All Forum Posts by: Paul B.

As with 95% of the questions you'll ask in your lifetime, the answer is, "It depends."

It depends on your goals, your risk tolerance, your financial picture, and so on.

For the most part, I think rehabs will still sell relatively quickly if they are nicely done, in solid neighborhoods, and priced to move. If you're willing to leave a little something on the table for the buyer, then you have a better chance at moving that property.

If you're paying hard money rates, then you need to move that property even faster, since the interest costs add up quick. At that point, it's all about how quickly you can turn the capital over.

If you want to flip, find a couple good Realtors and ask them, "What's selling fast these days?" and then see if you can find that product and make any money with it.

To do buy and hold, you'll need some cash, and you'll need to have access to long-term funding.

There are pros and cons to each method, and some properties will only make good flips, while others will only make good rentals. I'd spend some time looking at what your strengths are, business-wise and financially, then look at your goals, then look at the market around you.

I hope to have a PM business going by the middle of the year. I still have to decide if it's a business I *really* want to be in.

My goal would be to market myself by saying, "I get paid when you get paid." That means no intake fees, ever. I would get 10% of the collected rent, and that's it, and I would cover normal and reasonable marketing expenses to lease up the units, unless there was something about the property that would make it difficult or more expensive.

Like I said, though, I still have to decide if it's worth it. On the one hand, I hear people talk about what an awful job it is to be a property manager.

On the other hand, though, I like to look at it this way: If we assume that 40% of the rent is going up in smoke each year through expenses, and if we assume that I'm getting 10% of the gross rent, then managing six houses provides about the same cash income as owning one house, only without any debt. Yes, I am overlooking my own business expenses, of course, but you get the general idea...

If I were to pursue property management, I'd would always ensure that my interests were squarely aligned with the owners. I get paid when you get paid.

Edit: Another reason that I would not want to take an intake fee is that I think there are a number of reluctant landlords out there who would let someone else manage their properties IF they didn't have to give up a chunk of the first month's rent. I know I felt this way when I had my first rental. I just could not afford to give up that cash. Had someone said they would just take a slightly higher monthly fee, I might have bit.

I have not been watching it in detail, but I have read that farmland has been on the move for some time now.

Jim Rogers has been buying farmland for a while now. In fact, I think he was quoted as saying that in the future, the farmers will be the ones driving the Lamborghinis.

Two percent sounds high. If we assume that the property is worth 5x the annual rent (that's using the PFA system), then a 10% PM fee equals 2% of the value of the property, so they are basically asking for a year's worth of PM fee.

I think a percentage of the remaining term is more than fair, and as a future PM I would probably gladly negotiate that away if asked since so much of your success as a PM hinges on word of mouth.

If I am reading this correctly, the property manager would not actually have the listing, they would just get a fee if the property is sold during the property management contract.

If that is correct, my initial reaction was, "Hell, no," because why on Earth would any property manager be entitled to what is basically a commission for not doing any of the work related to the actual sale. (Although you could, in theory, argue that the professional management had a hand in getting that price for the property, if the numbers were better as a result.)

I think you might be able to make the argument, though, that if a property owner and the property manager have a year-long agreement, and the property owner seeks to break that agreement mid-stream because the property is sold, the property manager might be entitled to a little something as compensation for breaking the agreement early. Maybe it's half of the forecast property management fee for the balance of the agreement, but my take is that it would not be enough money to make it worthwhile for you to tick off a property owner who could still be a client down the road.

Also, if the property manager spends a lot of time on the front end of the agreement getting the place ready for rental and intake -- and doesn't charge an extra fee for those services -- I could see how breaking the agreement one or two months in could be unfair to the manager.

What was the percentage sought by the property manager?

Banks alone can't fund America's mortgage needs. I saw an article in the WSJ that agreed with this thinking. And any capital that they would lend is just less capital they can lend elsewhere. I, for one, do not want to see business lending impaired because of an increase in mortgage lending. Moreover, banks are not really designed to lend 30-year money (especially with the inherent prepayment risk) as they focus on matching up assets and liabilities. The last thing we need is another banking system that funds long-term loans with short-term deposits. (Savings & Loan crisis, anyone?)

The GSEs will be phased out over more than 5 years (one article said 7-8), so there will be an orderly transition to a new model.

As for costs to borrowers, it's conceivable that rates and especially fees could go down for borrowers since they will have more equity in the property and default losses should go down with these loans.

I'm just happy that there's talk of taking the taxpayer out of the mortgage guaranty business.

Another potential option is that the seller could take back a note and then sell it (or a part of it) at a discount to get his cash out faster.

Generally speaking, if you are getting a bank loan, they will require you to put 20% of your own money in the deal, and you can't borrow that. You'll need to show that you have previously had that money on hand, too; it can't have just magically appeared overnight.

Any seller-held financing is going to affect your DTI since the bank will know, from reading the contract, that this debt will be in place.

I think the only way you're going to get this place for no money down is if the seller holds a note for the entire balance.

If you think there's going to be some appreciation in the future, you could tell the seller to give you an interest-only balloon for, say, 5 years, at which time the property should have appreciated enough for you to refinance and pay off your seller-held note. This at least gives the seller some hope that he'll get cash sooner than later, assuming that's what he wants. Could be he'd be happy to lock in a 6% yield. Gotta ask.

Good luck, and let us know what happens.

Absent any facts, I would agree with you, but I'm just using the numbers I see. In 2008, there were about $10 trillion in mortgages. It's not clear to me if that's just residential. In the US, banks today -- ALL U.S. banks, not just the mega-monsters -- have about $12 trillion in assets, according to the Fed. So if those numbers are right, I don't see how the banking system could be asked to put 80+% of its assets in residential mortgages.

Have you found a lender that will let you pull cash out of your investment property? If not, that would be the first domino to fall.

I'm hoping that the answer is yes, and that is why you have an appraisal in the works. If you just ordered an appraisal for your own benefit, the lender will not use that for its own underwriting purposes, and you may find they come up with a much different number.