All Forum Posts by: Nate Garrett

Unfortunately, no. Just make sure to get your bid in on the first day of the investor bid period.

As the market picks up, expect to see more competition for potential rental properties. Methinks the real REO buying opportunities in most areas of the country are rapidly evaporating and in some cases, have already passed.

Terry P., here in Oklahoma the owner occupant period is 30 days for insured and 10 days for uninsured. It must vary in different areas.

Regards,

Nate

Tulsa, OK:

Efficiency 1BR 2BR 3BR 4BR
2013 $455 $553 $721 $978 $1,090
2012 $557 $605 $740 $978 $1,009
2011 $518 $563 $688 $909 $938

Strong rent appreciation in 3 and 4 BR units, 2 BR flat, 1 BR / efficiency declining.

Good article Mike M. Glad to see my home state of Oklahoma make the list of top 5 for personal freedoms. As far as where to invest, there are so many lists that are published by analysis firms. Just Google "top real estate markets for investors".

I find these "where to invest" lists fairly useless as they change every 6 months. Tulsa was the "Top market for conservative real estate investors" in 2010. http://www.tulsaworld.com/article.aspx/Report_names_Tulsa_top_housing_market_for_conservative/20101008_32_e1_cutlin559627

It is now nowhere to be found on these "top-10" lists, although the Tulsa rental market has improved since 2010.

Wouldn't it be nice if you could, as in investor, move your investment capital from one MSA to another whenever the forecasters changed their top-10 list?

Unfortunately, transaction costs, commissions, and make-ready expenses will typically dissolve any gains that are made in the short term. That is why I advise my clients to pick an area and properties that they will be happy owning for the long-term.

When shopping for a market to invest in, some important factors include acquisition price vs. market rents (P/R ratio), job and local economic growth potential, and market stability (both rents and housing values). Try http://trends.truliablog.com/vis/rentvsbuy-winter-2013/ for a decent nationwide visual depiction of P/R ratio.

As a painful lesson that so many learned in the downturn, it is folly to include the gamble of price appreciation in our real estate analysis.

We live in a society that focuses so much on the short term, but real estate investments are much better suited to the long term. The difference between real estate speculation and real estate investing is a big one and the two different philosophies are often misunderstood. Benjamin Graham (Warren Buffet's mentor) wrote in Securities Analysis "An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative." These words are as true today as the day in 1934 when they were written.

Hi KENDRA JOHNSON. Here are some thoughts based on our property management experience here in Tulsa, OK:

We agree with you. Arbitrary or automatic rent increases are frustrating to tenants, especially in markets where the rents are not increasing rapidly. Any rent increase should be backed up by comparable leasing activity in the area and the tenant should be shown the evidence that they will still be paying a very fair rental rate. Good tenants are like gold. Why would you take a gamble on losing one with an automatic rent increase?

We use combined market research including MLS, Craigslist, and local market knowledge. We like to set rents just under market as we believe it encourages a larger tenant pool and results in longer tenancies. Setting rent can be counterintuitive. Vacancies and re-lease expenses are what kill your ROI, not $25 or $50 a month in slightly below-market rent.

In our market, properties tend to lease within 30 days, so we like to give it roughly 3 weeks before we make any adjustments. Higher end rentals will normally receive less interest so we would give it a bit longer in those cases.

Our company's philosophy matches yours.

Hi Marc Murano. I agree with Bill here.

If you expect that the new hire will be able to add several new management contracts per month to the business, it may be agreeable to pay them straight commission as an independent contractor with a very low broker share (say 90/10 split). You could also offer bonuses at certain annual performance levels as additional incentive.

Based on your description of the desired roles this new hire will play, it sounds like the independent contractor structure might be a good fit. Adjust the commissions/bonus structure to incentivize the desired performance and make it sufficiently lucrative so you can attract and retain good talent.

If you have not done so already, you will want to study the IRS rules governing treatment of employees vs independent contractors: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-(Self-Employed)-or-Employee%3F

Best of luck with your business.

Nate

That depends. It has been my experience Return on Investment is inversely correlated to the amount of work needed on a property. My highest cash flow rentals are those that required the most rehab to get rent-ready.

