All Forum Posts by: Joshua Weidman

@Bernard Pierson,

Did you every end up investing in Indianapolis or South Florida?

I'm a turn key provider in Philadelphia and have heard some good things from clients about the Indianapolis market.

If you're still exploring a turn key investment, or for those reading this post that are, there are a few factors to consider before buying a turn key property.

1. Investment Goal - There are many motivating factors to invest in real estate. Some people want to protect their money. For them, zero cash flow if fine so long as they're investing in A+ grade assets. Other people focus on cash flow. For these investors, appreciation is secondary to the monthly income. Other people want property in a developing market where the cash flow might not be great, but the return at the time of sale is huge. Whatever your goals are, write them down and pursue investments that will contribute to that end.
2. Location - We've all heard that real estate is location, location, location. When you're analyzing a potential investment, consider the neighborhood. Is the area safe? What type of tenants rent in area? Can people living in the neighborhood afford to pay you rent? Is the local market appreciating, depreciating or stable?
3. Property Condition and Renovations - You make your money when you buy. Calculate for appropriate repairs in your purchase price. It often makes a lot more sense to over-repair a property with a focus on the mechanical and functional elements of the house, than to do the least amount of work to get a tenant into the property. Spending $4500 on a heating system has a lot less of an impact on your monthly cash flow when it's spread over 30 years than it does as a lump sum 2 years into the investment.
4. The Numbers - Be honest about your numbers. Be sure to investigate the local rents in your target investment zone. Incorporate a realistic vacancy rate. Include all of the expenses: property and school taxes, insurance, licensing fees, leasing fees, maintenance, management costs, association fees, utilities, and capital expenditures. While all of these costs may not apply all of the time, most of them need to be in your projected budget.
5. Management Team - Whether you're far away from your property or just down the street, no investment property can be successful without a great management company. The business is a tough one. Dealing with tenants all day every day can be exhausting. When interviewing managers, test their response time by sending emails and phone calls. Ask how they can be contacted for maintenance. Check out their reviews online. They'll be the key to your success. Remember they they are your partner and treat them as such. 

I hope this helps. Good luck with your investing.

@Tom R.,

Dealing with the wrong tenants can be a cost, time-consuming hassle.

I had a property management company from 2010-2015. We quickly learned that the 1-off model for showings often ended with one of my agents wasting their time.

We developed a system of open houses for our property placements that worked really well. When you have a finished, rent-ready property, advertise on Craigslist and as many online sources as possible. When people call about the property, give them basic information and invite them to the open house. Ask for the prospects basic contact information and "schedule" them in for the showing. You don't have to keep their info, but the scheduling will commit the good candidates to show up.

The best part about this model is that you'll often have 5-10 people scheduled during a 1-2 hour period. When there are multiple people going through the house, there's a feeling of urgency for the candidates who want the house. Take applications from anyone who is interested an pick the best person.

This model allows you to be efficient with your time and control the situation. Even if only a small percentage of the people "Scheduling" actually show up, at least you're not left twirling your thumbs.

Good luck with your tenant search.

@Chris Walsh - congratulations! Inheriting tenant that continue to pay on time is awesome. It makes the holding costs a little more bearable as you renovate other units (I know you're living in the other half of the house). @Kim Meredith Hampton had great suggestions. Check the lease and get them out of the garage with the next lease renewal.

Since you're already planning to have them move in the near future, I wouldn't rock the boat. Just keep your valuable secured somewhere else until they've moved out.

Good luck with the rest of your project!

@Andrew Sessions,

Stop! Please proceed with caution.

It's a mistake to intermingle a mentorship and an investment. Which one is this?

I mentor new investors all the time. It's very time consuming and my time is worth a lot. So I charge for that service. My clients ALWAYS know what they'll get in exchange for their money. We have a contract that clearly defines my responsibilities to them as the mentor and their responsibilities as the mentee. 

I also have private investors that fund my fix and flip projects. All transactions are managed through a licensed title agent. Contracts are signed prior to funding the loan. The contracts explicitly state the length of the loan, interest rates, equity share, and procedures in case of a default. A mortgage is then filed against the property to secure their investment. None of my investors has ever written a check directly to my company to fund a project. 

