All Forum Posts by: George Pauley

I really, really, hate that fatherly advice.  As rich dad reminds us, our homes are NOT as asset.  If you want a doo-dad (like a home, car, vacation, etc.), build up your passive income to the point that you can afford it.

Let's look at the numbers a different way.  You are currently paying $2700 in rent to have a place to live.  It would cost you $120k in down payment, to then make mortgage payments greater than $2700 to have a place to live.  Alternatively, your original plan was to pay $30k to make $3k a year.  At this point you are getting 1 month of rent free every year.  Take that same $120k and buy 4 such investment properties.  Now you are getting 4 months of free rent every year.  Or put another way you are now only paying $2100 a month in rent.  Yielding you $600 a month extra cash to start building up a down payment for investment property #5.

Yes, your rent will keep going up, but so will the rents on your investment properties.  Inflation acts on both assets and liabilities, and the two (generally) offset each other.

Yes you run the risk of getting older and still not owning a house.  But do you really care if, at that point, you have enough passive income to cover the mortgage payment?

This was a screaming hot deal, if your numbers were correct.  With $1100 rent, and $20k rehab, you could have taken the offer to $90k and still likely cash-flowed.  I'm kind of surprised that the property only went for $57,550, though apparently the seller was in a hurry.  That extra $50 does smell a little bit like the realtor was rubbing it in a bit.  :)

Remember that the seller's realtor has a fiduciary responsibility to attempt to maximize the seller's profit.  Likely the house went up for sale at $50k and the realtor's phone starting ringing off the hook.  Realtor then realized they had put the house on the market for too low and starting slowing things down a bit to see how much the price could escalate.  I don't think the realtor did anything wrong (other than putting the house up too low in the first place.)

It also feels to me like you put the realtor in a difficult position with your escalator bid offer.  In making such an offer you've let the realtor know what your bid price is.  And, again, the realtor has a responsibility to get best price for the seller.  Accepting anything less than max offer value feels like the realtor is no longer acting in the seller's best interest.  But I'm not a realtor, so I likely don't know what I'm talking about.

Remember that real estate is a relationship business.  Every deal should be win-win lest the other players stop wanting to do deals with you.

You are correct, this all boils down to understanding your market before you invest. Not doing so was the biggest mistake I made early in my REI journey.

These days, I look at several things when entering a market.  First, what is the local economy like?  Why do people live there and what do they do for a living.  Are jobs and population growing or shrinking and why.  University of Google can usually help me answer these questions.

Next I try to figure out what types of properties, and locations, people (specifically likely renters) in the area want.  I usually take a short cut at this point and start searching for a property manager.  The property manager is THE MOST IMPORTANT part of your team, so might as well start searching early.  (And if I can't find a good one in the area, I don't invest there.)  I look for years in business, reviews and BBB ratings etc.  I also look at their volume.  A property manager managing a large number of properties likely knows "a thing or two" about their market.  Finally I interview them to make sure they see their job as a combination of looking after my financial investments, and keeping the renters (aka customers) happy.  Once I find such a property manager, they can usually answer questions about property types and locations.

Hope this helps.  Good Luck!

Before I buy an investment property...

Understand that the market is strongest at the "median".  For example, a 1600 sf 3/2 is much more likely to rent than a 3000 sf 5/4.  And then to further understand that the "median" changes from market to market.  Again for example that 1600 sf 3/2 does well here in Phoenix, but a 1300 sf 3/1 will be the norm in Memphis.

It really feels like it doesn't... :)

Of course, on paper, you do indeed flow more cash with time.  But, property taxes, insurance, and cost of maintenance will also be going up.  Basically that same inflation that is rising the rent is also decreasing the value of the cash flow.

Sure, MidSouth Home Buyers is who we've been using.

Coincidentally, we were in Memphis this last week meeting with a 2nd provider.  Were you at the Memphis Investment Properties investors event this last weekend with us?  :)

George

My Memphis experience has been pretty solid.  I've used a turnkey provider, bought 1 a year for last 4 years, and the returns have been pretty good (not great, but not bad either), and in line with what the provider predicted.

(And, yes we did indeed go visit the provider, checked out their operation, and walked a few homes, before we bought!)

But does the "average" college degree offer a 50% ROI? I don't believe so. I read somewhere that only 20% of college degrees offer jobs above the national average?

@Chad Hale No I haven't asked.  Primarily because I've never thought I needed separate deposits like that.  And yes, I do get a report on each property individually.

I'll start by reminding all that I am not a lawyer.  :)
The LLC does NOT protect you from liability for your own actions (or negligence). If you do something, or fail to do something you should have, that results in injury you can still get personally sued. That said, the LLC still offers a lot of protection. There are a lot of things that can go wrong that the LLC protects you from. For example, house is struck by lightning and burns down in the middle of the night. The very existence of the LLC will likely prevent the lawsuit from even being filed in this case.

In Frank's shovel the snow example, it's hard to imagine that the lease doesn't specify that the tenant is responsible for normal and customary maintenance, (e.g. shovel snow off the walk, change furnace filters, etc.)  

That said, I have both LLCs and umbrella policies.  Both are inexpensive and protect you in different ways.