All Forum Posts by: Greg Scott

George:

I have owned a condo rental.    Some additional things to consider.

Please pay careful attention to the HOA fees. They can destroy cash flow. Be sure to request historical information to verify. Often HOAs will charge a fixed amount per month, but then hit you with "special assessments" for big projects. Before we were married my wife had a condo with $200/mo fees but every other year had a $2000 special assessment. Ouch.

Condos can also have restrictions on rentals.  Last thing you want to do is buy something as a rental and then find you can't rent it.  Do your due diligence!

Lastly, if the HOA is embroiled in a legal battle, it can cause havoc for all the owners. You should probably talk with the HOA president to understand all of the above items.

There are numerous other HOA headaches, but all minor and not worth mentioning here.

Generally, I find condos are not as good as single family both in terms of cash flow and total return.  That said, if I found the right deal, I wouldn't hesitate to buy it.

George:

There are plenty of people that sell turnkey rentals in almost every state.  If you do your due diligence, you can find a good one.  

When I started investing, I didn't want to invest in Detroit because real estate prices go up and down with Automotive and I work in that industry.  I wanted something counter-cyclical.  I bought several properties across the US from Jason Hartman's organization.  They are a quality outfit.  Google them.   They always have lots of inventory online so you can look at what they have to get an idea what I'm talking about. It should help you wrap your thoughts around a broader set of options.

Good luck!  

Greg

Brenda:

You are blessed to live in the DFW area of Texas.  I recommend joining Lifestyles Unlimited where you can get a lot of good education.  They have an office in Las Colinas.

I'm a member myself.

On average, I've lost money renting to Section 8 tenants in single family housing.  I make much more money on regular tenants.   I think Section 8 works best in an apartment setting.  Now, I never rent one of my houses to a section 8 tenant.

REITs are highly correlated to the stock market.  REITs do not give you many of the real benefits of investing directly in real estate such as 1) buying below market value, 2) depreciation expense, and 3) leverage.  On top of that, you pay the management company a large fee to manage the portfolio.

Once you get good at real estate investing, you see a REIT like a bad stock investment.

In 1995 I moved from Brentwood to the Detroit area.  I spent more on rent in a 1 BR apartment in Brentwood than I did on my mortgage on a 2000 sq ft house, with basement, in Michigan.  LA real estate can be pricey and goes up and down like crazy.  I consider it very risky.  I own rental property in several states and would suggest a different approach.   Instead of going for a $300K condo, why not invest out-of-state in a much-cheaper SF rental?   You can get good cash flow, much less risk, and help pay your rent in LA.  Alternatively, move out of LA.  You might be pleasantly surprised at how your lifestyle improves.

Whether your are selling via owner financing or hoping to buy using owner financing, engage a lawyer who has experience in real estate.

FWIW, I am not a lawyer and always hated paying a lot of money for stuff that appears like it should be easy.  As my real estate business has grown I realize now that this is just a minor expense necessary to protect you, just like insurance.  If you are doing a deal worth many $ thousands, why not spend a few $ hundred to do it right.

I have a friend that just had a total loss due to a tornado and I've been talking with him about it.  That gave me a couple more ideas for you:

1) Talk to some local insurance agents.  They will know when a client has a total loss.  Offer to give them a $500 referral fee for any burned out property you buy as a recommendation from them.

2) Talk to local government building staff.  No community wants a burned out hulk sitting there.  They may help you find these things so you can make them beautiful again.

Alex: Your background is ideal for starting this undertaking and where most investors fail. The rest is less risky. In terms of lenders, there is always somebody out there that will fund you, particularly with your background. If you can't find a hard money lender, seek private lenders. Check with your local real estate club for more contacts. As far as finding fire damaged homes, why not ask the people that you work with? Someone must be able to give you a lead.

Scott

There are lots of small MF in SE Michigan, many dozens in Royal Oak alone.  You are probably better off starting with a more traditional purpose-built MF where you won't run into neighborhood or zoning problems later on.   

Just for kicks and to practice running the numbers, there is a 10 unit in Melvindale on Loopnet.  Looks like a nicely maintained exterior.  By my estimations it is premium priced and assumes no/low vacancy and does not factor in any property management costs.   

BTW, I would always run the numbers assuming you have to pay someone else to mow the lawn and run the place.  That way you can afford to fall back on it if you either burn out or can't manage it.  If, for example, you got sick and couldn't manage the property, you might lose it when you can least afford to take a financial loss.