All Forum Posts by: John Mireles

When it comes to marketing with zero budget, you absolutely can't beat Facebook, Twitter and a regularly updated blog. The flip side is that though it doesn't cost you any money, you do have to invest time into it and it does take time for you to build your social network. Once you do though it becomes a pretty tough train to stop.

Just go to a mortgage broker. No experience necessary. Just 20% down, decent credit and steady income is all that you'll need.

Originally posted by J Scott:

Here's my most recent experience:

We had a property listed for another investor a few months ago. Listed at $115K. In the first weekend, we received 8 offers at or above list price (yeah, we probably listed it too low :).

Investor accepted an FHA offer at $126K. Appraisal came in at $92K.

That almost mirrors my most recent experience. The appraiser was picked from a pool and we had no knowledge as to who he/she was nor when he/she would be doing the appraisal. The contract price was $435k with multiple offers.

The appraisal came in at $392k! The seller, Fannie Mae, came down to $400,000 and I had to come with an extra $8,000. What I'm hearing from my agent is that appraisers are very conservative these days. Also, the appraisers may come from out of the area so they really have no clue as to what the local market is doing other than by looking at the computer.

Someone mentioned earlier that owner buyers will pay more for properties. In my neighborhood, it's the investors who will pay more. Maybe $20,000/$30,000 more. They're mostly buy and hold types who feel (like I do) that this area is gonna take off in a few years.

My solution is that I have them sign the lease, pay the deposit and pay for the first month up front. Forget deposits or holding fees. Just sign 'em up and get their money. You get the security of knowing that your unit is rented and they have the peace of mind knowing that they don't have to look for a place at the last minute. Everyone wins.

I own both commercial properties and residential. In fact, I have both in one building - a mixed use property with retail on the ground floor and residential above. I can tell you this: I don't worry so much about the residential units going vacant. However, I lose sleep at night thinking about losing my commercial tenants.

The deal with residential is that people need to live somewhere. They may not be willing to pay what I'd like, but everyone needs a home. Residential may be more work than commercial - fixing toilets and whatnot - but there will always be a tenant.

When it comes to commercial, if things get slow, the first thing business owners do is shed their expenses. Instead of working out of an office, working at home will do. Renters don't need commercial space so when the economy heads south, uh oh, better hope that your tenants don't start dropping out because once they go, it may be a long, long time until you get a replacement.

This may not be such a big problem if you bought when the market was low or if you have prime location, but if you bought near the peak, there's not a lot of room for vacancies until you're pretty far underwater.

By the way, I nearly invested in an office condo project. One of the best decisions of my career was not getting involved. Once the economy started to head south, they couldn't give those things away. I'd make darn sure there was sufficient demand for office condos before I'd touch that market.

One more thing to add: It's really important to create and maintain a good relationship with a good bank. Once you develop a track record of paying on time over time, the bank is going to factor that it in when it comes time for a loan. Some banks are more conservative than others so talk to a few and see who's the most willing to work with you. No point in sticking with a bank that sets the bar way too high.

What kind of property are we talking about? A commercial property, i.e. one with more than four units?

When it comes to commercial loans, banks look heavily at the actual income. They want to see the net operating income exceed 120% of the rents. So if your mortgage payment is $1,000, you need to net (not gross) $1,200 per month. If you can't meet that threshold, plan on bringing in more cash to the deal.

Also, banks won't necessarily use your actual expenses. They'll throw in all kids of percentages that they make up for repairs, vacancies, property management (even if you manage it yourself) etc. Basically, they look at the worse case scenario and then make their decision accordingly.

The banks will look at comps but the comps are not as much a factor as the net income. FInally, most banks will loan only up to 75% to 80% of the value of the property. Consider anything more than that is out of the question.

John

Farmers is a great company and easy to work with if you have a loss. (I have several policies with them and am actually working through a couple of losses - been an unlucky couple of months.) Since you're in the SD area, I'd also suggest checking out BH Gold Insurance. They're a brokerage firm here in town and they work with a lot of different companies offering commercial policies. I have a building policy with them that no one else was willing to write. Try Farmers and try them to see who has the better rates and coverage.

