All Forum Posts by: Max Drizin

If you are looking for good places to get your letters to, Jeff mentioned Absentee Owners mailing lists, which are mailing lists specifically for people who own a property but don't live at it.

They are the best place for finding investor properties. When I planned on running a management company (thank God I got away from that one) I was going to use this sort of list to target owners to get them to have me manage.

When I go to an owner looking for seller financing, there are a few ways I structure it. My main plan is to make it seem like there's a trade-off between cash/traditional financing and seller financing.

I start with a low-ball cash offer, and then say it's so low because I don't want to tie up that much cash. Savvy investors know that you need to leverage as well as possible, so they understand where you are coming from.

You can get into a trade-off situation, saying that you'll go up in the price a little if they finance it. Depending on their existing mortgage/financing situation, they could end up making a good amount more money at the end of the deal, once it's paid off.

Even if you end up amortizing over 15-30 years with seller financing, 75-80% LTV, like a traditional mortgage, you can do a lot. An investor knows you aren't holding it forever, and you'll sell it when the price is right. I've worked in seller financing situations where even though we "amortize" the financing over 20 years, I would have sold the property in 5-10 when the price and situation was right, if not earlier.

Seller financing is difficult if you are working with people that don't know real estate or finance, since they don't really understand why you are doing it. The guy who bought the apartment complex decades ago and hasn't paid a mortgage on it since the first oil shock doesn't see it as making the same money, and it devalues your bargaining position with him.

If you find the right people, motivated people, you can do it. Seller financing is a good alternative for people that aren't looking for more investment in real estate (since they can't really 1031 it anywhere), want a steady income stream, or are willing to forego the cash in hand to take a higher price.

I think it's a great model, lovely to use. I know my Pro Forma isn't nearly as extensive or annotated, but I never use mine for much more than getting an estimate of a cap rate and a debt service ratio :P

My only point of note is that inflation isn't added in. I mean, it's technically a non-issue considering you can call it real dollars and whatnot, but if you are like me, I raise rents 3% per year to account for inflation, and money doesn't always move as fast ;)

When I saw "quick and dirty" I didn't expect something as full featured as what I got. Makes me miss the days of working in Excel spreadsheets with macros for classes. Good times...

Hi John, and welcome to BiggerPockets.

Before I talk about your LLC issues, I'll preface this that I'm not a lawyer, I shouldn't be trusted for your legal advice, and there are people that rightfully charge $200 an hour for this information.

I personally do an LLC for every property I'm part of, as it does limit the inside liability of the property. That is, when a tenant gets litigation-happy if they hurt themselves on the property or something, it's not me personally liable, it's the LLC.

Of course, the outside protection isn't there. If I screw up, I'll probably get taken everything taken at that point. That's a different issue.

If the property fails, you have to remember that you are personally guaranteeing the loan on the property, LLC or not. If you take out a mortgage, no bank will do it without a personal guarantee, since the LLC doesn't have credit, income, etc.

That being said, you should do your best to make sure the property doesn't fail. The possibilities of property failure should be natural disasters, which is where insurance steps in.

As far as investors goes, it depends on what you consider an investor. A bank can be an investor, since they are giving you money when you are short on capital. For smaller projects, local banks usually allow you to establish that personal relationship that gets you the loan you need.

There's things like private equity firms when you get into bigger deals, and they have their benefits and drawbacks. You can also look into seller financing for a deal, but that limits your bargaining with price and also limits the properties you can get.

Otherwise, investors are usually relatives and friends. Maybe you'll meet people out of that circle, create relationships like that, and so on, but it doesn't happen for your first few properties.

You shouldn't necessarily start big, simply because it's a quick way to realize that you don't know how to manage, deal with tenants, work with contractors, do the work yourself, and so on. Start with the smaller properties first, and the big ones fall into place later.

Make sure that you research your areas. Chances are that you won't hold on to the property you buy this year for the rest of your life. Learn about trends in the area, what streets, blocks, and neighborhoods are on their way up and on their way down, and make your decisions accordingly.

I would find a good agent in your area who specializes in investment properties and really knows what he's doing.

If you have a good job that early in your career, congratulations! Unfortunately, the property, if you get $5,000 a month gross, probably gets you $2,500 a month net, which is $30,000 a year. From there, that's an 8-cap, rounded up.

