All Forum Posts by: Mike Makkar

@Jamie Wooley, I bought my first investment property in a new territory through MLS. Once I saw the rental potential in the neighborhood, I took my three kids and door knocked the entire street in one afternoon, introducing myself and what I did as an investor and as a unofficial steward of the community. I was able to pick up 2 properties after knocking on 50 doors. Not bad odds for 4 hours of work. Then I tried it at 2 other neighborhoods, zilch responses!

Upon some hindsight, I think I was just plain lucky with the first neighborhood. I have since tweaked my approach and I call potential homeowners by phone. I can work my persuasive skills just as well through phone conversations than walking the neighborhood. I picked up 1 additional property through this method.

Further hindsight, Making phone calls is still hard work. I think I could use a cheaper method to reach people; so why not direct mail? Wait a minute! I think people do this already. So my lesson learned is direct mail may be a proven method and may not need reinvention of the wheel here. 

I'm getting ready for a larger direct mail campaign for certain zip codes of interest.

My personal opinion on door knocking for selling energy vs. buying homes, the latter requires better targeting. Finding the right homes with more equity, longer home ownership, right timing to move. Once you approach the right house, I'm sure, you can work your persuasive magic face-to-face and do an instant assessment of the home right there.

@Derek Sisneros

I'm no loan officer but at 156/220, that's at 70% LTV, you should do find.

Also, make sure your DTI is less than 28%. at 156k, your monthly payments are going to be $750/mo. Slap another $150 on Taxes and Insurance. You're at $900/mo. Your gross monthly income needs to be $3218 (28% of which makes 900) and you should be golden!

Also, make sure you don't have any other debt. If you do, add that to 900 and divide the number by 28% to get your monthly income

If you are getting different rates, Shop around!

@Derek Sisneros, Look at bankrate.com or lendingtree.com first.

Today they are hovering around 3.67% for a 30 yr. Expect to pay quarter of a point each on various risk factors. Some I can think of very quickly on the top of my head are

- Investment vs. Primary home

- Cash-Out Vs. Standard Refinance

- # of Mortgages

- Debt to Income Ratio

- Liquidity or lack thereof

- Appraisal Value

- Loan to Value %

- Loan amount (80k to 400k is the sweet spot)

- Loan Terms (30yr, 15yr vs. 5/1 ARM)

- And of course Points, to how much you wanna pay down your rates

Ofcourse, each of these things are contingent on whether you qualify for the loan, but different banks have different rules on how many points they add to their floor interest rate (ie. their lowest rate) as risk factors. Most times, its around quarter to half a percentage point for each "ding" factor

@Paul Altman, I gotta quote Nike!

Just do it

In other words, just pre-advertise the property before you while you have it in contract.

The first deal can be unnerving and you are unsure whether you can rent it, get good tenants, get the rent checks on time, have unknown contingency repairs etc etc etc. Truth of the matter is you don't. But you can take steps to hedge your risk. Assume you don't do anything and not rent it for 6 months, you are stuck with mortgage payments, you have 50% risk. This is assuming you can still flip the property back for whatever you bought it for, the other 50%.  Now this is an exercise in risk management

Steps to mitigating risk

1. Look at nearby rental comps in the area. If it has already rented you reduce risk by 10%

2. As @Sean Elliott suggested, call property managers, if they say they can rent, you knock off another 10% risk

3. Now Pre-advertise your property. Take good pics and post it on zillow, If you get calls for people wanting to see, you knock off another 10% risk. You can also adjust the price based on the demand

4. Pre-Show the property to prospective tenants. Arrange this with the realtor. If people show strong interest wanting the place, you knock off 10% more risk

5. Last Step, (for the advanced managers), do a background check and sign a lease agreement to a tenant before you have your property before closing, of course with a disclaimer that they can move in contingent on closing. You knock off the last 9% risk!

There ya go! Just suggested a way where you can make this process 99% risk free. Ofcourse, if one of these steps don't proceed as planned you may have to change your game plan! Halt the purchase, or move forward to a flip.

Remember, the first one's always the hardest. The next ones will happen like clock work!

Good luck!

@Jennifer L., yes! I didn't mean computer-hack their way, but "hack" as in use legal maneuvering their way to not show up as a derogatory mark in their record. But my point is, if one searches the county court records, landlords can actually find the case histories and engage in conversations with tenants to do better due diligence on their histories. I've had experience with a prospective tenant who had a history of successfully screwing their landlords, due to having better documentation and a very competent attorney by her side.

Ok, didn't mean to digress the conversation to criminal screening. 

Let's go back to discussing cozy.co and tenantcloud

I'm a big fan of Cozy.co!