As a landlord who also happens to be a professional photographer, I thought I'd share some tips for taking photos that really helps your property to shine. Most of the photos I see on Craigslist are poorly done at best. The good news is that it doesn't take too much to make your photos - and your property - stand out from the crowd.

- The first point I'll make is that if you're not including photos, you'd better have a darn good reason. We're a visually driven culture who wants things now. You're losing so many potential renters who won't even consider a property without a photo. The bigger the applicant pool, the more chances of getting the tenant you want at the rate you want.

- Next up, most photos come out too dark. There's usually a couple reasons for this and both have to do with how cameras set the exposure. Without going into the technical details, if you point your camera at a white subject (as most rental rooms are), it will underexpose the shot because it thinks the walls should look dark gray. The other reason photos look dark is because there's a window in the background with a lot more light than the interior room. The camera is then tricked into exposing for the outside - thus making your interior look dark. Here's a couple of examples:

In the shot above, the camera exposed for the background sky thus making this room that's actually probably pretty bright into a dark cave - which most renters don't like.

Here the white surfaces of the bathroom fooled the camera into underexposure. One easy cure for this is to take the photo into a photo editing program and lighten it up. For this image, I used iPhoto. Took about 20 seconds to lighten it up and export it out again. Looks more like a bathroom I'd want to shower in now!

If you're shooting photos with your iPhone, an easy trick is to touch the part of the photo that you want to be properly exposed and the camera will make the adjustment. It's not a perfect solution but it does come in handy.

- Next up, avoid using your flash if at all possible. The hard light is not flattering and it tends to leave a black hole wherever it doesn't reach. Here's a couple of photos that just sort of kill the subject:

Better to stick with available light as it tends to be more rich and natural looking. Here's a shot from a unit of mine in what's actually a fairly dark kitchen using light from just the windows.

- Use the widest lens you can get your hands on. The best way to make a small room look big is with an ultrawide angle lens. Using a wide angle, I can make this cramped bathroom look workable:

- Crop out the junk. Don't feel you need to show everything. Showing the sign out in front is not going to help sell the property.

For this shot of my little cottage, I got in nice and tight to crop out all of the landscaping that has yet to be completed.

I'll finish up with a couple of other pointers. Be sure to hold your camera steady. Houses are often dark places for the camera which means slower shutter speeds. Relax and don't rush when you're snapping the photo. If you're not uploading the original photo, be sure to resize your images to at least 1,000 by 1,000 pixels. I hate looking at small 200 pixel images since I can't tell what the heck I'm looking at. Use the full resolution that Craigslist has to offer.

That's all for now. Feel free to add more.

John

It's always tough to say which direction you should go in situations like these. It could be that you go for it and everything works out. Or not.

The number one thing that kills businesses - and what you're doing is going into business - is undercapitalization. You need enough money to cover you when the inevitable happens. When the place goes vacant for a few months, you need a new roof (usually right away and at the worse time) or if a tenant stops paying rent and you need to evict them, you're looking at a fair amount of money out of pocket.

You need to have enough cash on hand otherwise these annoyances will become major financial disasters. I've had to replace a leaky roof in the middle of winter when the tenant started complaining about water leaking - $12,000. Then I had a tenant who destroyed my hardwood floors. Replaced them for $7,000. Then I had to redo a good chunk of the brand new floors again for $3,000 to $4,000 when I realized that the dog piss smell that they left wasn't going away. Had to do it otherwise I couldn't rent the place.

The other thing that I'd caution you about is that you don't tie yourself down too much. You're still young and a lot could/should happen in your life. What if you need to move for a job? Will you be able to manage the property from afar or sell it easily if need be? Now if you feel settled and have no desire nor foreseeable need to move anywhere, then it may make sense to go for it.

Then there's the numbers for the property. Purchase price, projected rents, rehab costs etc that will either make for a good deal or bad. There's some real pros here on that topic so I'll leave that for others to jump in on. My final advice would be to read some books on the subject of being a landlord and real estate investing. A little education goes a long way. In any event, good luck!