All Forum Posts by: Allen B.

I am following the law and that is in the best interest of my client. The point I am trying to make about renting out houses or units is that the law is you have to take the first person that meets your criteria. I don't present applications as I accept them or decline them.

Anyway the bigger issue of my post is that you have to have a written paper trail of why you accept or decline your tenants in case you do get a complaint.

There is only one way to answer this question and stay out of trouble. You need a written set of standards for the unit. You can only include legal items.

For Example your criteria might be:
620+ FICO
no collections in past 6 months
and income of over 2000 monthly.

Once you receive a completed application, then you process it and compare to your criteria. If they meet the criteria, then you approve them. If not, then you state the reason along with the source of data if you use a credit reporting agency.

If you receive multiple applications, then you number them in order received and don't even look at number 2 until you give #1 a yes or no answer based on your criteria.

If you follow this standard, then you won't have anything to fear from testers. The problem is when people don't have standards and have no reason to explain why they denied Person A and accepted Person B when their info was exactly the same or worse than Person A.

So in summary, don't treat your rental applications as job applications. As long as they meet your criteria you have to accept them. You can't pick the one you like best.

For the investors from the St Louis area. What do you think is the best and most worthwhile club to meet serious investors?

I am thinking of coming up to take in a meeting and scout out some deals up there.

If you are doing wholesaling then you are going to be taxed as a real estate dealer. Due to the way dealers are taxed it is more likely your best tax benefit would be with a Corporation that elects subchapter s status. The reason for this is that wholesaling income is taxed as ordinary income and not long term capital gains.

So while it is possible to form an llc then elect to have it taxed as a corporation then elect to have that llc that is taxed as a corporation elect subchapter s status, you might want to start with a corporation.

Rather than explain why this is the case I am going to refer you to an excellent article by John Hyre that explains this concept that most investors do not understand. I have no relation to John Hyre except that enjoyed dinner with him a couple of times.

http://www.nwngroup.com/articles/jul05/you_dealing.pdf

The deals in my area are the houses that can be bought and fixed up for 20-35K. They will rent from $600 to $750 a month. That is the sweet spot and best percentage return. Once the rent hits $800 the return on purchase price goes down.

Once you cross $1000 a month rent then you are competing with homeowners stuck with a house that just want to cover their mortgage and you are not going to cashflow once you get past $1500 a month. The houses we manage that go for over $2000 a month, the homeowners are negative a couple of hundred dollars.

Look for any neighbors that are running extension cords to an outside outlet or going through attic or basement. I have found this a few times on vacant houses.

Most of the electricity stealing we see are people that steal the meter to go put in their house or actually use jumper cables ot bypass the meter and steal from the city. 40% of the REO's we buy have had electricity stolen in the past and it is a big ordeal to get them to come turn the electricity on as they want paid. We have to show them the deed and then go through the supervisors as they want the owner who lives in California to come in to the office personally.

If you have over 5 properties then you should have an agent evaluate if you should use a commercial multi-property policy. I also have my insurance license and right now put an investor with 16 SFR's from State Farm with 16 individual polices into one policy for all 16 with American Modern and saved him 40% on the annual bill.

So run the numbers on a commercial policy if you have over 5 houses.

I have participated in several of these transactions. Make sure the insurance company or their contractor is guaranteeing the rent. The only downside is the earlier vacancy as they may only be in their for 4 months as opposed to 2 years or longer that you would want.

I typically try to do this only on properties that are hard to rent anyway (overpriced) or during slow times like December. At this time of year when people are moving for the next school year I don't know if I would go with the short term rental. That is your decision though. Just figure out how long you can stand for it to be vacant after they move out. You would have 2 months to catch up if they only stay the 4 months.

I got an e-mail froma company like this just yesterday:

I work for a temp housing company and insurance adjuster . I have a family from this area who had a a home fire. We are looking for a 3-4 month rental while they will be rebuilding there home. We can pay a higher rent due to the shorter term lease. If this property is still available and this may be an option please email me back or contact me on my cell# XXXXXXXXX. We have the parents and 3 children and 1 small dog. Need to find housing ASAP.

You do not have to do the lead based paint repair. One of our clients bought a HUD house about 3 years ago that had lead paint in the window sills. You just give a copy of the 20 page report to the tenant and check the box on the lead based pain disclosure that you are aware of lead based paint and have the tenant or buyer sign. Now a buyer probably wouldn't sign, but we have not had a problem with tenants signing. The tenants are more concerned with how much to move in.

Here is an example of a risk of buying a HUD house as an Investor.

You bid get the house under contract and get ready to close. Before closing, vandals strip the property of every appliance and do $10,000 damage on a house that is under contract for $29,000. Any other seller, you can cancel the contract. HUD will not let you cancel the contract if you are an Investor. They will if it was a owner-occupant.

The representative at HUD told me that once the Investor pays their earnest money there is no way they are going to get it back. I tried withholding the earnest money and throw it into dispute, but HUD sent my Principal Broker a certified letter that if we didn't send the earnest money, then the entire real estate office would lose HUD certification. So I sent the money to HUD and paid back our buyer his $500 out of my pocket.

Now I warn every buyer of this added risk of buying HUD properties.

My strategy to acquire HUD houses is as follows.

If it is on a daily bid then bid 8% below list price. If it is the first day of bidding, then you will have probably bid more than list to get. In my opinion the better deals are the properties that you can buy on a daily bid. Now this is for my market. Some markets never get a HUD to the investor bidding period.