All Forum Posts by: John Chapman

Most brokerage places I know will insist on some sort of fee, even for your own deals. I pay my broker a small fee for every buy and hold deal I buy, even it's an off market deal not involving the MLS. I think the reasoning is that, once you have a license, every real estate transaction you enter into exposes the broker to liability, however remote. (I know some brokers want every deal to go through their offices for E&O purposes.) I'm not sure I really agree with this logic, but I think it's fair to pay them. I do want to contribute to my broker's bottom line as I'm not out there as a normal realtor and that's the only way he'll get compensated for taking me on as as salesperson.

Gotta agree with @JD Martin there seems to be a bit of a conflict with what you're doing.  They probably should get a cut.  

That's just the nature of commercial financing and it's definitely not ideal.  There's either a balloon or a reset at some point (usually five years).  To address this issue, you really need to plan to have enough equity in the property so that you can refinance or sell  at the time of reset or balloon.  You also need to make sure you are in a financial position to refinance if you want to at the time of reset or balloon (e.g. make sure properties are performing, you're in a financially strong position,  etc.)  I would not buy in weak or declining markets with this type of financing.  Not sure what else there is to do other than try to find the best terms possible on the front end. 

As someone who has worked a soul sucking job for over 10 years, I am sympathetic to your plight.  That being said, I've also done the real estate thing full time (as a realtor) and done enough marketing to know that it would drive me nuts to do it full time.  (There are many other paths to wealth in real estate so I can't really comment on those.)  

Basically, my comment to you, is that you probably should really think about getting a different job as there's nothing inherently magical about real estate as a profession in my opinion (at least as compared to other entrepreneurial activities).

The job is your single greatest asset as it opens the door to financing that is the life blood for buy and hold investing.  It's stupid but banks love W-2 income and I don't think you realize just how much harder it is to build a portfolio on your own without access to that great financing.  

Finally, I have found that as long as I have a real estate project going, it keeps me interested (or at least distracted) enough to get me through the day to day slog.  Maybe you just need to just into an RE investment sooner rather than later.

This is really specific to your area.  Your observation that you are seeing more of them available is definitely an indication that they are less desirable.  I personally believe that for a buy and hold portfolio you should be trying to buy properties that everybody wants (i.e. desirable areas).  

Here's my advice, though take it with a grain of salt since I'm not in your area.  In my area, I won't touch 2/1's because the rent is not there.  This really hurts on future cap ex and appreciation.  I will do 3/1's if the numbers work (I generally want to make at least $1k/month, and not be a large square footage).  Here, we are seeing some appreciation on 3/1's.  

In terms of age, I generally don't go pre-1950s, but that's pretty easy in my area.  Older stuff has way more non-conforming issues in my experience.  Your area may be different though.  

The other issue I would raise is that most experienced investors recognize a generic, "let's connect" email for what it is, a waste of time.  If your requests aren't specifically tailored to the person you are reaching out to and you don't have specific requests or observations other than "let's connect," then many investors will likely ignore the request.  Not sure if that's what you're doing, but if you are that might be your problem.

Okay, I'm going to offer some initial advice but please don't take offense. Your post is very hard to read.  It's too long with no paragraph breaks.  It also uses a lot of lingo about which I'm not familiar (and I'm a lawyer).  Basically, in the future, I would try to make a post like this more accessible.  It will ensure maximum feedback.

Turning to your question, can the seller simply void a contract for no reason?  Short answer is almost certainly no.  (Depends on what the contract says and state law.)  Here in Texas (and many other states), you could sue for specific performance for this type of breach.  However, and this is from a practical standpoint, it's usually not worth it.  Attorney's fees will often eat up any discount you were going to receive.  Moreover, it's a pretty significant, negative distraction.  The only time I have ever sued for specific performance was when the seller refused to sell and tried to keep my earnest money.  That's not the case here, and I would say you got out relatively unscathed.  I would move on to the next deal and accept that sellers are just going to flake out on you sometimes.

I think most posters are missing the issue that your lender is getting at.  It's that if you rent the home out as a vacation rental, it's not a second home but an investment property.  Second homes and investment properties are very different for conventional financing purposes (different rates, different down payment requirements, etc.)   My understanding is that second homes can only be rented for some short period of time (I think it's like 14 days), otherwise they are considered investment properties.  Basically, if you represent it's going to be a second home and then rent it out a lot, you will be lying about your intended use of the home.  This is like saying a home will be owner occupied home and then renting it out.  That's mortgage fraud and is just not worth the risk.

Okay, I'm going to offer some opinions and rebut a couple of arguments that I constantly hear.  First, I cannot stand the argument that you should upgrade a unit only to what the competition is doing.  That is misguided, at least for SFRs.  A rental market  is like any other other market and you need to compete in it.  Just doing an average finish out and charging market rent is not competing.  You'll get average tenants, average vacancies, average everything. You need to compete in either finish out and/or price or both.  I like to have a slightly nicer finish out and market rent.  This generates more interest, more apps, better tenants, and lower vacancies.

Second, don't get lost in the weeds about every upgrade and how much extra money it will bring in each month.  Some people are like, "I won't add a ceiling fan unless I can get an extra $5/month."  That's dumb.  A few nice (and inexpensive) amenities make tenants feel like there living in a place where the landlord cares both about the property and their comfort.  Maybe every upgrade won't get you extra money, but more often than not, you'll get a better quality tenant who will take care of  the property. 

I'm not saying overdo it on the upgrades, but you'd be surprised how little it takes to beat out competition.

In your case, just put the money into the kitchen and be done with it.  ($1k-$3k is just not that much at the price point you're talking about)  Hands down, the kitchen is the best place to put your money and adds the most value, both from a property value perspective and a rent perspective.

I think the seminal work in that area is the Section 8 Bible, which is somewhat dated but probably has useful information.  It's a relatively controversial source on this website as it basically involves stripping a unit of of anything breakable and presuming your tenants are animals.

Without a better idea of your personal finances and goals, it's hard to provide advice on this issue. It's usually a question that is very dependent on personal situations and goals. I will tell you that, having done both, I would not do 15 year terms again. When you're first starting out, the higher payment really messes with your DTI. Moreover, in a few years you've got a ton of equity doing nothing. If you're just starting out now, you will likely still be acquiring in 5 years and that's money that could otherwise be used for acquisitions. This is a topic that has been debated to death on BP, so I'm sure a quick search will give you access to other view points.