All Forum Posts by: Matt Schelberg

Congrats to @Christina R. on her success.  After one year doing the tax lien auction in Baltimore, my experience has been good, but the returns have been lower than I expected.   The 18 percent annualized return sounds good, but the absolute returns are much lower due to early redemptions and voided liens by the municipality.  I purchased 14 liens with about $30,000 this year at the auction.  12 of the 14 have redeemed for total interest payments of $1,200 or 4% after six months.  Considering roughly 40 hours of research time and the opportunity cost of having $30,000 tied up for a number of months...the returns have not been extraordinary.  However, I have two liens that will enter the foreclosure process next week, so hopefully that will increase the return if/when that process leads to me taking the properties.

I think you really need scale to make the tax lien effort worthwhile in terms of ROI. That being said, there is also an educational benefit in doing one or two liens just to learn about this type of investment.

@Rob Gribben I agree 100% that maintenance costs are a key assumption when estimating NOI. Some say to use 5% of annual rents to estimate maintenance costs...others say 10%. That's a wide range that is often the difference between a break-even property and a $100/door property. It's also difficult to rely on numbers from other investors due to a number of variables...different standards of maintenance (my standards might be different than yours), age of the building, age of the mechanicals, etc.

What types of expenses do you consider "maintenance/rental expenses"? Do you include CapEx items like furnace replacement? Do you include permit and inspection costs that are so high in the Baltimore area? I think your question is a very important one, and it would help to compare apples to apples.

@Leo Lanza I think the estimated profit is too thin at $7,800 if this is your first deal. 30% returns look great on paper, but you are putting a ton of money at risk to achieve this. And time! The most decisive factors are the accuracy of your rehab estimate and ARV. If you have been extremely conservative in those estimates, and if you believe there is significant upside potential to ARV, then I might consider it. Comments:

Why is the sale commission only 3%? Do you plan to sell it yourself?

Looks like your assumptions are based on a short holding period of 3-4 months.  This is your first deal...what happens if there are delays and you have to eat holding costs for an extra 2-3 months?

Again, I think your success will depend on the accuracy of the rehab estimate and final sale price. I recommend finding someone local to check your numbers (no one affiliated with the wholesaler or the HML, for obvious reasons).

Good luck!

The tenant's refusal to pay late fees is an interesting problem -- with OP's tenant so close to moving out, I agree that it's best to make an effort to improve the relationship and not draw a red line.  If she does not pay, we take it out of her security deposit in a few months, as Dawn suggested.

But let's change the scenario a bit...say this happens in month 3 of a 12-month lease.  Do we let the tenant push us around like this without consequence?  Unless the tenant is claiming financial hardship, the response "I'll pay you when I pay you" is pretty antagonistic.  This is an open challenge to the landlord, and the landlord's response will set the tone for the rest of the relationship.  Sure, it's only a $60 late fee, but it is sure to invite future problems if the tenant comes to believe (rightly or wrongly) that the landlord is a pushover.  What's our best move here?

Thanks @Roy N. I hadn't considered the seasoning factor -- great point.  I'm glad this strategy is working for brothers and sisters in the north!  

If I make a cash offer for an REO, does that prevent me from getting financing from a bank prior to closing? Up until now I've always purchased with cash and then re-financed once my property is renovated and rented. But I'd like to avoid the extra closing costs this requires.

My plan is to offer cash for an REO, show my proof of funds, and then attempt to obtain financing before closing. If financing doesn't work out, I would close with cash.

Any flaws to this strategy?  Thanks!

Have you answered phone calls in a marketing campaign? Watched others take calls?  If so, please share your observations!

What personality traits and skills are most important for someone who answers the phones in a marketing campaign?  I am looking to hire an employee to work the phones in my direct mail marketing campaign.  Reading your insights and experiences will help me identify a person with the right mix of attributes and experience.

When it comes to answering the phones in real estate marketing...

-What traits and skills leads to success?

-What traits lead to failure?

-How important is past sales experience?

-How important is real estate knowledge?

-Which traits can be learned and which are best labeled "you-either-have-it-or-you-don't"?

If your tenants have disappeared with the security deposit, you don't have too many good options. It's probably not worth your time, money, and effort to take legal action...but they don't know that! A bluff could be effective here. If you brought legal action against them it would hurt their ability to rent from other landlords in the future. Explain this to them politely. They might pay you back to avoid this becoming listed in the public records.

Answers to your questions:

1) Check your lease to determine who is responsible for the water bill.

2) Refer to your state's laws regarding security deposits to determine how to proceed.  If the lease states that the tenant is responsible for water, you can almost certainly deduct the bill from the security deposit.  At a minimum you should provide the tenant a written letter itemizing deductions from the security deposit.

3) I agree with @Sable.  Call the water company and let them know what happened.  Maybe the water company rep will take pity on you!

This is a great lesson learned that I suspect has burned many-a-landlord. I will add it to my personal checklist on tenant move-outs.  Thanks for sharing!  

 The fact that the property is now listed at 90k is not a reliable indicator of the value.  A seller can list a property for any amount, and a higher asking price could be unrealistic.  If it was worth 90k, it probably would have sold by now.  I am not saying it's a bad deal, I'm just saying that your justification of its value is flawed.

Instead, try looking at comp sales.  What have similar properties sold for in the past 3-6 months?

What year did the property sell for 70K?  What was the condition of the house at the time of sale compared to the condition today?

@Robert Akens 

I second Ned's vote on the BWI Meetup (hat tip @Christina R. , who got me involved).  The meet-up is light on the paid-guru stuff, and they bring out fantastic speakers.