All Forum Posts by: Jeff Copeland

Just a quick follow-on to my previous post:

Property Management is a profession (or at least it should be viewed as such, I'll admit there are people out there practicing it poorly). 

Can you do property management yourself? Sure! Should you? Perhaps not. Once your portfolio reaches a certain level of complexity, a property manager is a necessity. 

Can you do your own taxes? Sure! Should you? Perhaps not. Once your portfolio reaches a certain level of complexity, a professional CPA becomes a necessity. 

Can you file your own lawsuit? Sure! Should you? Perhaps not. Once your case reaches a certain level of complexity, a professional attorney becomes a necessity.

Can you sell your house by owner? Sure! Should you? The data suggests otherwise.

You get the idea. But I will admit that each case it depends on a lot of factors: Your knowledge, experience, background, education, available time, and personal financial position, goals, and objectives. You do what works for you. 

Should you tell him your roommate moved out? Yes. You don't want you ex-roommate on the lease. That gives them a legitimate legal right to enter and reside in the property (which you wouldn't want), makes them jointly and severally liable for your rent, and includes them in any legal notice or action taken by the landlord (which they wouldn't want). 

Should you fight back over a $50 rent increase? Probably not. Your lease at the old rate is expiring. That is what you agreed to, and the landlord honored it. Chances are all of his costs (from insurance to taxes to repairs) have gone up considerably, and the fact that you are a great tenant is the reason it's only a $50 increase. 

I truly don't mean to sound like a jerk (or the grammar police!), but I also believe we are all here on Bigger Pockets to help each other learn, and the language of our profession is important if you want to be taken seriously in your business dealings.

Tenet: (noun) a principle or belief, especially one of the main principles of a religion or philosophy.

Tenant: (noun) a person who occupies land or property rented from a landlord.

As far as your question goes - This is your business. What kind of business do you want to operate? Providing housing for low income residents and veterans is an honorable strategy. There's nothing wrong with it. It's just not a very profitable one in some cases, and will often come with more headaches, and higher vacancy, collection, and eviction losses.  

If you have a different business plan in mind, then either you or your property manager would need to implement it after closing. This often means terminating month to month leases and/or non-renewing leases when they expire, so you can fix up units and collect higher rents. And it also means moving people out of their homes in many cases. It's the least favorite part of my job as a PM. But it's my job. Nothing personal. I work for the landlord, and this is the landlord's strategy. I get paid to implement it. 

I would also add that this needs to be done correctly. Most states and municipalities have specific notice requirements for lease terminations, non-renewals (neither of which is considered an eviction, another common misconception), and rent increases. Make sure you know what these are, and implement your plan within the scope of the law. 

"It seems such a bad idea to rely on a property management company" - I couldn't disagree more. 

For one thing, you are assuming property management is easy, and you have all of the required knowledge, skills, and abilities to successfully navigate everything from privacy and fair housing laws, to unit turnovers, advertising, showing, screening, rent collections, accounting, evictions, and providing 24/7 maintenance. 

Don't get me wrong: Self-managing is not a bad idea for your first few properties, and I highly recommend it for new investors. Otherwise you'll never appreciate how difficult it can be, or how easy a professional property manager makes it look. 

You have to know a lot of stuff about a lot of stuff to be a great property manager (for an idea of the breadth and depth of knowledge required, check out the list of training videos at http://www.evicttv.com/all-vid... (no affiliation, just a great repository of PM info)). 

If you do have the knowledge, skills, and abilities, that's great! But do you have the time? And is your time best spent on PM activities?

The other half of your argument relates to scalability, and is counterintuitive. Having effective property management in place is what can allow you to scale up, by spending your time building capital, researching markets, and buying more properties. 

My argument for property management looks at two scenarios:

Investor A self manages, because he loves saving 10% of his rental income buy self-managing. He can manage 5 doors no problem. But 10 years down the line, he's now managing 15 doors by himself and has little time for anything else. This isn't scalable at all: He is no longer much of a real estate investor, he spends all of his time doing property management. He doesn't have the time to research markets, analyze properties, or grow his portfolio. He's working in his business, not on his business. But hey, he's saving 10% on management fees, which is great. 

