All Forum Posts by: Michael B.

Hitting the 2% rule is pretty tough these days. A few years ago it was doable, but now, not so much on good properties.

I guess my thought is that you're probably not overpaying too badly, but you're not getting a great deal either.

This is actually the type of investment I tend to like. There's sufficient cash flow to make it take care of itself, build reserves, and it's new enough that the maintenance shouldn't be too bad for the next few years. The hope is that you can inch up rents a little over the next few years to make the cash flow even better. Hopefully some appreciation will come your way to make it even better.

I don't have a real problem with these numbers, if you're looking for a long term investment.

I've arranged a few of these 'networking' events in my day job (I'm a statistician). Here's the issue that organizers have to think about no matter the field:

Who do we want to speak? It's usually either a vendor (or several) selling their 'warez' or it's a practitioner who wants everybody in the room to think he's the smartest person ever while telling war stories. The vendor has the potential to come across as delivering nothing but a sales pitch, the practitioner has the potential to come across as either arrogant or unprepared (or usually both).

And the alternative to either is the pure networking event or 'group discussion' that leaves everybody wondering what kind of moron organizes these things.

Organizing these things is a really hard thing to do well on a regular basis. It's heavily dependent on the quality of the main speaker. And its a rare club that can find interesting speakers and subjects on a continuing basis.

So my advice would be to find one that has a speaker you're interested in. Go and think about whether it would be worth if the speaker wasn't nearly as good as this one and was covering a subject of no interest. If the rest was worthwhile then try it for a while. But it probably won't be.

Hey Madonna,

I actually drove down Semoran to visit your fair city yesterday. I went kayaking in Lake Orienta. Had a very nice time.

Welcome to BP.

I currently have 4 condos (plus a 5th as a personal residence). Mine cash flow very well, partially because I paid cash for 2 and have paid off the mortgage on the 3rd. But the 4th does pretty well also.

I just know of townhouses in Florida, and they almost all are part of an HOA. The HOA fee tends to be a good bit less, but mostly because the HOA is doing less. The building exterior (including roof) TEND to be your problem, not the HOA. So, yes, a townhouse is something of a hybrid of a SFR and a condo.

One thing that I've found helpful -- get to know the HOA board. Become a known quantity to them and let them know you're interested in bettering the area, not making it worse. HOA boards have an innate distrust of investors. You have to make sure they know you're interested in being a part of the community, even if you live elsewhere.

I rarely miss an HOA meeting in any of the complexes where I invest, and make a point of talking to a couple of the board members for a few minutes each time. They're usually retired guys that really like the attention. They're your eyes and ears in the community and will let you know very early if your tenant is doing something they don't like. They can also give tips on when a place is going up for sale. One of my condos is a deal that I found out about from the board president, and I'm currently waiting to close on one that came from a guy I met in the neighborhood.

I also try to take a board member out for breakfast every now and then. Retired guys love to start the morning with breakfast out when they can, especially if somebody else is paying. For the price of a Egg McMuffin and coffee you can find out what their concerns are and what challenges the board is facing. And that's valuable information for an investor.

I like investing in condos, and I realize that puts me in the minority here at BP. A couple of notes:

You're right that the entry point is lower for a condo. Also in a condo the rent is a larger % of the purchase price than in a stand alone house. And Jon is right that you do have a partner when you're in an HOA, but used properly it a partner that brings good things to the table. Most of the HOA rules that people chafe at are the same rules that landlords want to enforce anyway -- noise, appearance of the building, parking, etc. Like Jon said, a partner.

In a lot of places the choices come down to investing within an HOA or buying houses that are pretty old or out of the metro area. The federal government pushes about all new developments toward creating some type of HOA these days, and have for a few decades now. So most suburban developments are going to have rules of what you can and can't do. In other words -- avoiding an HOA partner is harder than just avoiding Condos.

HOA fees are primarily maintenance and reserves. A lot of the maintenance is done for you by the HOA, usually including landscaping and outside of the building. They can usually do these functions more cheaply than you can just because of economies of scale. If you buy a house you need to eventually put money in reserves for a new roof. A good HOA is doing that all along so when the time comes the money is there. Many landlords don't have sufficient reserves without dipping into personal savings.

