All Forum Posts by: Tom Mole

@Connie Stainbrook,

I agree with @Account Closed. Putting lipstick on a pig in this case might not be worth the expense. In fact, you can use the fact that it needs a little love as a selling point, People love bargains, so position your sale to the bargain hunters and sell hard on the location and potential. Talk to a realtor or two that sells in that area.

The problem is this: you don't know your buyer yet! If your buyer "might be" this and "might be" that, then take the "might" out of equation. Market specifically for the buyer you want to sell to.

"Hermosa Beach is a pleasant and relaxing beach community with moderate temperatures year round. It's mere minutes from the Long Beach Harbor and the Queen Mary and short drive from the unique, bohemian lifestyle of Venice Beach. Upscale shopping in Santa Monica is just bit further to the north. Where else are you going to find all this while letting tenants pay your mortgage? With just a little TLC you customize this duplex to be uniquely your own. Isn't it about time you dusted off your beach cruiser and watched a few more sunsets at the beach?"

....well, for example....

Make sure it shows clean and smells nice. When the buyer points out all the flaws you admit the place need a bit of love and that is why you're selling it at such a reduced price, then focus on how much it will be worth once they put a few thousand dollars into it which they saved on the purchase price anyways. After all, if you fixed it up, you'd be selling it for A LOT MORE.

....see what I'm getting at?

That being said, how much more could you get for the place if it were dressed out? If you had to put $50k and carrying costs into it, but could get $150k more on the sale, would it be worth it? Want a partner?

@Heather Ippolito

This property probably would not meet my ROI requirements. Given $1300/mo and applying the 50% rule (since you didn't really account for all the operating expenses) gives only $7,800/yr. If you got it for $125k all cash, your return would be about 6 1/4%. If you have one month vacant per year, your return drops to 5.2%. Pretty thin. You'd do better to loan your money to a rehabber at 12% and forget the worries of being a landlord.

Now you could increase your percentage return by leveraging the property, however your debt service with eat into your cash flow. All in all, this would probably be too thin at this price point. What return on your investment do you want? 

You could work from your needs to determine whether a deal will work for you, instead of starting, as most of us do, from the seller's needs. Try this: I need to make X% ROI and $Y of cash flow each month for a deal to be good. Given the rents in the area, I should make $Z/yr. In order to do that I would have to pay no more than $C in cash and finance $F.

For example, I found a nice home in an area where military families would pay $1,300/mo. I want to make 8% or better on my investment and at least $400/mo in cash flow. We'll assume for this example the expenses come out to 50% of income, including vacancy. 

So, 

$1300/mo x 12 = $15600   (gross income/yr)

$15600 - $7600 (gross expenses/yr) = $7600/yr (NOI)

$7600 / 8% = $95,000 (all cash)

$400/mo x 12 = $4800 (cash flow/yr)

($7600 - $4800) / 12 = $233 (debt service/mo)

$53538 @ 3.5% for 30 yrs = $233/mo

$80462 (cash) + $53538 (credit) = $134000 (seller's best offer so far), which yields 9.45% cash on cash and $400/mo cash flow

Pretty cool, huh? I know it's a little complicated, but I squished it all into under a dozen lines. It leaves you with a better return on your money than an all cash offer and more of your hard earned dead presidents in your bank account looking for another deal.

What do you think? Clear as mud, right? Play with this a bit, tweak the numbers. It should start making sense after a fashion. If you have any questions, feel free to ask.

@Jacob P., nobody really addressed the scope of this electrical fiasco. Let's face it, if this isn't a big job, then it won't be worth it to take the long shot of going after the seller or the inspector. The fact is, this is the kind of thing that gets missed all the bloody time.

Having been an electrician in CA I've gotten familiar with the NEC (National Electrical Code) which applies across all states. Romex can be routed through a conduit, just not legally. This means it needs to first stop at a junction box and be spliced to individual wires to be run through a conduit. Usually this is no big deal, so your electrician should not charge much for it. If he wants more than about $200 for the job, including parts, you should get a second opinion.

To the other point you brought up, Romex is NOT the reason your breaker is tripping. More likely your breaker is overloaded. AC units draw a bunch of current, especially when they start up. If you really mean the "main" breaker is tripping, then you really do have a problem. You may need a panel upgrade and that will cost at least $2,000. 

If however its a branch circuit that's tripping, then you may be able to change out the breaker for one with a higher capacity. You better check with the electrician first though. You can't "just change" the breaker safely. The wires have to be able to support the current that flows through the breaker. This is serious business. Spend the extra money to get a real electrician, not a handyman. I mean licensed and bonded with a good references. 

Get a qualified estimate and post the details. I'll be happy to let you know if this guy is genuine or full of poop. Send me a PM if you would like me to help you drill down on this issue.

When all is said and done, you'll likely find that legal recourse will only help so much. The original law, caveat emptor, is your best advice. Sometimes, despite your best efforts, these things pop up. You can make system fool proof, but you can't make damned fool proof.

