All Forum Posts by: Jesse Waters

Karen,

Those are some really good questions.  I'll try to answer them the best I can based on my first planned property.  The first rental we got was due to the housing bubble and having to move to a larger house to grow our family.

I work out of town, so, for some of your questions the simple answer is, I cheat.  I have a property manager who handles marketing, tenant selection, rent collection, evictions and scheduling minor maintenance.

Once we made the offer on our first place we set the closing date in the contract for 30 days out.  It ended up being about 60 days because the under writers were being a pain, losing paperwork etc.  One property I bought I already knew the mortgage broker, lawyer, inspector's etc and that does make the process smoother.  I try to keep using the same people once I find folks that I enjoy working with and that do a good job.  Most agents will have folks that they will suggest to you.  I have my own, for the most part, and like to use them.

Prior to closing we did an inspection, we found a few issues, leaking plumbing, a gas hot water heater that wasn't to code, (not 18 inches off the ground and poorly vented).  And a few other items.  We went back to the seller and negotiated some of the repairs, he ended up giving us $6,000 at closing to fix everything up.  The day after closing my contractor started the repair work, took about a week and a half.  

The day of closing we put a for rent sign in the yard, and I took care of some minor cosmetic items, mainly cleaning and making the place look better.  

As for marketing, even though I use a manager I want to know the process in case I ever want to do it on my own. About 1/3 of our leads came from the sign in the yard, most of the rest came from our ad on craigslist. I have properties up the road in a larger city and we use the MLS and some other rental websites to advertise as well as that manager's own site and signs on the high way. We have gotten contact and tenants from each source. I have never had to run a print ad, but those cost us about $60 a week. If you are near a military base use militarybyowner.com, I think its about $50 for a 90 day listing. I do use that on one property.

You will definitely learn a lot more if you manager your first property your self, I wish I could, but my work situation doesn't allow for it.  I do try to keep up to speed on whats going one, participate in tenant screening, inspections etc.

Over all I would say be flexible, have fun, but most importantly analyze your deal carefully before jumping in, just don't get analysis paralysis.  Every deal that I have done is different.  Some time I rely heavily on my real estate broker, some times I do most of the work, especially if I am familiar with the property.  

Hope that helps.  

Jesse

I had to decline investing on a few places in down town Columbia due to the property taxes. When I have the choice I try to stay out side of the city limits, esp Columbia. However, that doesn't mean that you can't find good deals in the city. A lot of folks like to go across the river into W. Columbia or over towards Lexington. The taxes are still significantly higher than OO properties, but compared to other states our taxes are still very reasonable, even for NOO's.

Danielle,

I go both ways with pets.  I have two properties that I allow smaller dogs and two properties (quads) that I don't allow them.  In my opinion you should be able to enforce the policy, however, it has gone on for a while and you might not be able to easily have the tenants change.  You can have the tenants (depending on your state laws) sign new leases with you.  I usually have tenants that I inherit sign at the same rent rate with the same lease duration.  I would suggest having all the tenants sign new leases and add a pet policy, $50/month with $200 non-refundable deposit for cleaning.  Since you are planning on getting rid of the carpet I wouldn't worry too much about pet smell/stains.

Hope that helps some.

JW

Bram,

As a general rule I try to avoid HOA's, unless they are low cost. My neighborhood is $15/month which coves some street lights, a little bit of landscaping and a play ground. Watch out for places that advertise "regime fees" usually associated with condo's or a place that someone wants to keep managing but doesn't want ownership responsibilities. I would also shoot for two bed-room at a minimum for apartments and 3 bedroom for SFHs, they are easier to rent. You want a place that someone can keep if their family situation changes, getting married, having kids etc.

I came across one deal in Columbia, SC that was for 25 units for $225,000.  Seemed too good to be true.  The complex was recently re-modeled, had a pool, community rooms and a fitness center.  Rents were about $500 a unit x 25 units = $12,500 a month.  The kicker was regime fees were $300/unit per month.  That left $200 to pay the mortgage, taxes, insurance, management, vacancy and try to take cash flow.  I hope no one was foolish enough to take the deal as it was offered.

When you go to analyze a deal think about all the things that you would have to pay if you were the living there, lawn, general maintenance, pest control, saving for roof/HVAC etc.  Use at least 10% for vacancy, I deduct that from the rent I estimate that I should easily get.  For rent I start with zillow, but that is usually a little high.  I look for similar properties for rent, ask property managers, browse adds on realtor.com & craigslist to get an idea of what I should be able to get, or at least a range then use the low end of that.  You want to be in positive cash flow when you get your first rent check.  I look for 10-12% positive cash flow the first year from a property the first year.

