All Forum Posts by: Ross Denman

Unfortunately, you will find out that plumbing related issues are the most common service calls. I would recommend finding someone with a solid plumbing background in your back pocket. Also, in Indiana at least, you do not have to be a licensed plumber to do most repair work (trading out like parts.)

If you ever get to a point where you feel that you are ready for a property management company... give me a call. Many of our investors actually make more money by using our services as opposed to doing it themselves. It's just a specialization and volume thing really.

Congrats and best of luck moving forward!

Welcome DJ. I would definitely consider getting started in your local area. I work in Indianapolis and see people from all over the US and world-wide invest here. The state has very good Landlord-Tenant Laws, reasonable home pricing, and a stable economy and job market. If/when you are interested in breaking in to the Indianapolis market... feel free to reach out.

I think that washers and dryers depend on the local market and the type of home you are providing. Many more tenants have or are willing to get a washer and dryer than stove and refrigerator. Of the hundreds of homes we manage, I have only had not having a washer/dryer ever come up once... the (well qualified) tenants asked if the owner would provide them. Unfortunately, the owner didn't want to deal with the possibility of repairs, so we negotiated a $50 rent decrease to secure the tenant. The tenants just signed their 3rd lease... so the the tenants are actually way ahead of the costs... but the owner is way ahead by securing an excellent tenant for 3 years.

As far as appliances... we have a local vendor who refurbishes appliances. The problem is that they don't do higher end appliances. If we have a home that needs stainless steel or something nicer than we can get from them, we usually purchase new ones from Home Depot as we are a national partner and great rates for our owners. Another great reason to work with a good property manager. Negotiated rates because of residual business.

This is "Robert" (I go by my middle name outside of the office though) from your Property Management company. We are glad that you have had a good experience with us, even in light of such a traumatic occurrence. We are firm believers that, as your property manager, we are one of the most important parts of your team... especially for out of state investors. Disasters are not common, but when they happen, communication, experience, and follow through are exceedingly important. We look forward to helping you navigate this with as little liability as possible and reassuring you that no matter what may come your way... if you have the right team, it can be managed.

Much Success

Personally, I wouldn't pay more than $210k for this home.

Here's how I would go about it.

• Find out what their motivation is. If there is a specific goal in selling, then you may find a creative way to purchase the home.
• Pick the home apart and exaggerate the repair cost. You can probably easily justify a $55k rehab if pushed. Prices vary by contractor and region. Your true numbers may be $40k, but if they were willing to do it themselves... it may very well cost them $55k.
• Comp the property as low as possible - you could probably pull comps to support $300k, maybe even less in today's market. Whoever offers the first number typically loses. Ask them what the lowest price they would consider is. Then start the negotiations at about $150k (maybe even less if their initial price was lower than anticipated.) You have to do this with confidence and without even flinching. Expect them to be appalled rebut with the attitude that you're surprised that they want so much. If they don't gasp and choke at your first offer... then you offered too much.
• Explain that the home is only worth around $300k in great shape and it will cost you $55k to get it there. That put's a break even price of $245k. You are offering them a quick cash close with no realtor fees. In my area, that's 6-7%. With numbers like that, $210 seems justified and if negotiated well, you may be able to get it for even less.

Remember, we make money when we buy value. If you can't get a property for numbers that make sense... it was never a valid deal in the first place. Don't get over eager or emotional. Patience and rationality are very important... especially early on.

I work for a local Property Management company as see a wide diversity of investment opportunities in my city. I think that the deal itself has to be analyzed with exit strategies in mind.

Myself... I will not invest in low-end neighborhoods... at least under the current market. The only valid investment opportunities that I have seen successful in these neighborhoods in today's market is Lease with Option to Buy. These homes make difficult rentals and nobody who can qualify for a loan (in today's market) will buy there.

I am leery of foreclosures that have sat through multiple winters as well as properties that have unapproved upgrades from previous owners. I have seen too many rehabbers spend time and money to put it on the rental market and spend quite a bit of money in the first year of performance for unforeseen issues with the home. This makes for negative cash-flow during that time. It's nearly impossible to see every difficulty that may present itself... anything from Mechanical failures, Roof problems, Electrical or Plumbing problems, Structural issues, etc.

Most importantly... know your end game. Understand who you are wanting to rent or sell to and what their particular capabilities are. Don't measure in regards to reward... measure in regards to risk.

