All Forum Posts by: Christopher Gilbert

Where we are at multiple offers are the norm on properties with good numbers.  I have seen so many people throw away good deals just because they had a number stuck in their head and would not bump up their offer by a thousand or two.  Most sellers just want you to come up a little bit so they can say they negotiated a better deal.  Some people pass on so many deals by the time they pull the trigger the market has changed and they missed out.

Legally if a realtor is involved they are not allowed to use the multiple offer situation unless there are really mutliple offers but they also do not have to disclose anything to you.  Even if the other offer is $10k lower than yours they still throw out the multiple offer scenario to try and get you up some.

If the numbers pencil out and are acceptable to you at $50k then anything under that is a better deal so take it.  Finish the deal and move on to the next one.  Five years from now you won't care if you paid a few thousand more than you wanted, you will be counting all the rent money that you have collected.  Think big picture and do not throw away dollars while tripping over pennies.

Our experience going solo is to stick with a sole-proprietor. The cost of setting up and maintaining an LLC usually negates any kind of savings that you get. You do not get a whole lot of extra liability protection either and umbrella liability insurance policies are so cheap it is easier to do that to protect your personal assets. If you have the majority of your assetts in properties owned through the LLC then you are not really getting much protection anyway.

With partners, that is a different story. We run two LLC's for the flip properties that we do with multiple investors in each. Mainly the LLC is there to formalize the relationship and keep everything open and even between investors. It is extra work to maintain the LLC but we feel it is required since there is much more money at stake and we want all the investors to understand what they are getting into.

Another option that we have used is to take a loan against your 401k.  We can take out up to $50k for a 5 year term and use it for anything.  Both you and your spouse can do one independantly if you both have 401k's which can give you up to $100k of funding options.  It gets paid back directly out of our paychecks and all of the interest that we pay goes straight back into the 401k so you are basically paying yourself back interest.  Once you pay off the loan you can turn around and do it again.

An additional benefit is that it does not go on your credit as a loan since it is to yourself. The only downside is that IRA's do not permit it, only 401k's as far as I know.

The only downside is that the payment is pretty large each month (think a high end car payment for a $50k loan) but if you already have the cash in hand and want to save it for a rainy day this is a good option.  If you only borrow $10k the payment is pretty small and easy to pay pack quickly.

I recently just got rid of my property manager on my last two properties as well and do not miss them one bit.  I have been managing my other properties for years and it is not really that much work.

I recommend using a local realtor and pay them 3/4 of a months rent in commission (they can split half with a tenant's agent if appropriate) to handle any showings and collect paperwork. They can also take care of the lockbox and put it in the MLS for you. I have found that MLS brings in much better qualified tenants and when tenants work with an agent they usually go through some type of pre-screening.

If you do not want to go that route you can put ads in the local area through craigslist, etc. and only allow prospective tenants with agents to see the property so that they can admit themselves as necessary.  I do not recommend that you give out the lockbox code to anyone but a realtor though as you do not want random people having access to it.

You can use National Tenant Network or RentPrep to screen tenants and find a copy of the local standard lease application and contract to use.  Make sure that it meets your needs and do not be afraid to modify it if needed.

You would have to take a look at what the particular zoning situation is.  We have similar situations here where there is a house on the front of the lot and a smaller one in the back.  They are usually each considered half of a duplex and each can sell independantly as such. 

To appraise the value you really have to find similar properties which may be difficult.  The house valuation is probably simply finding similar sized houses/duplex's but not sure how the lot size would be handled.  The appraiser my just take the lot size and divide it by two regardless of the individual house size.

My wife got her real estate agent's license so that we could sell our flips without having to pay an additional 3% fee to a seller's agent.  We also get to collect 3% as a buyer's agent when we buy our rental properties which can help us get houses a little cheaper or put that money towards repairs. 

Through all of our connections and networking, we have also been able to build up a steady following of investors looking for rental properties so whenever we come across something that maybe is not good enough for a flip but would make a great rental, she can act as a buyer's agent and make some extra cash that way.