Happy Investing,

Jesse

When ever I get a new buyers agent I always like to find out their experience with investment properties.  I try and avoid agents who aren't also investor's.  Most agents will start spouting off random numbers that they think the property can rent for, some are wildly off.  Do your homework.  Before you look at properties you should know what the target rents go for in your area, where I live the best properties sell for about $100k and rent for about $950, that is our sweet spot, generally referred to as the 1% rule (property should rent for 1% per month of purchase price $100k property=$1,000/ month).  We usually get just under 1%, but we have low taxes and I can still cash flow even at 0.7%.  

Don't let them talk you into going above your market's sweet spot, but do consider the appreciation of an area and likeliness of keeping long term tenants.  Agents earn more when you buy a more expensive property.

If you are going to use a property manager it wouldn't hurt to meet with them to get some ideas on good area's to look at and your best price range.  After you have looked at a few meet with your manager, if you are using one, to go over the pro's and con's of each.  

The biggest thing before you buy is to do your homework and don't let the agent over sell you. When you analyze each property over estimate your expenses, use 10% vacancy, use the low end of your rental range, and the numbers still look good, you might have found a deal. Get a book or two on REI, learn as much as you can.

Hope this helps you some.  

John.  First question, are you a US citizen?  If so, you should have filed a tax return even if you didn't owe anything.  I have worked out side the US for the past 5 years as well and my employer pays my taxes, which generates a benefit in kind.  Talk to a tax pro or accountant who is knowledgeable in the field.  A friend of mine was in the same boat, working over seas with our employer paying taxes, she hadn't filed in 5 or so years but wanted to buy a house.  She filed all her tax returns at once just to have the income history for the banks, even though she didn't owe anything.  The IRS didn't seem to mind since she owed them nothing and they owed her nothing.  That might be one solution to prove past income.

I have done grant/warranty deeds from my personal name to my LLC for all my properties. The loan is still held in my name. I told the loan officer during the application process, and he said that as long as they keep getting paid, they really don't care, since I am still personally on the hook for it. Quit claim's are easy, but they aren't as solid of a transfer mechanism. If I understand it all correctly, the grant or warranty deed will allow the title insurance to follow it.

Also, depending on the state a LLC is a good way to protect your personal assets. If you (LLC) gets sued then the damage is contained to the LLC. Most lawyers will do their homework to determine how much equity is in a business before they file suit. They can collect from the insurance then go after the equity. Give Loopholes of Real Estate by Garrett Sutton a read.  He covers the pros & cons of holding real estate in different ways.  A sit down with your lawyer never hurts either.

If she is paying on time, and not causing a problem, keep her.  Also, read the lease carefully and check with your lawyer, you might not be able to get rid of her.  Some of the best, and worst, tenants have been ones that were in place when I purchased.  Some tenants feel that since there is a new owner they don't have to honor their end of the lease since it was signed with the old owner.  I always try to put them on a new lease at the same price, and if I can, for a full year term.  This way the lease is with me, or my P/M and makes the tenant feel more connected.

Split decision on this one.  I would say yes, so long as the property that your are going to do a re-fi on an take equity out of can still service the debt.  No if the re-fi property can't carry the new debt load.  I have had closings run over 90 days, so you don't want to be paying the difference out of pocket.  Also, if you are pulling equity out, then you will end up putting less of your own cash into the next property, potentially increasing your cash-on-cash return.

It really depends on what the numbers support.  Always estimate your numbers leaning towards the worse case scenario.  

I have two quads on a block, cul-de-sac, that has 13 quads, and to my knowledge a total of 12 owners.  This poses a few problems: 1) we always seem to be competing with one another. 2) There is no standard of care between the buildings, both of mine have been re-roofed and re-sided, other have the 1970's wood siding rotting off. 3) We compete with rents, and it has caused some owners to say that this is their worst property.  I had to raise my rents to even get interest is the place, and it worked.  I had encouraged the owners I could get in touch with to raise their rents to a similar level, rather than lower them.

My questions is: A- Would it create any legal issues if we agreed on rent rate guidelines for the block?

B- Any suggestions for working out standards of care, other than asking everyone to sign covenants and creating a POA?

I had suggested that we all use the same property manager and at least give the street the appearance of a cohesive complex, rather than 13 individual buildings.