All Forum Posts by: Daniel O.

Congress controls the purse strings, not the President. But lets say HUD's budget is slashed and they reduce the amount of money going to states for Section 8. States will do one or more of the following:

1. Reduce the number of people receiving benefits via the program. They might do this in any number of ways. They might set a lifetime cap on how many months of housing assistance a given person can receive. Or they might tighten up on eligibility criteria. Or become stricter about kicking people out of the program. But how they do it is less important than whether they do it....unless you are a recipient.  For landlords, this will have the overall effect of reducing rents at the lower end, as more people become homeless and/or are forced to relocate.

2. Reduce what they will pay for a given place. This will have the overall effect of reducing rents, since it will in effect be a drop in demand. I would expect class C and D properties to be hit harder here than class A and B, since A and B are less likely to have Section 8 tenants to start with.

3. Use state funds to make up the difference (or part of it) between what the Feds cut and what they have been spending. If they do this, they will need to find the money somewhere, so we might see higher income taxes or property taxes or rental licenses. Unfortunately, there is a strong disincentive for states to do this, since the states providing more generous benefits will be a magnet for those needing or wanting them, while the less generous states will tend to push people out.

@Derrek Lawson Welcome to BP. Great place to learn. The Baltimore / DC market does seem to be getting harder and harder to find great deals in, as a lot of folks both from here and other places are piling in. This may taper off as interest rates rise...or it may not.  One of the most important keys to success is learning to spot a good deal quickly AND being in a position to take action fast when you find one. Since you are not in a position to pull the trigger immediately, I suggest you start practicing evaluating deals so that you learn to do it fast. Otherwise you will be sitting there trying to figure out if something is a good deal while your competition us putting it under contract. Here are some questions for you to consider:

How do I know what a property is worth after I fix it up?

How do I know what it will cost to fix it up?

How do I calculate cash flow?

How do I figure out what it will rent for?

How do I figure out what it will cost to own?

Ideally, you will learn the markets you want to focus on, and you will be able to do a rough estimate on whether a place is worth looking at further in under a couple of minutes, and get to whether you want to look at it with an agent in under 5-10 minutes. When you walk through it, you should be able to roughly estimate what it will cost to get it rentable in about 10 minutes. This will be a rough estimate, but will tell you whether to just keep walking.

Best of luck!

@Nicholas Judd it is harder to get a sense of what is a good deal with straight percentage rules. They are a place to start, not a place to end. The quality and condition of the property are going to have a great influence. Does it need a lot of work?  You should look into an important concept called Cap Rate. The higher the cap rate, the more the income it generates relative to the price / value of the place. BUT typically the higher the cap rate, the sketchier the neighborhood / property. So part of what you need to be thinking about is whether you want to buy a nice place in a nice neighborhood that doesn't generate a lot of cash flow but has potential for appreciation and doesn't need much work (called Class A or Class B) or a Class C place that might have a higher vacancy rate and need more maintenance but cash flows better when you have good tenants (which are harder to fine in a class C building / neighborhood). 

Pay attention also to who pays the utilities. 

And finally, you should be aware that a lot of people are buying up multi-family real estate now, including what some people here refer to as "stupid" money. As in "I got outbid on a place by stupid money."  This refers to people who will pay more than a place is worth either because they don't know any better, or because they just want to park some money there. We are seeing a lot of money from overseas buying up places. In other words, don't pay more than a place is worth TO YOU.

@Candace Postell I encourage you to sit down and really work up an exhaustive list of what you need, and then come up with a REALISTIC estimate of what those things will cost. For the things you mentioned above, 4K sounds a little low. Make two lists: Need to have and Nice to have. For big items, like the HVAC, you may be able to work something out with the vendor, as @James Skelton and @Nicholas W. have suggested, so that is worth exploring. The other options mentioned here are also worth pursuing, but with the following caveat. You need a clear-eyed estimate of how long it is going to take this place to sell once it is on the market. You don't want to find yourself trying to decide whether to drop the price or pay interest for another month. And you don't want to have the HVAC vendor agree to carry the note for 90 days unless you KNOW you will have the sale completed and the money in your pocket by the end of that period.  Good Luck!

10K?  Ouch!  How did you let it get to that point?  When you say they reached an agreement to evict by the end of March, who did they reach this agreement with?  If they reached the agreement with you, is it in writing?  Do they think things are free and clear once they leave? And finally, if you've already given them 10K, what makes you think they really are going to leave in a couple of weeks?

Money is a funny thing. If you ask someone who only has $5000 in assets how much they need to be happy or feel secure, they might say they need a million bucks. But if you ask someone with a million bucks how much they need, the answer might be 2 or 3 million.  It is really easy to get hooked on "the deal" -- the thrill or satisfaction from closing a great deal, and to get so focused on making money that you lose sight of why you are trying to make money. We've all read many posts here where someone says they are just looking to have a passive source of income so they can retire early and spend time on the things they like to do. But how many of us actually do it?  

So the question comes back to why you are trying to make money. If you want to be able to retire early, figure out what sort of income stream you need to be able to do that. When you hit that level, ask yourself if you are ready to retire and pursue fly fishing, gardening, volunteer work, or whatever it is that you were hoping to do when you retire early.  If not, maybe it is time to reset your goal and revisit your reasons for trying to make money.

There are so many interesting and enjoyable things to do in the world. Why would you want to work any longer than you have to?

The looming debt crisis is the need to raise the debt ceiling so that we can continue to pay the interest on our national debt, pay our other obligations, etc. It is HIGHLY unlikely that there will be a problem here.  In other words, keep moving, nothing to see here.

Sounds like a great cash flow situation for the real estate agent who wants you to buy. Be careful with condos. In addition to that hefty fee that is killing your cash flow, you also need to pay attention to whether there are any condo association rules about renting it out, etc. Also, you really should be thinking about your exit strategy when you buy a place. Condos can be hard to sell, especially if things evolve to where there is relatively low owner-occupancy. Banks just don't like to finance condos like that.  In sum: you should probably keep looking.  Best of luck.

Hi Lauren,

Welcome to BP. I don't have any real expertise with which to answer your questions, but I think you need to talk to a good tax person. You might have an easier time finding a good one who can give you undivided attention if you wait until after tax day. PM me and I will give you the name of the guy I use. He is a RE investor himself and holds properties in a couple of states.  I do wonder whether you might want to set up two distinct entities, one for properties in MD, the other for those in NJ.

Good luck!

Is it a pig, or is it bacon?  You really need to dig into this thing more than you have here. What is the property like? Does it have serious deferred maintenance issues? Are there factors that will deter tenants? Most things that look too good to be true usually are. But some of them are bacon.