Investing in Real Estate

[gOOters]

How about buying a run down property in a decent area, contracting out the fix-up work on the house and then "turn & burn"? Does that work?

 

p.s. My job won't afford me the time to do the fixing up myself.

Edited July 1, 2005 by gOOters

[MrDuke]

Wow Duke...that Matrix post REALLY hit home for me.  That IS/HAS BEEN my life's plan. ..HOWEVER:

 

Just like Neo, I have always gravitated toward the idea of "stepping out" a little financially, because I so often see people who are making their money really work for them.  I want to be one of those people. Really.  I think I am at the perfect age/stage to begin this, at least outlining a plan.

<{POST_SNAPBACK}>

 

 

My favorite analogy is this:

 

3 birds are sitting on a wire and 2 decide to fly away. How many birds are left?

The answer is 3 birds. Just because you decide to do it doesn't mean you do it.

If you truly feel you're ready, g00t, then get out there and go do it.

 

I've learned that there are many people that are very comfortable living in the financial matrix--be-bopping along assuming that they will be taken care of financially when they retire. If something comes along that disturbs their dream, they become pessimistic. When they ask me what I do and I tell them, most use comments such as:

That won't work

That's illegal

I don't want to be a slumlord.

It's too hard.

I don't know how to do it.

That's not possible.

I'm doing just fine

10% of my salary goes into my 401K, I'm set.

 

Nay sayers and whiners. If they would change their perception, they might succeed more in life. If you truly want to do something then get off you butt and go do it, learn it, live it.

 

There is nothing wrong with working within the system, the matrix. Yes, you will have a nest egg if you put your 10% into your 401K ASSUMING that the market will always trend upward. If you feel comfortable with that and don't like your boat being rocked, stay where you are.

But if you have that nagging feeling in your gut that something's not right and you could be doing more for yourself-- expand your content, your context, your reality.

Maybe it's not real estate. Maybe it's notes, stocks, options, futures, commodities, whatever. But do SOMETHING.

Remember, it's not Monopoly money you're playing with when you take the first step, but it is Monopoly. Right now I'm buying as many green houses as I can and I'm always thinking about the red hotels.

 

On a side note--pay attention to your 401K and the market indicies. Kinda flat for the last year or two, huh? What a coincidence that baby-boomers started pulling $$ out of the markets for retirements purposes in the last couple years. It's surely not the sole reason, but it sure is a big one. Let that sink in and think about how it might affect your 401K or retirement plans.

 

Enough rambling...

 

GL g00tersssssssssss

[MrDuke]

1. How do you manage the properties? Especially down the road, when you might have a good number of properties and a full time job that you need to show up for?

 

2. Is the idea to keep the properties as rentals indefinately or just until you realize a significant increase in the house's value?

 

3. How do you ensure that you are going to get a renter into the houses?

We will be in the position in a year or two to buy another house and keep the one that my wife and I live in.  I STRONGLY suspect that our house will greatly appreciate within the next 5 years or so, but I do not want to carry that mortgage payment AND the high taxes for the area without knowing that I will have a renter in the house...

<{POST_SNAPBACK}>

 

 

1) You can manage up to around 10 properties if you are working full time. After that, I recommend a property manager. He'll take anywhere from 8.5-10% of gross rent/month. He'll re-rent (for an extra fee), evict, mow, maintain, take the phone calls etc. You just walk to the bank every month.

2) Depends on your philosophy. The 2 main approaches are to flip properties or keep them for long-term growth. Flipping generates cash quickly but the market is saturated with flippers so it's tough to find good deals--not impossible though. We focus on long-term growth. I want 30+properties by the time I'm 45 which should generate plenty of income without working. Occasionally you will tap the equity in one of your properties (tax free) which pays for a nice car or whatever.

3) Depends on a few things. The area, the rent amount, how aggressive you are in renting. You will ALWAYS have renters respond to your ads. The question is whether or not it's the kind of person you want living there. If by some miracle no one responds, lower your rent. When interest rates increase, the pool of renters increases as well.

 

Here's a thought- Pull equity from your house and leverage your money. If I have $50,000 to burn, I'd rather buy 7 average rental homes with mtgs than completely owning 1.

[MrDuke]

How about buying a run down property in a decent area, contracting out the fix-up work on the house and then "turn & burn"?  Does that work?

 

p.s.  My job won't afford me the time to do the fixing up myself.

<{POST_SNAPBACK}>

 

That's a classic flip scenario. You buy,fix and sell. I'm in the same boat as you.

I worked out a unique deal with my team. My job is to find and buy them, they fix them (material only) and then they get a portion of the monthly rent. If we choose to sell the property, they get a portion of the proceeds.

