All Forum Posts by: Account Closed

Everybody has their own strategy - here's what I do:

Property Tax Reserve - this is simple...take your estimated property tax and divide it by 12.  Plan to pay from this reserve twice per year.

Repair Reserve - 10% of gross rents.  This can be a revolving account depending on when repairs are made

Capital Expenditure Reserve - this equals my depreciation expense every month on my rentals (i.e. - if you have a stove with a 7 year life, you will be completely reserved for a new stove in 7 years)

"Vacay/NoPay Reserve" - I take the vacancy rate in the rental property area (most national real estate sites have estimates) and multiply it by gross rents.  I add 5% of gross rents to that as a legal reserve for evictions, etc.

You will be under reserved for about the first two or three years mostly because of the capital expenditure reserve amounts.  Eventually it will catch up to itself if you don't pay yourself during that time.  You could also add to that balance every month to start, or get a line of credit to borrow against just in case.

My reserve funds sit in a business savings account - this is a revolving account and I will usually net current month activity against reserves (if I have a repair reserve of $20, and I paid out $10, then I will record the repair expense of $10 and add $10 to my reserve).

I should also add that I use project based accounting....so I can track each property individually through my accounting reports.

 Not yet...sadly....

I successfully foreclosed on both properties in mid-October.  In order to gain the Treasurer's Deed, my attorney needs to file certified court documents with the county.  I was told this would be done at the end of October.  I asked my attorney about it two weeks ago and he said he would get back to me.  He didn't.  I called the county last Wednesday and they said they have not received the certified copies of the docs.  I sent the attorney an email stating the county has not received the documents and his reply was that the county changed its mailing address.

The saga continues.  I hope to get title in hand before the end of the year.

Folks can lose their job and end up getting priced out of the rental market.  That's the first issue.  It's already happening in the Silicon Valley - because prices are so high.  When prices are too high and affordable that means a higher vacancy rate for you and you may even need to drop rents which drops your cash flow.  This was a recent news report from earlier this week that discusses the issue...

https://www.cbsnews.com/videos/how-silicon-valleys...

The other issue is flexibility.  During the 2008 downturn, I myself was looking for a job.  I received an offer that would have required me to locate two hours north in Cheyenne, Wyoming.  My potential employer (the State of Wyoming) insisted I relocate even though I offered to commute.  I couldn't - I was upside down on my home and would not have been able to sell it, and if I rented, I could not make enough in rent to cover the mortgage.  I had to turn down the position.

I'm in the same position currently - my current employer gave me the option of moving to Jersey City, or getting laid off.  My last day with the company is March 31 at the latest.  I've submitted applications to 106 different jobs/employers over the last two months.  I've had 3 interviews....I have two more scheduled in the next two weeks.  One of those interviews is for a position an hour north of me - I have no trouble selling my house in Denver and moving into a bigger place up near Greeley.  I have that flexibility - I didn't before.

If you can wait it out (plan on about 5 years) then you have nothing to worry about.  If you can't wait it out, then your options will dwindle and you'll be stuck for a bit doing the best you can.

I require it....I also buy a policy for them on top of requiring them to have it.

The reason I require it is because they are responsible for all damage to the house outside of normal wear and tear.  If they don't have the money to pay for it, then a judgement against them is all but useless.  That being said, there is no reason why they can't get it, then cancel it after a month or two...in this instance, if it were ever to come to court, I have documentation that stated I required it that the tenant agreed to, then didn't get.

I also buy a policy through a "tenant protector plan" that gives them $10,000 worth of coverage.  It costs me less than $10 per month and it's a just in case, just in case policy.

One thing I would caution against as an investor...

If you own the house as an individual, then you can pull the permits yourself, have someone else "help you" to do the work, get it inspected, and get it done properly.

If you own the house under a legal entity (like an LLC which many people push for for real estate investors), then you CANNOT pull a permit yourself. You MUST hire someone else to pull the permit for the legal entity...and usually, there is an upcharge by the contractor for this process.

Just some food for thought....

 My transactions were all cash.

The rehab on the houses after purchasing them (and providing proof of funds) was cash and lines of credit that have since been paid off.

I foreclosed on two properties in Arizona about a month ago.  I am waiting for the County Treasurer to issue the deeds in my name...it's been a slow process (I started the process last January) but that's where my efforts are currently focused.

 The two in Indiana were out of state.  I live in Denver so the one in Fort Morgan is about an hour and a half away.  All three were purchased based on photos and inspection reports listed on auction.com

You need to be careful buying out of State and you need to be mindful of local laws.  Most of Ohio as an example has "point of sale" provisions so once you buy the home at auction, you might have 30-90 days to pass the local inspection.  If you don't have funds to do that, you could get into a bit of trouble.

 LOL - these weren't in Denver.  Two are in Indiana and one is in Fort Morgan, Colorado

My last transaction with them was about 14 months ago.

I've bought three from Auction.com.

The first was a decent deal.  It needed a lot of work and after debating, I decided to rent it aside from flip it.  There were some unexpected issues with the home I didn't count on (new furnace, all new windows, etc.) but it worked out.  I can still sell at a profit and after rehab it cash flows very nicely.  I paid $22,500 for it and I could sell it in the high $80's after I put about another $45k into it.

The second was a hell house.  Lots of mold in the basement that I didn't know about.  Copper pipe had been stripped in the basement as well as electrical.  I paid $4,000 for the house and put another $50k into it.  I could sell it for about $65....so not as good of a deal, but it is rented at cash flowing nicely.  I could have done the same just buying retail.

Third was a surprise.  I submitted a pre-auction bid for $7,001.  It was accepted.  The house needed paint, interior doors, some minor clean up and it was rented.  I put another $7,000 into it, rented it out, a few months later put a $4,500 roof into it and I can sell it for about $45k.

There are good deals if you plan on doing the work yourself...I'm not seeing many exceptional deals though.  You have to value your time - if you have the time to fix them up, then the deal is solid...if you don't have time to swing a hammer, slop some paint on, or replace a toilet, then you're better off going retail.

One frustrating thing is there are many folks these days that are buying some of these run down homes  then attempting to rent them out or seller finance them on the condition that you make the repairs.  It's similar to wholesaling only they are taking possession...and then letting them sit instead.  Sounds like a scam to me - you make the repairs and the owner still holds title on a "lease to own" agreement....no thanks LOL.