All Forum Posts by: Greg Scott

Bob:

I use CNC out of Dallas for a few rentals.  Otherwise I use NREIG which can write contracts nationally.  I recommend getting replacement cost, not cash value insurance.   I've replaced 3 DFW roofs with insurance monies after hail storms.  Cash value won't get you those.   How much your deductible is and liability coverage is a matter of preference.

Insurance aside, consider getting a mortgage so you can buy three more properties like that. Paid-in-full properties are lawsuit target. While they give better cash flow, they are terrible for ROI. After-tax returns are even worse. Do the math or have our CPA do it.

BTW, your CPA should have told you that instead of giving you legal advice. The CPA should only be telling you that the LLC can be a pass-through entity so you don't get double taxed, so is better than a C corp, but taxed the same as if you held in your own name. It may be time to get a new CPA.

This can get complicated.

Many states will require you to have a resident agent to receive mail / court orders. (~$75/yr) Also, you may have to register your LLC as a foreign corporation. (~$50/yr) From that perspective, putting all properties from one state into the same LLC would minimize your administrative burden and fees.

I should add, regardless of the timing, if you bump rent $200, your current tenants are likely going to move out.    Factor that into your decision making.

If the leases are month-to-month or non existent, you should be able to raise rents immediately.    If you are only part-way through a 12-month lease, it is unlikely you can raise rents until the lease ends.

You should ask the seller for copies of the current leases to validate.

Can you share the specifics of the deals?     

If you have a good deal, it shouldn't be hard to find buyers.  Posting here or Craigs list should make your phone ring off the hook.

If you invest for cashflow you don't worry about the ups and downs of the market.   

I had two rental properties I bought around the same time.  One was in Phoenix and one in Atlanta.   Over the next two years the Phoenix property went up 50% in value.  The Atlanta property went down 50%.   I quickly sold the Phoenix property and turned it into two more rent properties.   The Atlanta property had positive cashflow so I never had to sell it even though the market went down.   I ended up holding it for 5 more years and just 10 months ago sold it at a profit.

BTW Case Shiller is an index based on a handful of markets, most of them very cyclical.   It does not adequately represent the majority of the country.  I would just ignore it and find a property that gives you a good return regardless of whether prices are appreciating or dropping.

Travis:

To answer your questions:

1) The 6 turnkey rentals I bought, two were in Indianapolis, one in Atlanta, one in Phoenix, one in St. Louis, and only one in Michigan.   Now my timing was great and all appreciated very well, but all had similar cash flow and equity capture as mentioned above.

2) I found Lifestyles through their podcast.  I was very skeptical at first, but after listening to them for 3 months I figured $500 for a basic membership was worth the chance.  So, I joined and I took all the online classes they had at the time (there are many more now).  I was so impressed I convinced my wife that we should consider the preferred membership.  In 2012 I flew down to Dallas and was so blown away by the staff and the live classes I stroked a 5-figure check to join the preferred membership.  That investment was fully paid back within 3 months by the over-sized returns from our first DFW rent property.  

Now, please know that I'm not saying that Lifestyles makes you an automatic return.  You do have to put in some effort.  Those that put in no effort get no return.  But, I can say that I've had a better financial return from my Lifestyles education than I got from my Engineering degree  or my MBA.  Not that I regret either of my degrees, but the Lifestyles return has been faster and more measurable.

Assessed value and appraised value are rarely in sync.  Usually appraised value is more accurate.   

If appraised value comes back low, read the report to understand the comps used.    Talk to the appraiser.   There may have been a recent sale or two dragging down your valuation.     If you have a good reason why one of those is an incorrect comp, you may get it changed.  Or, you can wait for new comps to come in but that may take a year or so. 

If you disagree on the comps used, then seek, another bank.

On a positive note, if the appraised value does come back low, go contest your property tax assessment.  You might save some cash.

I've owned 4 Midwest rentals and half haven't had basements.   None of my properties in other parts of the country have had them.    I've also owned two properties with swimming pools although many people swear against them.   My advice, let the market and the numbers tell you what to do.

 - Are there houses for sale without basements?

 - What are they selling for relative to houses with basements?

 - Can you buy one at a discount relative to like-for-like comps?

 - Are there other properties without basements for rent?

 - What are they renting for relative to houses with basements?

 - Looking at both price and rents for houses with/without basements, which provides the better return?

If they are selling and renting in quantity and the numbers meet your investment criteria, go for it.

@Georgee Gilbert  You will get it rented more quickly if you have a lower credit score, but then you will have a riskier tenant.   Given that Michigan law fixes the max security deposit at 1 1/2 month's rent, you are not able to offset that risk with higher deposit, like you can in other states.     

If you want to broaden your pool of potential renters, consider ones whose credit was damaged by unusual circumstances that are not likely to repeat.  For example, credit was damaged by major medical bills.  I would still avoid people that skip bills regularly, have evictions, or felonies, particularly violent ones.    Just be careful to document your criteria and stay legal.

You say it is working class housing but $1050 in Metro Detroit isn't anywhere near the low end of the range.  You may be able to get 650 in that area.   Where is this property?