All Forum Posts by: David Moore

@David Huynh

This area is just outside my target area.  You left details out.  How much rehab does it need?  Can you get the grass smoking tenant out?  There are many issues here.  

First, know there are good pockets anywhere.  There are great neighborhoods in Brooklyn Park, MN.  The question of more importance is, what is the neighborhood like.  Just by walking it, and doing a check on Trulia, you can get the sense for the amount of crime and general feel.

The second clue is the sale price.  He bought in 2011, when prices were depressed, and yet he is willing to get out for 15K gain in capital.  Sounds like his cash flow hasn't been so great.

I would not buy in that area because I don't know that area well.  Why do you want to buy in an area you don't know?  I don't get it.   I can say I got a 4 plex in a great neighborhood in Crystal for under $300K, and several buldings in Crystal, Brooklyn Center, and New Hope have sold sub $300K.  But I know the area. 

A four plex in Brooklyn Center, an area that I would classify as C type tenants, was recently listed for $299K.  I saw the place.  The common areas were a mess, the units were a mess, the decks needed complete rework...likely a 20K cap ex, and yet, the building sold for $299K.  

@Lisa Mason

I think some of the comments about Minnesota law favoring the tenants are not accurate.  You will find most judges don't want to bother with it, and evictions are costly, but there are easier ways to resolve issues.  Most tenants just want a decent place to live, and a fair deal, but you must screen.  Even most tenant advocacy groups in the Twin Cities attempt to reconcile complaints with landlords.  The furnace going out in one unit is a pain, but it also is an opportunity.  Might be a good time to have the system, or all systems in the building professionally serviced.  

The real lesson in your story, sadly, is screen your tenants. Do a credit check, call employers, and previous residences....screen out the deadbeats.  Also, you need to train the tenant, and one more thing...make sure your lease has been done by a real estate attorney.  Best $800 bucks I've spent.  An attorney will know how to write your lease to avoid pitfalls.  And budget for capex....furnaces need to be repaired or replaced.  And keep your tenants who pay the rent happy.  I'd rather make less $$.  

@Christopher Davis

One thing you have to remember is everyone is commenting based on the lens they are used to.  In my location, the Twin Cities in Minnesota, vacancy is under 5%, and in my target area, less than 1%.  Your vacancy calculation could be low for Scottsdale.  I did a quick check of your area, and the rents on this property are dirt cheap.  Repairs are again something easy to get wrong.  I have 4 SFDR in Southern, MN, and aside from very minor ($5.00 issues), no repairs at all in two plus years.  I did have one nasty sewer line clear out but it was an undiscovered problem in rehab...semantics maybe, but I'm sticking to it.   Not one, because my leases put this on the tenants.  

If you bid on this, get an inspection, especially since this is your first.  There can be a lot of hidden damage.  I had a 7 unit last year under contract, and could not see water egress problems my inspector found.  Saved me many $$$.  

I would also suggest looking at multiple 4-plexes to get an idea of what the market is as far as price and condition.  In the cities, these properties are selling red hot.  Some of the biggest dumps I've seen have gotten 100% of asking.  

Did you find this deal MLS? The price for the rents is steep. Base your offer on the current rents and current condition of the building. Everything is negotiable. I have a contract on a 4 plex that is, sadly, right now just a 7.5% cap, but the building is in near perfect condition, and the rents are $200.00 below median market rent. I'm going to get a massive cap rate add on through rents alone.

Which goes back to your comment on 'how do we make money?'.  Listen to podcast #131.  You will learn where the money is made.  In your case....water bill.  You could be looking at a massive cap add on, if you buy it right...if it is the right property.  If not, there are always others.

