All Forum Posts by: Leonard Brown

Hi, BP community. I may be off premise a tad but this is from my perspective as a new investor myself and the working relationships I have with other investors and the common pitfalls.

When entering new markets you may be reluctant to hire people for your real estate operations but if you’re thinking of and/or are investing outside of your own backyard, relationships are necessary. Without the proper infrastructure, it won’t be long before you find yourself overextended in out of state markets, especially if you’re investing at scale.

It’s not enough to just have a deal when aiming for success in long distance investing. The reason being, the risk associated with buying an investment property are less mitigated if your only plan is the plan to make decisions on the fly. Think in terms of rehab and holding costs, vacancies, litigation, and the hair on your head.

Whether a newbie or seasoned investor, this is why putting a team together is necessary when investing out of state. I’m not saying that you have to be Mr. Monopoly, but you do have to decide if you want to grow and scale, just grow, or be a landlord. If it’s either of the last two, you’ll probably be able to make do with the occasional Craigslist hire. That team should consist of three roles: an agent, a general contractor, and a property management company.

Having a real estate agent that has a firm grasp of the local market, can source deals, understands the trends goes a long way.

A general contractor that can give you an idea of repair costs before locking up a deal, can handle your investing volume, and manage contractors (so that you don’t have to) is imperative.

The property manager handles vacancies, evictions, maintenance and repairs, etc.

Now this isn’t exhaustive of the roles and responsibilities but the point still remains. If you’re planning to invest in other markets, the needs to be structure. Having these people in place not only makes the investing process manageable and gives you the ability to replicate it if desired, you also have the ability to leverage their networks to accomplish your goals. If you don’t know where to start, your biggest ally in all of this is referrals.

Who do you have on your team?

@Isaac Gwin there are several ways to acquire properties that regardless of the market make it possible. You have to run your numbers and decide what works for you. Rent rates don’t necessarily reflect housing prices, so in a down market, you could still cash flow. If you’re really risk adverse, partner on a deal, build up your cash reserves, don’t over leverage, and/or house hack.

Also, keep in mind not everyone has the same time, care, resources or know-how which means there is always a discounted property out there to be purchased. But a good opportunity won’t just fall in your lap (or maybe it will).

If you want to be proactive, you can have a quarterly service done for your rental properties. A good service agreement covers multiple pests including baiting and trapping for rodents. If there isn’t any evidence of termite, great! Have each property inspected annually by a pest control company anyway, typically this is done at no cost. For the record, most termite damage is unseen. There are preventative measure that can be taken as well but at the very least, get the annual inspections. 

@Brian Tetitla if you find the right deal, your 40-50K gives you enough leverage for a lender. In order to get it rent-ready, I’m finding most of the properties I do need new windows & doors, kitchen, baths, flooring, and curb appeal to try and maximize the value. It all depends on the investor. If you want market value rents, you’ll likely need a bigger budget but you have a good starting capital.

@Emmanuel Ivory Hi Emmanuel, I agree with @Chris Pasternak. From the details you’ve provided, it appears the seller is trying to offload a problem property. Take it from me, if a pest inspection yields a $10k remediation, there is almost always a larger issue at hand. Think roof, plumbing, foundation, and grading.

I just did an inspection for one of my clients who was in the market for another investment property. The seller intentionally attempted to cover up the extent of the termite damage to sell the home rather than solve the problem. Termites had eaten through the floor joist AND subflooring. This seller didn’t request inspections to be waived but did nail up plywood to cover the damage to the subfloor.

Short story even shorter, be cautious.

@Charissa Bruckman I’m glad it worked out in your favor. I’ve had instances where the seller intentionally tried to cover up the termite damage and refused to pay for it as well.

IMO if you’re planning to do full a rehab (and the seller covers the cost of treatment), it really doesn’t matter unless the damages sustained are structural. Finding termites makes the deal sweeter.

Hi BP, I’ve gotten several calls from clients on this topic over the past few months and thought I’d touch on it here. Here’s a Thursday tidbit for the community.

When it comes to termites and investment properties, does it make for a good deal, bad deal, or no deal at all?

Whether or not you purchase an investment property with existing termite damage and/or active termites all depends on your investment strategy. Termites can cause a substantial amount of damage but they aren’t difficult to remediate. What’s important is evaluating if the damage is structural, and if the termites are an indication of an even bigger issue.

Subterranean Termites live underground and often go undetected for extended periods of time. I recently inspected a home where the owner had been experiencing a small roof leak for quite some time. Over time this leak lead to mold in the drywall and wood rot in the studs, which created a conducive condition for termites to make an appearance. This is more common than most people would think. Some of the tells are sagging or bouncing floors, bubbling paint, the smell of mold or mildew, pinholes in the drywall, and the most obvious is mud tubes. Some not so obvious causes for termite that should signal taking a closer look for termites is any wood to ground contact (pressure treated lumber is not safe from the threat of termites if installed directly in the ground), foliage, siding less than 6 inches from grade,

high dirt, and subtle wood piles up against the house.

The point is, if you’re considering purchasing a home with active termite damage, you are in a position of power. Finding activity or damage during your due diligence period can assist with negotiate the price down or get a seller concession. Again, it all depends on your investment strategy and the extent of the damage. And detecting their presence is less surprising when you have an idea of what to look out for.

Pro tip: Termite inspections from a pest control company are typically free (and you’ll have an idea of what treatment will cost).

How have you handled termites/termite damage when buying properties? Is this a deal breaker?

@Johnny McDonald Hi Johnny, I’m in the market for my first MF deal as well. Much like what @Nathan Milholin has said, these neighborhoods tend to be pricer as that’s where investments have gone over the past few years. I’m currently working on a property in Strawberry Mansion where a basic cosmetic rehab isn’t nearly enough to achieve even the 1% rule. If I were you, I wouldn’t over look Mantua. There is upside there and a couple predestined exit strategies based on the location.

All of these neighborhoods are in high demand because of the direction Philly is heading so as long as your numbers work, go for it.

@Kim Meredith Hampton I never thought to try social media. The information from the previous owner has the most problematic unit as vacant. My partner actually just gave me an update about it and apparently the occupant believes we are falsely claiming ownership. He gave her 3 options: sign a new lease, cash 4 keys, or formal eviction.

Hey BP community. I’m new to the investor side of things and have run into a dilemma.

My partner and I just picked up several occupied rental properties in Philadelphia last month. When I completed the initial walkthroughs all but one unit was occupied. Now that everything has changed hands, three of the occupied units do not have lease agreements. I have posted multiple 24hr notices and made attempts to connect with the tenants in-person to no avail.

What are my options? How have you handled your acquisitions with inherited tenants?