All Forum Posts by: Randy E.

 I would not recommend it for a first-timer.  However, my first investment buy was such a house. 

It needed all new electrical, all new plumbing, a new water heater, new flooring, fixtures in bath and kitchen, and a few other fixes.  But the price fit my budget, so off I went into the world of buy-and-fix.  For me, it wasn't so much a decision of "whether or not to buy cheap distressed houses", so much as it was an issue of "whether or not to begin investing in real estate."  If I was going in, that was the path I had to take.

Looking back, I wouldn't change a thing.  

I wouldn't suggest other rookies go the same route if they can afford not to.  Especially if they have no zero experience being a landlord.  And even moreso if the rookie is buying long-distance.  But if someone has a limited budget and true determination (or in my case, true desperation,) it is a path that can succeed.

Good luck.

 I prefer value add opportunities.  When I started, I was okay with adding new electrical/plumbing/systems, but I was afraid of foundation issues and new roofs.  Today, I'll take the worst piece of house you've ever seen ... if the price is right and the location fits my needs.

@Shiloh Lundahl,

I have three kids and they can each repeat the three options for money: Spend, Save, Invest.  I won't pretend they don't like to spend, but they all know it's important to Save, and more importantly to Invest.

I think it important to present a consistent overall approach but that drilling daily/weekly about the importance of specifics might be overkill.  The example we set as parents as we live our lives is the best aid we can impart.  On their own, my children will bring up examples they see of people wasting their resources or taking advantage of their resources.  I think the Financial Knowledge & Empowerment Plan is working so far.

I'll find out in a few years if my approach worked as my oldest is in high school now and should be making his own way in the world in 7 or 8 years.

@Chris Walsh, I'm no expert but my experience is that the appraisals tend to be a little behind the market in my market. About 18 months ago, I attempted a similar approach with a SFR in a rapidly gentrifying area. The appraiser came in well under target that time. About 60% of what I was hoping. I'm hopeful that the new appraisal come in higher next week or two, but I don't know it will match my expectations. The market is well above what it was just a year ago. I see gut jobs the same size as mine, three blocks further into the non-gentrified zone selling for $90K in recent weeks. My appraisal better be better this time around.

Fingers crossed for us both.

@Joe Splitrock, I would let it go.  Maybe the laws are different in IA than in NC, but it's not worth my time and filing fees to chase $1K that I'm almost certain to never collect on.

To paraphrase multiple comments in this thread, I chalk it up to the cost-of-doing-business, am thankful to have them gone and new tenants in, and forget about it.  

5 years of steady rent, 1K owed, that works out to $200/yr, or $16/month.  I can live with that happening once every 5 years.  The alternative is maybe having two tenant turnovers in 5 years, losing 2-3 months of turnover time (combined) and a few hundred bucks in turnover makeready expenses.  Thinking of it that way, you actually came out ahead in this case.

 Interesting.  

I was curious as to how permissible this actually is.  After checking here  ( https://www.irs.gov/taxtopics/tc431 ) it seems it might just be an appropriate use of that tax code.  Although, from what I've read, it appears the debt holder has a responsibility to mail a form 1099-C to the debtor -- it seems that simply informing the debtor at lease signing of your intent to use "forgiven debt" isn't enough to be completely above board.

Still, this looks useful.

Thanks

Have you run this by an accountant?  Just curious if it has been vetted by someone in the know.  

 Tell her:

1) The remainder is due ASAP.  If I don't have it by Friday (or Monday or whatever day you choose) I will file for eviction.

2) If I file for eviction, the cost of filing and any lawyer's fees I pay will be added to the tenant's debt.

3) In the future, all rent not paid in full by the 5th will result in the landlord filing for eviction (or posting pay-or-quit or whatever is legal in your state) on the next business day.

I say the "5th" because that is what your lease says.  It says due on the 1st, no late fee till after the 5th.  Whether or not it's considered legal to consider it late on the 2nd, your lease effectively says tenants have until the 5th.  If you don't like that, change the lease at renewal.

