All Forum Posts by: Michael Hayworth

I was an entrepreneur long before I started investing in real estate. My wife said the right things about being supportive, but ultimately, really wanted me to have the "security" of a good-paying job. She was always concerned that we were one wrong move away from losing it all, whereas my attitude was, "Hey, if I lose it all, I'll make more."

So.....now I'm single. Problem solved!

How many properties have you purchased? What's your track record, and what's the incentive for a GC to come out on a house you haven't even made an offer on?

I don't know your market, but in most areas of the country, good GCs are very, very busy. My company actually stopped doing work for investors (other than my own houses, of course) because margins are lower and we used to field calls from dozens of newer investors who wanted us to come look at houses that they didn't even have under contract. Many investors are not very respectful of a good GC's time, so they end up stuck with weaker GCs who are desperate for business.

When I did do investor work, we'd come out if you had the house under contract and were in your option period, but we wouldn't go out in a pre-offer visit. There's no guarantee you'll even make an offer or if you did, that it would be accepted. My time is too limited and too valuable to do a bunch of visits on houses you don't even have under

Even when they did have it under contract, I often had to spend time educating a newer investor that the wholesaler he bought the house from was, hmmm, overly generous with his ARV estimate and overly stingy with his renovation cost estimate. It's really frickin' depressing to go to multiple houses with multiple investors who think they're going to clear $50,000 on a flip, only to have to tell them that, no, we can't cram $60K of reno into a $35K budget (and, BTW, those comps "within a mile" are for a neighborhood across a major intersection with very different characteristics, so your ARV is probably $20K lower than you thought).

Of course, all this is different if we'd done a house or two together and I know you're credible and not wasting my time. If you're new and haven't bought any houses yet, best thing you can do is get recommendations from other investors for a good GC, or meet one at REI meetings, and let him know you need some help, but that you're credible and do plan to buy homes that will need renovating.

Good luck!

"Cash buyer"....yeah, right.

With all the business I send my favorite title company, it kinda pissed me off when I rolled up on my Indian with $150K in unmarked bills in the saddlebags and they said could only take cashier's checks or wire transfer.

Trustee auctions are not for beginners.

First, odds are that the house you have your eye on will get pulled before the auction. I buy in Tarrant County regularly. Usually, there are 300 or more homes on the list pre-auction, and less than half actually end up getting auctioned. If you're looking in Parker County where you're located, the numbers are much smaller, but the ratio holds true.

Second, you can't get inside the house pre-auction. As @Andrew Johnson said, there's an educated guess component to it. I've probably bought 15-20 houses at auction. Sometimes, they come with nasty surprises. And people get auction fever and overbid, so you'll regularly see houses going for 80% of ARV, sight unseen. It's hard to buy stuff at auction for 50-60% of ARV anymore, so if you're going focused on one house, you'll be tempted to overpay. Maybe you luck out, or maybe it has a slab leak and you're ****ed.

Third, as @Christopher Phillips said, you gotta have cash. And in Texas, there's actually no "hour or two to come back with cashier's checks." You gotta have the money right then. If you bid and are even a dollar short, the trustees will look real disgusted with you and put it back on the list to be run through again.

Fourth, if the house is a good one, there's a strong chance that the lender's reserve bid will be pretty high, because they believe they can make more money selling it as an REO. Roddy Foreclosure List service publishes a convenient list for all DFW area counties where you can get appraised tax value, estimated loan balance, original loan balance, estimated equity, and other key stats. Once you've done it for awhile, it becomes easy to recognize houses that are going to sell to the lender unless you're willing to pay full ARV sight unseen. Sorry to say that typically, these are the houses that look best to new investors.

Fifth, there's the issue of liens and judgments on the house. A title search is the easiest way to find out about those, but it's expensive to do it for lots of properties. Tarrant County keeps all their records online, so I do it myself, but it takes some learning how to do it. Depends on the county you're looking at whether you can do that or not. You also have to understand which liens survive foreclosure, which don't, and which "sorta don't" (IRS liens).

There's a real art to buying at trustee auctions. It's one of the few places you can get real deals in DFW anymore, but even there, if I go with 15 houses on my list, 7-8 will get pulled, 5-6 will go way too high, and I might actually bid on between 1 and 3, maybe take 1 or 2 home with me. I strongly recommend going and just watching for the first couple of months.

Good luck!

Lower taxes overall would eliminate the need for 1031s. And anything that requires a "qualified intermediary" should be eliminated from the tax code. That's typical government over-complicated ********.

Yes, Ms. Tenant, your toilet works again. But remember that clause in the lease about how the tenant is responsible for foreign object blockage in the plumbing system?

