All Forum Posts by: Greg Scott

@Arthur J. Encinas

Buying from the listing agent, particularly if they have REOs, is always a good idea. What you really want is the best deals come to you as a pocket listing before they hit the MLS.

To clarify, those "rules" were examples.   Each bank may be different and change over time, but I understand from talking to my friends, that is often how they operate.

I know dozens of people that retired after becoming Lifestyles Unlimited members.  Most of them were making 6 figure incomes in corporate America, and at a young age, were able to replace their income.  I've been a member since 2011 and am getting close myself.

I don't get paid for telling you about this event.  I am not an employee.  Heck, I won't even be there.  I'm just saying if you live near Tampa and you aren't going, you are missing out.

My wife and I regularly fly down to Dallas to take courses with Lifestyles Unlimited and we were thrilled they came to Detroit earlier this year.  I noticed no posting so the Tampa event this weekend so decided to post it for the benefit of all BP members. Check out meetdel.com

For those who can't make it, for a measly $200, you can come to their 2-day event a few weeks later AND get a 1-year membership that, in my opinion, is the best bang for the buck in real estate education.  Find out more at givemetotalfreedom.com

Feel free to private message me with any questions.

Antonio:

Feel free to contact me and I can help you get started moving into apartments.

For me the simple answer to your question is to do a cash-out refi on your existing properties.   Personally, I never want to pay off my properties because that hurts your total returns.*   Use the cash-out as your down payment.

* People have been trained to pay off mortgages, but it is really a terrible idea in rental real estate.   Try this simplified model:

Pay cash for a $100K property that rents for $1000 per month.   Let say it has $4000/yr in insurance, taxes and repairs every year.  You just made $8000 on $100K investment or 8%.   Depreciation on this property is about $3K per year so you pay income taxes on $5K

Now, lets say you borrow 50% of the property value at 5% interest, but instead of buying one of these properties, you buy two.

Now you have $200K in real estate that rents for $2000 per month.   You have $8K/yr in insurance taxes and repairs plus $5K in interest payments.   That means you made $11K on your $100K in cash or 11%.  Even better, you now get $6K in depreciation so more than 1/2 of your income is sheltered from the government.

Do the math again at higher levels of leverage and the numbers get better and better.

Rachel:

I will not answer your question but provide you the key to answer it yourself.    

How much does the property cashflow?   Cashflow is key to success and survival in real estate.  You NEVER want to be forced to sell because of a problem.  That is when you lose.   

Cashflow gives you money to live on and gives you the right to hang on to a property long-term even if you have unforeseen major repairs.

Many people like putting a huge amount down so they have high cashflow.  But, the more you put down, the slower your potential growth.

While the banks would never let you do this, what if you could borrow 125% of a homes value.  Would you?  What if I told you that after you borrowed ALL that money, it still cashflowed $1000 per month?  How fast could you grow, if you could buy 10 more houses just like that one?

Sam:

Not sure what numbers you are seeing.  Generally my cash-on-cash returns are higher in single family....at least in the short term.   Multi family has a HUGE advantage in a few critical ways.  

1) You can deploy capital quickly.   So, putting $100K, $500K, $1M into a multi family property is much easier than putting the same into single family

2) Instead of waiting for appreciation because the market rises, you can force appreciation, giving you greater control over how fast you grow

3) Financing is easier.  After you grow the value of your property, do a 100% cash out refi and do it again.   Try that in single family!!!

Both strategies are actually just fine.  I wouldn't be where I am in multi-family without my prior single family investments.  It more depends on where you are financially and how comfortable you are with big numbers.

Feel free to private message me with any follow-on questions.

@Carl M.

I've had a few lower-end rentals, properties worth ~$80K.   I find that tenants for those properties generally have lower incomes, worse credit, and are rougher on the properties.

