All Forum Posts by: Tom NA

And I would never sign a contract with a property management company that doesn't give me the option of cancelling the contract with a 30-day notice.

From my experience, be prepared to feel ok after interviewing several but also be prepared to be underwhelmed when it comes to actual results.

I would do nothing, not your problem. I always had renter's insurance when I was a renter and expect my renters to do the same if they want to protect their property. I provide them with as safe an environment as can be expected with working door locks, window locks, etc. but they are responsible for their own personal property insurance.

It's ok to feel sympathy for your tenants but don't let that get in the way of making smart business decisions. As long as you have provided as safe an environment as can be expected, it's their issue to deal with.

But I think what you are missing Chris and Will which I think gets to the crux of the issue for John (and many others) is *how* does he find the great deals given that he will only spend limited time looking. Everybody knows to buy low enough and utilize a property manager if necessary so you don't have to spend too much time on your property. However, given that John is only willing to spend x hours per week, can he reasonably expect to even *find* these great deals? I've accepted that it's virtually impossible with the amount of effort that I put in and that's ok for me.

Don't want to put words in your mouth John so please correct me if I'm misinterpreting.

John,

As someone who is very much a part-time investor, I can give you a few thoughts on this. First, you need to know that my goal has never been to replace my full-time job so I have a bit different perspective than you may have - I have a good job that I enjoy and RE is merely a place to put some extra money for me for diversification. However, I believe I have some of the same challenges as you.

First off, can you clarify your goal a bit more? Does liberating yourself from employers mean eventually quitting your job? Working less hours? How do you want to do so - by becoming a landlord? Flipping properties?

These answers can be important to how you may want to proceed but another key question is *when* are you looking to spend more time with your family? Now or sometime in the future? For example, I have 2 young kids and for me, *any* of my minimal investing activity takes a back seat to spending time with them. If I were looking to make a career out of this, that would mean trading off quality time *today* for more sometime in the future (1 year? 5 years? 10 years? or possibly never?) - you really need to think about this. How long and how much effort do you really think it might take to get up a RE Investment Business, from scratch with no experience, to a scale that is large enough to give you this extra freedom that you are seeking? Is it realistic that you are willing to make the sacrifice today and for some extended period of time for the payoff in the future? I don't want to sound negative but just realistic - lots of people come to this site seeking freedom in life via RE Investing. I suspect very few actually find it as it's not easy and for most people, I actually think the stock market is a safer place for their money.

With all that, let me tell you how this part-timer has been mostly *un*successful. First, realize that I had the financial resources to protect myself in case of any disastrous moves and I've made some bad choices. We first decided that we wanted to buy an investment property just for diversification and to 'get someone else to pay our mortgage'. With that goal in mind, we targeted the Phoenix area since I know it and just found a place off of the MLS. Bought it, and in spite of the rise and fall there have still made decent equity on it. It would be considered an *awful* deal by anyone on this board but we put down 20% and have managed to keep it rented. As long as there are no major issues (and that's the big if each year), we make a little money on it and of course, someone is paying our mortage as we had planned. However, we're 1 roof repair or something similar from making this a big loser over a several year time period not to mention the big chunk of cash that we tied up with the down payment. Again, that works for us as it moves some money away from stock but this is not considered a good investment by any stretch.

Since then, I've started learning more and ultimately bought 2 more houses - both from contacts made over Craig's List. One in the Portland area has been an ok investment but if the lease-option tenant ever leaves (on their 4th year of very high rent), that one quickly becomes a loser. My duplex in Indiana is the only one that has very solid numbers that would withstand the scrutiny of the experts on this board. That was the first purchase I've made since having what I feel is a good grasp of what makes a good cash-flowing investment.

So my strategy then to leverage my time considering that I can't buy locally and am not willing to output much effort honestly:

1. Assume that I won't find anything good and be skeptical of anything I do see. This is my most important tenet. If something's a good deal, someone other than me probably already bought it.
2. I glance at various areas in Craig's List and occasionally on a couple other areas on the Web. If I find something interesting, fine. If I never find something, that's fine too since I don't expect to based on point 1. I'm not putting in the effort so I don't expect to find much.
3. With that said, I occasionally find something of interest and am not afraid to take action if it pans out. For example, I recently saw a 4-plex in Indiana listed for around $20k I think, bringing in rents between $1300-$1400. If it were in good shape, why wouldn't I do it if I have the cash? On the flip side, see point 1 again as I have to ask myself why someone else hasn't bought this. Landlord pays utilies - that's an issue but could perhaps be remedied. Some minor rehab needed - need to understand the definition of minor. Anyway, ability and willingness to assess and act quickly may get you the occasional deal but I consider something like this the rare diamond in the rough.

One final point, I also tried to partner once on a rehab since it seems that can be where you oftentimes find your best deals. Unfortunately, that ended very badly and was a very expensive lesson. As a part-timer, I suspect I could probably get my hands on more good rehab deals than anything else but since I know nothing about rehabbing, and don't have trustworthy resources aligned anywhere, I have chosen to stay out of that game. You may be able to find a market with lots of rehabs, partner with someone who can commit the time and expertise (since you don't have the time) and share in the profits - just be certain that you have something to bring to the table and that you are protected on the downside.

