All Forum Posts by: Michael Totman

Slow and steady wins the race, good luck!

Sounds like this is your first purchase?  Don't forget the option to leave the current tenants in place and collect that cash flow without investing a significant amount in a costly rehab. 

Work on the vacant unit, get it rented for a market rate, and take stock of what you learn. You may be able to increase the rent a bit on the existing tenant to improve your situation simply by cleaning up the common areas. 

Analyze it, how much would you have to spend renovating the unit that is currently occupied? It sounds like you could be spending upwards $15k on this rehab with cabinets and appliances etc, but how much will that increase rent? $100, $300 a month? That means 4 to 12 years to recoup your spend and break even when you could have increased rent $75/month from the start with no extra cash out of pocket. Then wait until they decide to move before you renovate. 

Yup. I believe a lot of it has to do with economics as well. I'm sure you, like me, are looking at $200k+ properties that are dumps.  A lot of the "pitches" I've seen espousing "OPM" are looking at $30k, $40k properties that need $500 in rehab then rent for $700/month. If only...

Once you have a track record it will get easier, but as the interviewee says: "You won't give me the job because I don't have experience, but I need the job to build the experience..."  

Have patience. Get the money in your account, wait the 60 days, and do your deal. It's tough, but maybe that's your path to start. 

Keep hustling, talk to more lenders, you'll find a way.

From my understanding of it, which admittedly is low, you won't be combining your HML/PML with a traditional lender at the same time. You're doing either or. A hard money lender is an actual lender in the business of lending money for the entire purchase. With the private/hard route you're looking to get the property quick, rehab or improve the cash flow significantly, and look to sell with a flip or refinance with a traditional lender on a hold before their short terms are up. I have yet to find any that would loan you 100%, at least not without a track record, but they may not have the same rules on the gift of the down payment problem you're finding.

I hate buzzwords like OPM as they tend to get people all worked up and excited for some basic hype to sell a seminar, course, package, etc. I'm sure you can find plenty of info on this site or in others comments with more detail than I can give. 

Can  you show enough money on paper through savings, 401k's, etc to fulfill the lenders request to show proof of funds? If so you could use that in your application, and accept your parents gift on closing day in the form of a bank check in your name.  In my experience once the loan closes they don't come back and look at your statements again.

Apart from the ARV analysis already done here, you seem to be missing a few expenses that will impact your cash flow. What are the expenses for water/sewer bills, trash, landscaping, snow removal, regular maintenance, insurance, management, etc? Are you factoring in any vacancy?

Some of these will bill quarterly, some are ad hoc, but most are foreseeable.  

@Marquell Jones, what your suggesting isn't really a flip. If you buy a property, refinance to get your equity out, and rent it for a period of time you are just doing a buy and hold.  Your next step is just selling your property and not flipping if you want to get rid of it. 

Or are you talking about certain situations where you may need to season your title a bit before a new buyer could use certain government backed loans to buy a flip property depending on how you acquired it? That was an issue at one point. 

@Garmeon Y. I want to answer your question about what level of return you should look for. Don't follow anyone elses %, this is specific to you.  You must decide what return you require in order to invest in the first place. If you have $50,000 to invest what activity will bring you the best return? It may be buying a rental for $100/month or 2.4% returns.  But are you good at picking stocks or mutual funds? Most indexes will return more than that for you.  Do you run your own business and would $50,000 help you open a 2nd office or startup a 2nd crew to expand your business? 

When I look at numbers I focus on my expected returns in cash flow, and with real estate the appreciation and tax benefit, if any, are secondary to me as I plan to hold to infinity. For me, I want 12 - 15% CoC return minimum or I look elsewhere because I feel I could get 10% returns easy with way less risk.

As far as calculating that cash flow, always use your own numbers, and always make sure your own numbers come from hard sources.  Call the town or county to get recent water bills, taxes, utility usage, trash fees, etc.  Use market rents based on the units after you make any repairs, use your inspection to figure out your reno costs, etc.  Never trust a sellers numbers, always do your own work.

In addition to what @Mike Cumbie said, it's going to depend on your level of knowledge and what risk you want to take. How much do you know about local building codes and spotting work not done to code? Does that just look like dirt on the basement wall or is it mold? If it's mold, it's it just that spot or can you find the cause of the moisture feeding the mold? 

I've found that my contractor is often better than whatever home inspector I can find, but that's not always true. It's up to you and your knowledge/comfort that there aren't any serious structural issues.  What you mention above is all cosmetic, nothing to do with the large expenses that blow up flips and rentals once the reno starts...

Usually I'll have my contractor as well as an HVAC guy, electrician, and plumber look at the house with me at the same time. 

A couple things come to mind for me. Why is he evicting both sides? Is he that bad at screening tenants or is this house a magnet for bad apples and what will it cost to improve enough to attract quality people?  You could probably ballpark that just by looking at the outside.  

Or does he just think offering an empty house will help it sell? If the tenants are up to date on payments why not sell as is and take it over with immediate rent on day 1?

Why can't you see it just because of the evictions, is it part of the local law that owners can't enter apartments during an eviction? There should be something in the lease that access is required with certain notice etc. What is he hiding from you?

Can you at least see photos from the previous rental listings, or does this owner not even bother with good listings? That may clue you in to the situation as well.  

If you really want to see the inside then offer the tenants a $25 gift card to a local lunch spot and ask them to go to lunch on you this Saturday while you do your inspections.

You say you screened 20 people already, some of whom you liked better. Why waste any more thought on this one, take one that you liked better. You will regret giving in to this one if you accept them.