 

I'd rather have a run-down property in a good area than a great property in a bad area.

[Bubblegum Bandit]

Good questions Goot, you beat me to them.

 

I'm thinking very seriously about all this. I just don't think its time since I may move half way across the country in a few years. I don't want properties here in Denver if I'm moving back to Knoxville.

[MrDuke]

I am very sorry  fellas.  We had a thunderstorm and our power went out almost allllllllll day.  So the wifey, kid and I went out shopping...ALLLL DAY! lol.

 

MrDuke!  These are some fantastic post!!  I have really thought about buying rental property and didn't even realize that you had invested in this until I was talking to Clueless.

 

Is there a way you can start off buy buying land and using that for bank leverage?  I was thinking about starting off buy buying housing development lots, then working my way up to rental homes.  The lots I have been looking at are around 5k to 10k.  Or I was thinking about buying 40 acres of land and working out lots and such that way.

 

I am not that savy at home value property by just looking at it.  I would have to do some serious research on a home value so I don't get "had".  however looking at lots in developments, I can see the future of the property value.

 

So what is your thoughts about this way of thinking.  Please be critical...cause I don't like losing money like the next guy.

 

You also seemed to be very knowledge in other peoples success.  What books or "videos" have you invested in?  have they been those "get rich" commercials on TV?

 

Again, sry it took me so long to post...my power is finally on!

<{POST_SNAPBACK}>

 

Wow. Ok, here we go.

 

I'm not sure about just buying the land. I have a piece of empty land and the difference to build a house vs. what I could expect in rent is tight. You will still pay tax on the land so keep that in mind. If you have 40 acres, you could certainly develop the land but keep in mind the costs to do so. Water,sewer, topographical work, government lines and byways, etc. If the 40 acres is close to an exploding area, I'd keep it. If the land is farm land close to a city, you could approach the city govmt and try to re-zone it to commercial land--very lucrative.

 

I consider the land a liability, not an asset. You are paying money (taxes) and it's not making you any money. However, the best person to ask is the lender (notice I didn't say bank). Ask them if they would accept the land as collateral on a future deal.

 

Valuation of homes: It's all relative. A property has value the moment someone thinks it's valuable. As you go through hundreds of houses, you will learn to value homes. If you can't figure it out, ask an agent to do it for you. My approach is to search court records to find out what they paid, add a modest 5%/year appreciation factor, ask them what improvements they've made and add that to the equation. That's a nice starting point.

Or work it backwards. If rent in the area is $500/month and you want $150 month profit, the mtg/ins/taxes can't be more than $350/month. Scan the papers for rental amounts or just cold call a couple of places in the area.

If the numbers work, that property is a possibility.

 

There is nothing wrong with a different way of thinking provided you have sound business principles.

Here's a few we use:

During this phase of our plan, we never pay more than 25-35K per unit.

We never do deals that don't create positive cashflow.

We maximize any tax advantage that we can. Mileage, expenses, etc.

We keep our eyes and ears open ALL THE TIME.

We don't carry egos and learn from our mistakes.

 

Mistakes: The first time you make a mistake, you're sorry. The second time you make it you're a dumba..

 

Where is the property located? Aren't you in the Toledo area? Property prices are about $10K less/unit than the Akron/Cleveland market.

[MrDuke]

Good questions Goot, you beat me to them.

 

I'm thinking very seriously about all this.  I just don't think its time since I may move half way across the country in a few years.  I don't want properties here in Denver if I'm moving back to Knoxville.

<{POST_SNAPBACK}>

 

 

That's what property managers are for. In my eyes, this is an advantage, not a disadvantage. You can personally set up some rentals in one market, and then move to another market to do the same thing...you just went national!

 

Think BIG, think national, think global...not local.

[gOOters]

I like the "team" scenerio you have set up for the properties that need work. One small advantage I might have is that I know a number of people in the home building industry. I could probably work a similar deal for Saturday/Sunday workers.

 

I will definately be lurking in this thread. Good stuff!

[MrDuke]

I like the "team" scenerio you have set up for the properties that need work.  One small advantage I might have is that I know a number of people in the home building industry.  I could probably work a similar deal for Saturday/Sunday workers.

 

I will definately be lurking in this thread.  Good stuff!

<{POST_SNAPBACK}>

 

The hardest part is finding business partners that can envision your goals. Everyone wants to be a part of the get-rich-quick schemes because they are focusing on $$. When I tell someone they have to work for free if they want to be a part of MY vision, well...it's kinda funny. Almost all focus on the "work for free" and not "what's the vision?".

