All Forum Posts by: James Mc Ree

The crux of the decision may depend on how noticeable the leak and damage is.  Your prior post states the property was returned in what seemed like good condition.  One could surmise that it was not obvious if you did not see it in your inspection.  You might need evidence the tenant was aware of the leak or should have been aware of it.

The next step would be your lease: what does it call for with regard to reporting maintenance issues?  Ideally, it says something like "report leaks and other maintenance issues immediately."  Are you able to estimate from the damage the duration of the leak? 

Jim.

In what timeframe are you doubling your money?

Research the background of your partners making the pitch to you.  Ask for references, past deals, etc.  Verify.  A perfectly worded fraudulent contract is still a fraud.

The deal may be legit depending on the timeframe.  It is extreme if that is a 1 year return.  It is more normal if it is a 5-10 year return.  (12% compounded doubles in about 7 years).

Jim.

Toilets are only one type of leak-maker.  Make sure your faucets are not leaking.  I would first fix running toilets before replacing them.

I bought a high efficiency toilet for my home.  I'd love to have my old water gusher back!  This model was touchless.  The touchless feature broke 3 times!  (Battery operated electronics in water tank = bad idea).  It also routinely required a couple of flushes, even for just liquid waste.  Maybe it is a bad model, but I don't know that I am saving a lot with it.

You probably need to do a cost comparison.  My guess is it will take a long time to recover your investment if the toilet is not running.  You could guess the toilet flushes 4 times per day per person in the house and you save 1 gallon per flush with your new toilet.  How much is a gallon of water?  How much will your new toilet cost including installation?  You can probably get a good deal if you are buying 100+ of them.

You can offset your new toilet cost by selling your old toilets.  Those big flushers are worth something to someone who really doesn't want the new toilets that don't flush as well.

I've read that you can save 30% on your water and sewer costs if you make the tenant pay for the water.  You may get a better return on water meters and transferring water responsibility to your tenants.

Your internal plumbing will be as fine as it is now with your new toilet.  The new toilet releases less water than your current toilet.

Jim.

A smart investor has a comprehensive financial plan that considers current savings and income, future income expectations and life goals, such as retirement, kids' education, travel, etc.  Step 1 for your client is to make the comprehensive plan.  It should include diversified savings and investment vehicles that provide for short term and long term needs.  Hiring a financial advisor, if only to get this plan in place, would be a wonderful thing.

Kudos to your client if he/she already has a financial plan!  Your client should consider how this newfound wealth affects those goals and may want to revisit the plan and advisor.

After establishing or updating the plan, your client should approach each asset class with a plan for that class and awareness of how it fits into the overall portfolio.

Now, we get to real estate.  It seems from your post that your client might be new to real estate.  What "we" would do is irrelevant since "we" have more and less skill than your client. Your client needs to learn about different approaches to real estate investment, decide which ones are appropriate for your client, then learn more about that approach.  After all this learning, your client might decide real estate isn't a good choice.  What an awful lesson learned if it is learned after buying millions of dollars of real estate!  Local real estate investment groups can help considerably in this area.

In the meantime, your client might do best with a mix of stock and bond index funds until specific real estate opportunities are identified. Your client could buy a REIT fund or stock if he/she is really stuck on real estate while he/she learns.

Jim.

Land with no engineering performed is worth less than land with engineering and approved plans.  Are you marketing the land "with plans and reports" or without?  It is reasonable that a buyer might want to review the plans and reports if you have them and you are marketing the property with them.  The plans and reports are useless to anyone without the land they describe.

You could offer viewing, but not copies, if you are not marketing the plans with the deal, but that won't benefit anyone as they are no goo to you once the property is sold.

Why withhold them?

Jim.

I am in West Chester, PA and primarily invest in Delaware County.

@Mike Cumbie - This situation reads differently than what you describe.

