All Forum Posts by: Joseph R. Smith

My Lease agreements read, " IMPROVEMENTS AND REPAIRS: Tenant(s) agrees to not make any improvements or repairs or cosmetic alterations to the property without prior written consent from the landlord. Any such improvements agreed upon in writing by the landlord, shall become part of the property of the landlord. Thus when any part of the premises is upgraded, that upgrade shall immediately become part of landlord's property, and is not to be removed by tenant upon vacating the premises.  NON LIABILITY: Any improvements or repairs made by tenant(s) or someone Tenant(s) hires to do the work shall be done in a sfae manner that meets all federal state and local regulations. Tenant(s) further states that tenant will become legally responsible for any mishap they either do or hire someone to do. Landlord will be held free from liability. " 

I am happy to have a small part in Newburgh, NY revitalization. I purchased one there for $5K cash 3 years ago. Today the BRV is around $100K, ARV is $275K. I am kicking myself for not buying another one there for $18K which recently sold for $345K. When I went to buy there, seasoned investors all laughed at me, saying I was nuts. Now what is happening in Newburgh has been all over the papers as "The next Williamsburg?" Question is, do we next look at Troy, NY? I'm looking closely. Can anyone recommend some advanced software-showing geodemographics over time?

I Really really like your criteria. The security deposit may be a little high is all.  My experience is with class C properties. My opinion is that with class C properties, I think we must make certain adjustments outside a strict set of rules. Some examples: A) I like evaluating the person in meeting. I figure it like this: Why are people willing to rent in these areas, where our free cash flow is so high?-because either their credit is shot, or because they never had the discipline to save up $5,000 for a 5% down payment in their lives, or both. Thus credit checks are a bit overrated to me. These are the folks who will receive a $4500 tax refund, then spend it within a week in the electronics section at WalMart. More over, I'm careful about new renters around tax season for that very reason. B) We can generally start the eviction process by the 10th of the month. The logic is, if this person could not come up wth $x in 40 days, then why should I believe they can come up with $2x in 20 more days. But, there are many cases where, depending on the person, I have said, 'hold onto the rent money and fix your car, then catch up with me next payday. Why-because depending on the person or on a case by case basis, they may need their car to get to work to pay me rent. C) Credit scores are overated to me also. Is that 490 credit score $150,000 in school loans from a just graduated engineer whose parents just kicked him out at age 31, or from someones mother's $750,000 cancer treatment bills; Or is it all just multiple negatives and stupid overspending of plastic. See those are two separate scenarios. D) Same with criminal backgrounds. I personally don't care in some of the areas I've landlorded in if the person is a quiter type of drug user or even very petty dealer. So long as its in my lease agreement that I do not allow or condone any illegal activities. With criminal backgrounds-I just keep an eye out for anything "Wierd"-as in particularly offenses against children or etc I implement a zero tolerance strict policy. We have to remain flexible and human in dealing with class C and D properties. Just my opinions. But again, love your criteria.   

I saved up $10K for my 1st single family home deal in Akron, Ohio when I was age 18. That was 25% down on $40K back when conventional lenders would loan on as low as $40K homes. I used $6K on credit cards to rehab the property. It rented for $700, about 50% of that free cash flow, and appraised ARV of $91K a few months later. Now a days, I think its much easier. Homes in relatively depressed areas of Akron or Lima can easily now sell for $10K cash. These are blue collar areas, not slums. I say this because I've dealt with some of the very worst areas in NY. We purchased one over here for $5K cash. After 3 years of not even touching it, the value as it sits is around $100K, ARV with $35K put in is $275K. Three points: 1) $20K is plenty to get started in BURRR. Even $10K if one can determine an area likely to appreciate dramatically in 1-3 years. 2) I just sort of smh and chuckle when investors are often so afraid of class C properties. I would seriously look to determine which parts of Detroit or Toledo will do that, if I were in the NW Ohio area. 3) For any newbies having trouble with initial startup capital, Ohio is a place where one can start with $3K for a mobile home,to flip and get their 1st 20K. If thats still too much, go to the Akron auto auction and flip a few cars first. I realize I stand alone on many of just my opinions. Making a 1st $1M off $20K in 4 years is easy. Best of luck.

Quentin Mitchell tag :) 

I totally agree Quentin. I love C properties. I advise anyone who is half way intelligent with either some handyman experience or delegation skills this is the way to start with ones first 25K. Particularly if they can determine if a whole area is likely to drastically appreciate in the next 1-5 years. Why would one ever spend 100K for a home that will rent for 1K, when they can get a home for $10k that will rent for $500. Sure, the turnover rate will be higher, evictions somewhere more or less constant, properties will always need new carpet and a fresh coat of paint at least every other time a tenant moves out. C properties the way to go for the hands on person with personal skills. I respectfully disagree with the last comment that class C properties are not scaleable. But agree they are for the true investor rehaber. The ROI is tremendous.

I agree with common consensus here. Thats crazy. Roofs need replaced every 25-40 years is all. If its not broke, dont fix it. 

I used to only charge a $100 to $200 pet deposit for allowing 1 cat or small dog. In more recent years, I will charge as much as 1/2 the monthly rent as pet deposit. 9 times out of 10, damages will consist of some minor scratching on carpet or a couple doors as couple hundred will cover.

Shawn, just skimmed most of the replies, and another of your queries. I think 20-25 units is the # often stated as 'the landlord trap' (where one begins to spend much of their times attending to an existing property disenabling them from spending time buying and rehabbing more. I think that is the time to perhaps seek a property manager. 

I never used property managers. I haven't had more than 20 properties yet, so I would consider it then. The main downside is their fee will be around 10% of the total rent. For some this can be more of an issue than others. I also feel that they will not necessarily do as good of a job as I can myself.   However, the upside is that many newbie investors do some very dumb things, particularly when it comes to engaging in civil issues with their tenants. ie: entering without 24 hours notice, having no familiarity with the basic eviction process, etc. In that case of a lot of this I've seen, I would definitely recommend they have their property professionally managed.  

Investment Info:

Single-family residence buy & hold investment in Jeffersonville.

Purchase price: $20,000
Cash invested: $35,000

Has been completely rehabbed. Current value $135K.

What made you interested in investing in this type of deal?

Good price, was mostly cosmetic repairs.

How did you find this deal and how did you negotiate it?

zillow

How did you finance this deal?

Cash

How did you add value to the deal?

complete rehab

What was the outcome?

Increased value 6x.

Lessons learned? Challenges?

Labor costs ran a bit higher than I would have liked. I now prefer to do work myself, or at least be there to supervise.