I'm sorry to interject my opinion so strongly here. This situation just sounds like a recipe for disaster.

Hold onto your money and find a local mentor who has experience (in years not months) investing in the type of real estate in which you want to be involved. Pay that person to teach you. You'll get a much better result and will save yourself a lot of frustration and angst.

Best of luck!

@Joel Moran,

I've been flipping houses in southeastern PA for the past 11 years. As I read your post there's one thing that really jumped out at me. Price point.

Whenever I'm evaluating a potential fix and flip project I try to target properties that will appeal to the largest amount of people once they are complete. This means targeting median home prices. For me that means ARV's between $225-450,000.

In the beginning of my REI career my target markets had much lower price points. What I found was that these types of properties needed to be exceptional after the renovations to compete for the few QUALIFIED buyers that wanted to buy in these type of neighborhoods. That meant my rehab costs were always a high percentage of my investment. Additionally, buyers at lower price points often will need help with closing costs. That's more money off your bottom line. Lastly, sales are always going to be contingent on an appraisal. That means it doesn't matter the sales price. If the appraisal comes in $5,000 lower than the contract price, the money comes out of your pocket.

There are other reasons I transitioned to median home value properties: lower DOM, stronger buyers, less repairs, less competition, more demand, etc. Ultimately my decision came down to dollars and cents. Instead of hoping for a $30,000 profit, I target $50-75,000 margins. Even when things don't go quite according to plan, the deals are still profitable. I can't say the same about those lower end deals.

Hopefully this helps you decision. Good luck on finding the next flip!

Andre Wilson , There are 3 key factors that go into evaluating an investment property: Location, Property Condition & Financial Analysis. Before buying anything, you need to get acquainted with the area. Is the property located in a neighborhood with a lot of crime? How good/bad is the area? Are there a lot of boarded houses or abandoned buildings? What type of tenant is likely to live in the property (by type I mean white collar, blue collar, no collar), and how stable is their financial situation? A 5 bedroom house that's for sale for $24k and has a tenant paying $1125 per month is a home run...if the tenant pays the rent. Next, when you evaluate the property condition, be realistic. Most of the time we are all very poor estimators. Whether it's time, distance or construction costs, we all tend to underestimate. I have a rule of thumb when looking at a potential rental. If I can't be sure it will last for 10 years, I budget to replace it. Make sure your mechanicals and structure are solid and then worry about the "cosmetics." On a 5 bedroom house, I'm betting it costs around $35-55k to renovate this building. I haven't seen it, but "cosmetic repairs" usually means it needs everything. Last, be a stickler on the numbers. How much can you actually COLLECT for rent in the area? What's the REAL vacancy and turnover rate in the neighborhood. Be sure to calculate licensing fees, utility costs, taxes and insurance, leasing fees, maintenance costs, management fees and capital expenditures into your cash flow analysis. These numbers put a little damper on a super-sexy 50% ROI, but they'll let you know whether the property is really going to make you money. Last point and I'll get off my soap box. There's always another deal. Always! Remember this when you look at every property. Err (sp?) on the side of caution. And when the right deal comes along, don't be afraid to pull the trigger. Good luck!

Diane G. , I think you might be confusing causation with correlation. I thinks it's more likely that low unemployment, low interest rates and a strong housing market are symptoms of a robust economy than that unemployment has a direct impact on housing. All real estate is local. Even within regions and cities, there are areas and neighborhoods that outperform the others. It's really important to understand local markets before investing. A low unemployment rate certainly bodes well for finding good tenants, but if you're putting your money in the right properties, they'll remain good investments regardless of employment fluctuations.

@Daniel Casaca,

I got into the business at about your age and wish I'd have asked the same type of questions. 

It looks like you posted 6 years ago, so I may be a little late to the party. Hopefully this answer helps other young people looking to invest.

Right now it looks like most markets are nearing the top. Prices have been rising since about 2011 and in many markets (mine included) there was a frenzy from buyers this spring and summer that has cooled off significantly in the fall. If you're young and looking to jump into the game, none of the noise where prices are headed really matters. You should be buying for the long term.

