All Forum Posts by: James H.

I think you need to be open to either approach and do what's best on a case by case basis.

It wouldn't make sense to me to save cash for a 150K house because I won't live long enough to buy more than one (with my salary at least!).

But it also doesn't make much sense to me to use long term financing for a 30K or below property due to the high financing fees relative to the purchase price.

This is one of those things that you learn after wasting your time trying to be McGyver for a weekend that it's best to just pull the whole thing out and replace the old crap that crumbles away through the removal process.

If the whole set up is as old as you think it is, chances are you'll be back to wrench on other garbage under the sink sooner than later. But if you just replace everything up to the wall, you know what you got and are less likely to be out there next weekend. Making repairs the right way is always cheaper and better than doing 5 shortcuts in the long run, no matter what you're working on. All that stuff under the sink is cheap, too.

Besides, you can replace all the stuff up to the wall (fresh water and drainage) in less than half a day (taking your time), so your saving time logic has already failed you.

Septic tanks in my area are relatively low maintenance as long as they are not areobic. I think the companies might need to come out to see how ful they are. I grew up on a septic all my childhood in the northwest (live in texas now) and we never had ours serviced. With sandy soils in florida, I would think it would be low maintenance as long as your tentants aren't flushing non-biodredable stuff. Ther are certain toilet papers that are better for septics (a little less comfortable on the bum) but good luck enforcing that.

Our biggest concern was being careful not to drive or park cars over the tank and drainage field. That can bust the tank or pinch drainage field pipes.

I know this is somewhat unsolicited advice, but I would keep that job as long as I could stand it or until I got laid off. At 5G a month (expendable) you could have 60K in one year of just cash. That's a lot cash sitting around in my opinion, but its a pittance in real estate.

I would try to milk it or at least 2-3 years. Some people might say you would be wasting money by letting that cash sitting around, but if you quit after 6 months or one year and started out with 30-60K, it would be very difficult to recreate the earnings you are making now. I doubt you will be able to invest part time successfully given the demands of the oil field.

But if you hold out a few years and start with 150-180K, then you've really got something to get started with and make some good money in RE if you make the right decisions. I don't think it is as likely for a beginner to start in year one with 60K and by year 3 have 180K in extra cash sitting around (after living expenses) like you would if you held on to the oil field for a few years. Just my .02.

Its a big world out there with lots of applicants. Set the criteria you are comfortable with and screw the ones that don't bite because they don't meet it. It takes a while to know the temperature of your community to determine what criteria will and what won't eliminate so much of your pool that you don't have extended vacancies.

My biggest concerns are as follows:

No evictions in last 5 years
Rental history
Work history / income
Not breaking a lease to move into my property
Acceptable reason for moving
No violent crimes
No drug dealing convictions
Credit report verifies info on application (honesty)

I don't care about the credit score. I see it and know what it is and, yes, it influences my overall impression of the applicant, but it does not drive my decision. I expect credit issues.

I would use a different screening service that actually lets you view histories and such rather than one that outputs a thumbs up or thumbs down.

One thing nice about white, un-tinted paint, is that if you buy from Sherwin Williams (not too sure about the big boxes) you can return what you don't use. You cannot return a tinted color. Plus you won't forget what you used!

I would expect credit issues from most renters that have a long history of renting. It took me a while to determine what my credit criteria was going to be. Shoot, it took me a while to determine my criteria for general stuff outside the credit score. What I settled on is that the credit report is just another tool for me to verify the OTHER stuff on my application that is more important to me. Their credit score is all but irrelevant to me. If they have good rental and work history, I don't really care what their credit is. The credit report does help somewhat in verifying prevoius addresses (not 100% reliable, but still helpful)and identifyng collections from apartments or the like.

That being said, I am always careful to try to determine WHY they are moving. That has been one of the most important questions for me to ask. A lot of times the sh** they are getting into that is causing them to move is too fresh to show up on a credit report. I also verify that they are not breaking an existing lease to start a new one with me - I don't care what the reason. If I miss out on a tenant with a legit reason for breaking an existing lease, I will take that loss to avoid all the other trouble makers and make the decision simple and easy.

My current tenants had their home forclosed on. So of course their credit was garbage. But the bank could verify good payment history up to the point that coincided with the tenants reason for why they had to let their house go.

I had some other applicants that were looking pretty good until after checking their credit (and even their own personal references) that their address history was not the same as they claimed. I used this knowledge to ask some questions and uncovered all kinds of things they omitted from the application. It wasn't really stuff that I couldn't overlook, but combined with their dishonesty about it, I couldn't give them a green light.

Bryan, good points about simplicity and deposits. I never thought about that. You buy apartment buildings as well as SFRs. Would you convert an entire, say, 24 unit complex? Do apartments come equipped with electric only customarily, or do some have gas?

I leave gas as is. A lot of people like to swap,though. The philosophy, and some people's experience I've read on this forum, is that it is more hazardous - that tenants are too stupid to use the appliances with open flame. If it were that dangerous, manufacturers would stop making them - that's my philosophy. Plus I try to screen my tenants. I think as long as you have electric ignition on the operating appliances it is not a big deal. I would replace anything with a pilot light that the tenant would operate (replace it with a modern GAS appliance).

I think the highest cost of converting to electric would be paying a licensed electrician to do it. If you were worried about safety and liability, why would you do it without a license and a permit? There are a LOT of low income neighborhoods supplied with gas where I live, yet when you hear about house fires on the news, ironically they are usually due to an electrical failure.

Gas is a lot cheaper than electric where I live and I find that people know how to use the appliances and prefer to have gas if if it's available. I'd rather my tenants save money on their utility bills so they can afford to pay me rent. But you do hear about the gas explosions, too!

Both gas and electric appliances are a-plenty new and used where I live also, so selection is not an issue.

You will find that more people on this forum like to replace gas with electric if possible - especially the low income landlords. I consider it as a risk/benefit, cost/benefit ratio and it just doesn't make a lot of sense to me to replace gas with electric if a house is already equipped with gas.

Travis,

I've done a lot of research and talking with mortgage companies regarding mortgaging small amounts like what you have done here and I'd say you did pretty good - probably about the best that can be done with traditional financing for such a small amount (relative to the amount financed for average home mortgages).

The closing costs you quoted are about the minimum (regardless of purchase price) if you are buying and traditionally financing a REO (as per my experience making offers on HUD homes), since the bank won't cover any of closing costs like a private seller would. That's the biggest challenge I have found in mortgaging such low priced real estate - high (relative to purchase price)entry fees associated with traditional lending even if the APR is low. In fact, it's VERY difficult to mortgage an amount below what you are financing because the various fees charged by the mortgage company start to become so high, as a ratio to the amount finance, that usury laws start prohibiting the loans as the mortgage companies will only reduce their fees so much. It basically looks like loansharking-as it was explained to me.

I think this is way better than what you were thinking about doing with credit cards. Hopefully the rent will make it so that the deal is good through and through.

I could find enough deals for that price where I live that I would jump right on that financing and still have positive cash flow. I paid cash for my first property recently and financed the rehab on Visa and an unsecured LOC, but might do something similar to what you are doing here on the next deal just to get into property number 2 a little quicker. I couldn't do that with number 1 because it was just too small of a purchase ($12K).

Does the house need any work? What are the rent comps? Sales comps? Just curious.

By the way, I grew up much of my childhood outside Kalispell, Montana. My dad is still holding onto 20 acres of what is left of the family forest. Always cool to see someone from Montana - don't see it too much.