All Forum Posts by: Bart H.

 In Northern Indiana (Nisource), it used to be 20+ years ago (and I assume its still the case)  you would have to put a deposit down to cover the gas and electric distribution services, and you could get some credit back based on houses going into service with some assumed usage patterns.

City run utilities and REMC's would have drastically different practices.  The Nisource pad mount transformer would run 8-10K, an REMC might charge a few hundred dollars.

 Unless you have some experience with construction or real estate, I would probably stay away from flips in Dallas for your first investment.

Basically whatever budget you have and however long you plan on the project taking, double both.  

Our first flip, we ran over by 30K or so.  and we finished our flip the week before thanksgiving, so it didn't sell until Feb the next year.  Luckily we had reserves and outside cash flow we could bring to the project.  But had we begun on a shoestring, our flip could have sunk us.

In addition, DFW is a very tight market, the wholesale properties we see being put on the market are too thin for us to make money. I doubt many are actually making a real profit in this area flipping properties.

Personally I think house hacking is the best way to get started, have someone help you buy and pay down your property.

The whole buy and hold mentality gives you more room to make a mistake and not have that mistake sink you.

 Higher interest.

When you pull from your 401K, you are paying your tax rate, which now goes up because all of the withdrawals are taxable.  PLUS you get hit with an additional 10% penalty.

So say you were in the 25% tax bracket, you pull out $100K, they take out 25K for taxes+10K for the penalty.  So you actually get $65K.  IMO its just not worth it.

What you could do, and there are some risks if you don't repay it, but more 401K plans have loans available.  You might consider one of those for a down payment.  Especially if its a personal residence.

 Depends on the state, in Texas there is no requirement (at least that I know of for individual investors ) to keep the funds separate. We are only required to return the amount  of the actual deposit less damages with an itemized list within 30 days of vacancy AND a forwarding address. 

In Chicago as I understand (chip in Chicagoites if I have it wrong) it you can get in trouble for even having the payments in the same account, and can get hit for fairly large damages even just refunding out of the same checking account or not paying an interest payment out of a separate account.  Even if the money was paid in full.

Thankfully not in Texas.

 IF you have a meter stolen and an AC unit stolen from the same property, and this is your first deal.  I would run the other way, my guess is its a C or D neighborhood (without actually knowing where you are), its probably a place for only seasoned investors.

I used to work for a utility that covered northern Indiana including Gary Indiana.  The only times I ever heard of meters being tampered with or stolen were in terrible neighborhoods, the kinds of places where firetrucks and ambulances wait for police escorts.

IMo on your first deal keep it simple and stay in a decent neighborhood.  It might not make you rich but it more than likely wont sink you.

Honestly, I wouldnt start into the rental business without some reserves. IF your credit is too low to get a deal done with FHA. Then worry about the deal later on.

The first house hack we did was for a duplex.  Our intent was to not renew one tenant who was month to month, and paying well under market, move into that unit and then continue to rent to the other existing tenant.  Oh, and we would sell our condo that we were moving out of and was under contract.

In about a weeks worth of time.  We closed on our duplex, gave notice to one tenant we werent renewing.  Had the buyer of our condo bail less than 48 hours from closing.  Had the other tenant request that we break the lease because her husband had died and she wanted to move to another city, AND get got sued by an unethical real estate agent who wanted a commission on a house she never showed us and we had to hire an attorney.

Dont assume tenants pay, dont assume that you will always have rent covering your mortgage.  

If you are having problems keeping up with the bills now, owning rentals will not make that better.  In most cases it will be worse.

 Expect it to take twice as long, and cost twice as much as you presume.

Don't pay your contractors in full up front.

Get your electrician and plumber in there on day two (after demo).  

If you haven't done one before in all seriousness, make sure you have enough reserves to finish one, and expect to lost some money on your first one.

Keep on top of inspecting and communication with your contractor.  In most cases in our market we are working with contractors whose native language is not English, and its much easier to over communicate and catch differences (mistakes) early since it will be easier for your contractor to fix.  We have a great contractor, I trust him 100%.  But every so often we find something gets installed or done a little differently than we expected.

 Find a deal, buyers will come out of the woodwork if you really have a deal.

If I was getting into wholesaling, I would start networking.  Get to some events meet some people, join a couple of local FB real estate investor groups, and just find a deal.

Yeah, you have the general gist of what we did. We just added a year of living in it, so we actually were able to put a little less down, so when we refinanced it, some of the price appreciation went to going from a owner occupied note with PMI to a "cash out" non owner occupied loan. There are some moving parts in there with prepays, us living in it, the repairs,etc.

You bring up some interesting questions about revaluing a property to determine what your current ratios are, and while I think it is worth $425 (or about), we would need to find a developer who is interested in redeveloping the area.  I think it could be done, but the buyer pool is a lot smaller since it would really be to a commercial buyer.

 So this is a case of a unicorn, right place right time.

1) we drive neighborhoods months in advance, and we liked this area because it sits next to downtown, and is really close to uptown/Oak Lawn areas of Dallas.  But this is an overlooked pocket that has historically been fairly rough.  

2) The seller originally had been tied up for 3-4 months as a commercial real estate agent was trying to sell 4 lots together as a block. It was slightly over priced, probably a year too early to be sold as a block. But the seller lost his job and was frustrated that the block of properties didnt sell, so the minute he was out of his option period with the real estate agent, the seller put it up as a FSBO, I think he was at 170 or 175 I forget the exact details.. We saw it and had an offer on it within 24 hours. and a signed contract the next day for a little over asking.

3) we were a year early before all of the developers hit.  I think it was worth $200-$225 when we bought it, but as Jay always talks the cash flow only crowd.  It was a house with a weird layout and fetched $1,300/month in rent in what I am sure some thought was a class c- neighborhood when we bought it.

 Since we bought, an 800K/3400sqft house has been built 3 doors up.  There have been a dozen or so tear downs within a couple block radius.  A developer has bought and torn down a 6-8 block by 3 block area and leveled a bunch of falling down apartments and single family homes.  So people recognize it as a hot neighborhood.

As far as opportunity cost, I am always open to selling, in fact we look at every one of our properties every year and think thru what we want to do for the next year.  The thing is as I said there is a LOT of development in the area.  I think we are on the front side of an improving neighborhood.  We have a property that we have refinanced and gotten essentially our initial investment back out.

We are collecting a nice annuity to sit and wait while the neighborhood continues to improve, and our exit might be us building a duplex, or us selling to a developer.  So I think the price appreciation isnt done, and I think there will be additional and more lucrative exits in the next 3-5 years.  And if we are wrong, we pocket a nice annuity.

I see a bigger risk in selling and needing to redeploy capital/pay capital gains taxes, and levering back up, or doing an awkward 1031 exchange.  And frankly I sleep better at night having a property that cash flows like a banshee that we can sell at any time.