@Zoltan Harta

I advise you to listen to the Podcasts on BP (there are over 150 of them), and read J Scott's book on Flipping real estate.  @Mike Watkins is logical to encourage wholesaling, but most wholesalers, I've heard and now experienced, aren't very good at it. You need to really be able to know the ARV of what a property will really get rehabbed. Wholesaling is good as he said, but the deal you deliver has to be a deal, or your customer base will vanish. Let's say you know a neighborhood where all the homes are selling for $175K, all 3br/1ba ramblers. You are driving through the neighborhood, and see a For Sale by Owner sign. You inquire. The seller wants $150K. You have to calculate repair cost for your buyer, consider Realtor fees on sale, and make a maximum offer that gets you a cut. You might have to do this for 10 properties to get your cut. See the problem? It is not as easy as it sounds. With wholesaling, you need to get a cut for yourself and for your eventual buyer, who also needs to buy at a discount in order to make money on the rehab.

As an alternative, listen to the podcasts, and you will learn many options for starting in real estate.  

@Bryce Ewing

First, congrats on learning at such a young age the benefits of real estate investing.  I agree with Lance above that you need to consider partnering with the investor you are working for.  But also consider that most owners of properties who pay a property manager are paying between $50.00 and $80.00 per month.  Your income is $1100.00 per month.  You, my friend, are a bargain.  So consider an alternative to going to the bank.

Instead, stay in your current role as a property manager, at least for a year, and get your real estate license in Nebraska.  Most states require this to become a professional property manager.  Then, hang your hat with a local realtor, and pass your resume around to other investors, undercutting the normal price for property management, and go into the business for yourself.  You have that 184 number as an opening in your resume.  You would need only 22 rental units total to match your existing salary at $50.00 per month.  Your experience says you can manage 184.  Get a calculator out, and figure out what $184.00 at $50.00 a month does for your bottom line.  There are a lot of ways to make money in real estate.  In the Twin Cities, I bet property managers would kill for a competent manager charging $50.00 a month.   

• @David Hale Greetings.  I invest in Southern MN and in the Twin Cities.  I would really advise read J Scott's book on Flipping real estate.  It has great principles on the where and what to look for.  I think the most important thing is to know your target area.  To know your target area, you have to  frankly live there.  For every recommendation for an area, I can find someone who would not recommend it.  It really depends on what you know about an area.  I think the best mentor is your personal experience.  Are there opportunities where you live now?  I have four rentals in Albert Lea.  They were bought at the right price, in great condition, and all are great cash flow properties, with solid tenants.   Due to Mayo, Southern MN has good deals in abundance.  I say, start where you are.

@Jennifer Kate

I am a fellow Twin Cities investor.  There is a lot of good info here, and a lot of good people with great advice.  It is great to have owning apartments as a goal.  It is one of mine as well.

@Ryan Hutton

Greetings.  I'm an investor in the Twin Cities area.  Stillwater is a little far away from my home market, but I like to keep an open mind.  I am a buy and hold investor.  We are looking for multi unit buildings right now, and will be back to SFDU in the summer.  

Have you done any investments?

 This is a good list, but I have a couple more:

•  Does not use hypothetical market value to determine cash flow or Cash on Cash Return %, but uses actual existing rents to determine these values
• Does not take it personal, or try to persuade you into a deal that doesn't work for you.
• Offers to sign non-exclusive contracts as a buyers rep
• Gives you direct access to MLS based on your preferences
• Understands your value as a potential repeat customer

I have one realtor who gets in the ballpark of these requirements, and his agency is severely understaffed.   

My strategy is to buy the building right, to create a cash flow that supports a 5% ongoing YOY maintenance, hopefully with only a 5% vacancy.  I find cap ex is something of a challenge.  I thought I was good at it, until I tried to purchase the 7 unit in St. Paul.  My commercial inspector showed me I have much to learn.  

I'm always looking for a 10 cap, even if the asking price is too high.  I'm looking for minimal initial cap ex, but  I just haven't found it yet.  I keep finding 4, 5 and more units that have interiors with kitchens and bathrooms from the 50's, carpets and walls all beat up, fire exists clogged with stuff, soffets and windows rotting, AC units beat up.  My cash is too limited or I am too inexperienced to know how to buy a building and get financing with a big repair bills factored in.  But I wonder if multi's in general just make no sense in the metro.  Why do owners let these buildings get so beat up and run down?  Is there no money in it?