This is funny. I actually had to buy a newer car about 2 years ago. My previous car had over 250K miles and was about 13 years old. Now I drive a 2009 Hyundai Elantra (cheap and gets great gas mileage.) Unfortunately, I rack up so many miles with work that I by the time it's paid off... I might get $500 for the trade. Sounds like I will have to run this one till it quits as well.

 I agree in starting somewhere, but there are things to take in to consideration. I am a big believer in evaluating deals by risk... not just reward. Otherwise you are just gambling and will lose out eventually.

Speaking from the perspective of a Property Manager... we do not usually manage home below the median rent rate for the city. This helps us stay out of the war zones.
Someone earlier said that only Property Managers make money on these properties, but in my experience, what little money can be made isn't worth the time and headaches. Property Managers don't make money on these rentals... they are harder to rent to quality tenants, they tend to need more maintenance, the higher risk tenants that do usually end up in these homes are frequently late and potentially end with a damaged vacancy after the eviction. Since our management fees are based on a percentage of the rents, $50-80/mo isn't much money for the amount of work these homes usually take. We definitely prefer the $3000/mo rentals that rarely have problems... of course those are much harder to come by.

The next thing to consider is other exit strategies. The banks are still strict on lending. With that in mind, understand who is capable of getting loans and where they want to live. The next best thing will be lease with option to buy or some form of owner financing. These come with their own form of risks.

I agree that you have to start somewhere, but make sure that when you start there, you understand the risks and have proper exit strategies in place. I do not typically recommend $30-$50k (ARV) homes for most investors. I would rather leverage what I have with hard money and invest in a $100-$150k home then refinance if I am looking at a long term hold/rental.

I work for a PM Company. We don't usually like college roommate situations because they end poorly as often as they end well. In most situations, the students can't meet our tenant screening requirements without the parents co-signing. We have also been known to ask for a larger security deposit if there are risk factors uncovered in the screening process (lack of income, poor job history, no established credit, etc.)  During our lease signing, all tenants on a lease are informed that they are all equally responsible to ensure that the entire rent is paid and that they are responsible for any damages to the home in full. It is a joint account... they are all responsible equally. They can remove a roommate from the lease if the remaining tenants can qualify without that roommate, but we have never offered or considered a rent reduction in this case. We have allowed people to add roommates as well (they still have to pass tenant screening.)

Consider a different perspective. If you rented to a married couple who divorced and one of them moved out, would they both still be equally responsible to fulfill the contract? Yes. If necessary, you would move forward with eviction to get the home back in to a performing state. Either they are capable of meeting the terms of the contract or they aren't. It is a business decision... when you don't waiver with your position and explain your options as being a business decision, many people find resources to meet their obligations... especially with co-signors involved. Personally, I would call the co-signers and explain your situation to them. Let them know that their credit would take a hit and a court judgement for damages and outstanding balances would also be added to their credit report.

The next option that we could offer would be a lease termination. In our state, we are allowed to charge a tenant the full term of the lease or until the unit is reoccupied. They must also pay to keep the utilities on during that time. Our office will generally offer a lease termination for 2 months rent (ample time to recondition, market, and lease the property.) As per our lease agreement, they forfeit the security deposit if they don't complete the term of the lease. This is usually a smoother transition than an eviction if someone is capable of paying for a couple months rent.

Understand, we do try to work with tenants, but as soon as your start making concessions, they keep coming back for even bigger breaks. Lines need to drawn. You can work with them regarding their options, but not where those lines are drawn.

Hopes this helps.

Hmm... I guess that it depends on the situation. I have no long term equity partners but have worked with a few for specific ventures. My experience is that a Great Deal draws interest. Network now as much as possible (I like LinkedIn Groups.) Get a great deal under contract and let everyone you can know about it. Make sure there is at least a 30% ROI so there is plenty of money/equity to split profitably. Most people don't want to put in $100k to get $105K back in 6 months (although 10% annual is decent for a passive position if the risk is accounted for.)

Build as much credibility as possible. Show diligence and professionalism. Figure as many risks/liabilities as possible. Create multiple exit strategies. Thoroughly figure holding costs, expenses, rehab costs, and build in a fudge-factor for unforeseeable hurdles (labor issues, material issues, unexpected problems, etc.) Create a thorough Summary and Scope of Work with Hard Data. If there's money to be made, someone will want to get involved.