Hey @Sergey Perevalov, you're close to me. I'm about 10 miles east of Northridge! How cool is that?

Appraisers are a funny lot. They come up with some strange evaluations sometimes, but mostly they come in somewhere in the realm of realistic with the market. There's no guarantee what number they'll put on a property. That said, they are not supposed to considered unpermitted construction. If it's recorded as a 2/1, then it's a 2/1. This can work to your advantage.

Remember the appraiser is most important to the financier. If the house won't appraise, you have leverage in asking for a lower price. Use that. As an investor you buy as-is, where-is and how-is in it's current state and condition. That means for less.

If you can get the work permitted after the fact, your appraisal could go up substantially. Do NOT pay for what might happen, however. Let your seller know that you are taking a huge risk by buying without all necessary permits. Chances are very likely that you're going to have to rip up some walls to show the inspector that things were done to code. And, OMG, if things weren't done to code, even just a little, you may have to pay to demolish the existing work. Even the demolition requires permits.

While it probably won't come to this if this property is in LA city (for example, almost anywhere in the SFV), you will certainly need to construct a new garage or carport in order to get your permits signed off. Once the permits are in your property will be reassessed at the latest tax rates. The assessor is the guy you really have to worry about.

OK, let's take this from the top. Yes, in theory you could market to a retail buyer, however...

Retail buyers can be difficult to find when you need them. Usually they want choices, but as wholesaler your inventory is likely highly limited. It's hard to compete in the open market served by an army of realtors.

Once you find a retail buyer he'll usually need to apply for a loan and all too often will fail to qualify. When that happens you have to start all over again. I can't imagine a seller waiting indefinitely for you claim part of his profit for doing what he could have done as well on his own. If you were to use a realtor to market for a buyer, you would be on the hook for the commissions. That could chew deeply into your expanded margins.

In some states (Texas may be one of them) there are movements to make wholesaling illegal on the basis that you are only acting as an agent without getting a license and submitting to state regulation. Selling to the retail market is what licensed agents do. I would not want to stand before a judge and explain how I didn't cross that very fine line. It just isn't worth the risk.

Finally, you might keep in mind that until you have mastered wholesaling "by the book" you really are not well served by reinventing the wheel. Ask yourself, "am I really the first person to think of this great idea"?

I would say that most people who give up the dream of being a real estate investor failed at wholesaling. They were told that it is easy, takes no cash or credit and will make anyone rich in a short period of time. Lies!! For most folks it one of the hardest way to get started, which is why newbies fail with such reliability. If you MUST be a wholesaler, please find a successful wholesaler and beg him to let you apprentice with him. You'll see what I mean.

There are other ways to get started without cash or credit. Join a local REIA. Listen to all the BP podcasts and jump onto @Brandon Turner's weekly webinars. Learn about other strategies. Find experienced folks to partner with. Real estate investing is a team sport, so start building your team by recruiting to your weaknesses. Build your lazer-like focus on area of the market that isn't inundated with every newbie who bought the dream from some $1497 guru. You'll be glad you did.

(Wholesalers of the world: Don't hate me for these words of warning. You know wholesaling is a tough market. Be honest :)

Who is the foreclosing lien holder? Is it a regional lender or perhaps a private party? Have you at least made an offer to purchase the existing financing? 

If you could purchase the underlying note, you would not have to deal much with the delusions of the current owner. With the note in hand you could offer to modify the mortgage, if the owner is cooperative and competent to make your payments. Should the owner be recalcitrant and uncooperative, you could complete the existing foreclosure, thus getting the collateral at a reasonable price.

This is just another way to deal with delusional owners. It depends a great deal on how much the bank is willing to press the foreclosure. It may not work, but what have you got to lose in trying.

I hope this helps. Let me know if you have any questions and especially if you have success. All the best.

@Kyle Brown

Congrats on being willing to get started and taking action. You're off to a good start. It's really good sign that you were in fact wise enough to stop, take a deep breathe and ask for advice before jumping off the cliff.

That said, you sound like you're on a terrific track already. The idea of buying a duplex, rent one unit and living in the other is a well supported idea. This is exactly what @Brandon Turner did for his first investment. He calls this "House Hacking". In fact I would shamelessly contact Brandon directly for tips and advice. He's a very sharp cookie!

I would also take to heart the points that @Adam Bartomeo offered you. House hacking is a great way for many people to get started, but it is not free of pitfalls and it is only a start to investing, not an end in itself.

Take a look at the Find Members section to find other BP members in your area. You may be able to get localized advice and tip on resources. Who couldn't use a tip on reliable plumber or electrician in your area. Perhaps some of those contacts will be partners on one of your next deals.

Good on you for going for it. You on a great track. Keep us in the loop and let's know how it's going from time to time. If I ever get around to the South Jersey market, I'm gonna keep your name in mind.

Luck is for rabbits. May you have great success!