Investor B puts property management in place from day one, because her plan is to acquire 2-4 properties per year for the next decade, and she views property management fees as a wise investment in her time, which allows her to focus on implementing her strategy: researching markets, building partnerships, raising capital, and acquiring properties. Her property manager takes care of the tactics: everything from turning over vacant units, advertising and showing vacancies, tenant screenings and background/credit checks, rent collections, accounting, liability reduction, evictions, maintenance, and everything in between. 10 years down the line, she now owns 50 properties, which combined take her all of 5 hours per month to oversee. She easily has the capacity to acquire 50 more properties in the next decade, consolidate her portfolio though 1031 exchanges, or generate tax-free capital though strategic refinancing. 

Which investor has a better strategy for building long term generational wealth?

@Carolyn Yates would be a great person to reach out to!

It depends on the type of financing. If you are using conventional residential financing, then whoever is taking out the loan will also have to be on the deed. You generally can't get conventional financing in the name of an LLC (Fannie and Freddie backed products are for individuals, not corporate entities). 

Many people do purchase in their own name(s), and then transfer the deed to an LLC later on, but this comes with its own set of problems, namely:

Insurance coverage needs to be updated to reflect the change in ownership, which often increases your insurance costs.

Lender can call the mortgage Due on Sale. 

Jamie Hoover Chief Operations Officer 3H Insurance Team | Blanchard Insurance, Inc. jamie @ blanchardinsurance.com

Essentially, yes. There is nothing particularly "investor friendly" about a refinance. It's one of the most common loan products offered by banks and mortgage brokers. Just shop around for the best rates/terms and customer service. 

Closing costs of a refinance may include:
--Origination costs (to the lender)
--Fees for title work and closing the loan (to the title company)
--Recording fees and taxes on the mortgage (to the state)
--Prepaids/Impounds for taxes and insurance (to your escrow account) - Not really a "cost" at the time, but will still be part of the overall settlement. 
--Costs for services such as the appraisal, lien search, etc. (to the service provider, or may be settled at closing)

You would normally refinance in order to pay off the seller and put long term financing in place. 

For example, let's say you seller financed $100k for 5 years, interest only, on a property that is now worth $150k in year 5. 

For an investment property, you can refinance at up to 75% LTV ($150k x 75% = $112,500).

So you take out a new mortgage with a balance of $112,500. 

You have to pay the seller the $100k you still owe him on the first mortgage (this happens at closing of the refi, so that the new mortgage is now in first position). 

You pocket $12,500, minus closing and origination costs. 

The seller is paid off, and now you start making payments to your new lender, often with a 30-year fixed rate fully amortized loan. 

For a deeper dive, see https://www.biggerpockets.com/...

A HELOC is really only for owner occupants (as a general rule, banks don't do HELOCs on investment properties). But for the sake of this explanation, let's assume this is now your primary residence. Many banks will do a higher LTV on a HELOC, some up to 90%.

So let's say that a year after the above refinancing, you owe $110k on the new mortgage, but the house is now worth $165k. 

$165k x 90% = $148,500. 

Minus the $110k you owe on the first mortgage, you have $38,500 in equity you could potentially tap with a HELOC at 90% LTV. So if you put a HELOC in place, your debt would look like:

$110k first mortgage

$38,500 HELOC (second mortgage)

The nice thing about a HELOC is it doesn't cost anything until you use it, and it's there when you need it.

Assuming your DTI and credit score allow for it, you could pull out $38k from your HELOC and use it as a 25% down payment on a new $152k investment property.

You really should have figured this out before you put some poor unsuspecting seller's property under contract.

Do you have a list of buyers looking for properties in Homewood Alabama? (If not, why on earth would you be entering into contracts there?)

That being said, your next steps are either:

1. Find an end buyer and assign the contract to them, 

2. Honor the terms of the contract you signed and close on the property as agreed, 

3. Cancel the deal and lose your deposit, per the terms of the contract (of course you may have a contingency period during which you don't lose your EMD).