All Forum Posts by: David Epstein

Christopher,   I admire your willingness to jump in.  Develop several other possible sources of funds.  At some point, we all had to take that first step.  And with the first one, as Ben R pointed out above, you're vulnerability to risk is lowered considerably when you have several tenants kicking into your costs every month.  Buying a building that is empty and needs a renovation is probably the scariest and most risky.  But if you can put yourself in the situation of running a going concern, that will mitigate much fear.  After that, while learning is paramount, it's mostly a matter of lather, rinse, repeat.  As for your parents, show them the numbers on paper, and if they can see that you've done your homework, it will be a slam-dunk.  You're young, people don't expect you to know what you're doing.  BTW, listen to parents: it's disgusting, but they're often right.  You're smart to start building equity from a young age.  Good luck!

As Steve B said above, it's worth becoming familiar with your state's Landlord-tenant law.  Most states have their statutes online and it isn't any big deal to read through it.  You ought to do so with a file open and cut-n-paste important factoids to save for yourself as reminders.  For instance, you'd be amazed how many tenants i talk with have no idea what the limits are on their security deposit, how much time landlords have before returning it to them, etc.  So many low-income people think of the security deposit as a tax that landlords inflict on them; they have no idea that there is interest due them, that they have to apprise the LL of their new address when they move, and that they are due an accounting of their deposit upon return.  And there can be special rules regarding senior citizen tenants, too.  Read through it. Most of it's legaleese gobbledygook, but it's important gobbledygook and you'll be a better building owner for it.  Does your state require the tenant or the LL to keep the stairs and hallways clean?  You need to know!  

Depending on the state, it might be a breeze to set up an LLC. In my state you can just file a form with the Sec of State's office, plus a nominal fee, and you're good to go. The SDIRA will likely require an Operating Agreement that puts the owner of the LLC as the manager, and specifies all the things you may NOT do as a SDIRA. There are a dozen or so prohibited transactions, and disqualified persons. Make sure you know both spirit and letter of the law here. And a custodial company can require an attorney to read and sign off on your Operating Agreement. They sure don't want the liability if you mess up here. It's probably a good idea to either have an attorney conversant in this area help you write your Operating Agreement, or use an OA that the custodial company likes. This is not a simple area, but, considering the boon it can be, it is worth it for many RE investors. Good luck!

Joe, when I build things, I have learned to mantra to myself "One must have faith in the strength of one's constructions."  I think Amy is right: there are many possible paths.  If you're successful at what you're doing, it's because you know your market and you work well in it.  Until you have a different goal, keep on doing what you're doing.  Are you unhappy?  As for gurus, if there were any real knowledge about, say, stock market investing, do we really believe someone would put it in a book?  I like BP.com because it's the very definition of education: condensed experience.  That's solid.  You just tripled your income.  Glory in it.  Life is short, so enjoy your success.  

Hermilo,

Joel, above, has me pegged: I have class C property and manage it myself. Bought the properties during the last downturn, and generally aim for 20 % ROI. That's considered "aggressive." But I can do all my own work (excepting when the city requires licensed trades, of course), and don't take into account what I would have paid myself. So it's really a false number, in that respect. If I were paying a PM company, that would take 8 % of the gross right there, and voila: normaler numbers. I know that's poor english, but it makes the point. And also as Joel points out, I am part builder, part social-worker. The point is, taking what I would pay myself out of the equation, I want a building to pay for itself in 5-7 years. Not every market will support this sort of return. Not every investor is in a position to do this full time. I was able to get it all up and running because my wife supports our household, so I was really lucky in that respect. Plus she's an awesome real estate researcher who helps identify the properties. So, in that respect, do you have a good "team" to be a part of? Having good tradespeople is also important. Tip: pay them on time and they'll always be happy to show up when you need them. But doing this full time means no one tells me I "get" three weeks vacation a year. I have tremendous flexibility, can attend my kids' school events and be there for almost every important thing. But when I have to get a building rehabbed, it's 7 days a week until it's ready.

   One more thing: don't just do car fly-bys.  Work with a good agent, or call the listing agents, and start to tour a lot of properties.  Get to know basements.  They tell the most about a building.  I have a thing about cellars: if I wouldn't feel comfortable working in them, I'm sour on the building.  There has to be good headroom and, ideally, it's dry.  

good luck, 

D.

Hi Alfredo,

   You should post more info about your approach.  Are you handy?  Want a building that is a project?  Or up n running?  As owner occupied, the Hud homestore site will give you a bidding advantage over investors, but be aware that there is a certain amount of fraud in that process (investors successfully posing as owner-occupants).   Stil, having other people paying into your equity is a sound practice. Read BP read BP...good luck!

Stuff on Loopnet ought to have an associated rent roll from owner. But YOU should know your rental mkt and be able to do the math. Also, you need.to go and look at it. I Walk a property with a digital voice recorder and note, in five recorded minutes (by using the pause button while recording) what a building needs done to it. Then I turn my verbal notes into figures in a spread sheet. Since I know what each unit should rent for, I can figure out the building's annual income. After a while you can do that in your head. What is your target ROI? Cost of property plus cost of repairs divided by annual net equals ROI. If your number is too low, don't buy it.

Put the three years I put in after college on construction crews next to the seven years in graduate school getting a PhD in poetry. One of them was far far more formative on my REI work. I love them both, and you can have both. It makes for a rich life. According to Harold Kushner, a meaningful life consists of accomplishments and friends. Checkov wrote and was a a doctor: " Medicine is my wife and literature is my mistress. I Go from one to another on different nights and neither suffers from my infidelities."

yes, as above, an asking price is just that. What is it worth TO YOU? Target ROI? Each property and each seller is different. And remember: there is always another building.

Kyle, hang in a sec: Kudos to Mark Nolan, above, who gave those great websites, especially the SEC warnings with quotations from fraud cases. 

Now: we set up a SDIRA for my wife's IRA a couple years ago, allowing her to invest in what we do anyway: buying and holding rental real estate. It's easy to move money from one place (Fidelity, Vanguard, etc.) to a qualified custodial company, because everyone wants to ability to charge you money. Then, we had to find an attorney who knows the law really well, which we did, and I literally wrote the Operating Agreement that the custodial company (Pensco [I'm not sure they're the best, though, and I'm researching other custodians]) required before they would allow us to open the check-book IRA. We have to designate a qualified person to be a legal consultant, too (used the same attorney who helped me write the OA). [Aside: Be aware of the stringent rules about this. There is both letter and spirit of the law. There are many "disqualified" persons or entities. The point of it all is that you can't use the SDIRA to benefit anyone or anything except the IRA. Your SDIRA can't sell a property to someone you know, or are related to, for instance. Your SDIRA can't hire your relative to work on the property. It can't sell something to someone you know.] Then we set up an LLC, and Pensco "funded" the LLC's account. Now we use the money to buy properties, and all costs and rents come from and go to that LLC's bank account. You have to report to the custodial company annually on the value of your investment (Fair Market Value of property plus any cash on hand. The custodial company charges you based on the value of your SDIRA, and will issue an IRS 5498 that tells the value. The SDIRA is a great vehicle for using an existing IRA to invest in any business that YOU know well and can be reasonably sure of doing well in. It allows you to control money that you might otherwise just leave sitting in an index fund, or worse.