All Forum Posts by: Greg Scott

Property auctions are filled with sharks that can smell blood of a newbie in the water.

The first few times you go, do not bring cash or any other way to purchase a property.  Just bring your eyes and ears and watch what happens.

Kory:

It appears you have a good opportunity here, it is hard to tell if it is an opportunity now.

Given that the owner has been to the property once and the tenant has been in place a long time, this owner is getting great mailbox money for no headaches.   She probably thinks it is great.  Why would she sell?

Now, hopefully at some point the roof needs replacing or the AC goes out an the handyman can't fix it.  He'll go to the owner and say, "you need to pay $ thousands to get this fixed", that is when she is going to start to get motivated and think about selling, but probably not before.

I would start by just building a relationship with the owner.  (Who knows, she might want to sell today.)  Let her know you are interested and touch base with her from time to time.  It would also be a good idea to build a relationship with the tenant.  Talk to him about the condition of the property and let him know you are interested in buying too, and would put money into fixing it up.

At the moment she decides she wants to sell, you can come in with the easy solution.

In the United States, wholesaling is completely legal.   Wholesaling is effectively selling a property (or contract to buy a property), in which you do not intend to live, to an investor.   

How you go about executing your transaction is the key.  You have to learn what you can and cannot do in your municipality.

Kevin:

Congratulations on taking the first step.  You are well on your way.

I have never used a home warranty, but found that my long-term repair and capital improvement costs were about $150/mo per property.  Of course, it is worth noting that my properties were in excellent condition at time of purchase or shortly after acquisition.

I think the key question to answer is, do you have enough cash on hand so that you could fund expensive repairs?   If your roof wears out or your HVAC goes down, those are things you can't wait to fix.   Do you have enough cash?  The budget question really becomes more important as a plug number on the cost side when you are looking to acquire new properties.

Good luck

Jay:

There isn't enough information hear to evaluate the deal. You need to know both the full revenue side and expense side of the income statement to calculate NOI. $208K sounds pretty cheap for 8 units but you can't tell until you see the NOI.

If those partners would be giving you money and you are doing all the work, then you have created a security.  You will want to have an SEC attorney write up a PPM for you.  For a small deal, you are looking at about $10K.

Zachary:

While it is possible, I think it is unlikely you have a deal here.  Still see what you can find out.

My first reaction is that "Historic Structures" often come with prohibitively difficult rules regarding rehab.     A historic structure that is being demolished is either getting destroyed because it is so beyond repair that nobody wants it or someone is going to the trouble to get it rezoned so they can redevelop the place.

It doesn't hurt to track down the owner.  But, if he is interested in selling, find out from your contacts at City Hall what restrictions and rules "historic structures" have.

Eric:

The answer depends on what you mean by MFR.

Anything with 4 or fewer units, is financed as a single family property. That means houses, duplexes, triplexes, and quads all can use conventional financing and would follow the same BRRRR strategy as single family.

Apartments, at 5 units or above, get commercial loans. It is actually easier to do the BRRRR on apartments because the financing is easier. Cash out refinance is a regular and normal occurrence in apartments. To cash-out refi in apartments, you need to demonstrate you have improved the value of the property by improving NOI.

@Thomas S. makes a great point.  In some communities, accepting any payment causes your eviction proceedings to terminate.   

This tenant has learned that he can play you.   Next time he offers you 70%, politely thank him, give back that check and tell him to come back to you when he has 100% so that you can gladly stop the eviction process.  

If you evict, be sure to get a judgment so you can try to retroactively collect what he owes you.

Ryan:

At $70K, you were effectively buying  turnkey rental.  That isn't a bad investment.  It usually beats the stock market.

Pat yourself on the back for getting in the game. You are doing the right things and making progress. Should you beat yourself up for missing out on this property? No. It could be a great learning property, but it wasn't "the one that got away". 

Why?  If you want to get rich in real estate, you don't pay retail price for property.   This doesn't necessarily mean you lowball offer everyone.  It could mean you find the property that nobody else wants and you make it pretty.  Or it could be you can close fast and the seller is willing to give a discount because they need cash fast.  Or it could be you help a warring family through the process of selling an inherited property.    You solve those problems and you capture equity from the start.   

Take the same property you discussed, but now a hoarder lives in it.  No realtor will touch it.  But, lets say you can buy it for $35K and spend $20K making it beautiful.  Within a couple months, you "made" $15K in equity.    If for some reason you needed cash quick, you could sell it very fast at $5K below market, pay the realtor fees, and STILL make money.  Try that after paying $70K for it.

Also, take a look at the returns.   If you take a hard money loan to buy and rehab the property, you can minimize your out of pocket.   In the first example, let's say you put down 20% plus closing costs or about $17K.   What is your cash on cash return if you only have to put down $12K?   Keep in mind, you didn't buy the property for $70K, you only have $55K in, so you even have a smaller mortgage.  Now what is your cash on cash return?

Keep pushing.  Keep learning.  But, don't let this one get you down.  There is more and better out there.