All Forum Posts by: Scott Houin

Nick glad to see you are starting so young. I wish i would have. 

You might consider house hacking.(Buying a multifamily and living in one unit). This will allow you to go conventional or FHA since you will occupy the property. There is a ton on house hacking in the forums . If you have military time i would look into the VA loan.

Reading books and articles are great and you will learn a lot and  I would continue to do this.  Most importantly I would start making offers and finding deals.  You will learn 100x faster by buying a property.  

Action Steps:

Call or find a real estate agent in your area and ask them to start sending you Multifamily properties for sale. 

Attend a local real estate meetup in your area. If you can't find one then i would suggest looking for "properties for rent signs"  Call them and ask the owner if you can sit down and have coffee.  My guess is they would be glad to talk and help you. 

Good Luck!

I own a few rentals in Columbia.  Rent has been pretty stable so far.  Nice thing about renting to students is parents typically pay on time.  

From what i have seen most flips are done in the downtown area of Columbia.  I did a flip in Moberly, Mo that went pretty well. 

I bought this little property in a small town in the middle of Missouri. I bought this property about 3 years ago and when i did I had to rehab it, which took a lot of my time.(at least 10 hrs a week)  However, after we finished the rehab and put a renter in the home I have not had to do a thing.   I spend about two mins. a month reviewing the statement and depositing the check.  I bought the home for 20k originally, put 12k into the rehab and cash flow $199/month.

Most of my time is spent up front on the properties i own. Once I own them and have them rented I really spend less then 1 hour a month on them.  This is mostly due to a good property manager.    Most of my time is spent doing the accounting and depositing checks. 

On most investments if the proper time is put in upfront on education you will have to do less on the back end. I believe this goes not just for real estate, but other investments as well. 

Hello,

Today i would like to talk about buying in small towns in rural areas. 

Back ground:

My wife i and began investing in real estate two years ago.  When we started we were having trouble finding quality deals in our price range in our city.  It was because of this, and my mentor we adjusted our strategy and started looking for deals in the smaller towns near us. We ended up finding some deals in a smaller rural town that we like made an offer and it got accepted.   We bought the property for 20k did some repairs and rented it out for 450/month which provided us a cash flow of $150/month.  The property has been rented for a year and we haven't had any issues to this point.(knock on wood):) Since we had some success and learned a lot from my this property we thought we would start looking for our 2nd property in the same town and area.  The town we are investing in has about 13k people, two small colleges and several blue collar type employers in the area.  Most houses in the area are below 100k and its about 45 minutes from where i live.  We also have property manager who has done a good job to this point. Our main concerns with the market is that most of the houses are built in the early 1900's and the market seems to move really slow.  Many of the homes listed tend to be on the market for 60-120 days, sometimes longer.  it is also been hard to pin point resale values as comps seem to vary in price significantly. 

We have a current deal that we just put an offer on today and I will go through the numbers.  We are buying this home from an investor and its a two home package deal.  The properties have 3 units and all are currently rented out. 

The offer price we put in on both homes is 62k.  Rental from 3 units is 1450/month.

We estimate about 912/month in expenses, which include mortgage, vacancy, repairs, property manger, taxes and insurance.  

The cash flow from the property would be $537/month or $179 per unit. Total cash in would 15k with a cash on cash roi of 41%

On paper I feel the numbers work and that is why we made the offer. However, we noticed that finding deals with the same type of numbers is pretty easy in this area. (many being listed on the MLS) Why are other investors not buying these up left and right. I thought maybe I'm missing something that other people know about.

Is it possible that people are just not looking in this area?

On a rental property should i put much weight on the resale value?  I don't see much appreciation on properties in this town.

Anyone have any experience in other towns like this? Good or bad? 

Any other general thoughts of things to look out for or any suggestions on people i should contact as part of my due diligence?

Hello All,

I recently bought a property which I used a private lender.  I'm currently working to refinance the property and ran into a few issues/concerns.  The loan amount is only 32k so many of the banks i have tried to work with keep directing me towards 10/20 commercial year loans. The property has been rented for 3 months and on a 10 year loan most of the cash flow is gone.  My goal is to have cash flow not pay off the property quickly.  Personally i really don't care how long it takes to pay off the property as long as I have cash flow.  There is a small amount of cash flow on a 20 year, but i feel i could do better on a 30 year conventional financing.

I have lender that will allow me to use a conventional loan, but the home is owned by my business and not in my personal name.  Its my understanding that i cannot use a conventional loan on a property owned by my business? Not sure if this is accurate or not.

I thought i could just transfer the asset to my personal name, but i'm unsure of the tax consequences. if i have to transfer the asset to my personal name would there be any tax consequences for doing this? 

