All Forum Posts by: Kevin H.

 I'm in the Denver area myself, and I really don't want to sound pessimistic.  But, personally speaking here, I don't see initial cash-flow working very well out here at the moment.  I've run numbers on quite a few properties so far, and I've yet to find one that seems likely to turn any kind of profit right out of the gate.  Breaking even and then waiting for a return later seems like the best you can do given our recent appreciation in this area (and that of course can mean putting money on the line without any return on investment for some time).  

I'm certainly not saying it isn't possible to cash-flow in the black around here, and I know some seasoned investors on this site say they are still finding deals here in my town.  Maybe my numbers are too conservative when running estimates on these places?  Either way, I'm starting to look at outlying areas on the Front Range, rather than metro-Denver.  

Your milage may vary, but prices have gone up an incredible amount here in the past year, which makes pickings a lot more slim than they were a couple of years ago.

(NOTE:  I'd love to be proven wrong on this one…  if someone can point me to a few good deals in this metro area, I'd happily eat my hat on that one.  But, so far I've been rather disappointed with the returns I've seen on my spreadsheet.  It is a great town here, and I'm glad I own at least one property here, even if it is my primary residence at the moment). 

I'm a newbie around here, and I'm honing in on my first investment property purchase. I already know that an LLC is a good way to setup a rental business as a means of insulating my personal assets from potential litigation, but I'm not really sure HOW I can go about obtaining financing through a newly formed LLC.

My personal credit is stellar, and my personal home is owned free-and-clear. I've got sufficient money in the bank for a downpayment on any of the properties I'm considering (mostly under $300K). What I don't have is an LLC with any kind of history, nor do I have the cash to buy all of the potential properties outright. I'm assuming that most banks will require me to guarantee the new loan personally, even if I form an LLC tomorrow.

I'm also concerned that if I've already found the perfect property, I might not have time to establish an LLC before making an offer. Along those same lines, I know most lenders won't allow you to transfer the title of a property into an LLC while the loan is still in existence.

So, aside from accepting bad terms on a hard money style loan, what are my options here? 

1) Do I put a place under contract, then quickly form an LLC, and then buy in the name of the LLC backed by my own signature? In that instance I imagine I'd need to carry a significant amount of liability insurance to protect my existing assets.

2) Do I buy in my own name, carry a significant amount of liability insurance, and later change ownership to an LLC once the place is paid off?

3) Am I missing some other obvious options here?

Any assistance would be greatly appreciated!  I'm excited to get into this business, but I sure don't want to put myself in a bad spot given the litigious nature of today's society… it only takes that one tenant to make your life a living nightmare, and risking everything I already have is not part of my business model! 

It seems to me that this is more of a criminal issue, rather than a civil case.  At least here in Colorado a person needs to be evicted from a house before they can be forcibly removed, provided that they have established residency at that location. 

Clearly you have a rather unique situation here as you were in the process of transferring occupancy from one person to another due to a sale.  But, that doesn't give the new homeowner the right to discard, keep, or sell your valuables under this type of circumstance.  I'm inclined to look at this as a theft rather than an insurance claim.  

Surely there are some real estate attorneys and other real estate experts on this site with more knowledge of civil law than I am.  My personal area of expertise is in the investigation of crimes, and I think a criminal action is potentially applicable here, depending on the laws of your state.

At the very least, this purchaser is claiming that your stuff was gone when he got there. That is clearly a burglary in that instance.  Reporting it to the police was definitely the right course of action.

I was hoping some of you experts could tell me how you go about finding your deals?  I'm looking to invest in single family homes, or possibly duplex to quadplex properties for the purpose of generating rental income.  I'm in the Denver metro area, and real estate is hot here right now…  obviously that's not the best time to look for deals, but I'm certain that some folks are still finding them out there somewhere (some of you on this site have even alluded to that fact).  

I ran the numbers on a property that I got a lead on from a friend, and this property could cash-flow reasonably if I could get it for the right price.  Unfortunately the "right price" for me is about $20K less than the owner of this property offered to sell it to my friend for about 6 months ago (not a good sign with skyrocketing prices at the moment).  Even at that price it would be competitively priced in our local market, where a lot of places are currently selling above asking price.    

So, how can I go about finding a great deal (or, even just a fair deal) in a market like this?  Do you guys have any general strategies you use to locate good deals on single family homes (or other 2-4 unit rentals)?

So, any suggestions on how to find local opportunities that aren't on the MLS?

I do know of one possible deal that might be opening up in late summer, but that's still a little far out (I have a friend moving out of a place he's renting, and he has told me that his landlord wants to sell the place at what currently sounds like an attractive price — I figured I might approach that one before it's listed, but we'll see how that situation shapes up over the next few months).

I live in what could easily be considered a starter home (1960's 3bed, 2 bath ranch), and the property appreciation I've seen in this neighborhood in even the past year has been staggering.  A year ago homes were moving for around $220-240K in this neighborhood, and now I've seen a number of these homes closing well above $300K so far this year (one home a block from mine just closed at $335K from what I understand).  With prices up by that much this quickly, I'm sure you guys can understand why I'm being cautious about jumping in without checking the temperature of the water first!  

Another way that things might work out for us is if we find the second home we're eyeing for ourselves.  We're looking to move further out of town, and find a place where we can keep our horses at home.  If we find a deal on such a property it would be very easy to turn our current residence into a rental property with full cash flow. 

