All Forum Posts by: Jeff Takle

THANK YOU PAM!

Fizzle, I might suggest that you absorb the "whole picture" right now about what's happening in the real estate market. Foreclosures are up 300% in CA and MA this year. Do you know why? Because people with a lot of enthusiasm, little discipline, and no education bought properties really, really fast. Then they found out they didn't know what they were doing, didn't anticipate home ownership costs like replacing a roof or having a tenant burn the building down, and they ran out of cash. You think it's hard to get money as an 18-year-old with no credit? Try facing foreclosure on ten properties! See Casey's blog for what can happen: iamfacingforeclosure.com

You will never read in ANY real estate book that the key to success was buying fast, right at the start, with no systems in place. You don't get rich by buying fast--you get rich by buying smart. It's the "smart" piece that you need to focus on now, not the "fast."

I'm not bragging because I know that dumb luck and a red hot market played their parts, but on my very first deal, I held for eighteen months and sold for $179,000 profit. That's one deal (which means buy and then sell) in just under two years for a very healthy salary. If I ran into buying 6 properties my first six months I would have bled out of cash and sold at a loss or foreclosed.

Real estate is a long term game. You are way ahead of the pack by thinking about it at 18 but please stop trying to buy a house right now. Just ask questions. Get a real estate license or work as an investor's assistant or bird dog. Learn. Read and talk with people all the time.

Patience and long-term vision are not great strengths of the younger generation, but your energy, enthusiasm and talents will take you far if you equip yourself with an adequate education.

-Jeff

There is no universally wrong (or right) answer. It depends entirely on your objectives, comfort level, and cash flow. My recommendations would be to do this in the following order:

1. You decide how much money per month you are comfortable spending on housing. [Industry norm is around 33 percent of gross income]. Since it's your first home, you are likely to underestimate home ownership costs--light bulbs, new window, drapes, broken pipes...(they aren't as bad in a condo b/c you're paying the HOA fee). But, take a potential loan payment amount and add +10% (est. annual maintenance) as your monthly expense. Then add insurance. Then add condo fee. Make sure this final number is something you are comfortable forking out each month.

2. Spend some time deciding how long you will be in the property. If you're going to move in 2-3 years, it really won't make a difference if you get a 15-, 30-, or 40-year mortgage--you won't have paid off any real principle by the time you sell. If, though, you're going to hold onto this as an investment for 20 years, then the length of the mortgage can make a HUGE difference.

At your numbers, if you hold it 40 years, you'll pay $317,000 in interest on a 40-year mortgage but only $109,000 in interest on a 15-year mortgage. But, your Principal+Interest payments will be $1,116/mo instead of $1,637/mo.

There is a relationship between how long you intend to keep the property (overall interest expense), how much monthly cash you have (monthly payments), and your intent (can you rent it for equal or more than your pymt?).

After spending time on all this, then go seek the loan that YOU want. Mortgage brokers have a lot of reasons to push different mortgages -- some are easier than others to put together; others pay better commission; others are bad and they'll be able to "sell" you a refinance in six months; and sometimes it just happens to be the only thing the broker is familiar with! Heck, sometimes they're even doing what's best for you.

You have to take charge of your lending situation or you're letting someone else determine if you should pay an additional $200,000 in interest.

Good luck and let us know what you decide.
-Jeff

[Another typically long post from me...]

It definitely takes time to build credit so starting early will pay dividends later. Even if you "build credit" a bank will not loan an LLC money if the LLC cannot show either substantial assets or a steady, reliable income stream. So, either the newly acquired property will have to more than pay for itself (e.g., a good cash flowing rental with a signed lease prior to closing) or it will have to have a steady source of other income (e.g. from consulting, property management, or RE sales over time, etc.).

Another option if you've been doing REI for a while is to roll a paid-for property into the LLC, thereby giving the LLC some assets which it can borrow against. For example if you own a condo outright, sell it to the LLC for a nominal charge and then use that LLC-owned property as collateral against investment loans.

I don't think getting a loan with an LLC is all that difficult; your choices are somewhat fewer but it's doable if the LLC either has assets and credit history of its own, or you give a personal guarantee.

And, since I haven't heard anyone specifically mention it, expect to pay several points and a higher interest rate if you are borrowing for the LLC--banks take higher risks by lending to a company versus a person living in home and those risks reflect in the higher rates. This will impact your ability to cash flow, etc. In many cases, people get excited about the idea of starting an LLC without understanding it will cost you more to do business in exchange for what can be very limited liability protection.

Finally, on the personal guarantee. Is it an awesome thing to do? No. But, sometimes we can't sit back and wait for the perfect situation to present itself. Do the best you can with what you have; if that means taking out an LLC loan with personal guarantee, and using an LLC to do the investments for you is the right business move for you, then go for it.

