All Forum Posts by: Cody Lekberg

@Josh Harris

When investing in areas they don’t really know, investors should research the different property Class submarkets. If you apply Class A assumptions to a Class B or C purchase, your expectations won’t be met and it may be a financial disaster.

Our OPINION for the most markets (always verify each area for yourself!):

Class A Properties:
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% the more recent norm.
Tenant Pool: Majority will have FICO scores of 680+, zero evictions in last 7 years.

Class B Properties:
Cashflow vs Appreciation: Typically, decent amount of relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% should be applied only if proper research done to support.
Tenant Pool: Majority will have FICO scores of 620-680, some blemishes, but should have no evictions in last 5 years

Class C Properties:
Cashflow vs Appreciation: Typically, high cashflow and at the lower end of relative rent & value appreciation. Can try to reposition to Class B, but neighborhood may impede these efforts.
Vacancy Est: Historically 10%, but 15-20% should be used to also cover nonpayment, eviction costs & damages.
Tenant Pool: majority will have FICO scores of 560-620, many blemishes, but should have no evictions in last 2 years. Verifying last 2 years of rental history very important! Also, focus on 2 years of job/income stability.

Class D Properties:
Cashflow vs Appreciation: Typically, all cashflow with zero or negative relative rent & value appreciation
Vacancy Est: 20%+ should be used to cover nonpayment, evictions & damages.
Tenant Pool: majority will have FICO scores under 560, little to no good tradelines, lots of collections & chargeoffs, recent evictions. Verifying last 2 years of rental history and income extremely important to find the “best of the worst”.

Make sure you understand the Class of properties you are looking at and the corresponding results to expect

I currently have around 200k in cash that is yielding 5 percent in my brokerage account. I'm thinking of using that same money to potentially buy a rental property that could yield more and appreciate in value over the years. I figure it could be a decent time to buy soon while it seems to be somewhat of a buyers market given high rates as I could be cash buyer. I am however, a total newbie when it comes to real estate investing and it would be my first rental. That having been said, I want to avoid any rookie mistakes. I'm in Atlanta, GA which gives me fewer options with that budget unless I go with condos with HOA's that allow rentals, or venture out to towns outside of Atlanta like Macon, GA, Athens, Lagrange etc... That having been said, are there any tips from experienced investors in Georgia with suggestions of where I should be looking to buy? I even get tempted out of state in places like Alabama, South Carolina because real estate is so much cheaper there but continue to hear its best to have a rental around 45 min away or so.. Any tips/insight much appreciated! Thanks so much!

Based on your situation, it appears that a "subject to" real estate deal might be a suitable solution for both you and the seller. Here's a possible scenario for taking over the property subject to the existing mortgage:

1. Consult with an experienced real estate attorney to help you draft a subject to agreement. This is crucial for ensuring that your interests are protected, and the terms of the deal are clearly outlined.

2. In the agreement, specify that you will be taking over the property subject to the existing mortgage. This means you'll be responsible for making the monthly mortgage payments on behalf of the seller, but the mortgage will remain in their name and the property is deeded over to you.

3. As part of the agreement, negotiate the terms for your down payment and monthly payments. You mentioned putting 50% down in the beginning.  Determine if that will cover their equity in the current house and that should help the seller facilitate the purchase of their next house.

4. To protect your interests, include in the agreement that you will use a 3rd party servicing company to make the payments to to ensure that they are going to the mortgage company.  This way, you'll have some protection from the seller defaulting on their mortgage and the property goes into foreclosure.

5. Additionally, include a clause in the agreement that allows you to refinance the property and obtain a new mortgage in your name once you're able to qualify for one. This will enable you to eventually remove the seller's mortgage from the equation.

6. Work closely with your real estate attorney to make sure that all the paperwork is done correctly.

@Cody Lekberg

Why don’t you just buy the house without owner financing?

I left my salaried job in March and just got my real estate license last week so I don't qualify for any sort of a traditional loan. I talked to a local bank who thought they might be able to front the other half of the purchase, but it turns out they weren't able to. 

I've been a homeowner for 20 year and have perfect credit. I'm clearly not going to put 50% down on a house and then default on it...but it's tough to convince a bank of that.