All Forum Posts by: Greg Scott

Asking $1.1M for a 20 unit, I would expect current rents in the $900+ range to get that 7.8% cap rate.

Their expense numbers must assume most of the labor is done by the owner.  Unless you are buying a job as a handyman, leasing agent, and landscaper, I would add in a large factor for additional labor.   As a SWAG, I would expect operating expenses to run at least $60-70K.  I suspect it didn't sell because their numbers were bogus.  Plus, you are going to need a pile of cash to update the property.

Is it worth your time pursuing a property where the seller has unrealistic expectations of its value?

I would say the easiest thing to do is contact the prior listing broker and ask them about the property and the seller.  (Ignore the commission issue.  It is inconsequential to the whole of the transaction.)

On the property we acquired, we eventually got all the tenants off of MoneyGram.  

To be clear we didn't have tenants "send us a moneygram".  They gave cash to the MoneyGram seller and essentially got a money order from MoneyGram which they mailed to us.  We deposited the MoneyGram money order into the bank.   I think it cost the tenants $2.50 per.  

We had a problem with our property manager who "misplaced" many of those money orders.  After firing that manager, we were able to go to all the tenants and get their receipts.  It was easy to confirm online that the money orders hadn't yet been cashed.  For a fee (about $20 each if I recall) they can cancel / re-issue the money order directly to you.

Bryan:

As a former Californian, I can tell you that you live in what is probably the very worst state to be a real estate investor.  You are taxed higher in almost every way, it is landlord hostile, and the costs to manage your LLCs are astronomical.   Just about anywhere you could go would be better than where you are!

I would start with your goals.  What are you hoping to accomplish with this property?

The current cash flow is not enough to recover long term capital expenditures, like a new roof.      Even if you got the full rent bump, the return on equity can't be good.    You could make a lot more cash flow by selling and investing in other markets where you get strong returns.   So, I'm presuming you are not focused on cash flow.

If your plan is just to hold for long-term appreciation, I would think you would want long-term tenants.  In that case, nominal rent bumps may be ideal for you.

Most locations where you have cash-based tenants will also have MoneyGram locations.  

https://secure.moneygram.com/locations

One property we acquired had all the tenants using MoneyGram.

No SSN means one of two things:

1) They have an SSN but don't want to give it to you because of something you will find

2) They never got an SSN because they are not a citizen

To find out if they are #1 or #2, ask if they have a green card or other evidence that they have legal status to enter a rental contract.   If they have a green card, for example, then you are probably OK because they would get denied if the government had any knowledge of problems.  If they don't, for me that is a red flag.

Never take rent in cash.  

Why?

 - You have no paper trail.   If you are trying to evict, there is no proof they gave you only $100 or maybe $1000.  It becomes a he-said, she-said issue.  

 - It is unsafe to carry large amounts of cash.  You become a target.

Have your tenants get money orders.  The nice thing about money orders is you have a paper trail, and if they get lost, you can recover the money (for a fee).

Jim:

You may want to throw away that LLC and start over. Or, you could fix it up but it may cost about the same and it is just cleaner to start again.

I am not a lawyer but do know that single member LLCs are risky in some states where they treat single member LLCs like owning in your own name.

On entity issues I'm a fan of John Hyre who is a CPA, lawyer and real estate investor.  Most of his advice is common sense, straight forward, and not designed to extract extra money from your pocket.  I purchased his Quickbooks course for $200 and it was worth every penny.  I see he has an entity course for a similar price.  

You have a lot of other questions that relate to your personal situation.   Find a good CPA and attorney. They are totally worth the cost.  

The bank doesn't monitor county records to determine when a property changes hands.  They usually learn about it when the title company asks for a payoff notice (as they would with a traditional purchase.)

Otherwise, banks only seem to notice a change was made if the loan starts to default.  They don't want to send people out to investigate anytime someone changes their checking account or gets married and has a name change.  It isn't worth the time.

If interest rates rise significantly, banks might start looking for these sorts of transactions, just like calling a bond due, but would say the possibility is remote.

Carpet

Carpet is the one throw-away item.  You are lucky if you get 5 years on a carpet.   Carpet in living rooms tends to go really fast.   To lower maintenance costs try only putting carpet in bedrooms and use durable flooring everywhere else.  Vinyl plank is nice because it is durable and easily repaired.