Have you found anyone in your area whose rentals are getting filled? I've seen a lot of landlords who haven't really changed anything in their rentals in 20-30 years, too. If that's the case, then it shouldn't be a mystery why they have all the vacancies. New rental developments commonly have things like:

[list]Nearby shopping or multi-use buildings w/retail on ground floor and lofts above.
Nearby parking and extra storage available.
Wireless Internet.
Upgraded [fill in the blank]
Ready access to public transportation or vouchers/subsidies
Laundry in-unit
[/list:u]

I have no idea what the market is like in your area and it does seem tough right now all around, but it might be worth looking at what you have (or have not) done with your rentals and see if you are still offering something competitive.

With the explosive growth in RE investments, many by newbies who spent far too much money upgrading rentals, there are both more rentals on the market and they're in better average condition than before. Like every business we need to keep changing with the times and offering the products that people want to buy. Some quick-fix upgrades that might help include:
[list]
Offer free Internet acces (e.g. if you're near college; $50/mo)
Install in-unit laundry ($600 appliances + $500-$1,000 install)
Offer free gym memberships (Planet Fitness is $10/mo)[/list:u]

Each of these likely costs less than another month's vacancy and might bring your units up to speed, or ahead of the pack. My favorite consulting quote is that "Your system is perfectly engineered to get the results it is getting." So, if you aren't filling vacancies, you need to change something about how you do business or you will continue to not fill vacancies.

Good luck and let us know how it goes!
-Jeff

Are we missing the point here? Let's talk about laws that make it illegal for one party to estimate the value of a piece of property and provide that estimate to another party. Why? I would gladly pay for the Warren Group or similar real estate research firm to generate background information and estimates for me in commercial, industrial, or residential real estate. I don't know and don't care if they have a license; they provide me the raw data and their conclusion and it has real, trade-worthy value in the marketplace. I want it; they have it; we agree on price. End of story, right?

It's an estimate, meaning a best guess given the information at hand (no need to requote the requotes of requotes). As a home buyer, why should the legislature prohibit me from getting data from anyone other than a real estate licensee? It creates a gatekeeper to publicly available information. I want as much information as I can get -- ultimately it is my decision on how to price the property and not the appraiser's or agent's and forcing me to rely solely on their input to value the property is unnecessarily restrictive.

Aren't these laws simply propogated by the NAR and similar organizations in an attempt to secure a lasting foothold in the real estate business by blocking consumers from free access to available information, laws written when it wasn't possible to find millions of terabytes of public information within seconds on the Internet? Aren't these laws just throwbacks to a time when it was possible to be information gatekeepers...the main value proposition for most agents? And, most importantly, hasn't that era passed?

Agents are given less than 1 hour of training in how to create a CMA. That is hardly comparable to the multi-year training and screening process to become a lawyer or doctor. So, that analogy is innappropriate. Doing a CMA is not complex; investors do them every single day without being appraisers. If banks want to create a formal mechanism they call an "official" appraisal and then license and regulate that process, great. But, it shouldn't be done to the exclusion of any non-bank entities (i.e. people) also estimating value.
[b]
Agents get little to no training on how to do a CMA but are allowed to perform them every day. Legislators will allow homeowners to be given the raw data and allowed to estimate value on their own--it is that much of an inexact science. [/b]So, if it's so easy that it takes less than an hour of training, and so mushy that homeowners should be allowed to do it themselves with no training, where is the harm in letting someone else chime in?

There is a huge difference between giving an estimate and intentionally misrepresenting values in order to extract personal gain or profit. If there is evidence Zillow is intentionally mis-representing values and as a result materially benefits specifically from the misrepresentation, then maybe there is some grounds.

Also, since there doesn't seem like your people owned an "option" on the home, they don't get a first right of refusal. So, the fact that the landlord did not respond to their offer is irrelevant; she didn't have to.

I agree fully with All Cash but should caveat that some states treat things differently. Potentially, if the tenants are elderly or disabled, they may get an extended stay. In Massachusetts (I get tired of its absurd rules) you sometimes need to give 6 months or more notice to certain people, living in certain buildings, under certain conditions. I'd be specific but I cannot figure the rules out here! It's not just state law; city ordnances play a huge role. Ah...I digress...

Almost certainly, they only get the 30 days.

Swimming against the current a little bit...

Write up what you feel is a reasonable offer--not an angry offer. If it's worth $80,000, put it in writing and deliver the offer. Put a cover sheet on that lists all repairs you think are necessary to make it "move in condition" as was advertised in the listing. By law, the agent has to deliver this contract to the seller.

If the offer is turned down, tell them the offer stands less 5% and when they are tired of no calls and not selling, you're happy to give them $76,000 hard cash right now. Then leave and pursue something else. FEAR OF LOSS provides more incentive than hope of gain.

