All Forum Posts by: Michael Hayworth

I had a mentor help me with some basics. Didn't even help with my first deal much, more just general education while I was thinking about what to do. And an introduction to a lender at the bank - that was immensely valuable.

I'm a GC, and I get calls all the time from newbie investors who have spent $5K, $10K or more on a guru seminar, class, or whatever. Usually, they have thoroughly unrealistic expectations of what deals look like in the real world.

All that to say, get some advice from a mentor and just do it. There's no substitute for that.

If you don't even have a house of your own now (which is what I get from your post), don't do a "deal." Buy yourself a house, at owner-occupant financing rates. Live there for a year or two, then turn it into a rental while you buy your next house. Build up savings you can afford to lose before you do a deal.

Not sure I agree that cap rate is unimportant for residential. If you're trying to figure out where to put your money, a common denominator is pretty useful.

I own quite a few residential properties, and have been eyeing multifamily or commercial. A close friend who's a commercial agent has loads of properties she thinks would be perfect for me, so I went to look at a few.

Then I took my residential properties and calculated cap rate the same way I would if I invested in commercial, and found my median residential properties were generating about a 9% cap rate and my higher-performing ones 10.5-11%. That gave me a useful comparison. It's rather hard to find decent commercial properties around here paying more than an 8-9% cap rate, so it seems like my money is better spent continuing with SFR.

You could easily use something else as a comparison, as long as it was a common denominator, but the important thing is that you have some reasonable way of determining where your best investments lie.

@Todd Shampoe, I'm an experienced investor, and also a remodeler. I used to do about 20-30% of my remodel work for other investors, but over the last year, I've moved away from doing investor jobs. 

The reality was, I'd get all these first-time investors who had been through some guru or mentor course, bought themselves a house to flip, tried to apply the "wisdom" they paid thousands for, and got pissed/depressed/suicidal when I had to tell them they had received ******** advice. They had always spent too much money on the house, underestimated reno costs, overestimated ARV, assumed best-case scenario on all timelines, etc. etc.

My last investor reno I did was for a couple spent all their savings on a home in what's basically a retirement community south of DFW. I reviewed it during their option period and told them ARV was $215K and it wouldn't sell quickly because it's a retirement community. Their mentor insisted it was $265K and would move quickly. Throughout the process, I encouraged them to NOT spend money on things that wouldn't make a big difference in selling the place. Their mentor encouraged them otherwise. They spent way too much. The end result was beautiful, but they're basically at break-even if they don't sell it for $265....well, it's now 82DOM without an offer at $265. Eventually, they'll get out of it for about the $215 I told 'em it was worth, lose $50K or so by the time they pay carrying costs for all this time, and they probably will feel burned and never invest in real estate again. Unfortunately, I've had that scenario repeatedly with people who have gone through some guru program.

Most first-time investors want to start with either a rental or a flip. Those are both pretty straightforward scenarios, and all the "mentoring" you need can be found right here on this website, or with a local investor who's already successful at it.

I am no expert in the Houston market, but my impression is that it's very similar to DFW....it's a hot real estate market right now, and that makes it very hard to find good deals. It's a little easier to find appropriate rentals than flips, but even finding rentals that cash-flow well isn't all that easy. I'd really encourage you to start small....a low-end rental, or mid-price flip where you don't have any financial exposure you can't afford to lose. No matter what a mentor tells you, there's no substitute for doing one and learning. But don't overspend on your first one. Be as frugal as you can while you learn. That way, you'll make it to property 2, 3 and beyond.

@Dean Klein, there are several comments on here encouraging you to be cautious, because it sounds too good to be true. And that's really good advice.

On the other hand, it's $40K. Until you actually get into owning a property like that, you don't know what you don't know. Learning experiences don't come much cheaper than that.

Don't let caution make you talk yourself out of an opportunity.

I'm in Texas. It gets a little hot here.

The standard Texas Association of Realtors lease has a line in it that says, "Ordinarily, a repair to the heating and air conditioning system is not an emergency."

If your lease doesn't have that, I'd recommend adding it.

@Account Closed mentions as his experience - once a property makes the above list, only 10-15% of them fall out before auction.

You are not likely to get a callback of any sort from any of the trustees. (Perhaps that changes when you've bought several properties from them, but I tried it when I was new at this, and 0 responses.) Frankly, the two largest individual trustees don't really seem to be out to sell the properties - they're just following the steps so the bank can take possession. (One of them won't even call the houses by street address - he will only call out lot descriptions.)

I tend to focus on the houses being repped by Auction.com, for several reasons:

• They actually seem to want to sell the houses. My guesstimate would be that 2/3 of their properties go to a buyer, rather than the bank bid winning. (I suspect that the banks list ones they want to sell with Auction.com, and send the stuff they want to keep to the other trustees, but I don't know that for sure.)
• Properties are online well in advance, and I don't actually need a Foreclosure Listing subcription to get the facts on their things.
• Auction.com does a title search for you and posts it online, so one of the biggest obstacles to knowing whether to bid - does this house have additional liens or judgements against it? can I get clear title? - is already handled.

Of course, that means that their auction has more people at it than all the other trustees put together, so it's pretty competitive.

(NOTE: I don't have any relationship with Auction.com, and in fact have found them a complete pain in the *** when I have won their actual online auctions; but at the courthouse steps, they're a very smooth operation.)

Homesearch.com seems to be getting into the trustee auction game as well, and they seem to have a pretty similar setup to Auction.com, but I've never bought anything through them.

I've run into issues like this before with appraisers who see things "differently" from anyone else. The problem is, Federal regulations prevent backs from picking any one particular appraiser. They have to put each appraisal out to a pool of licensed appraisers and select the best bid on it. So when you say you want a lender who can ensure you get an appraiser who will see it the same way as your 2006 appraiser....unfortunately, the lender can't do that.

Thanks for the input guys. Been motorcycling from Fort Worth to Toronto. Left Muncie this morning, just arrived in Toronto. (Trying out AirBnB - staying in a host's home for the first time.) When my brain has recovered a little, I'll review these answers in more detail.

Looking for a portfolio lender that covers the Indianapolis and Muncie areas. I have identified two properties I plan to buy in Muncie. I've got two great lenders back in Texas, but they don't lend out-of-state. Need to find someone local to these properties. Any recommendations?

@Mike York @Armond Wrightthanks for the replies.

Prices seem pretty low in Muncie. I'm seeing good-condition stuff with 2000+ sf for $85K in the north part, which she tells me is the better part. There seems to be some stuff lower if it needs a little work. If we were looking at MLS houses, I'd probably look at something like this:

http://www.realtor.com/realestateandhomes-detail/4...

Of course, you can't tell from the listing why it's priced lower than surrounding stuff.

She's a teacher in the Muncie school district, so would like to stay in Muncie in a part that's not scary for her young kids. I'm actually motorcycling from Fort Worth to Toronto right now, and am going to stop in Muncie this evening, maybe see what I can see while I'm there. I assuming with short notice that's going to be MLS properties, but open to anything, so if y'all know of something, please holler.