One more thought on owning a condo. Lots of Gen Y / Milennials ( or anybody born after 1980 or so) really don't see the value of the suburban back yard as their parents did. They have no desire to ever own a John Deere nor tend a flower garden like their parents. But they do want to move up and out of the apartment complex. Condos, either renting or eventually owning, fits this rather well. That's the market you're aiming for.

I always get the inspection. Remember, the inspection is part of the price negotiation process.

After the seller accepts your offer the seller and agent usually stop marketing the property. It may not come out of the MLS, but the "it's under contract" note usually kills all activity. The process stops cold until your offer runs its course. This is your time of maximum leverage. At least consider using it.

A good inspector will find things you didn't know about. Use this knowledge to go back with a new offer. If the findings are small go back with 2% less. If they're big adjust upwards.

The agent and seller don't want to restart the marketing process. There are 3 things that can happen when you go back with a new offer after the inspection -- 1> They accept your offer, 2> They come back with something between your old and new offers, or 3> They say no. If they say no just reaffirm the old offer. I've never had a single seller walk because I made a new offer. In my experience option 1 happens about 20% of the time, option 2 about 60%, and option 3 about 20%.

Neither the owner nor his agent want to restart the marketing process. They want it to happen, now, probably more than you do. Don't let the moment pass without at least considering taking advantage of it. And at a $300 or so it's a great buy.

For most people real answer is finding really good places that they can use some combination of their assets and borrowed money to invest.

However for you right now -- think Ramsey.

The key to financial independence is to live on less than you make and invest the rest wisely. You're just starting a career that should spin a comfortable living for a long while. Don't screw things up by taking your eye off that ball. There will be time to invest later. But spend the next few years getting ready to invest.

First get a good budget in place. Figure what you need to live on and invest the rest in a good mutual fund (after paying off debt, see next paragraph). Get good financial habits like tracking every dollar that comes through your fingers. Manage the dollars wisely and let the savings accumulate.

Next-- Pay off any debt you've accumulated in Gainesville, including student debt, credit cards, and any auto loans.

Make the beginning of your career a success. This will make a lot more important to your financial well being at age 40 than real estate investing.

After all of these are in place, then start looking at the real estate market. Maybe a home first, investments later. Or maybe skip to the investments if you wish. But for the first investment you should be debt free and have at least a 40% down payment in place. Even more would be better. You can borrow more for later investments, but learn the market with less risk than maximum borrowing.

You have a long working life in front of you. And you probably won't retire at 40, few do. But you can have a very good foundation in place to eventually get there. But now is about preparation and getting the foundation right, including paying off debt, getting good financial habits, and making yourself a really good engineer. The investments will happen in their time. Don't force them before that time.

I've purchased 3 properties with my SD-IRA and it's worked well.

When selecting an avenue to invest: Remember these are retirement funds. They've gotta be there when you're not working any longer. Don't get too risky with your retirement. High levels of risk to capital just aren't appropriate with your retirement funds.

That's why I stick to residential real estate. Just too much possibility for large losses when you get into real estate derivatives like lending instruments. Real estate has a way of making people forget risks, seeing only the upside of investments without contemplating what could go wrong. Calculating risk as well as potential reward is vital in retirement investing. A couple of specific risks to consider:

Liquidity: When you buy a note or lend money there's usually not a way out except for waiting for the payments. Notes are very thinly traded. The bid and ask are usually too wide to contemplate getting out. Real estate, too, has some liquidity risk, but on any given day there are a lot more buyers for an SFR than for a note.

Adverse Selection Risk: People borrow from hard money lenders and sellers when they can't go to the bank, and there's often a reason for that. Banks finance the vast majority of real estate purchases in this country. Getting in a position of investing your retirement funds in deals that are too risky for any bank just isn't where you want to be, especially if you haven't already done many of these deals using non-retirement money..

I know these aren't particularly common or popular sentiments on this board, but that's life.

The old saying about getting blood from a turnip comes to mind.

In my experience it's better to just cut your losses and move on. Usually getting anything back is just too much of an issue. There are people I'll never do business with again because of this issue, but I almost never pursue in small claims.

The quickest and most reliable way to stop the bleeding is to sell it. How much would you have to bring to closing, and can you do that?

About any house is can be sold at the right price. Can you lower the price so it can be sold? Can you bring enough to closing to make the deal happen.

Nobody ever wants to bring money to closing when selling a house. But being a long distance, undercapitalized landlord will eventually cost you much more. I'd say find a way to sell the house and put it and the obligations associated with it in your past.