All Forum Posts by: David Midgett

Double your money?  Vegas or Wall Street.  Not houses....

Great focus!  And asking yourself "why?" is not just a good idea at the start... its a good idea at every step along the way!

@Deano Vulcano -- what an honest question!

Its only natural to question your priorities, goals and motivation when you've been through a major life change like divorce.  Its enough of a challenge when you've simply been doing what you do long enough to be really good at it. Combine the two.... that is an easy recipe for an existential crises, isn't it?

I hear you loud and clear on the "mundane and boring" part.  Its a little ironic that this business is more fulfilling and satisfying when you are learning something new every day, having to be creative because cash flow can't buy solutions, solving problems others can't, and acquiring the knowledge you need to be successful.

And then, once you have your system in place, the cash is flowing, and all your needs are met.... how do you stop what you are doing and go in a different direction?  It feels like having an ATM in your bedroom that spits out $100 every hour... are you going to unplug it just because it is predictable? "Its not that I don't appreciate the $100.... but its kind of boring" doesn't sound like anything a sane person would say, right? 

But once it gets boring, its hard not to feel like there has to be something more.

Have you made a list of big, hairy, moon-shot goals?  Things you don't have any reason to think you would ever be able to accomplish? Challenges you think are way beyond your abilities? Things that would give you the same rush your real estate investing used to?

Maybe it is time to teach others what you know? There are tons of would-be investors who would love to apprentice with you. 

David-

In addition to Chris' advice to talk to multiple managers of apartment investments, try to find a few local commercial appraisers and a few community bank commercial lenders, and ask them the numbers they would expect to see on a pro-forma for a property like yours.

Ultimately, your real world numbers will always differ from the best intentioned prediction, so shoot for a range, not an exact number. Run different scenarios (best-case, worst-case, most likely) and see if those scenarios influence your decision to move on with this project.

For most investors, the first hurdle is making sure the pro-forma numbers are acceptable to a lender. No loan = no go. And for most multi-family investors, their first loan is going to come from a community bank. You want to talk to a commercial lender at a community bank who already knows what a pro-forma should look like for your type of investment... otherwise that lender may not be experienced enough to help you through the process. And then ask that lender for a list of acceptable appraisers used by the bank. The bank will rely on the appraisers more than they will your pro-forma, so you may as well know what the appraisers think.

You sound like you have a healthy skepticism for this particular deal, and are more interested in the education it can provide.  Listen to your gut (and spouse!), and get information from as many local sources as you can.  That's never wasted effort.

Dana, we flip 150 houses a year, and I've occasionally bent "the 70% rule" after looking at the dollar profit.  Usually its because I think "I can't let the other guy make $30k on this deal when its that easy."

Follow the rule for now.  Since you are relatively new to rehabbing, the rule will protect you.  Wait until you have more experience before you start trusting your gut or making exceptions to a solid rule.  You have lots of unknowns at this point, and the margin of The Rule will insulate you from the risk of what you don't know.

Also keep in mind opportunity costs.  If you take the thin margin deal today and a fatter deal comes along tomorrow, will you have to pass on it?  If so, then wait for the better deal.... or increase your marketing efforts to find that better deal today.

In my experience (and location), the "median price home" is not the sweet spot... so maybe start looking at the less expensive homes in your area. You may find the formula works perfectly in cheaper neighborhoods.

Advice for succeeding in an accelerating market?  Its pretty hard not to. Everything works in an appreciating market. A rapid increase in price can erase a lot of mistakes. Its the potential for a suddenly flattening or declining market that scares me into following the 70% rule.... most of the time.

@Markus March your lawyer could be concerned that your "late fee" might be construed as usurious interest.  But that's really more of a concern with owner finance.

On my owner finance properties, we make the late fee low.  But in that situation we are collecting interest, so its easy to see how the late fee could theoretically be construed as interest.

For my rentals, rent is due the 1st, a $25 late fee is assessed on the 2d, plus $5 per day thereafter (none of this 5-day grace period... that tells tenants rent really isn't due until the fifth). I don't want a flat late fee, because then there is little incentive for the tenant to come in once they are late. HOWEVER, when we evict someone, we never bother asking the judge for the late fee.  Just rent, filing fee and closing cost.  Not worth the argument.

One tip that has worked great for us- we offer tenants a $25 DISCOUNT if they pay early.  Not only does it increase on-time payments, it also makes our late fee seem reasonable.  "Pay before the 1st and you get $25 off, pay on time and we're even, pay late and you pay $25 extra".