 Well, I live and invest in a much different area than you (at least, if you're investing in your home area). I worked in New York for most of a year, so I know the area pretty well, but not like a native. 

Hardening the rentals is generally trying to make them unattractive to crime, and also use very durable materials inside for tenants who I know won't take care of them. Mostly I install motion lights, door armor on all doors, cut down landscaping that would tent to conceal a burglar from neighbors' view. The door armor is the biggest thing - between labor and materials it costs me about $150/door, but the most common burglery/robbery access in these neighborhoods is to simply kick the door in, and this prevents that.

In general, neighbors who take care of their own homes are really glad to see a property renovated and taken care of, rather than have it taken over by someone who's going to let it go to ****. The one exception is the house I own in a historic district in Fort Worth, which is the "bluest" political zone in the city. It's filled with liberal young professionals and has already gone about 80% of the way to gentrification - the average house there now costs around $300, vs. maybe $150 average in the rest of the city. They're still gentrifying, but you can't go two days without some long discussion on the neighborhood FB page about how they feel guilty about it. In their minds, they're displacing Maria, a single mom who supports herself making artisanal tamales. In reality, they're more likely displacing Carlos, who broke into their neighbor's house last week and has a back room full of stolen TVs.

Gentrification isn't an issue, it's a force of human nature. It seems to be one of the latest causes among the social justice warrior set, who are having to focus on increasingly esoteric issues because most of the real social injustices have been dealt with, but it's hard to be an SJW if you can't be aggrieved about something.

Every group that buys in changes the community. Those people who have a community there now - they displaced someone else. The people who are displacing them will eventually be displaced themselves.

My grandad bought a house on Marco Island, FL when there were maybe 2-3000 people there. He bitched incessantly ever afterward about all the people who came after. Well, gee, you buy in an attractive area, that's what happens!

Right now, I actively try to buy in particular neighborhoods where I think I'm going to have a chance to see significant appreciation over a 5-10 year period. What that means in reality is that I get high crime right now, have to harden my rentals as much as possible, have to screen my tenants well, and so on. Why would I buy in these crappy areas if there wasn't a chance of gain later? But when those areas gentrify, people will complain that they've lost the "local culture". Really? The local culture is mainly gunfire and English a a second language, if at all.

Now, I do think it's evil for large developers to use their power to buy politicians to gain property thru eminent domain - that's supposed to be for public good, not for a developer's pocket. But I don't see a damn thing wrong with watching trends, identifying neighborhoods the hipters are starting to move to (which means the neighborhoods suck right now, but will eventually end up overrun with yuppies), and buying there to achieve a long-term gain. That's just how the world works, and trying to stop neighborhoods from gentrifying is as silly as trying to stop the tide from coming in.

"Portfolio" loans are just loans kept by a bank, rather than sold on the secondary market. Usually, it'll be from a small, local bank or chain of banks.

30% seems high. I have one bank that will do them at 20%, the other at 25%. One big advantage is that they will wrap in construction costs. So if I buy a $100K property that needs $40K worth of work, they'll finance 75% of the total cost, rather than just purchase price.

The ones I've worked with do 15-20 year amortization with a 5-year rate adjustment, but amount of adjustment is capped, so it's not gonna go from 5% to 10% when you hit the 5 year gap.

I rarely keep a property more than 5 years anyway. With appreciation in the market, I'll take my gains after a few years and turn that 1 property into 2, so the rate adjustment hasn't really been an issue. If you're all about LT buy & hold, that may be a different story.

When you say you're "trying to get them to pay the rent on time," that tells me you're investing too much in these guys. I set expectations properly - OK, the old landlord did it this way, but I don't work like that. Set the expectation that they pay rent on time, or as soon as it's late, hand 'em a notice to vacate.

When you inherit tenants, you're bound by the terms of the lease. If it's a M2M lease, then you have more flexibility, of course. Do they have time left on their lease? If so, you have to fix safety issues, or whatever issues are called for by the terms of the lease. I'm not sure why you'd be worrying about ceiling texture for tenants who sound less than great. That's usually not something a landlord is required by the lease to fix. (I'd do it for a great tenant, but not for a new or challenging one.)

You should've received their security deposit from the previous owner at closing. Did you? So your recourse on the paint is to remove it from their security deposit when they vacate.

You don't really want to be a hardass, but you do want to set expectations clearly and not let yourself be taken advantage of. Oftentimes, when a previous landlord has been lax, the tenants have been 'trained' poorly. If they don't get it when you reset their expectations, you just need to ride it out until their lease is up, then decline to renew.

Good luck!