All Forum Posts by: Alex Rearmice

I was introduced to a guy locally who bought a duplex with his partner for $70k with the intent that they'd live in the bigger side (700 s.f.) and rent out the smaller side (550 s.f.) for $700 a month. They each put in $35k and then, so far, about $7k each fixing it up - new windows, new doors, water heaters, electrical, exterior work, etc., much of it requiring city permits, which they got. It's about 80% done. Anyhow, one partner now wants out, and the other partner needs to buy him out, and that partner intends to keep living there and wants 100% ownership of the duplex. He is looking for a $50k mortgage as private money to pay off his partner and to have some $ leftover to finish up the renovation. I saw the property today, both sides, and can see it's within $2k-$4k from being done, the most expensive thing being to finish off the electrical work (it passed rough electrical already). They are $84k into it, and it should be worth at least $100k for sure when it's done, and more like $125k by my estimation.

This guy wants $50k and has called some banks and says he finance it that way, 30 years at 3.5%. I don't buy that. He's out of work right now and will be finding new work soon. I don't know his credit score. He says he only has about $2k to put into it right now, and his partner wants $ to get out of the partnership, or he may file some sort of suit or something for separation from the deal soon. So it sounds like this guy needs funding fast. He is adamant about not wanting a new partner.

From my point of view, if I did the $50k at 10% interest amortized over 10 years, it'd come to $79.3k. That works out to 4.62% compounded annually, so that's not a great return in my eyes for the risk. And I don't even want to do 10 years, but that would be $661/mo, which would fit with the $700 rent pretty closely. He wants 7 to 10 years, but I'm thinking no more than 5 years.

The good thing is: if I'm in first position for $50k or less, then I may have the future ability to take over this $125k property. So that's a good out if he should fail to perform. But I hope he does make it, and I'd rather be compensated justly so as he makes all his payments and eventually has full ownership.

I'm inclined to only do $45k, which should pay off his partner $42k to $45k (he hinted at this number, based on materials and labor done), and let him handle financing the remaining materials and finishing the work himself (he indicated that his family might help him out a little bit, but not to the tune of $50k).

I'll stop here and ask, any ideas on how I might proceed? Is there some way to structure this as simple interest + points? I'm also concerned about not providing financing until all the work is complete and all the city permits are signed off. I'm open to any ideas. Let me know if I left out any crucial details. I know I'll need to learn more about his credit score, credit problems, outstanding debt, etc. And if I hold a first note, I need to have some alert system in place in case he ever tries to take out a HELOC or a 2nd note that would dilute or harm my 1st position - I think I'd want to build that into the legal agreement.

I had a friend show my house for rent, and after receiving an application and speaking with someone on the phone, I agreed to rent to them. I prepared a lease and emailed it. The renter printed it, signed, and sent back with 2 checks, one for deposit and the other for 1st month's rent (post-dated to 8/1). I deposited the security/deposit check on 7/25. Well, since then, the tenant-to-be did a walkthrough with my friend, and it didn't go well at all. The renter was nitpicking out of control; when he left, he said "F U" (literally) to my friend; and when I spoke to him after the walkthrough, he sounded very demanding for small things plus wants to paint the house (which we had not discussed and I made point blank clear was not to be done). All in all, I'm not liking this person as a renter any more. He referenced having lined up movers for the 8/1 move-in date.

My question is this. I did not sign and return the lease to this person. Can I call them now, 7/28, and say I'm not going to lease to them? Then, return their deposit amount with interest, reimburse them for the mailing cost, and destroy (or return) their 1st month's rent check? This person only showed me the good side originally, but now I'm seeing 1 year (or more) of constant problems down the road, and I'd just as soon not rent to this person and keep looking for a better tenant.

Alex

How would y'all rate this deal? I found a foreclosure on a 2/2 1 car garage about 900 s.f. with comps in the nbhd. all at $104k to $109k. It was first at $93k, then just reduced to $80k. I offered $64k, but there was multiple offers, so now I'm submitting $75k and hoping to get it right about there.

