All Forum Posts by: Justin B.

The vast majority of people will not screw you like that.  Consider it a lesson learned on that person.  Never deal with them again and consider yourself lucky that he just stole a potential deal as opposed to running away with money or something worse.  Some people are just ********.  There is about a 1% chance that person will be successful.  If he did it to you, he will do it to others and eventually no one will work with them.

With that being said, it's a real simple solution to protect yourself.  Have them sign a document which says they agree to not purchase any properties you send to him as potential deals without you.  And if he does, 50% of the profits will come to you.  People sign stuff like that in business (not just real estate) all the time.  It can also contain things like, you won't steal my employees/customers and I won't steal yours, etc.  It's a standard partnering agreement that I see all the time.

If you want a win win, increase your insurance and charge the tenant the rent to cover it.  So if the insurance goes up $20/month, charge them $40/month more in rent.

The only viable alternative to that (that makes sense to me) is to tell them the lease says no pools and they have X days to remove it or you will hold them in violation (Then you can evict if you want).

With that being said, CHECK LOCAL LAWS AND ORDINANCES.  Do what they say first if something you want to do is in violation.

Just an FYI. SFR = Single Family Residence. So a house (brand new or not), is an SFR :) Just wanted to clear that up.

PROPERTY MANAGER. Problem solved. :)

And at 18 years old, the least of your challenges will be how your tenants see you.  You may not want to hear it, but if you are going to have challenges because of your age, it's going to be in the areas of getting financing, having sellers take you seriously, etc.  Because of your age, you are going to have lots of challenges the rest of us just won't.

That being said, don't let that stop you.  The best thing you can do for yourself is not be naive about it.  Understand the challenges will be there and be prepared for them.  Press on!

I judge by your post you are talking about SFR's. If so, I have to say this:

-- If you are putting 25% down and still not getting a decent cash flow return in year 1, walk away.

-- What is causing the numbers to get "better" in year 2 or year 3?  Are you banking on rental increases?  If so, and you are banking on rental increases in year 2 and year 3 before the numbers get "OK", walk away.

I have bought a decent amount of SFR's. I have put as low as 5% down on some (average of 10% down) and I still make great returns in year 1. We may invest in different areas and there may be other factors, but if an SFR is negative cash flow in year one, it's a bad deal, walk away. If this is the best you can find in your area, it might be time to find another area...

If for some reason you are talking large MFR's, my advice might change depending on the deal because in those cases, you have a LOT more control of the money being made and it's not uncommon for that type of scenario, although I'd still be a little hesitant.

I don't personally like the "rules".  1%, 2%, 70%, etc.  It's just too generic (even for beginners).  The rules exist solely for quick analysis without taking anything other than the numbers in the rule into account.  You have to figure out what matters to you and make sure it works.  This requires slightly more math and evaluation than what the rules teach us.  The rules are built assuming everything else is equal and it never is.  I could have 2 deals exactly the same numbers wise, but something as simple as location or number of bedrooms could make me walk away.  You might look at a property and see it meets the 1% rule, but taxes alone for example could be the difference between a great deal and negative cash flow.  I'm thinking of 2 of my properties right now.  1 meets the 1% rule and the other does not.  The one that does not is the better performing property (by a good margin).

And here is the super confusing part. :)  Sometimes all the items I'm looking for may usurp some of the other items.  For example, if I run across a property that has good numbers, but is outside my investment area, I probably don't give it a second thought.  But if it's close to my investment area and the numbers are phenomenal, I can forego being a little out of my investment area.

So my suggestion is figure out what you are looking for (for me, the #1 is cash flow) and go from there.  Evaluate each deal against the metrics that are important to you.  If everything looks good, go for it.

And that's why I don't really like the rules.  They just take too little into account.  I learned about the rules a long time ago and thought to myself, these are useless.  I've never used them once in an evaluation of any of my properties.  Some people say they are more guidelines than rules, but they aren't even good enough to be called that either (In my opinion).

Yea, my advice was based on him doing it and footing all the expenses.  If he's asking you to pay for any of it, my advice would change :)  I wouldn't allow my tenants to do improvements of any kind for reduced rent or "payment".  Muddy's the waters too much when you bring money changing hands into it.  If I agree what they are asking me to do is a good thing to do, I'll bring in someone else to do it.

I just recently went through an eviction.  My PM handled everything, I just got e-mail updates.  I know 10% of gross rent can be a lot, but I just did NOT have the time to deal with it and so glad I have the systems in place to keep my time to a minimum.  If you're time is limited, PM's are SOOO worth it.

@Harjot Gill

Some people might reem me for saying this, but I think most people over think it a little too much.  *IF* you are talking about flooring, gardening, plants, etc, why not let him do it (if he's not charging you or asking for a rent reduction).  If he's trying to get a rent reduction or wants to be paid, what I'm saying here is invalid.

Landscaping, flooring (especially carpeting), gardening, painting, and those kinds of things are all things are considered normal things you would do when swapping out a tenant anyway.  Plus, it's hard to screw that type of stuff up to the point where it would cost you any money. It's possible of course, but it's low risk.

So I say let him do it.  I had a tenant that wanted to do some painting and replace a floor in a room at no cost to me.  I said sure, I just needed to approve the color and floor and it had to be to my satisfaction or he was responsible for any money required to make it "right".  Typically tenants like that are long term tenants, so why piss them off by denying letting them do some basic maintenance?  My tenant is going on 5 years and has never been late once.

With all that being said, the answer is ABSOLUTELY NOT for anything more.  Anything that would require permits, heavy power tools to do, taking down walls, complete bathroom reno, and other major repairs (think $1k+ if you were having someone else do it).

So very specifically to your post.  Doing a garden, planting trees, and replacing carpet.  If no cost to you, sure, let him do it.  Just tell him you need to approve the carpet choice, location/size of the garden, and number/location of the trees and let him get after it.  In the grand scheme of things, it's just too low risk to put much more thought than that into it.

@Account Closed

I'll save you the talk about how to invest with your IRA. There are plenty of resources out there for how to do it if that's the direction you choose.

Based only on your initial post (keep in mind I know nothing else about your situation other than what you wrote in your first post), here is my advice. Don't invest it in an IRA. If you're aim is to buy RE with it, if it's in an IRA, it's locked into that IRA and you can't touch it until you are 59 and a half without severe penalty. Any and all profits go right back into the IRA and you do not get the cash flow, your IRA does. If you already had an IRA or retirement funds that you already can't touch, then sure, go invest in RE with it, but given the choice of whether to invest in or out of an IRA up front, I choose out. Plus if it is something like $100k, you may not can put it all into an IRA anyway. I know NOTHING about pensions so maybe it works like a rollover type situation, but check into that if an IRA is really what you want to do.

Also, typically you have to purchase the entire asset with an IRA (based on your post, I'm guessing it's not that much money). Yes, you can get a loan, but there are lots of stipulations to that. Google search "real estate loan for IRA" and get to reading :)

One last thing if you use an IRA. If it's a ROTH or type of IRA that can grow tax free, you'd have to pay taxes on your lump sum anyway before you could put it in there. I'm assuming you are only considering an IRA to potentially avoid a big tax bill so check on that too.