All Forum Posts by: Mitch Messer

@Account Closed On average, auctions probably carry the potential for bigger profits; They can also put you on the fast road to financial ruin if you make even one minor error in judgment!

Not to get all folksy, but if you're just learning to swim, it's better to spend ample time in the shallows perfecting your strokes before diving into the shark-infested sea.

@Account Closed Yes, REOs would be a much safer place to start. As @Jim Viens points out, the courthouse auctions are a high-stakes environment best reserved for the experienced investor.

Hi Gary,

That first category you mentioned are properties that have already gone to the foreclosure auction. No one bid on them, so ownership went to the bank. These are therefore called REO properties, for "real estate owned" (by the bank). The bank lists them with an agent who calls you to see if you want to make an offer.

The second category are, as you said, bank foreclosed properties being sold at auction to the highest bidder.

@Ian Sanderson I do agree with all the advice presented here: Lean toward local investing unless the conditions are truly untenable.

Fortunately, I think you've got plenty of local options. While NYC is notoriously expensive, there are tons of opportunities to be found among those NJ cities along the GSP and Turnpike. I'm thinking of places like Union, Irvington, Plainfield, Woodbridge, etc. Nothing hardcore scary like Newark, but also not "New York pricey" like Hoboken or Jersey City.

If nothing else, I'd fully explore all of these spots before taking the leap abroad!

Good luck! Let us know what you discover!

Hi Trent,

A property manager will typically perform the following services:

• Market the home to attract a tenant
• Qualify and screen prospective tenants
• Manage the lease signing and collection of initial rent and security deposit
• Collect monthly rents
• Handle tenant requests for repairs
• Handle general tenant problems, including late payment and non-payment of rent

Fees will vary, but plan for 8-10% of monthly rent as a rule of thumb. There will probably be setup fees and lease renewal fees as well.

Once you plug these numbers into your projected budget, you'll be able to determine if your investment property is likely to be profitable. 

Hi Jared,

While there's no true "typical" option fee, a reasonable rule of thumb is 2-3% of the purchase price, so maybe $10-12K is fair.

Think of the option fee as your main defense against things going horribly wrong (eviction, tenant damages, etc.) Try to get enough to adequately protect yourself and cover your costs if you have to, say, engage an attorney to file an eviction.

Regarding the option price, keep in mind that just because they plan to stay 2 years doesn't mean you have to give them a 2-year option. You might give them a 12-month option with a provision for another 12-month option after that. That gives you the opportunity to adjust the option price for that second year if the market surges higher than you expected.

Yes, you should have an attorney review your docs, but I would not ask them to draft them from scratch: They'll charge you an appendage or two! Instead, get Lease and Option Agreements (please, two separate agreements!) from your local REIA and then have your RE lawyer amend them to your specs.

Hi Michael,

We have both out-of-state and out-of-country investor clients, all of whom are long-term buy-and-holders.

Yes, it can be done, but it should be seen as a tactic, rather than a strategy. I believe the only smart reason to invest outside your area is financial. That's why right now there are hordes of Brits, Aussies, Israelis, and Canucks swarming over Atlanta; They can't get returns like this in their local markets!

If that's your situation, then I strongly recommend you begin by assembling your local team now. You should be looking for the local "rockstars" in the following areas:

• Property Investment Advisor (or Wholesaler)
• Property Management
• Closing Attorney
• Real Estate Accountant
• Corporate Attorney

Your success will hinge on the strength of your local team, so I recommend getting lots of referrals and then talking to everyone you can about your goals, concerns, timeline, etc.

Lastly (and here comes the shameless plug...), if Metro Atlanta is one of the areas you are considering, let's definitely talk!

Hi Justin,

Consider including an abandonment clause. Here's why: Say your tenant misses a rent payment and then doesn't return calls. You think they've skipped, but you're not sure. You could begin the eviction process, but that would involve legal fees and lost time.

Instead, what if you could just call up their electric (or water or gas) company and confirm they've cancelled service? If they have, then under this clause you could declare the property abandoned and then reclaim it without filing the eviction or further delay.

Clearly, you'll want to get your attorney's blessing on the language, and I'm certainly not offering legal advice. That said, here's what we use: 

Hey Craig, we should talk! Click my face over there on the left to get to my profile and go to the Contact section to find my number. Then, give me a call!

Hi Rebecca,

I'd recommend setting up the HELOC now. That way, when you do find a great deal, you won't lose valuable time going through the loan application, approval, and closing process before you can sign up your deal. One of my favorite quotes is "You can't steal in slow-motion!"

That said, I challenge you to maintain a "lean and hungry" outlook even after you have access to these funds. This kind of money never comes cheap, so stay open to every creative opportunity to preserve it. Some sellers do need all cash, but many would happily accept terms (some money now, some later) that could minimize your out-of-pocket expense and conserve your cash. Just a thought!

Good luck!