It will need carpet and paint - $4k. Fridge, $200 scratch and dent. A few minor repairs, $200. Garage door straightened, $100. Add another $1k for unknowns, but the furnace, water heater and HVAC all looked fine and seemed to work ok. All in looking at $75k + $5,500 = $81.5k, leaving $22.5k equity up front. I am looking to do all cash as part of a 1031 exch. and then selling it after 1 year renting (and up to 2 years).

The "bad" part is there is a mandatory $75/mo for lawn care and snow removal, and there is a $208/yr HOA fee. So that's $1,100 per year. I will naturally either build this into the rent or, if possible, pass it along as a cost (and benefit) to the renter. Taxes are at like 2%, which sucks, but that's the way it is.

The good thing is, it has a brand new roof.

After selling and paying comm., I'd net about min $20k after it's all said and done.

OK deal? I'd turn around and 1031 that $$$ into something else in 1-2 years time.

Originally posted by Jim Doine:

Alex, your deadline must be near, have you been able to identify your replacement property? :D Jim

Yep, my ID period just ended, and I put 5 houses and 1 condo in my list. Already got 2 houses under contract. So - obviously - I went the SFH route, though I did evaluate several apartment buildings.

Thanks to everyone for the input.

Isn't the magic number 4 right now? Or does that depend on the loan type we're talking about?

As I recall, it's yo-yo'd 5 times in the past year. It was 10 up till Aug 2008; then b/c of the Fannie guidelines, it was 4; then when all the buyers went away, the gov't raised it back to 10 in Oct 2008; then in Nov/Dec 2008, it once again reverted to 4; and as of Apr/May 2009, when I was trying to do a refi, 2 banks told me that 7 would be the new number "soon" but, alas, it's still at 4.

Or am I talking about some other type of loans?

Good idea, I hadn't thought of that. I rec'd an email from someone along those lines already. The thing is, I would have to know it's going to close within 180 days, else, fall back on one of my other two of three choices - which may or may not be around. So I'm a bit wary of that option in terms of a 1031 exchange, though I do like the idea a lot.

Alex

Thanks for the reply. I'm leaning that way, too, toward 3-4 houses or such.

I've found a 4-plex here on Colorado for $115K that brings in $2,200 a month in rent and the tenants pay for electricity, water and gas, leaving just trash, maintenance, insurance, and $1,600 in property taxes for the landlord. I don't have the exact NOI on it yet, but it appears to be a good deal to get started with. I suppose I should post this elsewhere as a "is this a good deal?" question! I think it will be up to $2,400 a month in rents within 3 years.

I'm focusing in Colorado Springs, Indianapolis, Charlotte NC and Fort Lauderdale FL. If anyone has good contacts or knows of anything in those areas, I'm all ears.

Alex

I am doing a 1031 exchange for $275,000. I'm trying to figure out what to do on a number of levels. The first is:

* buy a bunch of small cash-flowing houses that total $275K
* buy one big thing for about $275K
* buy one big thing for more than $275K and get financing

My inclination is that I won't find financing b/c I have too many loans already - can't even refi what I have - even though my credit score is good and my work income would support it. So I'm leaning toward staying at $275K, though, if there is a good reason to, I'd consider pushing to $350K and trying to secure financing where I am at 20% LTV.

The second level of thinking is - what will I do in the future? If I 1031 into one thing now, I can 1031 into something bigger in the future. But if I buy, say, 5 houses, then I'm going to be 1031'ing in the future into other small fish things.

The third level of figuring out stuff is - what do I want to accomplish? I think that nationwide, there isn't going to be any run-up any time soon (5-10 years), so any sort of "speculative" play doesn't appeal to me. I think I just want good cash flow and to know that I will get say 3-5% growth a year over the long haul - though I may just as well plan on it being flat growth depending on what happens in the RE market nationwide.

I know it's a lot to consider, and I'm not set on any one plan as I've described. I'd like to hear from you experienced folks, what would you do with a $275K 1031 exchange right now?

