All Forum Posts by: Tom Mole

@Robert Bourne, that's an awesome start (everyone is So Cal says "awesome" way too much, but its still awesome). Personally, I came from a tech background as well; a total slave to the paycheck. I think I can relate to what you're going through.

You didn't really have a question in your post, so let me say welcome to the BP community. Let me ask the question then, is there anything you could use help with? What do you need to continue adding to your portfolio?

Luck is for rabbits. I want to wish you success!

Cheers!!

@Mark Tomes, thank you for that. I kinda liked the way it came out too. :D Maybe one day @Brandon Turner will make this a "tweetable topic". That would ROCK!

I do hope this post helped. I didn't try to cover everything. Others have made equally terrific points, especially regarding the vacant condition of the property, which I was unaware of at the time. This property would be a reposition, which takes yet another set of skills.

@Steve Vaughan made a particularly impressive point worthy of extra consideration. I must say I wish I'd thought to mention that, but I'll bet he could explain it better than I could anyway. Perhaps he will, if you ask him to, for this deal or the next one.

If you have any specific questions that I might be able to help, feel free to contact me. I'd really like to see you knock one out of the park.

Cheers!!

@Mark, don't let me be the harbinger of doom, but you asked what could go wrong, so let's take a look at some of the high points. 

You said 6 plex, which generally translates to commercial financing. This is a very different animal from residential. Be certain to talk to a commercial broker right away for the specifics in your case. You could turn up at escrow needing a significantly larger check to close. Your down payment will generally need to be bigger and you may need to prove sufficient reserves amongst other things in order to satisfy your lender.

Of course this is not relevant if you're not going to finance the deal, but most folks do.

Let's think about the property itself for a moment. From your description this place sounds old. 1920's cabinetry always suggests to me old mechanicals. That is to say plumbing with hardening of the arteries, obsolete electrical, moisture problems including the potential for black mold, termite damage and wood root, etc and energy envelope issues such as in effective insulation. 

Take a look at the the outlets when you do your walk-thru. Are they 2 prong or the modern 3 prong ones that look like happy faces? 2 prong outlets mean the electrical is most likely obsolete. You're going to want your home inspector to take a careful look at the electrical, even if it seems to be updated. A lot of folks try to cheap out on electrical upgrades by simply replacing old sockets with modern ones, but leave the old knob and tube wiring behind the walls. Be ready to rewire the building properly, if inspection comes back that it will be needed.

On the plumbing side, 1920's plumbing used iron pipes, which are notorious for rusting which clogs the pipes reducing water pressure at the point of use (ie, the faucet). Often people have had to replace the pipes already, so you may have copper or PEX pipes. If that's the case, you may be in good shape, but often the new piping is only installed where it's convenient to do so, like in the basement. There may be iron pipes running inside the walls. This is not a great combination. Make sure your competent home inspector gives a genuine "no BS" assessment on your water supply lines.

Often when the supply lines are replaced the drains are ignored, but they clog with rust too. You'll want an honest assessment of that as well. If your tenants can't flush, they'll still try and you'll get the call to clean up the mess (ask me how I know that).

Old buildings are always suspect for mold, asbestos and lead. Anytime the EPA is involved it gets REALLY expensive. Pay for a really good inspector. You don't want to be surprised in this area. You can expect lead in the original paint, inside and out, but it's only a problem if your inspector says it is. The same can be said for asbestos, which turns up in the weirdest places sometimes. Only remediate if you have to. Mold is always a problem that needs remediation and nearly every old building has some form of it somewhere. Ask your home inspector about this and all other structural issues, like termite and water damage.

Enough of all that, now on to the deal itself.

Why is the seller selling? What do his books look like? Does he figure this place is dog? Are you going to be buying someone else's problem? If so, can you cure that problem? Does the price of acquisition account for the problems? If you're not sure what I'm getting at here, ask. It's important.

What sort of neighborhood is this property in? Are there sneakers hanging on the telephone wires by their laces in the street (a bad sign). Do tenants move in and out frequently? How often does the seller experience vacancy? What is the market cap rate? (If you don't know what that means, then by all means ask!) The deal may look good on paper, but could quickly become a big regret when it hits the light of day.