@Vivek Khadilkar

Welcome to the BiggerPockets community. You are in a great place! 

Since you're just starting out allow me to make a few suggestions to get you off to a running start. First, click on the Learn tab above and start clicking on some of the menus. There is so much there it can be overwhelming, so I recommend you start by downloading and reading The Ultimate Beginner's Guide to Real Estate Investing by @Brandon Turner. Then start chewing through "How to" guides until you've read them all.

When you find you need a break from reading take a look at the podcasts. There are currently 136 of them, so it can take a while. Pick the titles that interest you first. While you're at it take a look at the #AskBP podcasts. They're short, single topic presentations that provide excellent, highly focused content.

OK, so once you've done you homework and learned the language. Go on the Forums and start asking questions. Read the responses from people who have already asked questions similar to yours. 

As soon as you read this post, click on the Resources tab and pick Free Webinars and register for the next webinar. Brandon Turner hosts these highly informative online events. You're gonna get a ton of valuable content.

In order to be successful in real estate investing you MUST TAKE ACTION! The first action step is to get educated. The next step is to get started making deals. Go to a local real estate investing association. You can probably find one or two in your area by searching on on Meetup.com. Go there and meet other investors eyeball to eyeball. Get to know people and build your network. When you need help, you'll know who can help. In the meantime ask here on BP. You can't go wrong :)

Remember, luck is for rabbits, so I'll wish you success!

@Mimi J.

Wow! You read this whole thread. I call that commitment. You are bound to be successful....unless you waste your money and future on Renatus. I do hope that you came to the conclusion that Renatus (or whatever they call themselves next) is strictly about selling classes to anyone at a very high price.

I may be quite biased, but I had a bad introduction to this program. So please forgive me. I usually won't talk any program down, but in this case I will make an exception. Allow me to explain my position. (May the moderator be generous. I no have intent to violate policy. Rather I wish to counter the powerfully deceptive practices with a powerful warning.)

The person who introduced me to the program claimed to have made enough money in real estate that she didn't have to work anymore. It turned out that she has made any money investing in real estate at all. She made her money conning people into paying ridiculous sums of money for courses in this fictitious university. Fully half of the tuition money went directly to her via the MLM component of the business. She had a hell of an incentive to deceive newbies into take out student loans to fund these programs.

Spending your investment capital on educational programs instead of investments is a well tested bad idea as every experienced investor knows. After all, when two investors meet, one with experience and one with money, the one with experience will leave with the money, the one with money will now have experience. Those of us that had to deal with student loans know they are not just bad debt, they are the worst kind of debt from a financial point of view. Who would want to start their investing business with that kind of anchor firmly attached to his throat?

I really don't think I would try to tell someone of @J Scott's experience and success how to best invest in real estate. I would rather shut my mouth and listen. It really wouldn't matter how wonderful my program might be. Nothing succeeds like success. Forced to choose I'd rather be successful than correct.

Bottom line, IMHO, Renatus is a very expensive way to fail at real estate investing. Anyone who could succeed with Renatus would succeed faster and to a higher degree without it. My apologies to the victims that still pray to this false deity.

@Robert Gailie

I was going to say 'welcome to BP', but then I noticed you've been here for a while. So let's get right to your issues.

Unfortunately, I'm not local to you, so you'll have to keep looking for someone local. It would have been fun though. From your profile it looks like your experience in construction is mainly in electrical, like me. Here's what I want to say about that.

So, you have experience in construction and you're figuring that you could put your hands in the mix to save on expenses. I would advise against that. Instead use your experience to manage contractors to do the work. There's nothing like having direct experience to keep the contractors from trying to BS you. But in the end, your business will never be scalable until you let go of the minutia. Your time will be better spent finding more deals.

Now to the issue of mortgages. If you're doing rehabs, you're probably not going to run into a problem of carrying more than 4 mortgages for a while yet. I would expect that you're going to buy one, rehab it and get it rented, then buy another, rehab, etc. By the time you have four properties to worry about applying for the fifth mortgage you'll have plenty of time to work that out.

What I'd probably do, however, is to refi all four properties after I'd seasoned them with a portfolio lender. I'd hold the portfolio loan in an entity. The retired original liens would come off my credit and then I could start buying more mortgages in my own name. You might even start out by talking to a commercial lender. It's a very smart thing to ask this question well ahead of your need, but don't wait for the answer. Start finding those deals so that you have live problems to solve.

If you haven't found a good deal, then it's a damned good thing that you haven't pulled the trigger yet. It sounds like you need another set of eyes to vet the deals you do find. I'll tell you what, find something that sounds juicy, then come back to the forums. Ask for help evaluating the deal. You don't have to give the property address, but bring the financial details. Send me a PM if you want a better explanation of what I'm talking about.

It's easy to pull the trigger when you know the deal's what you want and you know you have the means to execute. So, if you're still afraid, it's nearly certain that you're missing one or both of these confidence points. Fear is the only problem, but the solution to that is simple. Ask how I know.