Thanks in advance! 35 days left to identify. :-)

Alex

I've really enjoyed this thread. I wanted to post the same thing - I essentially did with my topic asking for rent-to-price ratio data across the country.

I appreciate what many have said about (1) the best place to do RE is where you live (2) there are deals wherever you are (3) it will be easiest and most effective in the long run to keep investment properties close by.

But like someone else said, what about if you live in CA? I am in San Francisco now. The best thing I've found so far is a gorgeous 2/1 TIC of 900 s.f. with parking for $429,000. That will command a rent of $1,800 a month. I've looked at triplexes and duplexes that start at $575,000, and they'd get $1,200 rent per unit. Really, there is just no way. I went to the county auction last week, and a great deal on a house worth $450,000 in Redwood City started at $57,000 and went for $319,999. I've found "cheap" condos in Milpitas, an area with excellent schools, for $190,000 that rent for $1,500 - problem is the $340 HOA and higher taxes. Suffice to say, I agree with the other post, it's darn near impossible right where I live. I saw the other post about going 100 miles away like Fresno or Stockton or Modesto and would consider it (details?).

I am pretty much a beginner, with just 6 properties, mostly in Charlotte. My take is, I'd rather, as the original poster asked and why I enjoyed reading this thread, find out where there is some consensus, or if not that, some strong indicators based on real numbers (pop growth, price-to-rent ratio, unemployment, etc.) that certain cities are good to look in. Because I'm for sure going to invest in 4 $50,000 houses that rent for $850 each before I shell out $200,000 for some condo in Milpitas that, while it's beautiful and will likely (but who knows?) a better long-term upside, is going to drag me down $200 a month. Those days are gone.

Let's put it this way - for those of you who live in OK or MS or LA or NC or IN and have read this post and said "just invest where you're at" - let's say you lived in Norcal and had to buy here. I'd love to see what you can find because I can't find anything under $400,000 to even think about within 50 miles of me.

So I'm already pretty ramped up in Charlotte - any other parts of the state to consider? Raleigh?

And when I started putting my own data together and seeing Cincy and Cleveland and St. Louis and Indy as possible, I was interested to see in this thread that Indy is a recurring idea. Then tonight I read this:

http://www.forbes.com/2009/06/30/cities-affordable-home-lifestyle-real-estate-affordable-cities.html

To the original poster of this thread, the good news is, you're already surrounded by opportunity in Dallas and that area. Thanks to everyone for contributing on this topic and keep the info rolling in.

Alex

Thanks for all the responses. It's pretty clear that averages never speak for every neighborhood and every price range house, but, averages aren't supposed to do that. They are supposed to act as signals, of sorts. As an example, take NYC and Macon, GA. NYC may have numbers like price $800k, rental $2000, ratio 0.25%. Macon may have price $80k, rental $700, ratio 0.88%. Of course that doesn't mean every house, every area, every time - but seeing 0.25% and 0.88% would be a pretty strong indication of what to expect as one starts scanning the local market.

I am using CL to get data. As with anything else, I'm using that data with a grain of salt. I have been advertising a house for rent for 3 months there, starting at $1,450... then $1,375... and now $1,295. So who knows what's real. I used to get $1,475 a month for years, but that particular city has seen a reduction in rents. Better would be to get MLS rental data where the actual rent figure is entered. But in any case, CL data will have some meaning, and I think I will discount rental figures by 10% to give a more realistic view.

As a real example of what I'm considering, Indianapolis has popped up on my radar. It seems the price to rent ratio there is often 1.2% or higher for the smaller houses. The thing I'm considering now is, yeah it's a better rent, but repairing the roof, putting in new carpet every few years, painting, replacing a stove, all those things cost the same for a $60,000 house as a $200,000 house, but it's going to hurt a whole lot more on the bottom line. In the same way that smaller houses sell for more per s.f., it almost seems like smaller houses need to command a higher rent per s.f. to offset some of the costs that are the same no matter the size of the house. From my early research, it seems like Cleveland, Cincinnati, and Indianapolis all have a good possibility. I need to look into occupancy rates next.

Alex