All Forum Posts by: Roger O.

I made the decision about 6 years ago, I had 2, $500,000 houses in CA collecting about $2,200/ month rent each, and I sold those when I found out about DFW Metroplex area.  In TX I could buy a house for $100,000-$120,000 and get $1,200-$1300/ month rent.  They don't appreciate in value like CA, but you are not speculating so much TX, prices are moving up consistantly, because of the demand.  We did get hit hard on the CA houses when it crashed.  Taxes are about 2% as compared to 1.25% in CA, but the cost of the houses 1/3.

We even moved from CA to TX, 2 years ago after 47 years there and it was the best move we made, there is no state income tax in TX, but they make it up in the property taxes. Labor to rehab a house is much less expensive too.

I would only do it if I have the first trust deed and the loan in your name.  All draws need to be paid and lien releases from the vendor and or supplier before the next draw is taken.  An honest ethical builder should have no problem with this.  A separate account for the property so there is no co-mingling of funds.  I know of 3 builders that took money up front, pulled draws, received investor money, and didn't put the money in the appropriate areas.  All the investors can do is sue the builder who spent everything.

Make sure there is a market for the spec home and that it will sell for the right price, after lot, build and holding costs.  The builder has nothing to loose if it doesn't sell, but you can be stuck with the house and holding costs.  They factor in their margin and make money on the construction draws.

Another way to do it is a profit sharing agreement, where you get 30% and they get 70% of the true costs, be aware it is easy to pad building costs on a project

It does work and can be very profitable.

DO YOUR HOMEWORK AND DUE DILIGENCE!!

Myself and other investors got burned from a builder pretty bad on spec homes.  The builder really had nothing in it but was reaping the rewards.  At the end there were numerous houses that were getting liens, and all the draws were exhausted.  The investors have to get more loans to pay off the vendors and finish the houses.

I received an expensive education from this and hopefully it will help others 

if you have a loan with 20% down you will be able to buy 5 properties with the same amount of cash. You have to work your numbers. Consider your interest, I know it is a write off, but you are paying $1 in interest to save $.30 in taxes, write offs aren't free, like the majority of people feel they are.  Consider 15 year loans with bi-monthly payments and you will accumulate more properties and have them paid off in a shorter period of time. This way you buy down your loan to about 12 years.

I have never had a problem not having enough legal deductions on rental properties. 

I am interested pm me with details

I moved from California to Texas last year after having many rentals in TX managing them from CA. I Moved up from single family, because with multi family you have more control of the value. Dave Lindahl's apartment book is what helped me make the change, but there are many others out there,  explaining the same thing.

I agree. Always figure NOI at least 50%. You need o look at long term expenses.

The numbers don't seem to work well here in CA. We went to the DFW area to buy. CA does have high appreciation when the market moves, but a lot of money needs to be tied up and you cant get a positive cash flow during that time.

We have gone to many auctions at the courthouse and also looked at supposedly wholesale deals and they seem to get bid up to retail.

Remember, you make the money going into the deal.

We have done both, and have burned by management companies. Do your homework on the company.

Many times a good management company will get a higher rent to make up the cost, than an owner landlord. Many times they can also get better tenants.

There are professional renters out there that know just what to say to owners and new landlords to get in, and they know their rights once they have the keys. If the story is too good to be true, send them on their way.

One thing we now do is hold the deposit, more than once management companies disappeared on us with deposits.