.

Your strategy would work if only one bid was accepted however they don't work that way. If all of your bids were accepted at the same time, then you would be on the hook for each of those properties. If you did not follow through with these accepted bids enough times, then your agents HUD access might get revoked. They are putting their account access on the line. Your best bet is to bid on one property at a time with HUD listings. You'll find out relatively quickly if the offer was rejected following the bid deadline in most cases.

I agree with J Scott. There are lots of benefits to picking out your own materials: 1) Save money by handpicking your materials and ensuring you get the best price and quality for the material appropriate to your rehab goals. (Either by shopping at lowes/home depot or scouring craigslist for an even better deal on a new or nearly new item. 2) Contractor can't pad the price of a component over the amount he paid for it from his source 3) You get a better understanding of the level of materials there are in the marketplace so you know how to control your budget better ***caveat: its always easier of course to just have your contractor buy and install everything, but you pay a premium for that privilege. Some contractors will only bid a contract with materials included in their fee so you might have to shop around. Also, using a trusted handyman for small jobs would save you over a full blown contractor service unless you need a licensed professional for an important repair job that needs permits etc...

On staging: I haven't tried this yet but another flipper/mentor uses rent-A-center or similar furniture rental store to stage his flips with living room furniture etc. They typically cost $99/month for a living room set which includes delivery and pickup fees (how cool is that?). So you budget one or two months into your holding cost and get furniture that is delivered and picked up free once you get something ready to close. He also uses Ross or marshalls etc to get inexpensive window treatments and knick-nacks to stage the place and add a personal touch. I use these places for my window treatments. Works great for very little money. Others might have a set of furniture they keep in storage to use for staging while some use extra stuff they have in their own house but that's alot of effort to get a truck to move furniture if you ask me. Totally up to you! Good luck!

Here are some good resources below that might help you in your search:

good article about benefits of multi-families as your first investment/ home purchase (blog is also very good):
http://realestateinyourtwenties.com/blog/your-first-investment-property-should-be/?utm_source=rss&utm_medium=rss&utm_campaign=your-first-investment-property-should-be

good article (w/ video) on how to evaluate the properties you end up looking at. You'll ultimately want to make sure that your expected income from rent will cover all expenses foremost before you purchase. Ideally, it will not only pay expenses, but produce cashflow for additional income (if you dont buy right, then you might never be able to produce positive cashflow so analyze each property carefully). It will also show you what costs you must consider in your expenses that may not be immediately obvious.
http://realestateinyourtwenties.com/blog/how_to_analyze_a_multifamily/

Lastly rentometer.com is a good resource for estimating expected rent in your area to get ballpark anticipated income for the units in the multifamily you look at. That way you know if you'll be losing money on the property BEFORE you buy a place with negative cashflow.

What did you expect to accomplish by signing a contract agreeing to look for houses? I only heard of contracts where you sign a contract to list your particular house, not go shopping for them. The only contract you really should be signing is the one on the offer you make on the house you have researched and chosen as investor grade (agreeing to pay them commission on the sale). There is absolutely no pressure or reason to be limited to a particular agent, especially one that was apprehensive in the first place about working in your particular market requirements. I liken it to signing a contract with a car dealer agreeing to buy any car in the world, as long as its through their dealer network. I only see the benefit going toward the agent, who you're now at the mercy of with showings, making offers, etc. They are now rewarded by being lazy and not being responsive since you can't go anywhere else to get showings....

every short sale regardless of lender requires the "arms-length transaction" certification that has wording like below:

" The Buyers and Sellers nor their Agents have any agreements written or implied that will allow the Seller to remain in the property as renters or regain ownership of said property at anytime after the execution of this short sale transction. None of the parties shall receive any proceeds from this transaction except the sales commission."

This is not a provision that can be relaxed either during the sale process or afterward if they were to approach you to rent out the unit. Either way would constitute a type of fraud according to the buyer certification that you would have signed before closing.