All Forum Posts by: Eric Gabriel

I need help with the following deal from a smaller turnkey provider in Memphis, TN 38117.  It looks good to me, but I'd like to know if the numbers look good for local Memphis investors/realtors. 

Deal Details:

Sale + Rehab = $69,000 (cash)

Comps = 64,000-94,000

http://www.zillow.com/homes/comps/42211062_zpid/

ARV = $92,000

Rent: $875-$900

I've been told by the mortgage broker, the preliminary appraisal, and the turnkey provider that there will be 25-30% equity which meets my financing/purchase requirements. I will get all my money back out minus $5,000 in closing costs. I also asked the turnkey provider if he will adjust the sales price lower if the ARV comes in lower than expected.

Advice and opinions are welcome for this out of state investor.  This will be my first of my goal of 50 units generating a net cashflow of $10,000-$15,000 in 5 years or less.  

scope of work/rehab:

converting to central HVAC (new), refinished hardwood floors through out, paint interior & exterior, new tile in kitchen & bathrooms, new tub stall, new faucets, new vanity, new water supply lines, new water shut off valves, new light fixtures, new outlets, new light switches, new countertops, refinished cabinets, new washer connection box & drain line, new dimensional roof (already installed), new front & rear doors, new closet doors. 

I bought a house in neighboring Anderson.  Pretty depressed area.  Like Detroit.  An investor told me there that I would need to buy 3 bed houses at $15,000 then add $10,000 to make any money.  He was an old timer.  His words kicked me in the gut after I bought two houses for $25,000 that needed at least $15,000 each.  Adding a scammed contractor knocked me out of the game.

Greg H., 

To answer your questions.

After the contract is signed a lien can be filed by the realtor for an additional fee.  Lien records can be pulled easily at City Hall to verify if any liens exist on the property. 

I've never gone through the process of not getting paid back, but one time an owner wanted to sell a condo that we lived in and they wanted us to move out so they could sell it.  It's customary for owners to pay moving expenses if the tenants agreed to  move out.  One thing is for sure, people that have stuff  follow the rules because they don't want to lose their stuff if they make a mistake.

I don't know this for a fact, but it seems the way that the realtors speak with the owners and the tenants reveals several layers of liability/law on every party to insure contracts are followed. 

I leased a condo in South Korea with a deposit of $50,000 with no monthly rent. This system is called "Jun-say" and is unique to Korea. The condo has a market value of about $70,000 and has no existing mortgages per the realtors title search. I subleased it to a tenant on a monthly basis that was paying $500/mo. This person is an expat (American English teacher) with an employment contract and a work visa for at least 1-year, which is the period of the lease. There are no other expenses except (1) the HOA/management fee paid my me of $80/mo (water, garbage, and grounds maintenance), and (2) the realtor processing fee of $200 paid upon each contract renewal.

Upon lease expiration, we received our deposit money back.  If they hadn't, we become the bank in 1st lean position and then receive title to the property with 30% equity.  The owner pays for all the repairs and taxes, and assumes all the benefits/risks of appreciation/depreciation. My End of Year Return Without Leverage $50,000 deposit for 12 months +$6,000/year rent -$960/year HOA/Management Fee =$5,040/year ROI 10% Cash on Cash Return Pretty good for little effort and little risk. I also use this system for my primary residence.  I have not paid rent nor property taxes for 8 years since the owner pays the property taxes.  I have deposited $380,000 for our primary residence in a property that is worth $450,000.  It is better than buying.  Wish me well on the next one when I ramp it up and actually start networking.

Is there a way to build an additional home on the larger lot?  If not, there is no extra value in the land as far as I'm concerned.

I'm sure you could easily get a line of credit and use the property as collateral.  You'll just have to choose which bank you want to use and what rate and terms are best for your situation. 

Hi!  I have a 3-plex and 4-plex in Portland.  I live in South Korea.  I moved here in 2008 for work.  I'm also interested in buying more of them in Portland or any other market.  I'm working on my financing.   It takes a little more work since I'm out of country and not employed by an American company.  

I'm from Portland too, but live in South Korea right now.  I have 7 units in Portland.  Good luck.  Enjoy the learning process.  

@Kevin Yoo and others,

1. I'm sure that I could get more of a return if I was doing this as a business and had my workflows in my CRM system and my network set-up.  However, I only walked into 2 realtor offices and told them (in Korean) what I was looking for.  I already had an American tenant lined up who had a 1-year contract and work visa, so pretty close to guaranteed employment.

2. The maximum lease term is 2 years, then it defaults to a month-to-month if nobody does anything after the term expires. Generally, there is a lease renewal and the owner has the option of asking for more money or vice verse. In some cases, the owner might elect to sell the property.

3. I think so.

4. I know, basically, the amount just needs to be reported to the IRS in the form of tax-exempt foreign income.

5. I'll keep you posted. Send me a colleague request and an email with the subject "Korean Junsay Investor" and I'll keep you posted as the opportunity gets legs.

@Kevin Yoo ,

1. There is 1 expense.  I had to pay the realtor fee for securing the deposit and do everything legally.  Using a realtor is a must to mitigate risk of loss.  I have my name on title now.  $200 or 0.4% of the deposit amount.  Nothing else.  That would make an 11.6% Cash-on-Cash Return.

2.   0% vacancy.  Why?  Because I signed a 1-year lease with the owner and the tenant signed a 1-year lease with me.  I subleased on my own, which the owner knows about.  However, I still need to figure out how to put my tenants lease on the books as well.  I'd like to have my name on title and the tenants name as the responsible party for paying the management fee if possible.  I'll figure this out later.  Anyway, no vacancy.  Most foreigners come her on 1-year contracts anyway.

3. I don't know anyone that does this.  Typically people are in love with owning.  I'm not anymore.

4. If you make more than $100,000/year in taxable income, it puts you in the progressive tax bracket of 32%.  If you make less you're at 6%.  I'm not anywhere close to that since I have a business that has the benefit of writing almost everything off.  Also, 17% of 100,000 is much less than 32% of 100,000, which would you choose?  I'm not an accountant and my numbers are most likely all wrong.  At this point, I'm not concerned.   The Korean form of the IRS is not like the US version of the IRS.  It is developing and growing though as welfare systems are developed.

5. Yes, but the process is a pain in the butt.  The documentation required is prohibitive.  Having a Korean partner (aka my Korean wife) makes the process way easier, but more complex, which I don't like.

Still more work to do, but getting closer.

The beauty of this is I will get ALL OF MY MONEY BACK AT THE END OF THE LEASE, or I get a condo with 25% equity.  The dollar is strong right now, so sending money to Korea is a grand idea.  I'm not ready to help anyone else at this point yet.  I have to make sure that it works perfectly for myself.  

One risk I see is in my area oil prices being low is a bad thing.  Oil drilling rigs are manufactured nearby, so the economy is expected to decline next year and the following year.  There is a 2-year lead time since contracts are signed 2-years in advance of initial steel cutting, so there is a surety/safety buffer.  We basically know that things will be good until the end of 2016, which is when I'll get my money back then I'll reaccess.