All Forum Posts by: Joe Kim

Take a look at my closing costs $6600 total on a $121,000 home.

The title insurance and title services are $2000 and $2500 each....is this crazy or within reason?

Buy the Duplex all the way. (as long as it is a cash flowing property from day 1)

I subscribe to the "rich dad, poor dad" view of debt.

Good debt = rich dad is debt that allows you to acquire cash flow producing assets (rental property) with appreciation as icing on the cake

Bad debt = poor dad is debt that produces no cash flow and no appreciation (cars, fancy dinners, etc..)  

student loan is neutral debt because it does not produce cash flow but the loan helped you to get a college degree which then helped you to get a job.

Don't forget inflation which eats away at your loan (mortgage or otherwise) when the rate is low 4-5%  (inflation around 3-6% traditionally).   100 dollars now will be worth 90 dollars in 5-10 years.  so borrowing at a low rate now is a good thing if you are buy cash flowing properties.

One more thing, make sure to have reserves so that you can cover unexpected costs when buying/holding real estate.   reserves can be in cash but also HELOCs, even credit cards (if you use them wisely)

I don't know the housing market that is local to knoxville.

However, I think the real estate market is due for another downturn soon (1-2 years?).   

Better to sell on the way up (nobody can predict the peak  -- even though I just did! ), then sell on the way down.

I'm planning to sell my high priced California property (520K, rent 2300/month) that is negative cash flowing by around -100/month  and do a 1031 exchange to properties that make sense in Texas or elsewhere

I've bought 5 "turnkey" rehabed properties in 3 states (texas, Indiana, Tennesee) from three different providers in a span of 1 year.

Here are the things I learned:

#1 WORD OF MOUTH -  buy from providers based on word of mouth and based on the proven experience of other buyers who have had positive experiences with that turnkey provider.  

So many things can go wrong with any property.  You have to trust the provider - not just trust the numbers or the property itself.   REAL estate is a PEOPLE business more than a property business.  I would rather buy a property from a proven person with lower cash flow than from a unknown provider (higher risk) with higher cash flow numbers.   

#2  Home inspection is key.  "turnkey providers" should address every single problem item found on the home inspection- from minor issues to major ones (roof, AC, water heater, etc..).    

IF they balk, then RUN away!  If they fix them all, you still run the risk of return problems in some cases.  You have to decipher: is this a good deal with problems that can be fixed or is it a "fake good deal" with problems that will haunt me in the years to come?

Here is one example.  My very first deal, the home had many issues on the home inspection.  the turnkey provider "fixed" everything on the list except the roof.   He believed the roof had about 5 years life in it.   We decided to split the cost 50/50. (I got a $2000 credit).  Being a new investor, I did not have the wherewithal or knowhow to completely REPLACE the roof at the time of purchase and just roll it into the loan.   Even after everything was fixed, this property had many minor issues during the 1st year with maintenance cost being around 10-15% of rent! (too high IMHO)  Then I had the great misfortune of replacing the roof and AC unit in the same month about 1.5 years after purchase in the tune of $5200!   

That being said, my 2 other properties from the same Texas turnkey provider worked out well and 8 properties a friend bought were also positive experiences with great cash flow.

#3  PROPERTY MANAGEMENT:  Evaluation of the Turnkey provider also requires you to evaluate the property management which is just as important as the rehabbed property itself.  Two words- vacancy and maintenance is a huge part of buy/hold strategy -and property management is a vital part of that strategy.

My take home message is this.   Even with the highly recommended "turnkey providers" you are going to run into problem properties and maintenance issues.   Therefore, doing due diligence on providers (getting several references at a minimum) and also choosing providers who have a positive track record with friends/colleagues you know is a better way to go. (with the caveat that even with these people you may run into issues).

If I had any experience, I may have walked away from my first deal.  But I'm ok with my first deal since real estate is multifactorial and forgiving (with time) in many ways.    

#4  DON'T QUIT:    The most important rule in real estate investing is don't quit, keep trying, keep buying the right properties from good people and avoid bad ones!

Send your suggestion directly to Brandon Turner or Josh Dorkin.   They are the ones who can make it happen.  

@Ryan Yetter

I was introduced to a turnkey provider in Texas through a friend who had prior experience with this provider.   Also, I found large turnkey networks or brokers who had access to other turnkey providers across several states.

I think if at all possible it's best to work with people who you know.   In the beginning that is difficult unless you already have friends in the business of investing.  That's why networking is so important.

Today, at work I found out that two colleagues have friends and/or family who work in the real estate business/investing.  In the near future, I may utilize that network capital to work for me.

PM me if you want more specifics.  thanks.

Affinity group.   National insurer.  Cheap with good liability coverage $1 M.

If you are maximizing cash flow, and like the minimal "self insured" model of barebones insurance, then Affinity is a good bet.

I saved around $400/year by switching  to Affinity last year for my texas property (sounds like a Geico commercial)

@Ryan yetter

Have you thought about out state investing?   It sounds like you are looking to be a buy and hold investor.  

I only do deals outside of California.  My personal home that I had to rent due to being underwater in Orange, CA finally came back to purchase price (bought back in 2005) and so I'm looking to sell it and buy more out of state properties with the equity.

The one thing that scares me about California is that tenants have so much control and eviction is a slow and expensive process - up to 1 year and thousands of lawyer costs.

I just had an eviction last year in Indy and it look 1 month and $300 eviction lawyer fee.

-Joe

@Jeb Brilliant

Texas is a great place for buy and hold.

I bought three rental properties in the Houston area in 2013/2014

Here are some pros and cons:

#1 RV ratio is good rent to value.   Typically you can find rents at 1% to purchase price or higher ($1000 rent for $100,000 purchase price).  

#2 Low unemployment - Texas is at around 4.6% vs. 5.4% national unemployment rate

San Antonio - ridiculously low 3.8%, Houston - 4.4%

#3 Good population growth - good jobs and low cost of living is attracting a lot of folks to move to Texas

#4 Therefore low vacancy rates in Texas.

Cons:

#1 Relatively high real estate taxes especially compared to California

#2 Some areas have higher insurance like in Houston (remember Katrina?)

#3 Texas has been heating up lately with increasing home prices.  Lots of Hedge funds and internationals have bought up a lot of Texas properties.   Therefore, lots of competition gives an upward push for pricing.

#4 Huge drop in oil prices if last longer 1-2 year, can start to affect unemployment rate and cause local drop in economy in certain cities (e.g. Houston)

PM if you have any specific questions.  I also invested in Indianapolis and Memphis.   Now, I'm looking to San Antonio, Tx.

@Steve Babiak

Thanks for the tips on debris and cleanup.  

Joe