Please, don't hesitate to act, but don't act foolishly. Not all deals are deals. You may get excited by the possibilities of the deal and fall in love with all the passive income the property "should" produce and blind yourself to the realities that you should be ready to recognize today. You would not be the first to do that. We must be cool, disempassioned ninjas as real estate investors. If we make impulsive decisions, we will usually fail (and by "usually" I really mean "always"). If, however, we take care to do our homework while taking a lot of deep, calming breathes and make rational decisions, the income will take care of itself and that will lead to realizing our vision.

This a really long reply. I want thank you for taking the time to read through it all. Again, it is not intended to be discouraging. Don't let this post be the reason for you to be unsuccessful. You asked what to look out for and this is most of that. Now, figure out what you need and get it. Don't take the seller's price just because he'll carry the financing. Make sure the price makes good business sense. Do need help with that? Ask! You're in the right place and you've taken the first step.

So, what else do you need to know? Have determined your offer yet? If you have and you're comfortable with it, then make the offer (be sure to include an ample inspection contigency). We'll figure out the rest once you get your offer accepted.

Big kudos to you for taking action. Keep it up, you're doing great!

@Jeff Gebhart, you mentioned the possibility of looking into a short sale on this property. I have to ask, is there equity in this property or is it underwater? Please tell me that you're not making a deal just because you can. As an investor you simply must never pay too much for property, even if the seller makes it really easy to do so. 

Perhaps I'm missing something. If the property has equity then a short sale should not be considered. However, if the property is undewater, then definitely seek a short sale. 

As @Jose Salcedo suggests get your title work done. You'll become liable for all outstanding liens against the property, so do your homework thoroughly. Include a thorough physical inspection of the property and make sure your contract has a sufficient inspection clause that will allow you an escape if there turns out to be more repairs needed than expected.

The bottom line is this: Is this actually a good deal at the given price? Unless and until you have a genuinely solid answer to that question, do NOT sign anything. If you provide more details, you can get a lot of help running the numbers. I hope this message reaches you in time. From what you originally posted, this sounds like a really bad deal IMHO. Feel free to contact me with any questions you might have remaining.

Cheers!

@Jason Lucchesi, I think @Alex Hamilton was attempting to get a disinterested third party opinion. I understand the feeling. Personally I'm pretty skeptical about any "guru" offering to save the day, so please bear with my cynical attitude.

So, how does your program work?

I heard in your program you don't offer a $something-97 during your presentation, but rather ask the audience to fill out an application. I'm kind of curious what happens after that? Does someone call to convince me to spend a fortune on a suite of training programs?

I think most of us wonder whether we ourselves or others we know even need "guru" programs at all. The statistics indicate that something like 95% of the people who buy a training regime never do any deals at all. They never take action or they fail and lose the initiative or something else goes wrong. They never even make up the cost of the training that they should never have paid for in the first place.

The remaining 5% who go on to have some level of success are probably the ones who would have likely succeeded anyway. In fact without wasting money on a "guru" they may well have gotten further faster. These action takers are the sort of folks that end up in testamonials saying that it was easy.

So, what is your program really like? 

Are you like the other "gurus", bleeding the wanna-be investors before someone else does it? Or, are you actually out there helping to develop newbies into successful entrepreneurs? That's what people who ask about you want to know. 

@Radhika M., Driving for Dollars essentially means getting in your vehicle and driving around looking for properties that look like they may be vacant or neglected in some way, bad roof, broken windows, unkept landscaping, etc. When you find a possible project, you take pictures, write down the address, then go home with a list of such potential deals. 

Once you're back to your desk you look up the owner of record, evaluate the property and make an offer. That's about all there is to it. There are a lot of ways to find potential real estate deals, this is just one fairly low cost, low tech ways of doing that. 

As @Account Closed suggested read "The Ultimate Beginner's Guide to Real Estate Investing" as soon as you possible can. At the same time, attend @Brandon Turner's weekly webinar and start listening to all the podcasts. You should probably take the Free course as well.

There are lots of resources. Avail yourself of all of it. As you work through all this you'll find a lot of the stuff that wasn't even mentioned here. There are lots of sources for learning the RE investing game, even outside of BP. Search YouTube when you're ready to step out.

You're gonna need the education before you start doing deals, so get started learning right away. You're already doing the right thing in the right place. Just keep it up. Ask questions, listen well and TAKE ACTION! You're doing fine.