I do need to get my feet wet with at least one rental property in the not too distant future, and if things go well with that I could certainly see myself acquiring more properties down the road. 

I pride myself on driving the junkiest car at my workplace.  The 20 guys who work for me all have nicer cars than I do.  

Here is my "fleet":

2001 Hyundai Accent with 165K miles, totaled in a hail storm in 2009, and purchased off of my ex-wife for $600.  I've driven it about 55,000 miles since I bought it, with only one twenty dollar repair required.  That car has been a great investment!

1999 Dodge Ram 2500 diesel pickup.  I use this for pulling a horse trailer, and it also has over 160K miles.  Purchased it used for $8K. 

I've always purchased vehicles with cash, and I only really buy what I need for transportation.  I learned to fix my own vehicles in the poor days following college, so I don't sweat the potential for repairs.  Plus, having two vehicles gives me a spare.  

I used to work in banking, and quickly discovered that most of the people who looked rich were not, and quite a few of the people who looked poor were rich.  I'm entirely unconcerned about status, or impressing anyone.  Most of my neighbors probably think that we're making 1/4 to 1/3 of what we actually make, and that's perfectly fine by me. 

At least I'm not the only one worrying about some turbulence ahead.  I actually kind of hate the fact that I'm sitting on a bunch of cash at the moment, because I can't find anything that seems priced prime for the picking at the moment.  I guess maybe I'm waiting for the next sale (recession)?  

Business cycles always happen.  This boom will someday bust, just like they always do.  With real estate that could mean a buyer's market, flat pricing, or a retraction in prices.  But, the cycle will happen eventually.  

My concern is that things have had bullish markets for a long time now, and the real estate market has been climbing at a steeper/quicker rate in the past 6 months (at least in my region).  It leaves a bad taste in my mouth, because it reminds me so much of the build up before each of the last three recessions I've witnessed. 

Too bad we don't have that crystal ball!  

The old investment adage of "buy low, sell high" always haunts me during times like these.  We are finding ourselves in a financial position where we'd like to make some investments in the near future, and would like to start generating some partially passive income.  But, we seem to be in a market where everything is currently red-hot (buy high, sell low clearly isn't part of my strategy).  Whether we're talking stocks or real estate, everything is obviously sitting high on the hill at the moment, though forecasting the future is always difficult. 

Are any of you buying in the Denver area right now?  If so, can you share any of your strategies for finding deals on income-generating properties in a low-inventory market where it seems like more homes than not are being sold at a premium during bidding wars?  

I think we'd be most comfortable by finding our first investment property within a relatively easy drive of our current home, but the prospects for pulling this off sure aren't looking great at the moment.  The last thing we'd want to do is buy at a price that's unreasonably high, and find ourselves in a bad position down the road.  

We aren't sitting in a bad financial spot at the moment, but we're scratching our heads about where we should put our money.  We're in our early thirties, we own our primary residence free and clear, we've got no debt, and we're sitting on about $150K in cash.   

Our current home would probably be well-positioned as a rental property, at least in my estimation.  It would likely pull $1,900/month (+/- $100) in rental revenue, but we're currently living here which kind of eliminates that option.  If we could find another house for ourselves, renting this place would be a viable option.  But, finding another place for ourselves is obviously a bit tough right now, too.  

Just thought I'd see what some of your fellow Coloradans are doing right now…  though I'd happily hear anyone's perspective! 

Jay, 

Thanks so much for the clarification.  I'm just starting down this road, so I could find myself going in a different direction before it's all said and done.  I'm still trying to figure out what works well in my area.  

I've talked to people in the past who did well with the fix-and-flip model out here, but they were skilled tradesmen who knew how to do the grunt work themselves (earning true "sweat equity").  I'm reasonably handy, but not to the point that I would try to gut and rebuild a house at this juncture.  My full-time employment in another field also keeps me from feeling like I'd want to start with a project that might require immediate, full-time, constant attention (like rebuilding a home).   

Obviously there are many avenues I might still explore before I throw the first big check on the table for an investment property, but I've always been intrigued by the buy-and-hold philosophy as a means of long-term wealth building.  As you mentioned, there are some problems and pitfalls with that idea, too!  

I have a coworker who buys all the ghetto properties he can get his hands on, and does a lot of Section 8 stuff.  I think I'd prefer to have properties that attract a better clientele, which hopefully won't get destroyed on a per-renter basis!  He's quite fond of his "slum lord" model, but I'm not sure it's for me… maybe his bottom line would convince me otherwise (I might have to call him and have a chat about that sometime), but I kind of doubt it. 

Thanks for your post, but please allow me to ask for some clarification.  Are you suggesting that it's okay to jump into the rental market in areas where the 2% metric clearly cannot be met, or are you merely suggesting that I find some other avenue for my real estate investments?    

I'm not really interested in doing the out-of-state thing at this time, just due to the troubles that come with owning a buy-and-hold property that I can't easily see, inspect, fix, maintain, etc.  But, I definitely agree with your assessment that meeting the 2% criteria is not going to happen in the places where you and I live. 

And, to clarify on some of the other comments I've read in this thread, I definitely understand that this is just a rule of thumb, I'm only hoping to assess how I should approach things in my particular market, given the nature of things here in Colorado.  

If I was still living in Cleveland I'd be willing to bet that I could find some properties in the region that would qualify under the "2% rule", but it sure looks unlikely in this area!