However, major rehab projects may not be the best idea if you are new to the business or do not have rehabbing experience. So you may decide to give up a bit of ROI to ensure that you can handle the rehabbing on your first project by purchasing a carpet-and-paint-rehab type of house.

I have not worked extensively with wholesalers as I normally buy directly from the banks or at the auction, so I can not speak to what impact they will have on your ROI. I would ask experienced investors in your market what sources they use for acquisition.

Hi Vincent Falcone,

I will answer some of the questions you asked based on my experience here in Tulsa, OK buying and representing buyers of auction and REO properties as long term rentals.

Yes, "no money out of pocket" is still possible, but it's not as easy as some late-night informercials would have you believe. The key is to find a commercial lender (or hard money lender if you cannot get a commercial loan). We use smaller local/regional banks to accomplish this. The importance of establishing a personal relationship with your local banker cannot be overemphasized. You may have to meet with several before you convince one to work with you. A common scenario here in Oklahoma would look like this:

REO/auction purchase price: $50,000
Repairs needed: $20,000
After repair value: $100,000

Step 1: Commercial bank lends you $50,000 + $20,000 repair funds + expenses (total of let's say $72,000). Since the bank is giving you 100% Loan to purchase price, they will want additional collateral. Out here that takes the form of a Certificate of Deposit. So when you sign the mortgage, you will write the bank a check for $14,400. At closing, you receive a check for $20,000 repair funds.

Step 2: After closing, using the $20,000 repair funds, conduct repairs and get the property in rent-ready condition.

Step 3: Now that the property is in great condition, apply for a 30 year, fixed rate refinance with your favorite mortgage broker, or tell your commercial lender that you would like to refinance into long term financing (typical terms might be 20 year amortization with a 5 year term).

Step 4: The property is reappraised for 100k; you owe $72k. So you are attempting a refinance of a non-owner occupied property at 72% loan to value (LTV).

Step 5: Complete the refinance. Now that the commercial loan is refinanced, you get your $14,400 CD back. Even if you refinanced with your commercial banker, since the LTV has decreased the bank should release the additional collateral back to you.

You have successfully acquired, rehabbed, and placed into inventory a buy and hold rental property with no long-term capital tied up in the investment.

Now, I should say there have been many an investor who only did $10,000 in repairs, and used the other $10,000 for other purposes. Or overpaid for the property and it doesn't appraise for the expected amount. Or the rent is not as high as expected and after refi the property is producing negative cash flow month after month.

My point is this: be careful; real estate investing is full of potential pitfalls. You are doing right by studying and asking questions. Take your time and make your first deal a good one. On the flip side, don't get "paralysis by analysis" and never get off the starting line.

There are a host of legal/tax implications involved with forming and operating a rental property business. You should consult an attorney and tax planner to determine the best way to take title to your properties.

Seriously. Pay a few hundred dollars for the counsel, it could save you thousands down the road.

Commercial lenders will loan to a corporation or LLC. So-called conforming lenders (consumer lenders) will not loan to anyone other than natural person(s).

REO properties should come with clear title (no liens). Your title opinion should advise you of any issues with the title. I recommend title insurance to all of my clients for long-term buy and hold rental properties.

I have found that the sales people at PropertyWare have some room to negotiate with you on price if it makes sense. With your number of properties I bet they would be willing to make some adjustments to make the pricing more reasonable in the anticipation that your company will continue to grow.

They have spent several hours with me in different areas to help our company expand. It seems that they have a good focus on helping their customers increase volume, which in turn increases their business. It's great to have a partner like that.

Nate

Sergio A., we use PropertyWare to manage 140+ units in Tulsa, OK and are very satisfied customers. We converted from Tenant Pro last year and the transition was surprisingly smooth. We also used RealPage (the parent company of Propertyware) to redevelop our website and we were also very pleased with the work that they did.

We are especially pleased with the integration of all the modules in the PropertyWare interface. From initial contact with a potential client (owner), to conversion, entering the portfolio and property into the database, marketing, leasing, monthly management, maintenance, the information flows across the application. We are finding increased efficiencies in our business every day as a result.

I haven't tried the other products you mentioned, I'm sure some of them are very good as well. I don't think you can go wrong with PropertyWare.

Thanks Brandon Turner, I added several of the alerts.