All Forum Posts by: Jonathan Twombly

@Scott Trench  That answered my question.  So it's now forum-specific.  That would explain why I see the scores and people jumping around every time I'm in a different forum.  

Thanks!

@Joshua Dorkin @Hilary C.

I'm a long-time user of the site, but was away for a while.  Now that I am back I see that the "Top Contributors" list has changed.  I really don't understand how this works, or what it means?  It's different depending on which posts I am reading.  Could someone please explain this?

@Kelly Byrd  All I can say is "Wow."

@Kelly Byrd California will consider an LLC formed in another state whose only asset is property in that other state as doing business in California, just because the owners live in California? That doesn't sound right to me. No business is being transacted in California, other than you receiving income there. By that logic, any business anywhere in the world that sends a check to someone in California is "doing business" there. Not sure that would pass constitutional muster.

Have you double-checked this with a CA corporate lawyer?  Seems like something they would answer for you in five minutes and not charge you for.

@Trevor Turner  Look into Greenville, SC.  Very strong local population and economic growth, and a downtown with a lot going on - good restaurants, bars, etc.  Cost of living is WAY less than what it would be in a place like Austin or another big city.  Several colleges in the area, so you can find student rentals if that is what you want to do.

@Mida T. as @Ben Wilkins suggests, the way to go about finding a true value-add deal is not to start with what the rents need to be to make money.  Instead, you start with what the rents are.  If the deal is appropriately priced for those rents, and you know the rents can be raised, then you are buying a deal with built-in upside.

In other words, you never want to buy a property based on the value of what the rents "should be" if they were raised.  You never want to buy a property where the future value-add is already priced into the asking price, but YOU have to do the value-add yourself.  I'm seeing a lot of that these days, where sellers are saying, "this is what the value is if YOU do the work, so I am pricing it that way."  And, amazingly to me anyway, lots of buyers are going for it because they are in a feeding frenzy.

You only want to buy on the price implied by the current rents.

On top of that, when you are in a market like NYC, with rent control, then chances are you cannot raise the rents, or you need to do something underhanded to get the tenants out.  A lot of people are doing this.  It's unethical, illegal, and can get you in serious trouble.

@Jose Falconett  You have to deal with it one way or another - either part of the purchase price will be put into escrow for the payment of these items or you are absorbing it.  But either way, the solution needs to be written into the PSA.

Never leave anything to "commonly known"!

@Mida T.  You're leaving out a lot of other expenses:

Property taxes

Heat

Water

Insurance

Maintenance

Labor costs

Capital improvements

Tax & accounting/administrative

Vacancy allowance

@Mida T. There is a very good chance that the property is subject to rent control if the rents are that low.  That means that, to raise rents, a landlord is probably going to have to do some pretty scummy and probably borderline or outright illegal to get the tenants out, gut renovate, and bring the rents up to market rate.  Not a deal at all.

@Mary Stead  If you owned property that did not have too much debt on it and you were able to continue to make your debt payments with the cash flow, then nothing happened to you except . . .

If you purchased in a marginal market at an inflated price, you lost a great deal of your equity or even might have been underwater.  You were either looking at a situation in which you might never recover your equity or it might take decades.  There are markets in which the prices have still not returned to the pre-crash highs, so if you bought at the high, you are still in the red on your property.

This highlights why it is essential to invest for cash flow and not appreciation.  If you invest for cash flow, and you buy with enough margin of safety, then you can ride out whatever comes.  You may lose equity, but you can afford to hold onto the property until the markets rise again and fix the problem for you.

On the other hand, if you invest only for appreciation (i.e., you are breaking even or losing money month-to-month, and you are willing to do this because you think one day you will sell the property for a lot of money), then when property values crash you are looking at paying out of pocket for a property on which you may be in the red for years, if not forever. If something happens to you, and you cannot cover the debt service, then you are looking at foreclosure.

You don't want to be making payments on the mortgage.  You want your tenants to be making payments on the mortgage (and insurance, and taxes, and landscaping, and all the other expenses of owning property).  If the rents are not covering all these expenses, and providing you with a profit after a reasonable vacancy expense deduction, don't do the deal!