It's not the best cap rate you can find, I'd look more towards 11- and 12-cap properties, but there's also appreciation to be figured in. Now, you probably won't hold the place for the rest of your life, so selling it is a definite exit strategy. Using the cash-flow to pay the mortgage while letting it appreciate is definitely a strategy, but you are banking on appreciation.

If the area is good, and it's not already overpriced, it might be a good investment, especially if you can get it for $350k or less. Remember, you have to both beat inflation and cover the seller's costs, like commissions and closing costs. So, even if you bought it for $400,000 today and sold it for $408,000 next year, you'd still be losing money, since inflation is 2% (8k) and you are paying a good amount in closing.

Also, I find it a little more difficult to hedge my bets on appreciation, but that considers the areas I work in. Just my input, I'm sure lots of other people around have completely valid viewpoints different from my own.

A personal and small bank is a great place to look. You can get a much more personal relationship, talk about your deal, and hopefully explain your credit score.

I mean, it's a good enough reason if you are looking for one to reject them.

But in my experience, it's not really a big deal. Some kid drank somewhere, and got caught by the cops on his way back home. It's not like his drinking ticket from 2 years ago is going to affect how he's paying rent.

Student tenants are a blessing and a curse, from my experience as a renter and a student.

Students get the rent paid, simply because they have to have somewhere to live, they can't really move during the year (too much hassle), and their parents are really the ones paying anyway.

Yeah, they are probably messy. But, you have a good security deposit for a reason. You'll get the carpets cleaned and basically disinfect everything when they leave, but that's fine, because they end up paying for it anyway.

As for property managers, making a phone call is usually fine. They might want to set up a phone meeting or something separately, since it might take a little bit. I've been called as a reference before, and it's usually just the standard questions, common sense things.

Do they pay on time? Are there any problems with them as far as police/noise? Did they leave a bunch in the unit when they left, was it clean or dirty? Why did they leave?

Managers are usually fine with a quick phone call. They do it for their tenants, so it's like returning the favor.

Make sure that you pull the contracts you need to. I almost got screwed over by not pulling a like five contracts, when we completely redid the third floor of a property and added a balcony.

Needed a permit for the balcony, and some inspector had someone "call in" (code for they were in my backyard illegally and decided to call it in themselves) about it. Took out the balcony, and no more work order.

Really though, not getting your permits can really kill you. Don't be stupid, do everything above-board, pay your uncle and give him a 1099.

If the roof is that old but it's okay, you might get away with putting just another layer on top of it might suffice. Depends on what an inspector says. Personally, I'm past the point of inspectors, but on your first flip, you should get an inspection.

SEO is a great way to push yourself to the top of the rankings, but too many people fall into the pitfalls of SEO scam companies that charge you an arm and a leg to put a few links around.

Of course, no company is ever going to release their search rankings, but there are quite a few things that go into the optimization. Gone are the days of the keywords in your meta tags, it's about tonent, linking, and so on.

Your content, links from related content, links to other content, having alt text on your images, titles, sitemaps, and everything else is all important. CMS platforms like Wordpress and Joomla! have good SEO implementation, with things like pretty links. There's plenty you can do to boost yourself in the search rankings, and SEOMoz is a great guide.

I can't say I've ever pulled someone's Schedule E, considering how much money always seems to get "lost" when it comes to taxes. Remember, it's always the owner's goal to lose as much money as possible when it comes to their property. It's just not something people use.

Rent rolls are always your best bet, along with expenses. If someone has a hired property manager, they surely have all of this information at their fingertips to provide, and they should have something to give you themselves.

Deposit slips would be equivalent, but it's just harder for the seller to provide. If I were a seller, especially if there were multiple interested parties, I just wouldn't deal with someone requesting my tax information. It's just weird.

As an owner, I depreciate everything, expense everything, and so on, of course through all legal means. Accountants exist for a reason, to reduce my tax liability. Taxes are a hassle for landlords, especially as they get bigger. They don't have their taxes, they have to call the accountant who takes forever, and so on.

A rent roll should be enough, dating back as long as you want. You can look up taxes online, water bills (in some/many places) online, garbage collection, and so on. Property owners and their managers always have rent rolls that are up to date, and everything else. That's what you should be worrying about, not someone's tax return.