I moved from TenantCloud to Cozy because I fell in love with Cozy's interface. I love their technology, their business model (tenant pays a small surcharge for a self-directed credit check), and I hope they will keep improving their list of features for landlords. Believe me! I have a 30-item long wish list with them.

However, I still have to maintain my Cozy connect links and a Google sheets spreadsheet for all my property tracking needs. I wish I could eliminate the spreadsheet and move everything to a cozy-like property management software with accounting and expense and ROI tracking, but I don't think we'd get there in this lifetime. I think as landlords, we just have too many things to track; expenses and their subgroups, taxes, insurance, purchase price, current market value, rest estimate, tenant details, etc etc. Cozy made a decision to keep things simple; tenant screening, rent collection and (very recently) to property promotion and it fits to their business model. I think I can live with it.

On the subject of tenant screening for criminal, I suggest people start deep searching into local county court records. I deep search into 3 neighboring counties. Don't rely on results of online db's alone. As @Jennifer L.mentioned, one could hack their way into getting rid of even eviction cases from their record.

@Robert Newburn, welcome to the BP forums!

I'm a DFW RE investor and have invested up in Denton county. DFW is going through some good time and its exciting to invest here. Furthermore, the BP community has been awesome. I've not witnessed a more generous group people who are willing to help.

PM me here. It would be good to network!

@Bob Collett, congrats on your PM business expansion process

I used to do some management consulting moonlighting in a previous career and did such types of evaluations for medium-end businesses. Since you're a seasoned business owner, I assume you're familiar with 3x to 5x of EBITA etc type calculations. Considering this is a services business with no tangible intellectual property and really only a book of business, I'd go with the lower end of the multiplier. Here a quick framework to help structure your thinking process here

Customers: From a business buyer's perspective, I'd look at things from a PM's customer base and the strength of that base. How many owner/customers are you acquiring. And how many of these customers can you keep around for 6 months, 12 months and 3 years from now. Are these single-home reluctant landlords or are they multiple ownership individuals. I would give more weight to out-of-town customers who are less likely to move PMs. Can you grow your customer base? Can you get your existing customers to become more active investors and thereby increase your business, etc? 

Employees: Are you acquiring any employees? Operational employees or Sales oriented? Any Mailing lists? I would give more weight to sales oriented employees who can help you find more business rather than operational folks, which you may already have in your existing payroll (unless you're looking at expanding here)

Product: Also, look at the class of properties that is being managed by the new PM. Higher end properties, with higher fees? or lower end? Which area could have an accelerated ROI from a rent increase?

Seller: Lastly, look at the desperation of the seller. How badly do they need the money? Are they going to move on to other industries. Will you have a clause that they cannot start yet another PM business in the 100-mile radius territory?

Its going to be a big spreadsheet, with at least 3 columns; low-end, med-end, high-end price. Evidently you're in the better end of the situation; you will be the one to benefit by driving the negotiation and your creativity on what you can do with the acquisition.

There ya go! A quick 5-minute framework on how to think about this!  

Good Luck!

@Michael S., of all your criteria, most are reasonable. However, as @Damian Leonardmentioned, the one are that you'll have to take a trade off is with year of construction. The newer homes tend to be higher demand among the retail market and hence pose challenges to get at lower discounts or be in the 1% rental neighborhoods. Even though its rare, it can still be found.

I suggest tweaking your numbers a little bit; homes after 1980, push for 1.1% rule and under 130k. Since you have concerns about older homes, allocate a $3000 appliance budget. This way, you know dishwasher, fridge and oven are going to be trouble free for 5 years.

Within the counties, Collin, Denton, Tarrant, Dallas and Kaufman, I buy everywhere except for Collin (Plano, where I live). High taxes and way too much appreciation in the last 2 years to make renting viable. 

@Eric Tan, my advise is to try different things.

This is the struggle for any entrepreneur; the constant quest to find his/her niche. Once you find it, you'll go at lightning speed to gobble up the market. From what I've witnessed is you take calculated risks and keep on tweaking. You can tweak based on customer feedback or market feedback. But if you try enough variations, you'll find it.

And I'll leave you with one other advise. Don't think of downs in your investing careers as disasters or crisis. Sometimes, it could be blessings in disguise to try different markets. For e.g. one of my tenants ran into a real tight money problems. I was forced to go from monthly payments to weekly payments. Everybody on BP said to evict the tenant. I found out that people who live in this particular part of town is much more comfortable with a slightly surcharged weekly plan as opposed to pay one months rent ahead. This is the niche I'm going to try and work. Lets see