If you have to, knock on the door and talk directly to the seller. There is no law against it and the agent cannot forbid it. The agent can and will get pissed though.

Don't let it get too personal. The world has plenty of of idiots, incompetents, and malcontents; just do your thing and leave the anger behind.

-Jeff

To add on, you actually wouldn't want to enact legislation that would prevent them from slashing prices.
[b]
Being able to dump property if you get into trouble is the only liquidity you get with real estate. [/b]If there were some sort of "protective" law to prevent price slashing the result would be hugely increased risk to every single real estate investor, builder, and developer. This would get passed on in the form of increased housing prices for every kind of home purchase, and the increase would not likely be small.

I empathize if you see someone buying a similar home for much less but have faith. Real estate is a long term game and you haven't "lost" 89k...you only win or lose when you decide to sell which, thanks to a lack of price controls imposed by the government, is any time you'd like!

Hold on and the market will recover in 3-5+ years. Good luck.
-Jeff

TN

I disagree. The case that's being made is that nobody other than a real estate licensee should be allowed to make a valuation of a home. Well, every single home purchaser since the dawn of time has done that by spending money -- an amount they felt was adequately fair to justify the purchase -- to buy. Every single landlord who isn't licensed (99%) does that every single rental period when they price the rents.

Regardless of how TN law is written (Lord knows there are a lot of vagueries, inaccuracies, outdated and conflicting law), it's just an estimate based on finite information. I'm an agent too and I always suggest people look at the Zillow numbers--if they help in the negotiation, use them; if they don't, don't. It's another data point. Zillow clearly makes an effort to represent the values as accurately as it can given the types and breadth of data it has. Good on them.

And to suggest that real estate licensees are generally using MORE SOPHISTICATED or SUPERIOR data sources is laughable. Most agents look only at MLS and minimal historical data which is...um...exactly what Zillow tries to do. Good agents know something about the intangibles; things Zillow struggles with. But, if half the agents (I'm being generous) can give crappy CMA estimates then why shouldn't Zillow be allowed to?

[size=18]A funny twist: [/size]if Zillow hires a licensed broker as one of its company managers, then it can provide exactly the same data and avoid the lawsuit. Manager doesn't even need to be full time. A part time consultant will suffice...Zillow...do you hear that???....I'm right here and available at the right price!

:woohoo:
-Jeff

tracy,

Two things: file in small claims court and get a debt collection agency to chase them down.

It normally costs less than $50 to file a claim in small claims court. The maximum amounts allowed in small claims court may vary, but let's say it's about $2,000. If you have a written lease and document things like the phone call from your son, the letter to the parents, etc. then you should have enough of a case to get it into small claims court. I would propose doing the following in this order:

1. Start advertising, preparing the unit, and screening tenants. Your #1 priority is getting it rented. Sure the old tenant is liable for the rent while it's vacant but that isn't guaranteed money like cash from a new renter.

2. Document timelines when you start advertising, clean up costs, ad costs, where you advertised (save copies), rental applications, miles driven to show the unit, phone calls, letters EVERYTHING. Without documentation you have nothing in court.

3. Send a letter with delivery confirmation. Better yet, pay the $12-$24 fee to have a constable (local sherrif's office) deliver a letter to the parents stating that the son broke the lease--if parents were co-signers then notify them in the letter that they are legally liable for paying the rent until it is re-rented. Specifically state what you are doing right now to get it re-rented and explain that you are moving as quickly as possible to mitigate the costs and damage to all parties involved. Close by informing them if you are not paid within XX days (use 30 if you can), you will file two small claims court cases -- one against the son and one against the parents.

4. Find the small claims court in the county of your rental and call them. They'll walk you through the paperwork and any process required. You don't need a lawyer for small claims court. Just good records and a level head. The court personnel are normally very helpful.

5. The deal for any plea bargain -- a deal where you drop the claim against them -- is NOT for the $2,000 small claims court limit. EITHER they pay the full amount due (what you think may be $4,400), OR you will win a judgment against each of them that goes on their credit reports and records. Plus, but filing two claims, you could potentially get awarded $2,000 from each party, for $4,000 total. That they take responsibility for their actions is not negotiable.

Without records or a written lease, you probably have little chance of success. With them, you can pursue this in small claims court.

DEBT COLLECTION. Google it. You'll find 100 companies. Find one that doesn't charge a fee up front. Better yet find one that charges any collection fee to the tenant (rarer, but they exist). If the tenant is more than 30 days late paying their share, sick em on the tenant. They file delinquencies with all three credit bureaus monthly, damaging the tenant's credit which they should. They also have creative ways (not Sopranno's "creative" but financially "creative") of helping the tenants pay off the debt too. Pursue this concurrent to the small claims court process to exert maximum pressure.

If you want specific recommendations, just PM (private msg) me.

Good luck! -Make small claims court your friend.

-Jeff :clap: