All Forum Posts by: Paul B.

I think your cap rate is way too low. In my mind, your cap rate should always be higher than the cost of the debt, or you are getting debt-like returns for equity-like risk. That makes little sense, at least to me.

Either the cost of your debt is too high or the cost of your equity is too low. I'm thinking the latter.

I think you might be in for a surprise when you go for a cash-out refi on a non-owner occupied property. I am not sure that product even exists right now, but I could be wrong.

What I meant by the financial costs is that the higher fees and points might not turn this into a bad deal. Sure, they're higher than you want to pay, but what's the alternative? Not doing anything? If the deal was so marginal that an extra few points are wrecking it (and it's a long term hold), the deal was too tight to begin with.

As far as making an offer, you should always have a way to get out of the deal if you don't like it. That could be an inspection clause or a financing contingency, although the latter is not very common in REO deals where the seller wants to know the financing is lined up.

Have you been prequalified anywhere for this deal?

Were you buying this for a long-term hold? I can't see how the financing costs are holding you back.

Write an offer, ensure you have a kick-out, then get the other people involved in helping you to get this deal done. No one gets paid to impede your progress.

I'm not sure what advantage this recorder of deeds method has over just looking in the newspaper for foreclosure notices, save for the fact that you *know* the property went to sale using your method.

My understanding is that banks, generally, will in no way, shape, or form negotiate before getting a broker's price opinion on the property and listing it. They want to extract full value for the property, if possible, as well they should.

Interested to hear other opinions on this.

Your situation is similar to mine, although I do not have a real estate license. Like you, I plan to start a property management company, but I need to have a salesperson's license to work for such an operation. Moreover, I need a broker to stand behind the property management company, and I can't get my broker's license until I put three years in as a salesperson.

I am not sure, but I don't think you need to have a broker's license to own the entity. I asked someone at the Georgia Real Estate Commission about this, and he said that I could hire a "qualifying broker." You might want to see if that option exists for you. Presumably you can either pay them a salary or a share of the profits. My plan is to find a broker that will back me with his/her broker's license in exchange for a share of the company, with the understanding that I can buy out that share using a predetermined valuation method at any time (as in, when I get my broker's license).

I think under this scenario you can still do all of the functions of a property manager in addition to those "ministerial" acts that do not require much in the way of judg(e)ment.

You are correct, though, that your broker has liability if you mess something up. That's why I think you need to think that partnership through very carefully.

I don't think any of this is a concern to a property owner/client for so long as you're managing the property well and the owner is getting their net check each month, on time.

I think what Bill is saying is that, while proformas are a great exercise, you have to know that lenders will always recast the numbers based on their own data. If the results match up, good for you; if they don't, you could be in trouble.

I also agree that what lenders -- and particularly investors -- are looking for is your thought process...that you're aware of all of your potential expenses and that the numbers are defensible. This was one of the key takeaways that I wrote about in an article for Inc. magazine a long time ago on the subject of financial projections:
http://www.inc.com/magazine/20000401/18118.html

I also agree that want to be careful in using those numbers for marketing purposes. Sure, you need to share some numbers with investors, but they should be liberally sprinkled with disclaimers such as, "No guarantee of future results. For illustrative purposes only. Consult with your financial advisor before investing." Etc...

I think "bad neighborhood" is a very subjective term. For example, I'm eyeing a couple properties right now. Would I choose to live in them? No, I most certainly would not, not even by myself, and absolutely not with my wife and son. But are they "bad neighborhoods?" No, not at all. The people who live there have jobs and they pay (most of) their bills.

On the other hand, there are neighborhoods where you just know when you're driving through them that you're taking your life in your hands. And that gut instinct of yours? It's there for a reason, and it's usually quite accurate.

Everyone has a different tolerance level. I'm content to look at properties in "sketchy" neighborhoods, whereas others might not. I certainly don't need to feel comfortable living in an area for me to want to own property there, but that's just me.

We all have to do what lets us sleep at night.

I'm coming at this another way than Bryan. I want to know about the properties.

Are they in Rochester? What are the numbers, ballpark? I have relatives in Rochester, and the property taxes there amaze me. Can you make money with a rental?

Frankly, unless your student debt is priced at 24% or higher, I can't conceive of a reason for you to pay your student debt faster and defer buying real estate -- IF the numbers work.

I applaud you for thinking about this now, while you're young. I think someone needs to be shouting this from the rooftops to today's 25-year-olds: Buy rental properties NOW! Just think, you can throw your excess cash flow to the principal and have them paid off when you're 40. Having a few debt-free rental properties sounds like a great way to spend my 40s, 50s, etc...

Yes, I do believe the question had to do with buying at auction the contents of a unit where the renter had fallen behind on payments.

I agree with the previous post. Sure, those few winners are fun to talk about, but mostly I bet it's a pretty horrible way to grind out a living. Even on the shows where they have big winners, when you break it down to an hourly return, I don't think the dollars are huge.

You're not building your net worth, you're not generating recurring cash flow...sounds like a colossal waste of time for the average person who aspires to make more than $25,000 a year.

A lark, a hobby, a fun way to spend an afternoon...maybe. But a business? Nah.

Kevin, I agree that this is what would happen, but my question is, "Then what?"

Will they basically wholesale some properties to rehabbers? Will they actually undertake to make these repairs themselves? And will this initial bulk purchase serve to drive the overall market even lower?

Most importantly, how do we profit from all of this?