All Forum Posts by: Corey Hawkinson

@Aaron Pribyl I’ve done this twice. Great way to build up your portfolio with very little cash out of your pockets. You do not need a new mortgage. You do not need to contact your mortgage company. (Verify that if you have a unique type of loan.)

@Dominic Scheck I agree with Dominic and Jordan. Those are the cities I would target starting with Crystal, Robbinsdale, New Hope and Golden Valley. Research crime maps though because if you drift too far into the North Minneapolis area you might have regrets. St Louis Park is also a nice area but will typically be a little more expensive compared to the others listed by Dominic.

@Will Fraser Great points! This reminds me of another important piece to consider. Would you (person who started this thread, not Will) have the ability to accept/reject tenants? I overlooked this because I have that ability. I run a background check on every potential tenant.

In my case, my property fits in with the neighborhood and people would not realize it was housing for former homeless individuals unless they were told. It is not transitional housing where people are only there a short time. 5 of the 8 tenants have been there over a year. If this is more transitional housing you will likely face the issues that Will described.

@Leslie Johnson I’m no expert in this area, but you mentioned that he is on rental assistance. You might want to research rules with that because you don’t want it to look like you are giving cash back to a tenant on assistance. Maybe the program would be fine with that. I would want to know ahead of time though.

@David Latu As a very simple guide, I start with the 1% rule. This rule says that a property should rent for 1% of the purchase price. There are many flaws to this rule, but I use it as a starting point. This rule would say that a property will provide appropriate cash flow if it is purchased at $160,000 and rents for $1,600 per month. That is obviously much different than the numbers for this property. That’s where I see the issue.

If you’re buying at $300,000 and only renting at $1,600 I don’t see how this provides you strong enough cash flow to support the property.

If it really was worth $375,000 that might be something to consider for overall gain after 5 years. However, if that is the case your sister should just sell for $375k now and you should try to find something better to purchase. That way both you and your sister win. In this case you might win but it sounds like your sister is obviously losing if she is giving the property to you at such a discount.

@David Latu The purchase price is $300,000, the value is $375,000 and it only rents for $1,600? Obviously I don’t know your area but those numbers seem way off. If you are sure of the $375,000 value I would consider it, but if it only rents for $1,600 I have a hard time believing it would sell for $375,000.

Don’t get me wrong, I’m not saying don’t do it. I’m just saying verify those numbers. This could work out well for you if the $1,600 number is the issue. If it could really rent for more you could come out ahead.

@Richard Prillerman Buy everything with cash.

As several on here can point out better than I can (Joe V, etc) that sounds like good advice until you realize how badly it is holding you back. Obviously you don’t want to be over leveraged, but your best bet is to find the right leverage amount. That amount may differ from person to person, but if it is 0% you’re leaving a lot of money on the table.

@Demetrius Charles I believe they only sell GE, but I’ve had great luck with Appliance Outlet in Eden Prairie.

@Igor Nastaskin I own something you might consider similar, a 4-unit property that is rented by an agency for people that used to be homeless. Like anything, there are pros and cons for this type of investing. Here are a few for me that you might also face.

Pros:

The rent payment has been on time every month because it is paid by the agency.

I feel good about helping homeless people turn their life around. I realize this might matter less to some people.

By leasing per bedroom I am able to receive higher total rent.

The agency has an employee at the property at least once a week working directly with the tenants. That employee notifies me of things I should know. (When they can, obviously laws exist that limit some things he can tell me and we follow all laws.)

Cons:

Vacancies can take longer to fill. I know that sounds crazy when you think about the homeless population because I should have a huge waiting list, but the truth is other factors apply. The agency needs to get people to qualify through the county/state for the program and they also need people that fit in well at the property since they live with another person.

There are more work orders at that property compared to other properties. Make sure the cash flow is strong because if it is like mine it will be a more active investment compared to other properties.

Information I would want to know if I were you:

How long has the agency been in business? How large? Can they provide financial statements?

What is the source of funding for the leases? By this I mean, does the state pay? Individual insurance? Direct from the people recovering? If it is government funded I would do additional research. A benefit for you is that you’re in a state that is decidedly on one side of the political aisle. I’m not going to argue which side is better, but a problem can occur if the state is 50-50. A swing from one side to the other can lead to funding changes for specific programs.

How long does each individual typically stay at the property? What is the average vacancy? Does the rental amount change based on vacancy or does the master lease pay the same even if the property is half vacant?

How is damage treated at the property? Agency pays? Security deposit from each person?

How comfortable are you with the people you meet from the agency? Meet more than 1.

Sorry for the long message but that is what I thought of off the top of my head. I’m sure I’m missing some items I would want to know.

@Cody Smith I agree with Theresa. No need to pay off low interest debt. I am 36 with student loans. I have no intention of paying them off early. They have interest rates below 4% so in simple terms (not factoring in taxes, etc) all I need to do is find something with a return of 4% or better and I’m better off investing there instead of paying off the student loans.

I will concede that there are psychological benefits to paying off debt though.