But first, rather than researching the issue.... I would call your lawyer back up and ask "hey, WHY should I be careful?"  Sometimes lawyers don't have solid reasons for their warnings, and I'd ask for clarification before taking the warning. 

Henry- if you are wanting to buy investment property, go to your small local bank and meet their commercial lender.  Explain your situation, bring your tax returns and fill out a personal financial statement.  They absolutely want your business, can overlook the lack of credit, and will write a portfolio loan much quicker, with a lot less hassle.

Keep in mind, the commercial lender at your local bank may charge a bit more (slightly higher interest rate and closing costs) than an FHA loan, and you will definitely need more of a down payment. And if you are looking to lock in a 30 year interest rate, this won't work well. But you can get deals closed with less paperwork and a LOT less time going this route.

You could also do things to build your credit (get a small credit card, borrow money to buy a car, etc), but if you are looking to buy now, your local bank wants your business.

There seems to be a LOT of confusion on this issue, and it stems from the fact that two different laws are in play regarding allowing people to have animals, and these laws are interpreted by two different government agencies in different ways.

Under ADA, public establishments must permit a disabled person with a trained service animal.  A trained service dog isn't a pet by law.  So if you run a restaurant, you can ask if the person is disabled and if the dog is trained. If yes, then you are done asking questions and the dog stays without proof.  But their iguana that reduces their anxiety waits outside.

HOWEVER, as a landlord you are subject to Fair Housing laws (Fair Housing Amendments Act of 1988).... and HUD has interpreted Fair Housing laws MUCH more liberally than DOJ interprets the ADA. As a result, tenants have more protection in favor of allowing companion animals with minimal documentation.

If an animal serves a disability, it is no longer a pet.  

A mini-horse to alleviate anxiety?  A parrot for emotional support?

No pet fees.  No pet deposit.  No additional rent.

Not even if you normally require those things from a pet owner.

A "pet" lives with you for love and affection.  An "Emotional Support Animal" provides therapeutic benefit and does not require specific training.

You can ask the tenant "to present documentation from a physician, psychiatrist, social worker or other mental health professional that the animal provides support which mitigates at least one symptom of a disability".

But you can't charge, can't require training, and can't ask about their disability.

You CAN charge them for damage after the fact... but that's about it.

Recently a Florida condo association paid $18k to settle a denial of a emotional support animal.

So proceed with caution anytime someone says "Oh no, this isn't a pet. It's for my disability."

@Nick Fitzpatrick

Ocala has lots of property managers... not that many who are good, experienced and cheap. The big names for PM in town seem to be Ellison Property Management (Coldwell Banker), Mike Heasly (Homerun Realty), Judi Brady (Remax) and Carolyn Roberts (Roberts Real Estate).

Everything is negotiable, but most are charging 8-10%, plus a month's rent for placement (listing agent gets half a month, leasing agent gets the other half). And most PMs plan on passing on 100% of out-of-pocket costs. Not sure about the advertising and lease fees, since rentals are fairly hot right now and tend to lease off a sign or MLS listing fairly quickly, and agents can use the standard FAR/BAR lease (at least for residential) without needing an attorney.

Overall, I'd plan on finding a manager you trust, like and believe will work hard for you. That's ultimately more important than saving a couple hundred dollars on management fees.

But ask lots of questions.

--"What is your vacancy rate"

--"How much can I expect to pay on a turnover/make ready"

--"How many evictions do you have to file every year"

--"How much can I expect to spend on leaky toilets/appliance repair/etc"

-- "How long does your average tenant stay in a property"

-- "What is your average response time to tenant complaints"

Those type of questions will show you know what you are talking about, and will make an agent more inclined to work with you on price. Don't just ask the specifics about what they charge you.... ask what they will do to earn what they charge you.

Best of luck!

David

@Jay Kiehn Ocala is like most markets- there are areas of homogeneous homes and areas with very dissimilar homes. Yes, having a mobile home next to a traditional site built home will absolutely impact its value. How much? That depends.

An appraiser is always going to have a hard time selecting comps if your house doesn't fit in with surrounding homes. Unique or non-conforming homes are always tougher to value than those found in cookie-cutter neighborhoods.

Ultimately, the important question is how a potential buyer (or their lender) is going to value your home. That next door trailer may be a deal killer for you, or it might not.

Given it is your first effort in a new town, I'd either hire an appraiser to make you more comfortable with your valuation, or just keep looking for a house that gives you more confidence. Your subject property isn't representative of the entire market-- there are plenty of houses in neighborhoods where valuations are easier.