The OP states he owns a "deeded right of way" on the driveway which means he fully owns access to the driveway.  The underlying land owner cannot interfere with this if that is the case.  It is almost equivalent to owning the land (almost).

You acknowledged the OP's right to the driveway in your post, but then seem to take it away.  It is a critical point - the OP claims to have full rights to the driveway.  That makes it not "borrowed" land, but a right for which the OP has paid for.

At the time of applying for land development or issuing a building permit, the municipality may require an agreement that specifies what access is granted for the driveway and who is required to maintain it if the original poster grants access to his "deeded right of way".  I am sure you can find template agreements on the Internet as this is a very common situation.  This is not a zoning matter, but rather a land development matter.

Jim.

My comments are coming out of a Pennsylvania zoning context....KY is bound to differ somehow.  I don't know if it does or how.  Consider consulting an attorney.  An attorney could be invaluable in this kind of situation.

One approach you might have is to claim the rezoning is actually spot zoning which is not permitted in PA.  For info about spot zoning, see the link below.  It essentially says that you can't change the zoning of a single parcel within a larger zone such that it is in conflict with the surrounding area.  Spot zoning goes against zoning best practices as your municipality's comprehensive plan probably specifies that area to be all agricultural.  Why would you create a small island of commercial in a large agricultural zone if it is not part of a larger plan?  Your municipality's comprehensive plan could be your friend as it shows what was planned for the area in the coming years.

https://en.wikipedia.org/wiki/Spot_zoning

Second thought:

Your use is residential. Is that included within your municipality's agricultural zoning. It probably is, but you should check to be sure your lot is in full compliance. Your property could be a zoning issue itself if it does not fit the agricultural zone definition. You want to be sure your lot is used consistent with the existing zoning.

Your use is residential which would be adjoining commercial.  Residential and agricultural are usually considered compatible.  Residential and commercial could be considered compatible, but it depends on the nature of the commercial activity.  You might have a rezoning objection here.  It could be resolved by relocating the commercial zone to another part of the larger property so it does not adjoin yours.  Relocating the commercial use might help you with the neighboring commercial impact and the driveway if you cannot block the change completely.

Third thought:

Check your municipality's requirements for commercial zones.  There are probably setback and screening requirements and possibly additional requirements as they pertain to adjoining zones that might help you.  For example, a large setback might be required for a commercial zone bordering residential/agricultural that would at least push the commercial use away from your property and might be undesirable for your neighbor, hence he might relocate the use.

I recommend consulting a zoning attorney if you want to make a serious fight.  You will need someone that knows your local municipality's zoning and KY law.

Good luck!

Jim.

Am I understanding this right: You are getting almost $29,000 per year after paying all expenses by investing nothing due to 100% financing and you are asking if this is a good deal? Is there a question here? It looks like a phenomenal deal since you don't have to put any money in and you have a 9% return on the total ARV. You didn't mention if you have any initial repairs.

A detail that might be missing is how long and reliable your financing is.  I am assuming you can renew it upon expiration for roughly similar terms.  That could go high if rates go up or your rating goes down.

It looks great as far as numbers go.  The tenants might be a headache.

Jim.

Start with your goal regardless of the property.  What do you want to earn?  10% Cash-on-cash?

Your best case revenue is $144,000 per year if you assume average $600 per month rent.  What would the value of the property be if it needed no work?  That is your best case starting point.

Add in the repair cost next ($200k if that is your all-in number).  Are you making modifications beyond repairs, such as separate utilities for each unit?  Price those in.  Consider how you are going to finance the purchase and repairs.  Consider the timeline and holding costs.  Consider marketing and property management costs.  Remember vacancy, insurance, taxes and permits/fees.

Watch out for new builds in the area with regard to your target quality.  New builds could depress your rent as they increase supply and put a ceiling on the rent you can charge.

How does the bottom line look over your planned holding term?  It's a good investment if it exceeds your goal.  Why "exceeds"?  Because I always miss some expenses.

Jim.