On the con side of things, it really depends on how much time you have and whether you like being an agent.  It can be a hassle dealing with buyers of your flip properties and is something that is easily outsourced if you want to focus on finding new properties or are doing the rehab work yourself.  Sometimes good agents have a pool of buyers waiting for properties and they can get your house sold before it even goes on the market.

The link appears to be more of a home warrenty instead of an actual insurance policy.  If the house is older than 15 years I would try to get the seller to pay for a home warrenty for a year.  I never pay for a home warrenty myself as most of the properties that I buy are short-sales or foreclosures and I just set aside some cash in case I have a major repair.  I am always a bit skeptical of home warrenties anyway as I know a lot of people that have tried to make a claim and either never were paid or were only partially reimbursed.

As far as actual insurance goes, on a rental property you should be more concerned with liability and damage from events such as fire, flood, wind, hail, etc.  You should either max. out your liability coverage (usually $300k per property) or even better take out an umbrella liability policy that can cover you, your home, your car as well as your investment properties.  That way if someone sues you, there is enough coverage for your personal assets.  An umbrella policy can go for a few hundred dollars for $1MM or more.

I usually choose a higher deductable policy since when you get a lot of properties your insurance costs really start adding up.  It makes more sense to just keep a few thousand in cash to cover deductables than it does to pay an extra few thousand a year, every year, in policy premiums.

Also remember that your landlords insurance policy only covers the structure of the rental and not the contents.  Make sure your tenants get a rentor's policy to cover their valuables in the property.

The numbers look good, just be sure that if it is a townhome that you know how much the HOA/condo fees are and facture that into your ROI. I recommend getting a local buyer's agent, perferably one familiar with investment properties, since it does not cost you anything and they can make sure that there is nothing odd going on with the contract. The agent can also run you comps to see what the value of the property really is (actual sold prices, not just listed prices). You can also use redfin.com if you want to do a search for similar properties to see what they are listed for and to verify the rents.

What the seller paid for the house a year ago is irrelevant to your transaction, negotiate it based on the value and condition of the property.  If you want to offer him less then do it and negotiate from there.  I would not try to "win" the negotiation too hard and walk away over a few thousand dollars, even at a $65k price if the rents are truly $1100/month this is a great deal and I would buy it all day long.

Make sure you do your due diligence on the property and verify that there are no major issues. Bring in an experienced contractor to walk through it with you and verify that the roof, foundation, plumbing, electrical and HVAC are all functioning propertly.  If not, factor that into your offer as well.

I am not a tax accountant but the one that does my taxes basically has me add all repairs on to my cost basis on a property-by-property situation.  So when they are incurred does not matter, it comes out of the profit when you sell the property. 

Non-property related expenses get deducted from your overall profit for the year they are incurred and are not tied to particular properties.  In general almost every expense is tied to a property, with the exception of mileage, etc. of trying to find new properties.

I highly recommend finding a good tax accountant, even if it is just to pay for a few hours of time and ask them some specific questions.  It seems like every month we are finding new expenses that we have question on how to account for them and having an accountant that we can call really helps.

If you only plan on managing an apartment complex that you own or have an ownership share in then I beleive that you are OK and do not need anything special.  But if you do not have any experience in property management and am new to investing I highly recommend hiring a property manager for at least the first few years since certain areas can have varying code requirements for apartments.  For example, city of Austin has some rediculous energy efficiency requirements as well as ever-changing codes that take effect on properties with an ownership change regardless of how old the building is. 

Which means that even if you buy an older apartment that should be grandfathered, the fact that you are a new owner of the property means you may be responsible for getting the building up to current code requirements.

I recommend going to a local real estate club and look to partner with some experienced investors in your area on the first deal or two so that you can learn the ropes much quicker.

Getting a job as a leasing agent will allow you learn some of the ropes but those jobs typically do not pay very well and you might be better off just getting your real estate agent license and start the four year clock until you can get your brokers license.

Property management also has one of the highest litigation rates which means that most brokers severly limit who can manage properties under their umbrella and most will not allow you to manage other properties yourself if you report to them.