Not sure if any of this helps but good luck!

Hey Jon,

What about either:

1. Desert landscaping.
2. Synthetic grass - haven't seen anyone with it yet but I've seen it pushed pretty hard out here in California at various venues. It can actually give a pretty good look and feel and of course never needs watering.

Good luck.

Typically, you have prepaid interest at closing to cover the rest of the current month and then mortgage payments in general are in arrears so if you close prior to June 1, I would expect your first payment to be due on July 1. If you don't close until after June 1, your first payment may not be due until August 1 though that also means you will need to have all of your loan interest for the month of June at the time of closing.

As for lawyer fees, I don't live in a state where lawyers are required for RE transactions but I would expect that would just be one of the many fees included with your closing costs and should be part of your final settlement. So, whenever your transaction is closed is when your lawyer and everyone else should get their cut.

Others - please feel free to correct me as appropriate.

Good luck!

Buying your first personal residence is indeed an exciting milestone - congratulations on doing it at such a young age! I didn't get there until my early 30's.

Please please please don't look to invest 75% of your savings in the hopes of generating some minor cash flow while you're unemployed. That $30k will carry you much further during your unemployment than you can ever reasonably hope from a RE investment.

As Jon said, use it to get an education or even use it to help you live over the next year or two. The job market is tough so who knows how deep you'll have to dip into your savings while looking to regain your full-time job. Sacrificing your cash reserves at the time when you need them most is suicidal.

Obviously we won't see eye-to-eye on this and it just gets worse everytime I hear more - I'm even more disturbed if you truly have $1mil in NET assets (that is after all debt) and yet are declaring bankruptcy. If I had $1mil in marketable assets, making a $3000/month mortgage payment wouldn't be so hard. And if those assets aren't so marketable - well - perhaps they're not quite worth $1mil. Regardless, at this point, we'll each have our own opinions and leave it at that.

Anyway, this final response is really to again (for the 2nd time) answer your question on myself. I am NOT a funder, banker, etc. I am just a person who has made a respectable living outside of real estate and have an *unimpressive* set of 3 investment properties + my own home. I was NOT born into wealth - I invest with money that I made in the first 40 years of my life going through college, getting an education, making and saving money first before spending it. I'm surely not getting wealthy off of RE and I'm a far cry from many on this board in terms of RE knowledge. In fact, I have made some very bad RE decisions so I certainly don't look at someone and blame them for bad decisions as I'm at the front of that line!

I understand the use of OPM and why people use it - it's not for me (except for using bank loans of course) but if people use it *responsibly*, more power to them. The reality is that too many people don't use it responsibly. I don't blame brokers for people's bad financial decisions - yes, they may be misleading or selling people a product they shouldn't be in but at the end of the day, responsibility lies in the hands of the person taking the loan. Just as responsibility falls into the hands of the person who puts too much on their credit card, buys that plasma tv they can't afford, pays too much for a car because the dealer was a better negotiator, etc. In the end, we're all responsible for our financial decisions - nobody is forcing us into bad loans, bad purchases, overspending on consumer goods. We are not victims unless we let ourselves be victimized.

When I bought my first house, I had a mortgage broker telling me that I should be in a 1-year adjustable loan with a low intro rate. If I didn't take *personal* responsibility for my own financial decision, yes I could have been in a bad situation come year 2 but as I should do, I took the time to understand the full ramifications of what they were recommending and took my business elsewhere. Would I have considered myself a victim if I followed their advice? Absolutely not. I may have considered myself stupid for blindly following their advice but I never would have blamed them for my financial decision.

Anyway, this has strayed incredibly far from the purpose of my first post. Obviously, all people don't see eye-to-eye and I think that's great. I always appreciate a good debate and again, wish you the best of luck.

Sigh... ok, I'll try one more time. The point I was trying to make (and will hold firm to as I've seen nothing even close to changing my impression):

o The other investor that you initially mentioned gives investors no worse of a name than you. He is pushing the boundaries of legal ethics and you are pushing the boundaries of moral ethics. Yes, what you're doing is legal but looking to have some of your debt relieved so you can go after more debt with a different investment is morally suspect at best.
o The fact that you're on the brink of financial ruin and somehow hoping to come out staying in the investment game is at the root of your problem. I know we all feel entitled and want to improve life for our families but in my opinion, people who are struggling to make ends meet should not be in this game. Looking out for your family is incredibly noble but RE Investing is a very dangerous way of attempting to do so. You've already proven that and honestly, if I wasn't successful in my real job I could have proven that to my family too. The only real difference between you and me is that I built up plenty of CYA money prior to making my mistakes and wouldn't have dared enter the game if I didn't know that I could sustain some losses.

Btw, as a separate aside which you may not be interested in, I'm pretty certain that holding onto and renting your $400k house is also a very bad investment decision. I'm quite certain that anyone on this board looking at the numbers would back up that opinion.

I wish you all the luck and I appreciate that your main goal is looking out for your family which as I've stated before, is more important than any of this stuff. Just realize that money does not fall into your lap in real estate - it takes work, luck, and calculated financial decisions - and there are probably better ways to help provide for your family beyond all of the other great support you are obviously giving to them.

Good luck.