All Forum Posts by: Christopher Gilbert

We buy auction properties all the time.  Unless there is actively someone living in the property that you have to evict then anything left in the house is yours at purchase.  Sift through it if you want but my experience is that the previous owners (or next of kin) already cleaned out anything of value.  The first few houses we tried to sell things through craigslist or ebay but it ended up being such a pain that we just take everything to the landfill now.  If there is anything in decent shape just leave it by the curb for a few days and see if it disappears but if you leave it too long you might have an issue with the city.  Rule of thumb is leave it for 48 hours (over a weekend) and then haul it away so the neighbors don't get mad.

Get on the lawn asap to help keep the neighborhood and city off your back and get all the debris off of the front lawn.  I would NEVER approach the city and let them know you just purchased the property unless they are actively giving you tickets for violations.  That is just going to give them a cause to stop by and harass you during your renovations. 

No need to create one.  Use form TAR-2001 from the Texas Association of Realtors.  This is the standard form for Texas and has all the wording built into it from cases that have been through the legal system so they are pretty bullet proof.  TAR-2003 is the standard residential lease application with all the approvals for background checks. 

You should be able to get this somewhere online or from a real estate agent. 

Most A/C companies in the area see $$$ whenever they get called out on an older unit and immediately give you the R22 spiel about how they can't get it or the coils/compressor, etc.  They can repair anything, just want to upsell you on a whole unit.

We use Dalton's Air for all our rentals and flips around Austin.  They have replaced complete three ton units in the $4000-$4500 range on several projects for us.  Can also mix/match old and new units piece meal as needed so if the inside coil goes out you can swap that half out with a newer unit and keep the older compressor outside to keep the cost down. 

With that said Texas is tough on A/C units, expect to replace them every 15-20 years.  If it comes to buying a new unit, go with the newer style R410.  Ask if they can get a lower SEER model that might be on a closeout to save a few more bucks.

On the redemption rights, also keep in mind that there are the legal requirements on one hand and the fact that a title company has to sign off on the title insurance for the transaction.  Expect to have to shop around and find a title company that is willing to back the 6 month and 2 year requirements.  We found that the majority of title companies would not give us 6 months due to the fact that there "might" have been a homestead at one point on the property.  It is their prerogative because they are the ones insuring the policy even though the law may say something different. 

We had several of the larger title companies come back to us with 3 or 4 year seasoning times, even though there was no right of redemption after 2 years due to the fact that there could be some long lost heir that was not notified.

Do your homework on the front end of any property you are bidding on and run it through a good background search before committing to a tax auction.  We have also had the IRS slap a $75k lien the morning of the auction.  The IRS lien gets extinguished with the auction but the IRS is in no hurry to remove it, took almost a year to finally get past it.

I wouldn't bother opening an LLC just for single family rental properties unless you are really determined to do it. Adds a lot of expense to maintain the LLC and you risk paying a higher tax rate. Some states can charge $1000/year just to pay for the LLC fee. You also have to get mortgages in the LLC name which will be difficult and eliminates most of the 30 year low interest loans available. Lending to an LLC usually puts you in the commercial loan side where the rates and terms are terrible.

Most states do not honor single-member (only you and a spouse) LLC's and treat them as if they are personal assets anyway so people pay all that money and headache to set them up and they do not even protect your personal assets. The lawyer guru's that push LLC's for rentals never tell you that little bit of information and since lawyers are the ones that make money off of setting up LLC's they want you to get a bunch of them.

Consider umbrella liability insurance policies to cover your personal assets, etc.  You can get several million dollars in protection for only a few hundred a year in cost and you will have insurance company lawyers fighting for you if there is ever a claim.

If you choose to go the route of setting up an LLC, you will have to do it locally to the property that you are buying. Most states require that out-of-state LLC's register with that state which means that you now have to pay two yearly fees (the state the LLC is registered in and the one it does business in) instead of one.

If you go the multi-family route that is another deal, setup an LLC as they are more of a commercial business and should be treated as such.

