All Forum Posts by: Ronald Perich

@Elizabeth V. love the Facetime Tour. I did this with some folks who were moving back to the area and they decided against renting. Which was fine. It wasn't what they were looking for. Also like the concept of a scout coming over first. 

Glad to see you made it!

 Agree with you on the terms. But if he's looking for cash flow, it doesn't seem to pencil out. Might be a decent house hack opportunity, though.

Our local REIA (Metro East Real Estate Investors Association - located in Collinsville, IL) just had a local property manager as a guest speaker. He discussed why they explicitly got away from paying the mortgages, taxes, and insurance for the owners.

During vacancies, a few owners wouldn't provide them with the funds necessary to cover those expenses. They're now stuck in the middle. And it was a ton of extra work for their administrative staff. So they won't do it.

I didn't ask if they now had something in their contract that allowed them to "fire" the owner due to non-payment of these things. I'm sure they do. 

Of course, in this situation, no contract clause would have helped. I doubt you could have withheld funds from the PM contract to pay the monies due on the second contract (the rental agreement). Even if you could, what would be your recourse if you fired them as an owner? 

Tough one to deal with. But thanks for sharing the story!

@Paul Moran, have you run the numbers? Did you use something like the Buy and Hold Calculator the BP offers? 

I'll be honest, it is very difficult to follow your posts when you do not use punctuation. I don't know where one piece of information begins or another ends. It would be very helpful (and you might get more responses) if you use punctuation and formatting. The texting-like fashion of your posts makes it very hard to read. Hard to read = too much work for busy investors = very little response.

For example,

@Account Closed, here are the particulars:

• Sales price of $270,000. Needed repairs of $46,000.
• $1,500/mo for principle payments. No interest, no money down.
• 60 month note with balloon at the end ($180,000)
• Rents after rehab are $2,800/mo
• Yearly taxes of $5,500. Insurance of $2,400. Snow removal is $500.
• Water and sewer are $88/mo (this seems low to me?)

Do you see how much easier it is for people to read this and then answer? 

Your repair and maintenance budget is way too low at $500/yr. One toilet replacement will cost you that. What happens if you have a roof that needs replacement or a tree that needs to be cut down? Even my $3,360/yr maintenance budget feels a little low to me based on the rehab to be done on the first floor.

Now, when I plug these numbers into the calculator referenced above (including an 8% vacancy and $280/mo for repairs and maintenance), I can see that you'll have monthly expenses of $1,640.  You will have a mortgage payment of $1,500. You'll have income of $2,800.

Monthly Cash Flow is NEGATIVE $350. You will be losing money each and every month. But you will have substantial equity (something like $200,000) in the property after five years if your ARV is correct.

Now you have to ask yourself if you are buying for cash flow or equity build-up. 

A negative cash flow isn't a bad thing for some investors due to the tax write-offs they get, especially if there's a lot of equity buildup. Is this something you want/need? Can you afford to put money into this property every month to keep it afloat? 

@James Trautz, excellent post.

@Stephen Gantz, I use rentometer.com to help gauge the rent prices in my area. Gives you a good idea of what folks are paying for similarly-sized rentals in the area. You can use the Rental Property Calculator to help you decide if the numbers make sense.

One thing you have to determine is if you have the $90,000 in free cash available ($48K down, $36K to rehab, $6K for inspections, permits, etc) to close and rehab the property. You'll probably want to have a reserve of another $10K or so just in case. 

You could also use the BRRRR Calculator to see if this strategy would make sense.

@William Hochstedler, would you think similar properties in the area better be going for $300K min for this deal to make sense? Especially since most banks are going to use residential appraisals instead of commercial? And if two units are down, do you think he'll be challenged at getting your big banks to finance it? Must be in rough shape. He'll probably need some local banks or credit unions on this one or be able to BRRRR it using his own cash or private money. Agree?

@Juan Ayala,

I have a restriction in my lease that internet-based businesses are permitted in the residence provided no visitors or customers come onto the property. You can run an Amazon store out of your office without having product or people ever touch your front door. And as @Jennifer Levini stated, they could be doing online consulting or such.

@Account Closed, you might consider having a UPS Store as your LLC address. That gives you more privacy and if/when you move, you don't have to change anything. My box is kind of expensive at $240 a year, but I absolutely love the flexibility it brings. When I get packages delivered, they send me an email, I know there is always someone there, etc.

 Wholesaling is a type of transaction and is not asset-type specific. You can wholesale land, single-family, multi-family, cars,... whatever you want to wholesale.  The key to a wholesale transaction (as being discussed here) is that you never actually own the property. Or if you do own it, it's only as a way to get the transaction done (like a double closing).

A wholesale transaction is where you lock up a contract to purchase an asset and then you sell the contract to another buyer (for a fee) who actually buys the asset.

For example, you offer a seller $25,000 for a SFH that is in need of some repairs. They agree and you write up an assignable contract to purchase the house in 30 days or less. 

You then reach out to some investors you know and one of them agrees to buy the house for $30,000. Actually, what they are doing is paying you a contract assignment fee of $5,000 and purchasing the house for $25,000.

When the seller and investor go to close the sale, the title company will give the seller a check for $25,000 and will send you a check for $5,000.

I wouldn't think it's easy to wholesale land. Land is more challenging to sell because the pool of potential buyers is smaller. As a result, you might not find some to sell your contract to in time and therefore not be able to close.

It seems much more common to simply buy land and then resell it. Some land investors will do this right away while others might hold the land hoping for significant appreciation.  

Hope this helps! There are a ton of forum and blog posts on land investing here on BP.

Mark Podolsky, Steve Haight, and Seth Williams are good resources for land.

If you'll search BP on wholesaling, you'll get a ton of returns.

10% estimate is way too low. I wish people would stop using that as an estimate. That fails to account for the typical one month's rent (equivalent to 8% or yearly rent) for leasing or 1/2 month's rent (4% of yearly rent) for a up-lease. Let's split the difference an call that 6%. Then you often get whacked with nit-picky, nickle-and-dime fees all over the place.

Your real PM costs are more like 15-18% per year.

I like your comparison of cutting grass to property management costs. But it really doesn't apply to all situations. I have two small multi-families that cost about $150 a month for lawn service. The property management costs on those units has been quoted at over $550/mo plus leasing fees. With standard turnover, I'm looking at close to $11K a year to manage nine units. 

I will completely agree with you that if you have decided to go with a PM (and most should eventually go that way), pay for the absolute best. A quality PM will more than make up for the difference in costs. In this case, quality completely outshines any additional costs. A quality PM will actually pay for themselves over a poor one.

When I am ready to use a PM (and I admit I am getting close), I'll choose the absolute best, even if it means paying an extra $50 a month.