All Forum Posts by: Andy Mirza

@Matt Liu 911 calls are recorded and there will be records of the police response and what they put down in their police logs but this won't be used to hurt your reputation or your case since it doesn't sound like you violated any laws. If the police found wrongdoing, they would take action against you for violating a law, including writing you a citation, arresting you for a felony or a misdemeanor, or writing a report listing you as a suspect, in which case a detective most likely would be contacting you.

Like others have posted, ensure your own safety first. Any contact with them will most likely be negative and non-productive so don't engage them unless absolutely necessary. Keep your own written log of any significant events (inlcuding the fruitless 911 calls) and show this to the judge in your eviction case. I don't know what the courts are like in NJ but I had some rentals in Buffalo, NY and the judges were always giving the tenants/defendants extra time to pay backrent. If you present additional evidence of your tenants behavior (a log counts), it may help to get the judge to side with you.

Hang in there! They will eventually leave and your life will get better! Good luck!

I've heard the 50% rule mentioned several times on BP but I haven't looked up the source. I assume that it refers to property expenses only and not to debt service. (When looking at multi family property I expect expenses to be 40-60% of the gross income; again, any financing expenses are not considered since I'm looking for a cap rate, which doesn't include them). Can someone clarify this?

@Richard Donofrio If you take the money out of the HELOC, your payment is $250? Is that principal and interest or just I/O? And you're saying, even with this, you will have positive cash flow of 2-300? Sounds like a really good deal.

It might be a good idea to forget the 50% rule for a minute (since that's a rule of thumb) and look at the actual numbers since this is your first deal and you really want to know that you're doing the right thing. Calculate all of your expenses (Make your best guess if you can't find more exact numbers). Make sure you include: Property Taxes, Insurance, Maintenance, Management, Utilities, and Repairs. (Don't include any debt service for this; we want to see how the property performs if you bought it with all cash). Use annual numbers. Subtract a vacancy factor (5% or more if that's normal for your market) from your annual potential rental income. Subtract your annual expenses. What you have left over is your net operating income. If you divide that by the purchase price you get your cap rate as a percentage. For a typical SFR rental, that might be anywhere from 2 to 15% depending on a number of factors. Is this cap rate acceptable for your investing criteria? (This only considers cash flow and not appreciation or principal paydown)

Now subtract your debt service from your NOI. Are you still making $200-$300/month? If yes, fantastic! If no, take a closer look and make sure it's still a good deal. If you pay down the HELOC quickly and you get the $200-$300/month it might make sense for you.

I hope this helps. Good luck!

Without knowing more details, I'd say buy a home for yourself first. Everyone needs someplace to live and paying down a mortgage is better than paying rent to somebody. If you're willing to take on roommates or by a duplex, triplex, or quadplex, even better. (I've a wife and 3 kids now and our needs are different; if I'd have known better, I 100% would have done the fourplex hack)

Once you've bought your house, moved in, and celebrated, then focus on getting the rental. I don't know your finances but it may be more difficult for you to get that 2nd loan. Typically, underwriters will be more conservative in their numbers than the actual numbers of the rental. They might only credit you a certain amount of the rental income or account for a higher vacancy factor.

I keep them lumped together. It's less work. IMHO, The extra work doesn't make a difference in your planning or management and most people who need to look at your P&L's won't care. 

As many have already said, make sure you have enough insurance on your rentals or better yet, an umbrella policy, to cover the amount of your net worth that you're concerned about. That will most likely be your first line of defense for liability issues. This should still be the case even if you use an LLC. Crafty lawyers will try to penetrate the veil of your LLC's protection if they sense that there's money available. Why even worry about that? Just carry enough insurance.

On a personal note, my mother didn't carry enough liability insurance on her automobile coverage. She was at fault in an accident and broke the other driver's leg. A quick search revealed that she had good equity in her primary home. The lawyer went after my mom and the insurance company and my mom had to come up with $25k out of her pocket as part of the settlement. If she would have had enough liability coverage, it would have been 100% the insurance company's problem. She learned her lesson the hard way and I know now how to avoid the same mistake. If you've got assets to protect, start with having enough insurance.

Lead a More Balanced Life

Establish Consistent Daily Routines (and Stick to Them)

Increase the Amount of Networking I Do

Understand the Limitations My "Day Job" Places on My Real Estate Activities and Focus on What I CAN Do

@Brian G. Excellent! I'm glad to hear that everything's coming along so well. Do keep us updated.

One thing - I'm not sure I would invest 100% of the profits back into the next deal. It would be a good idea to set aside some of the profit to pay your taxes so you don't get surprised with a huge tax bill next April. Talk to your accountant when you have a good idea what your profit is going to be and ask him or her how much you should set aside. Once you pay that in a quarterly tax payment or have it sitting in your savings account, I'd be happy to see you put 100% of the rest into the next deal :)

My business partner and I used Quicken for our 21 rental condos for our first year and it was such a hassle since it's really more designed for personal finances. Converting to Quickbooks took a while and a lot of work but was worth it going forward. It's easy to generate balance sheets and P&L's and any kind of standard financial doc's that you need to generate for accountants, lenders, and investors.

Another advantage is that you can send the Quickbooks file directly to your accountant so that he or she can make any necessary changes. It makes it so much easier since most accountants are already using it. Why complicate things? If I had to do it over again, we would have started out using Quickbooks.

I think this depends on your market. Are you seeing other houses for sale in your area being staged? If it's not a normal thing and your houses are selling quickly I'm not sure it's necessary.

In my area, higher end houses ($600k+) benefit a great deal from staging. In general, they sell quicker and get top dollar. I know one investor who stages all of his houses.

You can decide to go the full route and have a professional stage your house (the more you spend the nicer it should look) or you can try it yourself with just a few things. It's surprising on how much of a difference just a few items can make compared to a completely vacant house.

My last fix and flip deal went south and I'm in the position of owing a couple of friend/investors money. Fortunately, I have equity in other buy and hold properties which I can use to pay them back when they eventually get sold, I still have good earning capacity from my "day" job, and my friend/investors are understanding and willing to work with me since they know I'll make things right.

It was a high end fix and flip and I was focused on doing the deal myself and maximizing the profit. I wanted/needed the deal to work because it would've gone a long way toward helping me get out of the rat race. The submarket softened and I missed a big flaw in the property (it backed up to a relatively busy street which turned out to be a BIG deal to buyers in that area and at that price point.)

I never even considered wholesaling the property or giving an equity position to my gap lenders because I was so focused on what I needed and I though I had a good plan that was going to work the way I envisioned it. In retrospect, I should have wholesaled the deal or found an experienced investor to put up the down payment and shared things 50/50. My due diligence could have been better but even if it were perfect, there are unforeseen things that could go wrong and cause you to lose money. Until I can withstand the shocks to my capital for a deal that goes wrong, I'm planning to share risk and be happy even though I'll make less. The stress to me and family isn't worth it.