As long as the tenant is paying in full by the 5th (according to your lease) I would not be too upset.  As @Ihe O said, tenant turnover is not always a costless event.  Especially if you go the eviction method.  Don't get me wrong, I'll evict with the best of them ... but when I'm dealing with a true deadbeat.

I think part of the problem is you sound like a relatively unseasoned landlord.  It's easy to get caught up in emotions about tenants paying a day late, or paying AFTER they return from a cruise.  Every conversation you have with her that doesn't end with money in your hand can frustrate you.  Every excuse you hear raises your ire.  Every time the 1st passes with no payment, then the 2nd of the month, then the 3rd, you get redder and redder.  You have to remind yourself, this is business not personal.

Readjust your ire to kick in after the 5th ... for now.  But don't allow her to consistently pay beyond that date without posting the pay-or-quit

 I pass the courthouse everyday taking my kids to and from their schools.  The old courthouse is looking like a great renovation.  I own properties just outside of downtown, so I'm around the area often.

I think the 1% rule works as a good rule of thumb, but personally I look for 2% or 3%.  But my target areas are probably a little less polished than yours, and I'm looking for areas with room (and the expectation) to improve in a couple of years.  It's worked so far.

In your case, if I was househacking I would definitely consider the property in question.  You know your market much better than I do.  However, if you have looked for many months and haven't found anything else that fits your criteria, then maybe you should tweak your criteria. Waiting six more months to maybe find that perfect deal might end up lasting nine months or a year longer.  That's just as damaging to your desire to gain X number of doors every year or two. 

I vote for getting your feet wet with a property your feel comfortable in, living rent free for a year while you update and pay down your principal and save money, and see where things stand then.  Maybe you will be able to repeat in 12 months, maybe 18 months, maybe it will take 24 months.  But you have to start somewhere, sometime.

Keep looking, but don't let your dream of a smoking deal keep you on the sidelines forever.  If you see smoking deals happening around you (with properties in the condition and neighborhood you would buy yourself) and you're missing them, that's a reason to keep up the hunt for the mythical smoking deal.  If you're not seeing smoking deals for similar properties, maybe they aren't all that common in your area and you need to alter your hopes/expectations.

Good luck,

@Derrick Lubomski, by your own admission you want your "first property to be a smoking deal."  Your words, not mine. By definition, a "smoking deal" for the buyer is a "smoking loser" for the seller.  

This seller knows the value of her property.  You do too, because you admit that your per-sf calculation puts the property within 5%-7% of her asking price.

Maybe she will budge, but if it was me and I knew the value, I would not.

If you want it and the numbers work, pay her price.  If you're unwilling to pay her price, keep looking for that smoking deal.  It's there, although it may not be in the same general good condition, nor in the same sort of neighborhood.

Good luck

 Michael, I'm not trying to insult you.  I was just trying to put things in better perspective.

For comparison, I look at this as if a friend told me he wanted to sell his car.  If I knew of someone who wanted to buy a car, I would put the buyer in touch with my friend and let them work out a deal.  I wouldn't expect my friend to compensate me for doing that.  In my singular opinion, that's simply what friends do for friends.  If my friend decided to offer me $50 or take me out for drinks, I'd take it but I would not expect it.  That's what I see this situation as.

A couple of years ago, a friend's mother died leaving her a rental property in disrepair, but it was in an up-and-coming area.  She asked if I wanted to buy it, but I was not in a financial position to do so.  The family trusted me enough that while her mother was alive but ailing, they asked me to aid them with renting and managing it.  Though I knew I could talk my friend into signing an assignable contract that would allow me to wholesale it and make a lot of money, I couldn't do that to someone I considered a friend.  I told her what I thought the house was really worth and they ended up selling it for a lot more than I could have offered at the time.  She was a friend and it didn't feel right to me to take money from her that I felt should have been hers.  Especially when I was bringing nothing to the table.  It would seem to me like an abuse of trust, an abuse of a friendship.

Then again, I'm not in the wholesaling business.  Maybe I'm not hard enough to do a deal like that.  Not trying to insult anyone who sees nothing wrong with doing those type of deals ... it's just not for me.