All Forum Posts by: Michael Smythe

Sounds like you bought a Class A property.

These RARELY cashflow for the first 3-5 years. Just like most property purchases in California, you speculate that you'll make your ROI based upon appreciation, not cashflow.

If you want immediate cashflow, you should have either bought a Class B or C property, or made a 100+ offers at prices that generated your cashflow target, to find the one owner motivated enough to accept.

good stuff

Check out RPOA investor group in your area.

Use search feature to find & connect with other local investors:)

Taskrabbit

Where's @James Wise?

If you buy with FHA financing you only need 3.5% down for a duplex, a bit more for 3-4 units.

So, your $50k puts your purchase price pretty high!

The challenge will be finding a property that will cashflow.

Beginning investors need to STOP believing all the fluff about rental investing, especially with the overheated real estate market trending to historic norms. Many believe unrealistic assumptions and often apply those assumptions to the wrong property classes.

In our OPINION (always verify your area for yourself!):

Class A Properties:
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% the more recent norm.
Tenants: Majority will have FICO scores of 680+.

Class B Properties:
Cashflow vs Appreciation: Typically, decent amount of relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% should be applied only if proper research done to support.
Tenants: Majority will have FICO scores of 620+, some blemishes, but should have no evictions in last 5 years

Class C Properties:
Cashflow vs Appreciation: Typically, high cashflow and at the lower end of relative rent & value appreciation. Can try to reposition to Class B, but neighborhood may impede these efforts.
Vacancy Est: Historically 10%, but 15-20% should often be used to also cover nonpayment & evictions.
Tenants: majority will have FICO scores of 560-600, many blemishes, but should have no evictions in last 2 years. Verifying previous 2-years of rental history very important!

Class D Properties:
Cashflow vs Appreciation: Typically, all cashflow with zero or negative relative rent & value appreciation
Vacancy Est: 20%+ should be used to cover nonpayment, evictions & damages.
Tenants: majority will have FICO scores under 560, little to no good tradelines, lots of collections & chargeoffs, recent evictions.

Make sure you understand the Class of properties you are looking at and the corresponding results to expect.

This is too much work for most newbies!

They've become spoiled by the 12+ year bull market in real estate where they could buy just about anything and have it perform and increase in value.

Find a real estate attorney that specializes in creating LLC's!

You'll screw it up if you try to do it yourselves:(

Most of an Operating Agreement is a template, but you will need to customize to your unique situation. 

The challenge will be to find an attorney that will basically admit this - and won't try to overcharge you.

I remember getting a quote from an attorney, 20 years ago for $1500. Then I found my current attorney who only charged me $500 for the initial LLC, and now only charges me $200.

Find rental owners with poor performing properties and you'll eventually find one that bought their rental(s) with unrealistic expectations.

Many of these investors just really wanted a stream of cashflow and didn't want to deal with tenants, missed rent payments and clogged toilets.

Some of these investors will be open to offers with seller-financing. They get their cashflow stream without the headaches of being a landlord.

Of course, you'll have to put some effort into finding these sellers - which most investors won't have the plan or patience for.