All Forum Posts by: Allen Fletcher

@Sarah Rivero

It is never a good idea to bank on appreciation unless you can force it. Buying a property and hoping the value goes up is what caused a lot of financial heartache during the housing bubble and subsequent crash in 2008. Buying a property on a good deal, rehabbing it, and forcing appreciation is a tried and true method. Even if you are not having any cash flow from the other unit, but you are also living in the property for free, you have opened up that amount of your income that you can save/use to invest in more real estate. As long as you are not paying out of pocket each month you will have good positive cash flow when you move out of the other unit and rent it out.

Hope this helps,

Allen Fletcher

@Lewis C.

You need to go see each property and make a list of needed renovations for each property. Be as specific as possible. Get on your assessor's website and check taxes for each individual property. Call a few insurers and get a few quotes on insuring all the properties. Once you have all of these numbers listed out for each individual property sit down and run the numbers making assumptions on maintenance, cap ex, management, vacancy, etc. Use all your data and assumptions to figure out net income. Does that number meet your desired goals? Assuming the 1% rule, are you willing/able to pay 20% down and carry 80% loan with that level of income? If the answer is yes I would then prepare an offer on the properties that looks like this (Gross rent/1% - Rehab costs - closing costs - x%) where x is twice the maximum discount you want to make the deal as profitable as you can and still be seen as serious. You will be asking for a low price, but if the seller wants to sell he will counter and hopefully you will settle on a price where the final discount is x/2%.

Does that make sense?

Allen Fletcher 

@Vic Vega

Having all of that taken care of you are free to either put the cash into a bank account to help you build up for investing or pay it towards your mortgage and be able to access it after you sell your home. If you are planning on investing before you sell your home put the cash into an account. If you are planning on starting your investing after you sell your home it is up to you whether to put it aside or into the mortgage.

If I were sitting in your shoes I personally would pay off the truck faster. A loan on a vehicle really is having a liability on a liability. Which is really not a good thing. From what I know of your situation, you are sitting very nicely and have the financial situation necessary to invest with confidence. As long as you pay your learning dues (i.e. read, study, ask questions, talk with investors, etc.) you should have a very profitable investing career.

Good luck,

Allen Fletcher

@Vic Vega

The answer to your question is... it depends. If you plan to put your home on the market in the next few months and have that much equity I would put the money in another location. Do you have a rainy day fund with 3 to 6 months of expenses set aside? Do you have capital reserves ready to cover emergencies once you start investing in real estate? Do you have any other debts that are more toxic than a mortgage (i.e. credit cards, consumer loans, personal loans, car loans, student loans, etc.). I would start putting the extra in these first and if you have all of these covered you can view the increased equity as savings for future investments.

Hope this answers your question,

Allen Fletcher

@Reggie Burnett

First go get J Scott's books sold right here on BP, "The Book on Flipping Houses" and "Estimating Rehab Costs" they are sold as a package. Otherwise, you should walk a few houses with a contractor and get a little experience.

Allen Fletcher

@Chris May

Before you do anything make sure that the property does not have any zoning issues. In the past I have found that properties situated like you have said have zoning issues and an inspector will make you cease all work and you will be hung until it is fixed. If it turns out there is a zoning issue, you will need to look into what you can do to fix it. As for the repairs needed, make sure to put the money into the renovations that will draw the tenants you want and allow you to cash flow.

Regards,

Allen Fletcher

@Jason Stratman

Check on your local laws and see what you can do. If everything were to go my way I would have them screened before you own the property, but if you cannot do that then you should see if you can put them on a month to month lease until you can get them screened. You are in a tough spot. Typically when you purchase a rental property and inherit tenants you have to keep the tenant till their lease expires. This allows the new owner to get a feel for the tenant and see if they want to keep them or not.

Good Luck,

Allen Fletcher

@Alex Stewart

Be very careful when you start talking about creating an investment fund. Once you start talking about this you are moving out of small business REI into marketing securities. If you are really thinking about this you need to talk to an accountant that specializes in corporate filings, a lawyer that specializes in securities, and spend some time reading up on both federal and state securities commissions. Once you have done the leg work you will be able to decide how you would like to go about creating your fund legally.

You have a great idea, but you are now starting to tread in highly regulated waters.

Good Luck,

Allen Fletcher

@Stephen Seaberry

Discount rates are primarily used as a means for valuing dividend and interest paying securities (i.e. stocks, bonds, preferred stock, etc.) The discount rate is the rate of return the investor wants receive on the security over a specific period of time. For example, if a security is paying 4% dividend annually and an investor wants a 10% return, he needs to purchase the security at a lower price so that appreciation + dividend will get him 10%. Does that make sense? Typically in real estate investments the Discount Rate is not used (at least in my experience) as much as CoC returns and Cap rates. If you want a good explanation, try this link.

Hope this helps,

Allen Fletcher

@Joshua Frost

The 70% rule applies to the ARV or after repair value. What you need to do is figure out how much the property will be worth after you have done all the repairs that the property needs. (You do this by looking at comps.) After you have determined the ARV you take 70% of that - rehab costs and offer that. In your example, say the ARV is $220k, 70% of that is $154k after your rehab costs ($40k) you offer $114k. As for whether or not a bank will accept that, it really depends on a myriad of factors, but the worst the bank can do is say no. They may try and counter-offer and then you can do a little negotiation. Best case they accept. It never hurts to make an offer.

Hope this helps,

Allen Fletcher