[Preacher]

Duke said he doesn't like to purchase property in "bad" areas, but I like to go the other route. I'm not talking about crack houses but low income areas. I'm getting ready to purchase a few homes for myself to do rentals. The homes will average around $15,000 to $20,000 and will not increase in value too much when I'm done with the repairs. My main benifit is that I do the work myself which saves a lot of money and quite a bit of the hastle. Renting anything is easy and you never really know who you have in your place until they have been there 6 months.

 

My favorite renters are construction workers, they tend to make a place nicer rather than just utilize it, but in low income areas it's very difficult to find these types. What I'm going to do is use my properties as section 8 housing. I can already see Duke getting out of his chair to throw stuff at me lol. You will have a better than average chance of getting crappy people in your house this route but you will also get your rent from the state instead of the freeloading bastages that tend to show up to rent these properties. The area I'm purchasing in has no gang or crime problems it's just poor so I'm trying for elderly folks who need a decent place to live. More than likely I'll end up with some single mom with a kid or 2 but I'm a prety good interviewer so with some luck they will be decent.

 

Problems with this scenerio:

1. You need to do more "drop ins" to make sure the house isn't being used to sell drugs out of because they can sieze it and you are just out of luck. Cooperate with the local police and let them know you are a landlord that wants a drug free house.

 

2. Too many people living in it. When you draw up your rental agreement make sure that you include the people that the person says will be living there as the maximum amount of people living there. This way if you go over to check on the place and there are 80 muslims selling Korean illegals to local pastry shops you have cause to give em da boot.

 

3. Damage: This is the main one. If you are smart you will drop in a minimum of once every month. I like to just let them know that I'll be there the first of the month give or take a day or 2, to check on the place and to make sure everything is working good. This is a service not an inconvienience, but it will save you thousands if you get idiots who fail to report a leaky roof, sink, toilet or a light switch with a short or something dumb like a broken door hinge. This is the area where you will have the most regret when you have people move out, but look at the income/cost ratio.

 

4. Maintainance: I find tha the nicer a property is in a nicer area the more work it is for you. The run down fixer uppers will sometimes cost you a bunch right away but the folks that rent these usually aren't calling you at 1am to say that the window blind is crooked and that the temperature of thier bathwater exceeds 110 degrees on Thursdays so get over hereand fix it. You do have problems the other way as I noted in #3 where they fail to report real issues.

 

5. Renting, you must not cheat people or put them in danger so be a decent person and do right by folks. Make sure they have heat and if a house has an A/C unit make sure it works too - if not make sure they have fans (box fans are $7 at Walmart buy em 2 and save yourself a little guilt when they have a sick baby because it wasn't warm/cool enough. This is the easiest (by far) to get people in your rentals because there is a 1-3 year waiting list in most states to get into section 8 housing. This is another great reason to go this route but remember if they appear to be sleazebags at the interview they more than likely are much worse when you are not looking so feel free to say that "you have a few other applicants to consider" and moveon to the next one (don't discriminate because of race or religeon or you may end up in court)

[MrDuke]

Duke said he doesn't like to purchase property in "bad" areas, but I like to go the other route. I'm not talking about crack houses but low income areas. I'm getting ready to purchase a few homes for myself to do rentals. The homes will average around $15,000 to $20,000 and will not increase in value too much when I'm done with the repairs. My main benifit is that I do the work myself which saves a lot of money and quite a bit of the hastle. Renting anything is easy and you never really know who you have in your place until they have been there 6 months.

 

My favorite renters are construction workers, they tend to make a place nicer rather than just utilize it, but in low income areas it's very difficult to find these types. What I'm going to do is use my properties as section 8 housing. I can already see Duke getting out of his chair to throw stuff at me lol. You will have a better than average chance of getting crappy people in your house this route but you will also get your rent from the state instead of the freeloading bastages that tend to show up to rent these properties. The area I'm purchasing in has no gang or crime problems it's just poor so I'm trying for elderly folks who need a decent place to live. More than likely I'll end up with some single mom with a kid or 2 but I'm a prety good interviewer so with some luck they will be decent.

 

Problems with this scenerio:

1. You need to do more "drop ins" to make sure the house isn't being used to sell drugs out of because they can sieze it and you are just out of luck. Cooperate with the local police and let them know you are a landlord that wants a drug free house.

 

2. Too many people living in it. When you draw up your rental agreement make sure that you include the people that the person says will be living there as the maximum amount of people living there. This way if you go over to check on the place and there are 80 muslims selling Korean illegals to local pastry shops you have cause to give em da boot.

