All Forum Posts by: David Beard

Dee -- organize your data in a spreadsheet, format it in a professional manner, upload to Google docs/spreadsheets, then post the link here. It needs to look polished and convey that you are professional, experienced, successful, organized, and attentive to detail.

What about just cashing out the IRA, paying taxes (35%) and penalties (10%) and buying real estate on leverage in an unfettered after/tax account.

Comparing 18% return in your IRA, with 30% in your property portfolio (leveraged and this is conservative), if you pay taxes/penalties and start with just 55% of your IRA balance after taxes/penalties, your after/tax account will surpass your IRA in year 6 and have accumulated 3x the wealth by year 17. If you can knock out 40% annual returns, your a/t account will be 10x your IRA.

Just a thought, not advocating such insanity...

Yes, that abrasive practitioner of "tough love", your comments are surely missed.

For that matter, what about Tim. W. from the hinterlands of Indiana.

For that matter, where are all these people with hundreds (or even thousands) of posts in the archives who have vanished!

OK, I'll play devil's advocate to Jon's advice on extracting equity from your personal residence. I was, like you I take it, house rich and liquid asset poor. I refinaced my house at 80% LTV at 4.25% for 30 years. I have now used the proceeds to purchase properties with several times the cash flow needed to service the loan on my residence, with ROIs of 40%+ w/ prop mgmt in place. The home loan interest is tax deductible, and the properties you're purchasing wtih fixed rate financing will provide a nice inflation hedge.

And buying at these beaten down levels should return 3-5% in annual cap app over time, as well as modest rent increases over time, but that will be gravy.

You'll want to keep very comfortable liquid reserves to absorb a confluence of adverse events occurring in a short period of time, perhaps one year worth of payments on your primary and 6 mths on your investment properties. Use a property manager if you have a demanding and well paying job. You will not be able to do both, and the "ROI" on your job is the best investment you have at this time. The W2 wages are also your ticket to getting the best possible financing on your property portfolio.

If you're going to use prop mgmt anyway due to your job, you'll probably want to take a look at better cash flowing areas of the country, such as about anywhere in the mid west and mid south. You'll need to visit a few of these areas, maybe on a vacation swing, and make contacts with seasoned investors/wholesalers on the ground there. Well known areas are Indianapolis, KC, Memphis, Cleveland, Cincinnati, countless more.

I just view the primary as another property to be judiciously managed.

David

Do you know what bank has the note on the property?

Also, what is the occupancy status of the building? It's always fun to compute how much the bank is losing each month in carrying costs for taxes/insurance/maint/utilities, not to mention the huge foreclosure overhang.

Your offer at 80% of list after this period on the market is VERY reasonable. Hope you get it. Good luck.

A nice web interface/portal is very helpful:

* Tenants can log issues and maint. requests
* Communications between owner/manager can occur
* Owner can access real-time reports on status of property
* Some very nice pictures and information about your property that is available for rent, linked from Craigs List and other places.

http://www.personalrealestateinvestormag.com/uploads/Articles/Property_Management_MJ10.pdf

You should also expect your PM to provide reliable market rents and color on the immediate area, when you're evaluating a purchase.

Also to set rent for your existing units at the optimal level (normally slightly under market to minimize vacancy time and turnover).

Brandon, the PM charges 10% of rents, and there are no other charges except for maint. work, most of which he handles with his in-house crew at reasonable rates. He does not use realtors to find tenants, so avoids that type of sizable expense.

He'll decrease the mgmt rate by 1% for each 20 units you own, with a floor of 5%.

It sounds appealing because many on this board gripe, with justification (Brian A is coming to mind), that PMs make more money when the unit goes vacant than when it is full. I'm not sure that is true, given the hours and costs expended in the leasing process, but I do like the alignment of incentives for the PM to find high quality tenants as quickly as possible.

It has been argued that investors will seek out such a PM to give them their worst C- to D properties that have the highest turnover. The PM would have to use judgment in assessing each client relationship.

Agreed. By the way, Paul, as someone looking at this business, what is your take on no lease-up fees (and perhaps coupled with a slightly higher mgmt fee). As an investor, I find it very appealing.

Now, if I rehab an REO and hand the PM a vacant building, I believe it's fair to compensate for the initial effort getting it leased up, but as an ongoing client beyond the initial lease-up, I certainly like the idea of no addit'l lease-up costs at each turn. Who wouldn't, other than other PMs as a group who charge extra for this activity?

You might ask if this is an inferior PM, or someone trying to buy business for a short period. No, PM runs at least a couple hundred units, with occupancy % in the 90's. He also runs his own buy/rehab operation for multi's, selling some and keeping some. I like the idea of someone who is in the game on a continual basis.

Thanks for the feedback. The property is a 4-unit. The commission is 2% if sold during the term. The PM fee is 10% of collected rents, but the PM charges no addit'l fee for lease-up of vacant units, which of course is appealing as it better aligns my interests with their interests. Thus I can see a PM with this fee structure insisting on a contract breakage fee (a % of the remaining term), and I would not object to that. (In this case, the property is already fully rented with 8 mths remaining on all of the leases.)