All Forum Posts by: Justin B.

I personally think it's an empty threat to get you to pay him the full $1,100.  First, if you pay him $675, which I would do because you said you would, I'd write a letter telling him why, include pictures and the justification that he didn't hope up his end, and leave it at that.

If he gets a lawyer, the moment the lawyer sees your letter/pictures, he is going to charge the guy more than the remaining amount and he will realize it's not worth it and do nothing.  He could take you to small claims court.  It's like $50 to file (depending on where you are) and he can make his case in front of a judge.  You'll have to go spend a couple of hours and make your case but for $500, it's probably worth doing.  Unless there is something you didn't say, you have a pretty solid case, especially if you have pictures, sent a letter, and paid something.  I personally would take the risk and pay the $675 and just see what he does.

I fully understand the question. When I started out, I had money to buy 1 SFR, that was it. I didn't buy my second property until 2 years and 4 months later. You have cash flow from one, plus I continued to fund additional capital as I could afford. Fast forward and 1 year after I bought property #2, I was able to buy 3 more in a 12-month period (Year 3-4). These were all sub-$100k properties, but you can see the spiral effect. Fast forward to now and I'm buying 10-20 unit apartment complexes (~4-5 years after property #5). I'm hoping that in 5 more years, I'm saying I'm buying 50-100 unit complexes. It can seem daunting to get started and if you don't have a funding source it will be slow, but you have to get started.

My advice would be to buy one (focus on one that doesn't need much work, hopefully already rented and if not, ~$1k in work needed.  Then, keep saving, roll any money you make from your properties back into the business.  Before you know it, even more options start to open up.

It's too general to say banks don't like investors.  They loan out money to anyone for anything as long as long as they can make it an acceptable risk.  Terms like interest rate and down payment are adjusted when the risk is higher to bring it to that acceptable level.  There are 2 reasons why I believe investors usually pay more down.

The first one is if you are buying with an LLC (or any entity that's not "your name"). When buying in your name, banks loan out money and it's backed by Fannie/Freddie. It's a lower risk because their loan is "secured" (for lack of a better term). So if the bank is loaning out to an entity, it's an in-house loan 99% of the time and the risk is 100% on them.

The second one is because it's an investment property.  YOU don't live there. YOU don't have pride in ownership (again, a general statement on risk assessment), and YOU aren't out of a place to live if you walk away.  The higher the down payment, the less risk you will walk away from that money.

Both these reasons (and others I didn't mention) make it a higher risk.  Regardless of whether or not you agree, to a bank, it's a larger risk on an investment property.  If both apply, you're likely looking at a higher interest rate, lower amm, and a higher down payment because that makes the bank feel more comfortable.

So it's not that banks don't like investors, they just tend to view risk differently from bank to bank.  That's why you always shop around because you are looking for that bank that views your loan as the least risky.  Therefore, you get better terms.  Also, as time goes on and you do deals and show you can pay on time and make money, the risk factor for them goes down.  I get better terms now from the same bank than I did when I started.

As a side note, typically smaller banks (local or statewide) are your best bet because they want as many loans as they can get.  Once you hit regional or national banks, they won't be as flexible and tend to tell you what they will give you and it's take it or leave it.  Smaller banks WILL negotiate.

I like to look at it this way.  Yes, there are ways to offset taxes and if you buy with a certain return it could be 0 taxes, however, I'd rephrase that statement.  "If you own real estate and you aren't paying any taxes, you aren't doing as well as you could be".

Now that's a loaded statement so I'll explain.  I buy a property where my income in $700/month.  With expenses and depreciation, my expenses are $700/month.  I may be cash flowing $150/month (tax-free), but I'd rather have a property where I get $1,000/month in cash flow and have $700/month in expenses (including depreciation). That would give me $450/month cash flow in that scenario and I'd owe taxes on $300 of it.  In that example, I assume you paid the same amount for both situations.

With all that being said, you'd be a fool if you didn't minimize the taxes you are paying.  Tom says what he says because he's trying to drive home a point in a very general way, and it's a good point.  Minimize the taxes you do pay, but be happy paying the taxes on what you have to.  Like I'd said I'd rather be making $450 and paying taxes on $300 of it than to be paying no taxes and only making $150.

A good analogy is when buying shoes.  If you need a pair of shoes and you find a good sale, you've "saved" money (because you were buying shoes regardless).  If you don't need a pair of shoes and you buy a $50 pair of shoes because they are normally $200, you aren't saving $150, you are spending $50.  I hope that makes sense.

In my opinion, you have to shut it down.  You are liable for anything that happens in that house (not your tenant).  I would just inform them that they have to stop listing it on AirBnB and if they don't, evict.  I do understand the arguments around people saying to ignore it, cut yourself in, etc, but the bottom line is you have no control of what happens but will be responsible for what does.

As most everyone will say, it depends.  How much cash are you putting into it?  The ultimate goal is "infinite" but if you are looking for a flat general idea, I'm around 20%.  But let me be clear, there are lots of things that influence it. 20% can be good or bad depending on a number of factors, just trying to answer your question "generally".

For lack of a better way of saying it, this sounds like the worst investing opportunity ever :).

 Russel has a really good point here.  That being said, I've done lots of deal (most of them in fact) without a realtor.  However, I've never done one where I've tried to use a realtor and the buyer refused.  I think some others made a good point in that if he's just flat out refusing to do it, he's more than likely going to be difficult to work with.  That's an assumption of course, but assumptions are part of the game.  What you can do is offer to pay all or a portion of the commission on your side.  If the deal is such that paying part of the commission would make it a bad deal, then you are probably too tight already.  I did do one deal where I agreed to increase the purchase price only enough to cover the commission.  Doing that allows you to roll most of that into the loan and then it's a matter of numbers and whether or not it still works.

For example, if a listing is $100k and you think he will take $80k (you did say nowhere near asking), then $83k should make the deal work as well.  If a 3% increase on total price is a deal killer, it's a bad deal to start.

Based on the numbers you put out it's a solid deal.  As to whether it should be 50% expenses, that's where due diligence comes in.  I have several properties I own that are nowhere near 50% expenses. If it's truly renovated and in great shape, it's not uncommon to see a lower expense ratio, BUT you have to verify that's the case.

I wanted to point this out because what you said here is ABSOLUTELY key and goes to my last post.  You are not doing a $500 commission deal here, you are protecting future business with your client and that makes 100% sense.  the only exception might be is if all the deals are that low and it still doesn't make sense timewise, but again, if they are successful, the deals should get bigger so it's still something you might do.