Here are the numbers on the property.

bought for: 20k 1 year ago

repairs: 12k

owed: 32k 

current value: 30-40k depending on appraisal 

Rental: $450 

I setup my LLC in Nevada(i live in Missouri and run my real estate business in MO) because I was told by a good sales guy that this the best way to be protected from being sued. At the time it was a part of my coaching package, so i went with it.

When my renewal time came around I found out that I would would have to pay renewal fees. Missouri doesn't require any fees.   Moreover, I found out that i would also have to continue to pay an organization(attorney) to file all my docs and i couldn't do it myself. So total the fees end up being about $500 a year, when i only have 1 property, which is in MIssouri.  

I went to a local Lawyer to see if i could change my entity around and he was going to charge me around $1200 to do it and he mentioned that there would be tax issues and i would have to set up a new entity in MO and transfer assets. 

I feel stuck and think it was a bad choice to set my entity out of Nevada. Are these fees normal for an LLC? Am I getting over charged from attorney's? Is the extra protection worth these annual fees? Should I just call an attorney and cpa and get this fixed and take my losses?

Rick and Mike thanks for your responses. 

I felt i did enough research, but clearly i didn't.  I had comps with 90 days and 200 sqft., one thing that i didn't consider was the age of the home.  The appraiser would only consider homes in the same age category, even though it was remodeled. So many of my comps were in the 1950's were as the appraiser used comps closer to my age in the 1920's. It's hard to say, but more research could have solved this.  

I also could have just financed the down payment with my private lender instead of doing the whole deal. This way the bank would have their own appraisal done before hand. I did my own appraisal, but it wasn't based off ARV only off current value.

Mike when i say "a lot of cash" i should probably be more specific here.  I would only have to come up with 12k(not a lot), but at the time that was most of the cash i had so i was trying to keep it so i would have reserves. 

Thanks again for the comments.  I wish i would have utilized this board when i bought the home!

Thanks Anthony and Mindy for your responses that is extremely helpful!

Mindy: 

I was actually pretty surprised when the home didn't appraise and i did appeal it. Unfortunately, I kept getting pushed to the side from my lender and appraiser. Every time I asked a question they gave me really terrible responses or took weeks to respond to me.  I even had my father(30 years as an appraiser look over the appraisal and he thought it didn't make sense)  I have a feeling that this was mostly because the loan was only 32k.    I thought the home would appraiser for 40-50k, it appraised for 25k. 

We believe the issue on the appraisal was that the realtors in the area do not all participate in the MLS system in this town. (this is a small rural community). Therefore, when the appraiser went to look up comps he had trouble finding them. I did call realtors in the area to provide me with comps and sent them to my lender. This was after we saw the appraisal( should have done that first) However, i could not get them to look at all the comps nor answer any of my other questions. I also had it appraiser in the middle January, and in this town the market really slows down.

When i did my ARV starting out I used recently sold comps. Again this was in the middle of the summer, so the market could have been better or I was just dead off on my comps. I do feel like we over repaired for the area. That being said I'm glad i took the leap for my first property because I learned a ton.

We are actually going to try again here soon.  Just need to let the appraisal expire.   We think we might have a better shot, being the house is now rented.  But i will also need to review comps before we get moving. 

P.S Saw you were from Colorado!  Grew up in Colorado Springs and miss those mountains!!

I recently did a deal that was privately funded. I financed 100% of purchase and repairs. The issue i ran into was that when i went to refi, the home did not appraise. I now had to come up with a lot of cash to refior continue to pay on an interest only loan. A property that was going to be a great cash flow property nowhas no cash flow and no equity. I'm lucky because I was working with a family member that allowed me to just continue making payments, so i wasn't really hurt by the deal other than my time.

My question: What would happen if this would have been a Hard Money lender or a private lender that wasn't family and they called the note after 12 months and i couldn't get them the money? Is it typical for them to foreclose in this type of situation, extend the note? I was able to continue making payments, so the only issue would have been getting the cash for the entire loan price.

You should really think about your goals when trying to evaluate this deal. For example: I know investors that don't care about cash flow, they are looking to buy properties finance them on 5-10 year notes and pay them off as quickly as possible. These investors tend buy homes in really good condition and may pay more for a property. These investors also tend to have other income to support the payments or are in a high cash position I also know other investors that will only purchase properties with certain cash flow like $300/month. If the home meets that criteria then they buy. I think it might help to know what your goals are for the next 5,10 and 20 years. The 50% rule is only a tool to help you evaluate deals faster. I personally wouldn't use it as my final analysis. Just my thoughts I hope it works out for you!