All Forum Posts by: Andrew Syrios

That is an interesting situation. I don't have a lot of faith in tenants closing, they certainly don't do well with lease options from what I've seen. But if they seem to be legitimate, it may be worth a shot.

I'm not a fan of the 50% rule or estimating expenses based on percentages. The best way, in my opinion, is to use fixed numbers. On lower end properties, it very well may be much more than 50% (and that goes too if you're paying utilities). If they have an operating statement, that certainly helps (don't believe pro formas). But try to fill in the following:

- Taxes

- Insurance

- Utilities

- Maintenance

- Contract Services

- Recurring CAPEX

- Payroll (if there are people on staff at the apartment)

- Advertising

- General Admin (again if you have a leasing office at the apartment)

- Management Fee

It's tougher for houses, because so much of it depends on whether or not you have a turnover, but I still try to use an estimate of expenses instead of a percentage of income. Income and expenses are unfortunately, not necessarily correlated.

We always secure it with a trust deed and a personal guarantee. Typically we start paying interest up front, on a construction project, you could maybe do something where they accrue interest for a certain amount of time and then you pay them that lump sump and start making regular payments until you can refinance with a bank. That would make potential lenders nervous, but they will be much more nervous if their payments are contigent on a tenant or something else that isn't concrete.

Larry Goins is kind of the guru on this type of thing. I think it has potential, but it's always risky doing things like that.

I would be very careful investing out-of-state. I've seen people lose a lot of money doing that. If you do, research the area carefully and vet your team very carefully (I've run across more than a few unscrupulous investors who sell out of state).

This same thing happened to us with Craigslist on three separate occasions. There we just flagged it and reported as fraud. Unfortunately, that seems to be all you can do.

I guess I wrote that a little too quickly...

There's some flexibility of course, but it goes something like this:

1. Demo

2. Plumbing/Electrical/HVAC/Foundation/Windows/Counters/Cabinets/Shower Surrounds, etc.

3. Drywall + Plaster

4. Paint

5. Carpet/Flooring (you can put this earlier, but this way you don't have to do as much prep for the floors when you paint in the areas you're replacing the flooring)

6. Appliances

7. Nick nacks like blinds and smoke alarms and I recommend a thorough systems check to make sure everything is working

8. Clean

This kind of thing is not uncommon in this business. Use your best judgement, is the deal good enough to justify the extra expense and what other options do you have to finance it?

I'm not a big fan of accepting cash, our policy is the only thing we take cash for is application fees. But if you do accept cash, offering receipts is the right thing to do.