All Forum Posts by: James Mc Ree

Couldn't you just write a statement of work that specifies what you want, your contractors bids it and you agree on a price and schedule?  This just looks like ordinary work.

You could then specify that payments on this new contract will be made in the form of credits on the other debt as called for in that agreement.

IMHO, 20% and 25% interest against a family member is really, really steep.  You might want to consider how this arrangement affects the family relationship if there is any stress involved in all this.

Jim.

I usually take a more detailed approach to develop the high level estimate.  If the unit has these:

Assume replacement every 10 years:

Water heater - $900

Refrigerator - $900

Range - $900

Dishwasher - $600

Clothes washer/dryer - $1000 combined

Every 15 years:

Furnace - $2900

Central air - $2900

3 BR SFR Flat Roof - $2100 + $300 per 3 years to coat it

I annually plan for an additional $1,500 of miscellaneous maintenance expenses and $800 for capital improvements.

You could probably use something like this to estimate your per-unit costs as some units might not have all the same features.  You probably have to adjust my figures to your market and equipment.

Jim.

The question you pose is really one of market timing.  There is a lot of research out there that market timing really doesn't work.  A few get lucky, but many buy high and sell low.

Examples:

• Coming out of 2008 collapse, "everyone" recommended against buying bonds because the Fed was going to raise rates which would crush bond prices 17% per point raised (or something like that).  We are still waiting for that increase 8 years later.  It will eventually happen, but bonds have performed fairly well in the interim.
• Lots of experts said in the 1990s and 2000s to bail out of the stock market because it was going to pop.  It eventually did, but years after the prediction.

A takeaway from these historical examples is a recession eventually will come, but when?  When is the really important question.  Australia has gone 25 years without one, as recently highlighted in the news.

What to do in the meantime if you think a recession is coming within a year?  As mentioned, go to cash or long term government bonds or bond funds is a good bet.  There will probably be a flight to quality which will boost your bond investment value and give you buying opportunities; unless bonds are what is clobbered (ie. 2008 bond market crash - there is always an "unless....").

What to invest in during a recession?  Under-priced, stressed real estate is always an option regardless of the economy, but there is usually more available in a recession.  That's good and bad: you can buy cheap, but then you are selling cheap too.  The real estate is cheap because funds are not available to buy.  You should consider if you buy into the recession. 

Next bet: How long will the recession last and how will it affect your local area?

In the end, if you can accurately answer, "When is the next recession and how long will it last?" you are a market genius and can make far more $$$ as a financial advisor or economist than a real estate investor.  More likely, you will miss the boat.

My recommendation: Find a great deal in real estate if that is where you are looking based on the numbers in the deal.  Don't compromise.  It's OK if nothing fits your return criteria - that will be the best protection against a bubble.

Jim.

@Shane Hedeen 

The OP wrote she did not sign any agreements with him.  What Shane says is correct if you signed an exclusive agreement for your agent to represent you.  As a buyer, you can choose any agent and agents (should) crave your business.  You don't need to lock yourself into a single agent until you make an offer.  At that point, I think you owe it to the agent the helped you find the deal to help the agent get paid.

You can certainly work with multiple agents if you want to so long as you don't sign an agreement that says you will work with only one.  It might be a bit of a nuisance though as you will feel like you are repeating yourself.  It is a great way to get to know a few of them in the same timeframe though.

Shane also gives good advice about talking with your current agent if you want to try to salvage the relationship.  The feedback should help the agent if he is open to it.

Jim.

I recommend not approving these applicants for 2 reasons:

1. The eviction.
2. The short duration of the lease, assuming you were asking for 1 year and they offered 6 months.  You could have much more turnover expense than you were planning.

You can defend #2 easily just by stating you are looking for a 1 year lease.  The downside is your applicant might agree.  You can defend #1 by writing down your approval standards, if you have not already done so.  One of your criteria should be something like, "No prior evictions of applicants within the past 5 years."  Those criteria will be defensible in court.

Alternatively, you can "pocket veto" them by just indefinitely considering them.  That will allow you to compare them to other applicants as you have more applications.  You could respond to inquiries as you are reviewing applications coming in over the next month or two.

Jim.

Welcome, Mark and Marty; fellow Southeast PA investors!!!!

Pop the nails back in with a hammer.  Spackle over any depressions.  Screws will hold better than nails, but probably not in a meaningful way.  It won't hurt to use them though - just a little more in labor and a little more expensive material.

Jim.

I use a catchall approach that allows me to charge the tenant or security deposit for my or a contractor's labor and material costs for anything the tenant is responsible for that isn't getting done.  It's nice not have a specific list as inevitably something isn't on the list, but is generally covered in the lease.

My leases also say the tenant is responsible for any fines from the government related to their improper use of the property.  That also allows me to bill them.

Jim.

You can leave the equity in your first purchase or pull it out with a HELOC. Your first purchase will probably involve a 20-25% down payment if you use a traditional residential mortgage. HELOC can free up the additional 10-15%, but comes with a price (fees, higher rate, higher risk).

It may take a while to save another down payment on annual positive cash flow from 1 property, depending on your numbers.  You are probably looking at saving some money from the job too if you are looking at annual purchases.  Multiple properties can eventually support your plan of cash flow being used to buy more properties.

In the meantime, you can look for partners.  You may be able to find a financial partner who wants to diversify and not do any hands-on work.  You can offer work and management, partnered with cash, for you both to benefit.  Your return won't be as high, but neither will your investment and you can gain some great experience and relationships.

Jim.

Think "low overhead".  You don't need any credentials except cash and credit to buy and rent real estate.  You may need various licenses to operate businesses if you buy a business, but that will be dependent on the type of business you buy.

Consider buying some of the BP books, such as "The Book on Rental Property Investing" if you are thinking of rentals.  They are a great way to get some foundational knowledge.

Jim.