All Forum Posts by: David Midgett

@Michael Roeder, every state has its own "statute of frauds", that sets forth the requirements for certain kinds of contracts to be in writing, signed, witnessed and/or notarized.  Contracts involving land and contracts taking longer than a year are typically covered. Generally, if the statute isn't met, then the agreement may not be enforceable.

I'm not sure about Minnesota, but Florida requires commercial leases to be witnessed and notarized to be enforceable (the same formality as required for a deed). 

The statute is a minimum requirement. If you are ever worried about a tenant claiming to have not signed a lease down the road, go ahead and have it witnessed and notarized.  It never hurts.

Jeff- You certainly want a good real estate lawyer if you are going to be investing, but most general practitioners can help you with basic entity selection and formation. 

For buy-and-hold, you will most likely want to form an LLC, since they offer asset protection and tax-flexibility (I personally like multi-member LLCs set up as partnerships). For privacy, many investors take title in a land trust, with the LLC as the beneficiary of the land trust.

You have great city and state REIAs (Columbus REIA and Ohio REIA) as resources if you don't get a specific referral here.

The whole city has been built on a swamp.  They've done OK so far...

Ken-

Most REO/SS agents operate on a really thin margin. The banks pay relatively small commissions to listing agents on distressed deals, and so most REO agents seem to spend a minimum on marketing. So video production and REO/SS usually doesn't usually go together.

Moreover, what you are asking should make an agent very uncomfortable. The agent has a legal obligation to maximize the price of an REO or SS property for the seller or lender's benefit. Allowing you to "lock down deals before they are released to the public" is not an effective way to maximize the sales price. Most banks want to know the property has been properly marketed before they agree to a contract. If a realtor agreed to accept your services in exchange for giving you a pocket listing, without first putting it on the market, you've just agreed to do business with an unethical agent.

David

Kathleen- When an agent says they are "investor friendly", they usually mean they would like to obtain a long buyers list of people who will rush to purchase a home at full price when the agent calls with a new listing for a rehab or rental.  

Most agents discover pretty quickly that your typical wholesaler is looking for that same list of buyers.... and the typical wholesaler learns pretty quickly how to cut the agent out of the loop.  That's especially true in areas where the wholesaler only gets a thin slice of the pie to begin with...

Ross - Win/Win is always great.  

Most of us create a win for someone other than ourselves.  Whether it is an agent who makes a commission, contractors who profit from the rehab, neighbors who benefit from an eyesore being cleaned up, the buyer who ends up with the home of their dreams at a great price, or the lender who makes the loan .... those are all win/win scenarios.

I buy foreclosures at the courthouse steps.  Most people don't see that as win/win. We kick out a lot of people who stopped paying their mortgage a long time ago.  I'd love to figure out a way to make it a "win" for them as well.... but by the time the house is mine, it is generally too late for them.  Its hard to picture a scenario my evicted defendants would see as a "win"... other than simple charity.

Bottom line-- I score houses at 58% of the ARV every week. I'm a proud capitalist. And we run an ethical, honest, responsible business that doesn't swindle anybody in the process. We focus on as many winners as possible in the process... but we will never be able to make it a win for everyone.

Justin-

I've bought hundreds of foreclosures "at the courthouse steps" (its actually all online now... not nearly as much fun) over the past 15 years. 

And we are in one of the most affordable areas in Florida.  

I agree they are great deals.

But PLEASE don't start your investing career with courthouse foreclosures. There are so many pitfalls and I don't know of any area of investing that is more "caveat emptor". 

-- You have to pay all cash.  You don't get title until after you pay the Clerk or Trustee, banks are funny about needing title before they give you the cash, and Clerks and Trustees don't close in escrow.  Hard money is always available... but hard money is, well... hard. And a hard money lender won't lend to someone without a track record.

-- You don't get clear title. You get bare legal title at a foreclosure sale... you do NOT get "clear marketable title free of all liens and encumbrances" like you would at most real estate closings. Just last week I watched a real estate agent bid on an HOA lien being foreclosed, who mistakenly thought the HOA lien wiped out the first mortgage. Nope.... you just paid $8k and will lose your new house next month when the first mortgage, already in foreclosure, schedules its foreclosure sale. That's a really painful lesson in title examination.

-- You don't get absolute occupancy rights. Federal law protects bona fide tenants in a foreclosure house.  You might buy the house thinking you are going to flip.... and you find out you have a tenant whose rent is not enough to cover your interest payment to your hard money lender.

-- You usually buy a pig in a poke. Nobody offers showings of foreclosures prior to the sale.  You can look through the windows, but breaking and entering is still a felony in most states. So you may have a gutted bathroom, missing electrical panel, rotten floors, water damaged cabinets, and on and on and on.  There is absolutely no reliable way to estimate repairs on a property you can't even walk through.

-- You have lots of competition. Every other investor in town got the same list you just picked up.  They like the prices as much as you do. But some of them do this full time.  Some of them (like me) have entire staffs of people to research each property, do a site inspection, take pictures, pull title reports, run comps.  You are working AND going to school... and you think you will find a deal at the foreclosure sale that your full time, experienced competitors are passing on? Hmmm.

Now, after all these warnings?

My very first real estate investment was a foreclosure house.

And it made money.

But I got so lucky... and had no idea.  I thought it was skill.

Since then I've learned 100 ways I could have lost money on that first deal.  And many of those lessons were only learned the hard way... by losing money.

But most of my lessons were learned watching people come to the foreclosure sale and buy their first property.

Caveat Emptor....

David

Tiesha- My experience is that local community banks making a commercial loan have no problem with LLCs... they will require a personal guarantee from you, but they are fine with properties titled in the LLC.

The issue is if you are getting a residential loan that is being packaged and resold or securitized (ie Fannie or Freddie loans).  The lender needs every loan to look just like all the others.  LLCs just don't work for that process.

Ashley, if you have already done your research and homework, but still don't have the confidence to start making offers, maybe you should find a mentor or partner with more experience to help you with your first few deals.

Flipping is NOT easy.  It can be very profitable, but it can also be a minefield for the uninitiated. You may have found a great area, ripe with opportunity.... or you may have found an area where nobody is flipping because it just doesn't work.

Are you a member of a local REIA?

Kyle- I too would prefer to have a duplex comp instead of a nearby condo/apartment.  As you suspect, a duplex and an apartment are apples and oranges to most tenants, and the difference in maintenance/repairs/management can be significantly different on your end.

One way to get a baseline is to look at other parts of your city where duplexes and apartments are both plentiful in a single neighborhood, and look at the ratio of rents between those two asset classes.  Then apply the ratio to your nearby apartments.