 

3. Damage: This is the main one. If you are smart you will drop in a minimum of once every month. I like to just let them know that I'll be there the first of the month give or take a day or 2, to check on the place and to make sure everything is working good. This is a service not an inconvienience, but it will save you thousands if you get idiots who fail to report a leaky roof, sink, toilet or a light switch with a short or something dumb like a broken door hinge.  This is the area where you will have the most regret when you have people move out, but look at the income/cost ratio.

 

4. Maintainance: I find tha the nicer a property is in a nicer area the more work it is for you. The run down fixer uppers will sometimes cost you a bunch right away but the folks that rent these usually aren't calling you at 1am to say that the window blind is crooked and that the temperature of thier bathwater exceeds 110 degrees on Thursdays so get over hereand fix it. You do have problems the other way as I noted in #3 where they fail to report real issues.

 

5. Renting, you must not cheat people or put them in danger so be a decent person and do right by folks. Make sure they have heat and if a house has an A/C unit make sure it works too - if not make sure they have fans (box fans are $7 at Walmart buy em 2 and save yourself a little guilt when they have a sick baby because it wasn't warm/cool enough. This is the easiest (by far) to get people in your rentals because there is a 1-3 year waiting list in most states to get into section 8 housing. This is another great reason to go this route but remember if they appear to be sleazebags at the interview they more than likely are much worse when you are not looking so feel free to say that "you have a few other applicants to consider" and moveon to the next one (don't discriminate because of race or religeon or you may end up in court)

<{POST_SNAPBACK}>

 

 

Good advice. We've got a property in a poor area and all of your advice applies. In fact, I just found out yesterday that the house had a meth lab in a sectioned off part of the basement (ugh).

Basically, you rely more on the monthly cash flow to make your money than the appreciation of the property. It goes up, just not very fast.

 

Section 8 is awesome, and evil. Screening your tenants is your best protection. As Preach said, be fair and consistent.

One thing S8 takes seriously is lead based paint (have I mentioned this yet?). A cool trick I learned is to buy 5 packs (10 sticks) that test for lead paint. When you find a property you're interested in, test it while you are going through it. If you do this before the seller hands you the "no known knowledge of lead based paint" form, you can make him perform the lead abatement or have him knock the price down by thousands.

One of my guys does siding so we don't worry too much about external lead paint. Internal lead paint is another ballgame...

[Shazz]

I greatly appreciate the advise on the Land vs. Rental. Rental does seem to be the most efficient way to go. I really like the "Team" plan on buying and renting.

 

If I missed this...sry. But how many Team members are involved? I don't have anyone besides family that I could trust around here with my money. That sounds bad, I know...but true.

 

I really like the idea of only spending 25k to 30k on property. I have been looking at property at too high of a price. I will have to lower my views on that.

 

Another point that was brought out was the "I'd rather have a run-down property in a good area than a great property in a bad area." Is finding one of these like a needle in a haystack?

 

!!. If you were to start all over. How much would you start with (money wise)...and where?(location) !!

 

I know that is a heavy question. But is there a way to answer it?

[Shazz]

there is so much info here...I might have to print this whole thread..lol

[MrDuke]

I greatly appreciate the advise on the Land vs. Rental.  Rental does seem to be the most efficient way to go.  I really like the "Team" plan on buying and renting.

 

If I missed this...sry.  But how many Team members are involved?  I don't have anyone besides family that I could trust around here with my money.  That sounds bad, I know...but true.

 

I really like the idea of only spending 25k to 30k on property.  I have been looking at property at too high of a price.  I will have to lower my views on that.

 

Another point that was brought out was the "I'd rather have a run-down property in a good area than a great property in a bad area."  Is finding one of these like a needle in a haystack?

 

!!.  If you were to start all over.  How much would you start with (money wise)...and where?(location) !!

 

I know that is a heavy question.  But is there a way to answer it?

<{POST_SNAPBACK}>

 

Team Members: You can have as many or as few as you want. Everyone needs paid at some point so you want to do the most work w/ the fewest people. The only trade I don't have an agreement with is electrical. We can do the normal stuff, just not boxes (yet).

 

There's nothing wrong with looking at high priced properties. If the numbers work (rent>liabilities) then it's doable. However, you might be tying up too much money into 1 property. Unless you get an inheritance or hit the lottery, most people start off buying poor to average homes and work upwards.

 

The 'good home in a bad area, bad home in good area' is not my philosophy, just my preference. Reason being the bad home can be renovated and will appreciate faster in a good area. They are a little tougher to find so you have to be creative in how you find them. Do it differently than everyone else does.