As I progressed in single family I started moving up the food chain. The last few properties I bought were in the $175k range. (I wouldn't go much higher than that as the CoC returns start to suffer.) In those sorts of properties, I found I was able to attract a much better tenant base. When they move out, they often clean and vacuum the entire property. I almost never have damages exceeding the deposit. Note: Even if you do, you should be able to go after them for additional damages. Tenants with great credit scores want to keep their credit so will pay.

To get maximum value as you sell, try selling it just before the tenant moves out.  (Free staging!)   Ideally, you give them some incentive for the inconvenience.   Once the house is vacant, you may find the walls need some touch-up or carpet wear & tear becomes more obvious, so it is better to sell while it is occupied.

So just get some education on managing rent properties and you are good to go.   I highly recommend Lifestyles Unlimited for that.  (I am a member and not an employee and get nothing for recommending them) Their basic 1-year membership is pretty cheap and gives you online access to 100s of hours of recorded video classes plus online live webinars, and access to many live in-person events (mostly in Texas).   My wife and I actually fly down to Texas a few times a year to go to their events.  They changed my life.   Feel free to private message me if you want more details.

Carl:

If you have been successful at fix & flip, you have more than half of what you need to be successful in buy & hold.  You just need the education on screening and managing tenants.

Here is a new mental model for you.   

Instead of fix & flip, think of it this way, fix, rent, & flip.   On my properties, I do just what you do.  I fix the place up and make everything safe and perfect.  If you offer it at market price, you get the pick of the best tenants because your property is the best one around at a competitive price.   Keep the tenant in place a few years and then sell the property before things start wearing out again.  That process should be no problem for you.

Here is what gets really cool.  When you fix & flip, the income is ordinary income, taxed quite high.  If you hold it for a few years, it is an investment.  The cash flow is largely tax-deferred (covered by depreciation) and when you sell, it is a capital gain or portfolio income, taxed differently.   If you like, you can even get into 1031 exchanges to defer taxes further.

So, I'm not exactly answering your question, but hoping to explain that you don't necessarily need to change your strategy, except to insert "rent it to a tenant for a couple years" in between "fix" and "flip".

@Jason Chen

Not knowing what you are doing and taking blind risks is stupid.   In that sense "sight unseen" is risky.  But you will never be picking up a discounted property from me.

On all my properties, they were evaluated by trusted experts.    Not only did I have their opinion, they were independently verified.   My contractor didn't know what my inspector said and neither knew the appraiser.   When all three are in agreement, there isn't much risk and not much value that my eyes would have added.

My actual profits came in almost exactly at forecast. Because my contractor was so good, my rehab costs were spot on. My rent was withing a few $ of forecast, sometimes higher and sometimes lower. My ARV appraisal came back often better than forecast (admittedly a rising market helps).

Arthur:

As you know, one downside of the MLS is that the best deals should already have been picked over by local investors. On the plus side, you can usually get an inspection period which is the critical piece of the puzzle here.

Many REOs have a formula for pricing and accepting offers.   (e.g. lower the price 5% every two weeks, only take offers within 10% of asking)   I would throw out an offer you think will get accepted with contingency on inspection.  Then get a reputable contractor, hopefully one you already have a working relationship with, to give you a quote to make the place perfect.   That is when you really run your numbers.

If the deal doesn't box, then make a counter-offer at a lower price and explain why.  You don't want a reputation as a low-baller, especially among your Realtor brethren.    If the numbers don't work, just walk away, but keep an eye out for later price drops.  If the numbers don't work for you, they probably don't work for most investors.

That article appears more oriented to owner-occupied houses.   As an investor, some times you are at an advantage if you don't go see the house.  Why?

 - You don't "fall in love" with a loser

 - You evaluate it based more on the numbers than anything else

 - As long as you are smart and get inspectors, appraisals, contract bids from a team you trust, you know just about as much as someone who walks the property

 - Perhaps most importantly at this time, you can make a decision faster.

I don't recommend doing this for uneducated investors or those without a solid team.  I've bought 15 properties sight unseen - all very profitable.   Four of those, I owned for a number of years then sold at a profit and still never saw them.