All Forum Posts by: Christopher Gilbert

Unfortunately our experience has been that regardless of what the law states, the title company that has to write the title insurance has the ultimate say in how long you have to wait.  Some title companies understand and are reasonable but most are not.  We have only found one title company in the Austin area (Independance Title) that is willing to do the two years if there was ever anything close to a homestead on the property.  Most of them have been in the 4-6 year range which is rediculous. 

Again, the county and tax code can say six months all day long but the company that underwrites the title insurance has the final say.  It is their risk and their internal policy, not the state of Texas or the county that you are in. 

I would assume going into the deal that if there was a house there is a chance of a homestead and plan on holding it for two years.  If you can find a way to do it in six months then great.

Finding all the liens is one of the tricks of the trade that helps separate the serious investors. I recommend working with a title company as they can get full access to everything.  There are several websites that you have to visit depending on what districts are involved with the property as well as other things like IRS liens, child support, hospital liens, etc. but it took us a long time to find them and believe me, no one at the auction is going to give that information out easily.  Some of them stick with the property and some get wiped out after the property is sold at auction.

Even though the county calls out a 6 month right of redemption the state has a law requiring 2 years for anything that has (or once had) a homestead and you will have a hard time convincing a title company otherwise. We learned that lesson the hard way when we bought a piece of vacant land at auction and turned around to sell it after six months.  Turns out there used to be a house on it 50 years ago and the title company would not let the deal go through.

I would not invest a penny into the property before the right of redemption unless you can rent it out as-is.  The former owner has the right to redeem which they very rarely do but they can be convinced by another investor to redeem it if the incentive is there.

Rule #1: Do a thorough lien search.  The majority of properties at auction can have multiple liens attached to them.  Some get dismissed based on the county auction rules and so stick no matter what to the property which means you have to settle them.  Work with a title company if you cannot get access to all of the local databases that you need.

Rule #2:  At least do a drive by of the property and if it is vacant look in the windows, etc. and get as much info as you can.  Chances are if the property is vacant then someone has already "found" a way in and you should be able to get a good look throughout.  If it is occupied, we have had a lot of success paying the person there $50 to do a 10 minute walk through.  Most people are willing to make an easy $50, just remember to be respectful of their situation.

In our area there is a lot of competition at the auctions and it is not uncommon to see properties bid up to almost ARV and then adding repairs does not give you much margin to play with so any mistakes can cost you big time.

We usually start with ARV from comps and then back out repair estimates and then the margin that we want to make. This gives us our max bid for each property.

In Texas you need to have a broker's license to be able to manage someone else's properties.  Your employees and agents can be the person leasing the houses as long as you are the broker on the deal and you are liable for all the transactions.  If you are already a broker then you may be able to just take the exam in Texas or may even qualify with years of experience.  If you are not currently a broker, you need to have at least 4 years of experience as a realtor as well as a minimum education program and testing before you can apply for the brokers license.

check out trec.texas.gov

The Millionaire Next Door - not directly a real estate book but puts you in the right mindset for living within your means and the wealth benefits of being a business owner

Rental Houses for the Successful Small Investor - Suzanne P. Thomas - I believe that it is out of print and a little dated but this was the book that first motivated me to get started with rental properties.  It shows a down-to-earth plan that anyone can realistically use and breaks away from the get rich quick with no money down phony guru crowd.

It depends on how long you want to live in your next home.  If you are willing to do it, I recommend buying another property as a primary residence with the intent to rent it out at a later date.  Keep it cheap, move in and start fixing it up.  After a year or two go find another "residence" and rent out the old one.  I know people that have done this four times over a period of 10 years and were able to easily accumulate three rental properties with good financing terms. 

The only trick is that you have to be willing to physically live in them for a while.  If you do not want to do that then just go buy a house for yourself and stay in it.  Loans for investment properties typically will require 20% down and the interest rates are usually 1% or so higher than a primary residence.

I usually try to stay away from condos as rental properties since the fees are not within your control.  Many places that start having high rental/owner ratios start jacking up the fees to push out the landlords.  If you have any real equity in your condo you may think about selling it and using that money towards another rental that is not a condo.

As a side note I would NEVER do an ARM (or 15 year note for that matter) in this environment. With interest rates still low I recommend getting a 30 year note before they start going up again. If interest rates go up to much above 6% they really start cutting into your cash flow on investment properties so the more mortgages that you can lock in now the better.

Forget Zillow, their estimates are terrible.  Use redfin.com or realtor.com and search for real-time rental comps in your area. 

The renter does not care how much you paid for the property, they are only willing to pay what the going market rate is.  My experience has been rent drops off quickly once you get much above a certain threshold for your particular area. 

Where I live you may get competitive rent for up to $1500/month and then the rents really do not go much up from there, regardless of how nice or large the house is.  Generally speaking if you cannot get a 1% rent-to-value ratio ($200k house should be able to get $2000/month rent) for your house look for something else.  

If you cannot get your 1%, look for a cheaper house, maybe in the $140k range that can bring in $1400/month.  If you cannot find anything that is 1% in your area, consider searching in a different area/state.

As for HOA fees, taxes, etc., the owner absorbs those as a cost of owing the house so price your property accordingly.

Real estate gives us an opportunity to teach our kids that it is more rewarding to be a business owner than an employee and if you are willing to do your research and have enough grit you can accomplish surprising results.  We both have engineering degrees and spent almost 20 years trying to work our way up the corporate ladder because we thought that was what being successful was about. 

Real estate has allowed us to create multiple business opportunities with low barrier to entry, scaleability and complete control.  With a regular brick and mortar business you have a lot of overhead, sunken costs and usually have to spend a lot of money to acquire and keep customers.  On top of that you can have a lot of regulations and headaches to deal with. 

With real estate you can work as much or little as you want, outsource as much as you want and you can slowly or quickly grow your assets without much additional risk. 

We have done tax auctions, trustee sales, land flips, house flips, rental properties, property management and we are close to opening up our own real estate brokerage.  With real estate there are so many different ways to focus and specialize we feel that we have just scratched the surface and will never be bored since there are always opportunities out there.

A couple quick questions that hopefully someone has some experience with. I am looking at moving into a self directed IRA to purchase additional rental properties. Usually depreciation is one of the most valuable tax savings effects of rental properties when you ordinarilly own them but how is that handled with a self-directed IRA? If the account is growing tax free already are you still forced to take the depreciation out of your cost basis? If so, it would seem like it would be, in effect, a penalty since you do not get the tax benefits and your cost basis is reduced.

Does your cost basis even matter when you sell a property in your IRA since you are taxed as income when you withdraw from it in the future? Do 1031 exchanges even matter within an IRA?

Thanks for all the reply's, I appreciate the feedback.