All Forum Posts by: Greg Scott

I use Richter & Associates and have for years.  They are solid.

Also a good source to find property mangers is NARPM

@Derek G.

Actually many reasons, but one key reason drives the decision.    I am either invested in a syndication or am the lead syndicator.   When pooling money from different people an entity not only provides asset protection, it also allows you to clarify various tax and ownership related issues.

@Derek G.

I see you have correctly identified that your first two layers of protection are 1) good management and 2) insurance.  Entities really should be the third layer, but most people put the cart before the horse.  (note, I am not a lawyer)  I always use LLCs on my multi family purchases, but stopped using them for my single family.

About 8 years ago I heard a real estate podcast where they interviewed an insurance executive.  I have wished many times since then that I had saved it.   His comments went something like this.   "Our company insures 30,000 single family properties, most of them rentals.   Each year, we see about 100 lawsuits.   Annually, the highest payout is about $100,000.   Over the course of my 30-year career, the highest payout I have ever seen was $1,000,000."

That put my mind at ease that my $500K liability plus $2M umbrella liability would probably cover most of my risk.

Most banks will assume you do not hold the property for a full 10 years.    Run the numbers again, but only hold for 2, 5, 7 years.   My guess is that the return is negative if you only hold the property for only a few years.

So, you have the potential to have a 26% return but it forces you to hold the full 10 years.  

Keep in mind this doesn't just mean "don't sell for 10 years".  It also means "don't refinance" too.  To realize the returns you must give up any option to do a cash out refi or to potentially refi into a lower rate later.

@Jonny Morris

A few thoughts for you 

I would always rather borrow against my equity than come up with new cash for a down payment.  Why?   Borrowing against equity is a tax-free transaction.   Coming up with after-tax cash usually means you have to actually earn much more than what you need.   Now, one caveat on this comment, I will never put a property into a negative cash flow situation.  Assuming it is cash flow positive, I love skimming the equity for new projects.  

Your situation is a little different as it is your personal residence.  That becomes more of a personal decision than purely financial.

Also worth noting, what the city thinks your house is worth is meaningless. They are usually less accurate than Zillow. And, ideally they put the value of your property much lower than you paid for it so your taxes are lower. I would ask a realtor to give you a Broker Price Opinion (BPO). An appraisal would be even more accurate and it is what a bank would use to determine any potential cash-out loan proceeds or HELOC.

The key phrase here is "in the early 1970s".   

This sort of deal is no longer possible using conventional financing.    It is possible with a private lender, but then a private lender can do whatever they want.

@Arthur J. Encinas

To clarify, I was saying banks tend to have a formula and they won't accept any offer more than X% below list price, so low balling isn't usually an effective strategy.  Based on your most recent post, if they are getting multiple offers, but aren't selling, they have an idea what it is worth already and are just waiting for someone to get hungry.

You definitely DO NOT want to get known as "bait and switch" buyer.   Negotiate in good faith.   People that come in with high offers to get the contract and then slash their offer during inspection, will get ignored on future properties.

Unless you have a solid team to help you evaluate and rehab this property, it sounds like this deal has the potential to go sideways with all sorts of unknown problems.   There are a lot of deals out there with a much lower degree of difficulty.   Don't swing for the fences your first time at bat.  Just get a base hit.

Alfred:

I'm hoping to help you avoid a cascade of decisions that could bury you.

If the deal's profitability is based on whether or not you save on Realtor commissions, it probably wasn't a good deal from the beginning.   Don't decide to rent just because you want to avoid a loss.   If the market turns now you may be underwater for several years.  If you have to take a loss then, you may be much worse off.  It could hurt you further if you have negative carry costs.   Going that path could bury you.

Only decide to rent if this property makes sense as a rental and can generate strong cashflow.  Otherwise, cut your losses and sell.

@Steven Machuca  I agree with @Adam L. that a great way to go about it is analyze deals, lots of them.

I'm worried you may be getting to emotional about the decision, which tends to make most of us fret over the numbers for hours (I've done that many times). Try this. Instead of an area where you want to buy properties, go find a similar area where you would NEVER buy a property. Then it is "safer". Maybe it is a 2 hour drive away or in another state. (Ideally, check both properties on the MLS and look in Craigslist for wholesale properties. Note, those may or may not be good deals) Then run the numbers on dozens of properties.

It is like learning to walk or ride a bike. After a while, it becomes intuitive. Soon, you will be quickly sorting properties into "good", "bad", and "maybe" piles. (From the MLS, only 5-10% will end up in the "good" pile.) Soon after that, you can spot the ones with real potential with 1/2 the information you did before.

Now, when you decide you are really ready to buy, the good ones are easy to spot.   If you find a lot, you won't even worry about the "maybe" ones.

Ahhhh   The answer to that question is more about what is going on between your ears than the math on the page.   Only you know what is happening there!