Sad situation. I hate to say it, but I hope you're client is ready to move. From the numbers you gave, if your client could get her loan back into compliance, I'm pretty sure she probably shouldn't. There comes a point when you're just better off cutting your losses.

Has your client exhausted her loan mod options? I'm assuming that she's just too deep in the hole, but it could be worth looking into. HUD/FHA has been putting a lot of pressure on lenders to work harder with distressed homeowners to keep people in their homes.

Short sale is probably the best option your client has, but you knew that. The better question is how might you take this situation and make chicken soup from chicken poop. 

If she could short sell the property to you, would you want it? At what price would you not want it? Perhaps you could make an offer at a price you think would be fair, then help your client fill out and file the paperwork.

While you're doing that, let's have you pursue another option. Contact the 1st position lender and offer to buy the mortgage at a substantial discount. They may not even talk to you, but be creative and do the best you can. You don't know until you try.

If you get your offer accepted on the note, be certain to deal with property taxes. Sometimes taxes can suck the life out of your profits, so make sure that isn't going to happen. Once you close on the lien start a foreclosure and take it to auction. You'll either get paid the UPB (Unpaid Principle Balance) on the loan or you'll get the property back subject to any delinquent property tax. Either way you should be in good shape as this action will clear all the junior debt from the property.

Let's say you get the property back after the auction. In that case you have options. One option would be to lease the property back to client, if she is willing to stay. You could even sell the property back to your client at a tidy little profit. If however your client is ready to start over elsewhere, you could dispose of the project any way you want to make a profit.

This is probably a little overwhelming. That's OK. You don't have to do any of this, but you should at least know that you could. I only hit the high points here, of course, so you might have questions. If you would like any clarifications or want to drill down on any part of this, feel free to contact me or just post another question. I'd be glad to help.

@Hunter Estess, the numbers you originally posted would give you an NOI around $85k. As you pointed out, you haven't yet discussed all of the expenses you would expect to encounter, so I expect your finally NOI to be even lower. Debt service is NOT an expense in this calculation, so we'll get to that in a minute.

You've left out the market you're shopping in. What sort neighborhood is the property located in? What is the market cap rate? What condition is the property? Are there any cap-ex repairs needed now or in the near future? What is the market vacancy rate? What do the crime and employments stats look like?

So, back to the funding issue. What sort of ROI are you looking for? Based on the number in your original post, you're looking at 7% cap rate. That's pretty low for 5.5% financing, particularly considering that you're NOI hasn't hit bottom yet. How much cash are you planning to park into this deal?

A lot more information is needed to give you anything like a reasonable evaluation. I wouldn't stake my reputation on any particular number at this point. The simple answer to how much to offer is "less, much less". For my tastes, unless and until I knew the answers to all theses questions, I would not offer more than half of the $1.2M ask. 

You can add my 2 cents to the down payment.  :D

Let me know if you want to drill down any more on this. I'm happy to help.

Happy holidays!

Welcome to the BP community! It sounds like you come with a wealth of experience, but I could be wrong. Is there anything you could use help with? 

Do you have any questions about moving to fix and flip? Are you fully up to speed on the different analysis you would do for flipping rather than buy and hold?

What sort of ROI are getting on you rentals? What ROI are you looking for in a flip? How are you funding your deal, past and present?

It would help to get to know you better.

Happy holidays!!

If you do study for the exam, but neglect to take it, you'll be in good company. @Brandon Turner has been planning to get his license for a long time now, but he never gets around to taking the test. Ask him about it. It hasn't held him back at all as far as I know.

That said, there are plenty of other investors who say that the required disclosures are no big deal. They claim being licensed is the only way to go because, if for no other reason, they feel it makes them seem more credible. Others say that it gives them access to the MLS and this gives them an edge.

I guess it depends a great deal on how you intend to invest. Are you likely to want direct access to the MLS? Do you know a broker that would let you hang your license with him just so you could gain MLS access? Do you really want to shop in the MLS?

And then there are fees and requirements you'll be saddled with, like continuing education and license renewal. Not a big deal, unless you're not getting any deals done.

Every investor is different. What I would do is no indication of what you should do. Disclaimer stated, however, I have elected to do the studying, skip the test and when I need a realtor I call one of my many friends with a license. If you do nothing else, study the materials. Most of it has nothing at all to do with investing, but it will give a good grounding in real estate fundamentals, contract law and government regulations.

Happy holidays!