To fully leverage the advantage your age provides, you should try to purchase property in developing markets. Look for neighborhoods undergoing gentrification, if possible. Those types of neighborhoods are less tied to the overall changes in the real estate market, and prices are more dependent on the improving conditions of the local neighborhood.

Over the past 11 years I have seen 6 Philadelphia neighborhoods change from the worst of the worst into some of the most beautiful and desirable. After seeing 2 cycles, I finally got the idea to start buying in these up and coming areas. The increases I've seen in my property values is more than 3x.

One other nice advantage to developing markets is the types of tenants you'll attract. In traditional rental areas, you're most likely to attract serial tenants. That's fine, but you also attract a serial tenant mentality. This often means more maintenance and more issues consistently collecting rent. Tenants in developing markets are often people who will buy a home in the future. They're students or young professionals that have other concerns today, but they have plans for the future. That means strong income and good credit. 

The bottom line is that developing neighborhoods are a great place to park your money for the long haul. You'll make a few dollars a month on cash flow, but you'll make great money as the area improves over time.

Matthew,

It's nearly impossible to determine a fixed percentage for the costs associated with a rental portfolio without more information. Things like taxes, property condition and tenant quality all come into play. You also have to consider ongoing capital expenditures, management, leasing and maintenance. All of these will vary slightly based on the investment.

You should always budget for vacancy, local licensing, property and school taxes, insurance, leasing fees, management fees, maintenance and capital costs. In my market in Philadelphia, these range from 25-45%.

My best advise for a first investment would be to either buy a fully renovated, turn key type investment (full disclosure: I'm a turn key provider), OR go through the process yourself. Buy the house. Complete the renovations. Lease the house and then manage it for a year or two. If you have the time and inclination, the hands-on approach will teach you a lot more than reading books or listening to the local guru at your REIA meetup group.

If you don't have the time, look into a turn key provider close to home. Ask a lot of questions and watch the results.

Whatever you decide to do, make sure you actually like investing in buy and hold properties before you're too invested. Start off with one. If you like it, buy another property. If not, get out. 

Hopefully you'll be posting in a year letting us all know how well that first property turned out. Best of luck.

@Mega

First let me say kudos to doing something that you love. Our country needs more good educators. My wife was a teacher before our second child was born. Both my parents were teachers and all of my extended family works in education. It's a tough job and can be thankless at times.

With respect to your questions, I think you need to take a step backward before putting any money into a deal. Knowledge of your market, whether close to home or across the country, is vital to a successful investment. 

I own a turn key company in Philadelphia. The first 2 steps in our process with any client is to (1) first determine the clients goals and objectives for the investment (i.e. additional cash flow, retirement vehicle, wealth building, etc.) and then (2) secondly to explain the market in which we invest - explicitly.

I would recommend that you start by defining the goal of your investment before doing anything else. Then I'd recommend exploring your local market. Find out where people are having success with their investments. Look at the neighborhoods where smart investors are staying away. Then learn what makes one neighborhood a good investment and the other not so much.

Over the past 7 years I've been involved in over 1000 transactions. I've wholesaled a ton of houses, rehabbed a bunch, flipped and rented a lot of houses. There are a ton of different ways to purchase property with great equity spreads without that 20% down.  Explore those options first. Then go find a deal. Learn along the way and expect to make a few mistakes. 

If you're bent on purchasing cash flow properties, use the following as a quick rule(s) of thumb:

• Always buy with equity
• Anticipate repairs - Any large ticket items (roof, windows, heating system, electrical system, plumbing, etc.) with a shelf life of less than 10 years will break down at the worst possible moment. Build the cost of replacements and upgrades into your purchase price.
• Real Estate has a 10 year life-cycle so invest in a property for at least 5 years and plan to sell within 10 years (you don't have to sell, but plan on the value peaking within the next 10 years and then "correcting" back to a lower price point).
• Live and die by the numbers. If the property doesn't make you money, it's not an asset. Make sure there is enough money left after the expenses that your bank account increases every month.

Good luck.