 

You can start with $5-6K easy. Depending on your credit, you may only have to put 5% down or you may even be able to roll in your all of closing costs. $5K will let you put down 10%*edited* on a $30K house and leave around $1500 for getting it rent ready. If those are your parameters then start looking for $40,000 houses and lower. Reason being you can always try to negotiate the price lower. I'll scan our checklist that the guys use to eval a property and post it--it's pretty thorough.

 

Location: Depends. Just open your eyes and pay attention to your surroundings. There is no right or wrong answer. What's good for me may not be good for you.

 

**I just had another conversation with a nay-sayer. He just said he's going to go buy a 35K truck and put $5000 down. His monthly payments would be $575. He was is very proud of the deal he got. Keep in mind every dollar he's paying is after-tax money.

Here's what I told him.

Take the $5,000 and buy a property. Using my property as an example, you will profit approx $275/month. You use the truck as a business expense (you pay the truck payment first and then you pay tax on whatever you have left). Instead of paying the full truck payment, you use the profits of the property to reduce the monthly truck expense.

Plus you get to deduct truck depreciation.

Plus you get to deduct the depreciation allowance from the property.

Plus your property will appreciate in value every year.

 

"That's too complicated" was his response.

 

Sigh...**

[Shazz]

I never thought of it that way!! hmmm. (truck example was fantastic!) Now my mind is ripe!

 

Just the thought of placing money in different slots can make a big difference. Same money...just placed differently.

 

Where someone would think they are removing 5k from a debt of a truck. He could make that money back by just placing it somewhere else.

 

This team concept. Is this a group of friends/buisness men that pooled money together for gain? Like if we pooled our money to buy a Old car then restore it, sell it at auction and split the profit?

[Preacher]

I never thought of it that way!! hmmm. (truck example was fantastic!)  Now my mind is ripe!

<{POST_SNAPBACK}>

Well it now goes with the way you play CS: S

[MrDuke]

This team concept.  Is this a group of friends/buisness men that pooled money together for gain?  Like if we pooled our money to buy a Old car then restore it, sell it at auction and split the profit?

<{POST_SNAPBACK}>

 

I've talked to a lot of people trying to find the right people that could envision my goals. These guys actually approached me and it was a good fit. We split the costs of the downpayment and the costs of the material. My part is finding the deal, making the deal and managing the properties. Their part is the construction/renovation. Right now we're working on one of my properties to get it up to speed for a section 8 rental. Once we're done with that, it's on to the next project.

 

That's right! It's like working on a car together, but this car is working to make you profits.

 

Something else to think about. If you have poor communication skills, go take a class at the local college. You need to be assertive in speaking to your lawyer, accountant, construction crew, and most importantly your tenants. If you aren't comfortable saying "NO" firmly then you will get into trouble somewhere down the road.

Also, get your spouse involved. If she isn't on board, it's 10X more work for you. Luckily enough, Kel is corporately trained to manage any real estate venture up to 500 units. She does all the contract/lease writing and related paperwork.

[Preacher]

Also make sure you have unity with your spouse about doing real estate or it'll be a nightmare when stuff happens and it always does.

[gOOters]

Truck example. Doesnt sound complicated. Sounds BEAUTIFUL!

[Shazz]

Communication skills are not the problem. The problem is knowledge on property and legal mumbo jumbo.

 

The post have been and im sure will continue to be very informative and to the point.

 

Now where did I place my printer paper...

[MrDuke]

Communication skills are not the problem.  The problem is knowledge on property and legal mumbo jumbo.

 

The post have been and im sure will continue to be very informative and to the point.

 

Now where did I place my printer paper...

<{POST_SNAPBACK}>

 

 

Legal stuff is not a problem in a community like this, no more so than hardware or virus problems are.

 

I can send you my leases, contracts, eviction notices, etc to use as a template. Run them by your lawyer so they can be familiar with what you're using. After that just keep posting your questions. Between me, Preach and others who are investing, we can keep you on the straight and narrow.

[Fatty]

<raises hand>

 

How would I tactfully suggest to my wife that it's time to move all the kids into one room and rent out two of the bedrooms?

[gOOters]

First buy a riot shield ala 1.5

[MrDuke]

<raises hand>

 

How would I tactfully suggest to my wife that it's time to move all the kids into one room and rent out two of the bedrooms?

<{POST_SNAPBACK}>

 

I said questions, not miracles. Good question, wrong person...PM God.

[gOOters]

I'm halfway through Kiyosaki's book lol. Ever toyed with the idea of vending machines? Anyhow, Im charged up. Just need a little time to be "ready" financially to start buying REAL assets.