Depends on how bad the fire was.  If it is not habitable then you will possibly have to work with the city inspectors to get another certificate of occupancy.  I would ask them first and see if it has been marked as condemned or anything.  They will want you to pull permits, etc. so they can inspect the property as it is being rehabbed.  Depending on what the layout of the building is, there is a good chance that smoke and water could have damaged much more than what is visible and sitting empty for that long can be difficult to for mold and pest reasons.

If the damage only affected one or two units it may be easier to put at least a few of the lesser damaged ones into service quickly.  You may have to pay a structural engineer to do a review of the building to figure out what framing/roofing needs to be replaced.

Any decent general contractor can help with the remaining estimates and repairs, get some referrals from other investors in the area.  Also choose at least two or three and have them quote since the range may be all over the place.  Expect to have to re-wire and plumb everything to current code which sometimes can be more expensive than the rehab itself in order to get a new certificate of occupancy. 

Mobile homes are pretty easy to rent and around here they will typically get around 80% monthly rent of an equivalent single family home.  Keep in mind that the typical applicants that you will get will be lower quality than a single family home so do thorough background checks to help mitigate that and be ready to turn away a lot of people. 

Maintenance is also much higher on mobiles as they are just not built to last very well.  Expect things to wear out or break faster than on a regular house.  Although mobiles are easier to repair, many of the parts are specific to mobiles such as thinner doors with odd sizes, skirting, shower surrounds, etc. so you have to buy them at a mobile home supply store which can sometimes be more expensive.

We purchased several mobiles (with land) with the intent to rent them out and ended up just selling them owner finance.  You collect almost the equivalent in rent with a mortgage payment and do not have to worry about maintenance or taxes.  List a mobile with owner financing and 10% down and you will have people lined up around the block to try and buy it.  Truly is the best low-stress way to get cash flow.

I did a 1031 about two years ago and I think the big lesson learned was that I would not buy new properties in the same area that I sold my old one.  We sold our property in a high market but in turn had to buy two in the same environment so the numbers were only average.  We were able to turn one properties equity into two properties and increase the cash flow which was worth it but I am not sure that I would do it again.  The short identification period and a hot local market made it tough to really get deals and financing lined up.

Some things I would change:  I would consider selling in my local market (which is high) and buying in some other part of the country where the return would be greater.  Long term capital gains is about the lowest tax bracket you will ever see in your lifetime so there is nothing wrong with taking advantage of it.  Also you can do whatever you want with the remainder instead of having it tied up with a return that you are not happy with.  

Look into lines of credit at banks as well as other creative loans where you can bundle multiple properties under one loan.  You can also do one or two with 401k loans. 

Might be easier to pay cash for them and then try to bundle a few into one package loan that a bank may lend on.  If you don't have the cash to buy these properties maybe go with more expensive ones with good cash flow that you can get loans on and then build up your cash to pay for the cheaper ones.

Some hard money lenders may have options but their terms are usually terrible. 

Try going to some local REI groups and see if anyone there wants to act as a lender or co-investor. This may solve all of your funding issues easier than you think and give you someone that can create other options for the future.

Depends on what your seller financing terms are and what you can do from an equity loan point of view.  If the seller financing requires it to be the primary lien, you may not be able to get another loan against the equity without paying off the seller financing first.  In that case probably refi the property and see if you can get a higher loan amount (possibly up to 70 or 75% current market value) if you can find the right lender.  If you are not concerned with paying off the original note faster, this is a good route to go.  Downside is that you will have a higher payment but probably better terms for interest and timeline.

You may be able to find an equity loan that will take a second lien position with the seller financing still in place if you have enough equity in the property.  The terms of that second lien may not be all that great though, probably 5 year and interest rates in the 6-10% range.  You will have two payments every month that might end up more than the refi option but both would be paid off faster in the end.

Could also consider renegotiating the seller financing and see if they are willing to give another $15k and restructure your loan payments. 

You can also take other methods such as a 401k loan if you have that option.  We use that for a lot of our rental properties.  You pay yourself interest and they do not require any qualification other than you have to have enough money in your retirement plan to be able to borrow.  Most plans have caps around $50k and have 5 year terms so they are very attractive options compared to equity loans.