All Forum Posts by: Jake Kucheck

When we were buying at auction, Foreclosure Radar was the standard operating procedure of anyone doing any real amount of business. I haven't used Property Radar, but I know that @Sean OToole is pretty obsessive about putting out a quality product, so I'm sure it is still very similar if not exactly the same in terms of functionality.

If you're buying at auction though, you'll need a heck of a lot more of a tutorial than just what website to use. Do your homework. Then do more.

I think you need to adjust your mentality as a landlord. Even with the best of screening procedures, leases in C markets are an educated guess as to what will happen, not the legally binding contract you purport them to be. This is because your recourse is limited with people who don't care about (or don't know about) FICO scores, credit reporting bureaus, judgments, etc. The threat of not being able to use you as a reference is also no longer credible if you're seeing this sort of behavior. Maybe your college students are a better tenant profile than the composite of my Columbus portfolio, but maybe they aren't, either.

Encourage the remaining tenants to cover the delta. If they are unable to, evict them. If they leave of their own volition, then that saves you the trouble/cost of the eviction. Then, find new tenants. Lather, rinse, repeat. Remember that you aren't the only landlord who has these issues, and you might just find better tenants the next go round.

As an aside... I had this happen to me in college. I was paying $700/mo, as was my roommate, and the guy in the master who was supposed to pay $900/mo decided it wasn't for him. I'm actually still really good friends with that guy, in part because he was up front about it. We put an ad on Craigslist and had a Swedish foreign exchange student join us, and he actually paid $50 more a month because he wanted to guarantee he'd be chosen, decreasing each of our rent by $25/month. It was kinda awesome, and Swedish dudes drink like there won't be a hangover tomorrow. If I were you, I'd talk to the provost/administration and see if you could get a list of all the freshman who are being kicked out of their on-campus housing for whatever reason. They gotta live somewhere, right?

@Waylon Themer ... it took me a while to respond to this because I had to wipe the drool off my keyboard after seeing your debt terms. I've been looking far and wide for common sense underwriting without a ton of red tape on SFR pools, and you seem to very much get it.

How large would a deal need to be in order to convince you to lend outside of Texas?

You guys are talking apples and oranges.

Ed, you're talking about back end DTI ratios and conventional lending which is typically associated with retail buyers. Kris and CK are talking about private money, which is not available to retail buyers.

While 3% sounds low, it is also true that there are people who have different appetites for risk, and there are people that don't even bother to ask the risk/yield question and are just excited to be "investing in real estate". It stands to reason that the folks lending from their self-directed IRAs are not overly experienced or familiar with the marketplace, since there is an abundance of alternatives that offer a higher yield for the same or less risk. But, Kris and CK worked hard to find those people, so we probably shouldn't chastise them for it. No different than finding a seller that is willing to sell their property for well below market value... it isn't our job as investors to make them unnecessarily familiar with the marketplace.

20 Reston?

If so, I've done a number of deals with that brokerage, and they are on the up and up. Actually one of my favorites to work with. There are also many that aren't.

There's no guarantee that it will close at $550K, btw. I've submitted a short sale at $185K that came back with an approval of $315K. I still found a buyer at $315K, but would have much rather had an opportunity to sell it at $185K, since the buyer pool would have been larger and buyer strength would have been better.

This happens all the time, is not unethical or criminal, and you should not file a complaint.

Here's the mentality of the other side of the transaction:

1) Man, it sucks that I need to short sell my home, especially now that debt forgiveness is no longer protected in 2014 due to expired legislation.

2) I had better market it properly to make sure the short sale is approved.

3) I had better vet the buyer properly to make sure they close the deal.

4) I would prefer a cash offer to a financed offer.

5) Cash offer from someone I know is accepted.

That's it. That's just the seller acting in their own best interest. Is there some inside baseball as to whom gets that deal? Of course. But real estate is a relationship business, so unless you want to make unnecessary enemies (and local RE agents are very quick to make enemies), just learn the rules of the game and keep playing it.

Btw... I don't know how you deal with the Mello Roos in Ladera... approaching 2% on property taxes for homes on tiny lots with bad freeway access... yikes.

Matt,

Really glad you came to BP with this. You are correct that the brokers are doing exactly what you suggest, which means their cap rates are mainly BS/marketing. You have to do your own analysis of whether their historical rents are going to be indicative of what you can get in the future.

As for OC as a speculative market... yeah it probably is. Or an arbitrage market. What it isn't, though, is a cash flow market. It also isn't correct to say that your property will "cash flow" better if you put 60% down instead of 25% because that ignores the opportunity cost of your capital being utilized in other investments. A rental property is only good as the rent it can bare, regardless of how the purchase financing is structured.

In order to understand cap rates, the most important thing you need to have a very good feel for is market rent. Not advertised rent, not "incentive" rent (i.e. tenant gets two free months but signs above market lease for remaining months so seller can sell a better "cap rate"), but true market rent. Once you have a good feel for that, you can back out pretty much everything else to determine whether or not you are looking at a good deal. Odds are if it is multi family in OC and you found it on LoopNet, you are not.

Seems like a decent deal, but $700/mo in rent doesn't seem like enough for a $40K purchase in a C market. Is there something about this property (potential for appreciation, low probability of turnover, etc) that justifies a paying a premium for this gross rent amount?

I've found two things to be true about Section 8 tenants:

1) The rent always comes in on time.

2) The tenants rarely want to leave.

Why would you not want to rent to tenants like these???

Probably the most obvious answer to the Vegas/Phoenix question is that you might be able to find deals, but you'll certainly have lots of competition. You don't have to "do studies", you simply have to review the quarterly earnings of the publicly traded REITs that buy SFRs- all of them are heavy in Phoenix and most in Vegas as well. If you're buying in the same price points as the big money, you'll run into trouble. If you're buying below or above, then you're probably fine. Their average aggregated cost per unit and average rents, along with vacancy rates, are right their in the earnings reports too, so if you do invest in these markets, it will give you a pretty good measuring stick for whether or not you're doing a good job. Hint: If your numbers are anything like theirs, you are NOT doing a good job.

As for Bakersfield, if @Derek W. is finding duplexes at a 32% cap rate all day, then you should probably jump in head first. I'm guessing, though, that this may have to do more with Derek's ability and less to do with what is typical of that market. That isn't to say you couldn't learn those same skills, and eventually find those sorts of deals, but it does mean those results may not be "typical".

As a slightly less zealous defender of out of state stuff than @Ali Boone , I guess I'll also say that I don't really care where the houses are, as long as the numbers are right. After all, when most people talk about what they would do once they achieve their version of financial independence/freedom/nirvana, they almost always mention being able to travel more. Yet when that is part of the path to getting them there... it is somehow frowned upon. Counter-intuitive, to say the least.