All Forum Posts by: James Park

Aaron,
Just to claify, do use both the mls and craigslist to market your rentals? Which channel do you find to be the most effective in finding a good tenant? You still pay the buyer agent 50% of the rent when finding your tenant via mls?

Hi Aaron, thanks for your post. I am purchasing a new construction sfr rental and will be using my broker license and will be crediting my entire commission towards the closing costs and will buy down the rate if there is money left over.

one question I have is how do you maintain your california broker license in terms of continuing education? I finished the 24 hour requirement for my Georgia broker license and will need to start on the 48 hour requirement to maintain my California broker license. Have you found a fast and easy way to do this? I am thinking about taking my continuing education through allied. Any suggestions?

Charles,
When do feel that you are over leveraged and getting ahead of your cash? Do you have a certain ratio in place?

How much cash should one hold before deciding On taking on more leverage?

Thanks.

To any investors out there with this approach, can you offer more light on why you take this position. Also, I'd suspect investors in this position would be likely to carry massive reserves, as bad months aren't as easily offset with cashflow from units that may otherwise be paid off.

Thanks in advance!

Ed, It is very rare when I buy property all cash. I leverage properties so that I can utilize my cash for other investments. I'm very careful not to overleverage though. My reason for leveraging is not really about the tax deduction (though it is a consideration) but more about letting someone else pay for the property and freeing up cash for other investments.

Leverage is a tool that can be both good or bad. Good leverage can let your money / assets grow more quickly.

John M.,
This is a good question. The problem i have with the 2%, 50% rule is that not all properties are going to be equal. MF will generally have high cash flow than SFRs and properties located in D areas will generally cash flow better than A areas but with higher vacanies, maintainance and repair costs.

Let me share with you my first SFR investment mistake and the silver lining i have learned from this mistake and how i want to position myself investing forward. I purchased a new SFR in a private golf course subdvision in a "A" area with $200,000 down 6 years ago. I secured a corporate transfer from out-of-state as my tenant who hasn't been late once with his $3000/month rent for 6 years. I had to put no money to repair as my tenant has kept the home in such good condition and has paid from his own pocket for any updates and repairs needed. I plan to hold his home for another 10 years.

Everyone here has their niche. I like to concentrate my investments in buying and holding entry level B SFRs in A areas. What i mean by A areas is where the high end homes, path of progress, and best schools are located with median household income of $130,000. D areas are places you probably won't feel safe driving to at night.

I require a minimum of atleast 10% Cash on Cash return and I do expect a nice appreciation in the niche submarkets i invest in. Personally, I have no desire to buy in C and D areas where the cash flow may be higher at greater discounts, higher maintenance and repair costs and vacancies.

I would also like to reach my real estate financial goals with the least of amount of rental properties as possible. I much rather own 10 SFRs valued in A areas valued at $500k each, than to own 100 SFRs in D areas at $50k each.

Ed,
I am interested to hear what others have to say about this as well. Here is my opinion.

If you have a million dollars in cash and you have five investment properties with $200,000 mortgages on them, it is the same as owning 5 properties free and clear. Your total $1,000,000 mortgage will be fixed at 4% for 30 years. Rates will not stay this low forever and I believe there will be a time when you can make 5-7% in CDs and money market in the future and arbritrage the bank's money.

If you can make more than 4% in other investments whether it be in your own business, or the stock market you are arbritraging the bank's money. When the rates are this low, you want to leverage as much as possible and when rates are high like they were in the 1980's, you want as little leverage as possible.

You make money in real estate in four ways: 1) cash flow 2) appreciation 3) amortization 4) Tax savings. Over the course of 30 years, your million dollar morgage is fixed at 4% while #1,2,3,4 continues to rise building upon your networth over time.

Everyone has their own risk tolerance but for me I would not want to leverage beyond $2.5M on my investment properties if I am holding $1,000,000 in cash.

http://www.zillow.com/local-info/TX-Austin-home-value/r_10221/

Austin, Dallas, Houston, San Antonio, Salt Lake City, Seattle, San Jose, San Francisco, Atlanta, and Raleigh made the top ten list.

Damn! I don't know what it is, but something good is goin on in Texas. 4 out of 10 fastest growing cities are in Texas!

http://www.forbes.com/pictures/mlj45hfdf/10-atlanta/#gallerycontent

Aly,

Sorry for the confusion. The new tenant told me that she would pay $2180/month which is $180 more than my asking price. Due to her 580 credit score, I asked her to pay me on the 1st and the 15th of each month.

I was suprised when she gave me her business card that she is a VP of a major financial bank just trying to get back on her on feet from a bad divorce. Her lease started from February 1st and she has not been a day late on 7 payments so far which now makes me believe that her ex-husband did indeed hurt her credit score. She also renovated the entire kitchen and painted the whole place on her dime.

Long story short.... most of the advice I received on this thread was to evict my bad tenants immediately and start over. Although the experience was horrible at the moment, I prayed to God that 1) I will not have to go through an eviction and 2) that would bring a good tenant to replace my bad ones. I don't think i was lucky, but i really do believe that the Lord answered my prayer.

I hope that i will never have to experience evicting my tenants as a landlord. I tried to work out a settlement with my bad tenants and fortunately it worked out for me.

Anyone who may be struggling or going thru what i went through last year let me know if you need some encouragement.

My best advice is to try your best not to go through a an eviction and work with your bad tenants if possible. You will incur legal fees and the tenants who know how to play the game will squat til the end to make you even more miserable.

I wanted to give you guys an update. First of all, if any of you are going through what i went through send me a PM. I know this was a horrible experience, but it definitely made me stronger and wiser when selecting tenants in the future. The young korean couple who had a 780 credit score did not end up being my new tenants.

As I struggled with my tenants, I had agreed that they can pay me $1800/month as long as they will allow me to show the unit to find a new tenant. In early December, I received a call from my listing agent telling me he had a divorced mother with a credit score of 560. The divorced mother was living with her parents and loved the potential of my townhome as her work was only 5 minutes away. She was commuting 1 hour each way from her parents' home. I was about to turn her away due to her low credit score, but she told me that after a bad divorce, her irresponsible husband messed up her credit score. My asking price was $2000/month, and the divorced mother asked if she can pay me $1090 on the 1st and 15th of each month for a total of $2180/month with a $2500 security deposit.

I told my bad tenants