All Forum Posts by: Mike McKinzie

http://www.reuters.com/article/2015/02/16/us-marke...

Aren't energy prices a real "bear" to try and figure out!?  You are right about Atlanta @Mike D'Arrigo , but I think it is behind Phoenix by about a year so with some good help, there are a few decent deals, in my humble opinion.  But it is quickly catching Phoenix!

Another area I am keeping an eye on is Florida.  Although many areas are like Phoenix and Las Vegas, I think there is some opportunity in the out lying areas of Florida.

I just saw the ad and it says $1,099 per month. I own two rentals in Bixby, Oklahoma which I think are not far from this one and they are both larger. I am getting $1,195 for one and $1,295 for the other one. Both are 4 bedrooms and over 1,500 square feet. When I put a house on the market, I use a starting price that is about $100 over the average for the area, and lower the asking price by $50 each week. Out of seven vacancies last year, I filled six of them in two weeks or less. (The other one was a HUD Section 8, what a NIGHTMARE, lol) I don't recommend incentives and I don't recommend gifts/freebies. A clean house at a fair price in a good neighborhood is all you need.

If you receive less than five calls in the next week on that ad, then I suggest you lower it to $990-$999.  If you get less than five calls again, you may need to lower it to $895 or so.  The reason I suggest you drop it $100 each week is because it appears you may have started $200-$300 over the average and you need to get back to the average IF you are not getting the action you need.

Good luck to you!

Daniel

There is lots of good advice on here and lots of good information.  BUT, before you write that first Deposit Money check along with an offer, you really need to think through, AND WRITE DOWN, what you want.  I own 25 rental doors (23 houses and 1 duplex) in six different states.  I have also owned rentals in Orange County, LA County and Riverside County during my investment career.

When I say write down what you want, I am talking about potential income, potential appreciation, types of properties you feel comfortable owning, areas you would want to own in, and on and on.  For instance, would you take a 6% return on a house that has a 90% chance of good appreciation or do you want a 12% return on a house that has a 25% chance of good appreciation?  Some investors on BP want a 20-25% return BUT they know there is ZERO percent chance of appreciation.  (They also carry a sidearm to collect rent and make repairs)  There are others on BP that accept a 2-3% return but are banking on extensive appreciation (also known as rolling the dice).  But most investors on BP find a middle ground that they enjoy.  The middle being 6-15% return with a 70-80 percent chance of good appreciation.

I am not sure why Ali and Philip are having words, they are both successful in their niche.  But doing any research and you will find that Las Vegas can be a complicated market.  Sure there are deals, but I have known investors who also lost their shirt in the market crash in 08-09.  I looked into Las Vegas and even talked with Philip about it and decided to wait it out.  One of the problems with Las Vegas is that the entire economy is not very well diversified.  It is heavily reliant on tourism.

When you look at markets like Phoenix, Dallas, Memphis, Oklahoma City and others, you will find a much more diversified economy.  And just like stocks, look at a 10 and 20 years "Average Cost of Home" for each market.  Compare that to a chart of New Businesses and a Chart of Number of Employees added.  You don't like to see wild swings as that means you are in for one heck of a roller coaster ride!  Warren Buffet did not get rich investing in Microsoft, Apple and Google.  He got rich investing in Coca Cola, Wells Fargo, American Express and BNSF Railroad.  How boring can you get!!!!

If I were in the buying frame of mind today, I would be looking at Atlanta, Kansas City, Indianapolis or Oklahoma City.  But I bought several houses last year so I am letting the dust settle before charging ahead again!

You asked about Bakersfield.  I do not own in Bakersfield but I do own in Visalia, Tulare and Fresno.  You can do OK there, buying for 75,000 to 100,000 and get $795 to $995 for rent.  But they would most likely be class B properties and might require more repair work than a class A property.

But remember, the most important thing is to decide what YOU want.  You need to have a very strong opinion on what will work best for YOU.  After that, then you do your research to find the BEST fit for your parameters.  There is an old saying, "If you do not STAND for something, you will FALL for anything!"  There are a lot of "snake oil" real estate sales people out there, they talk a good talk, but are just full of hot air.  Talk to the successful investors, research, research, RESEARCH and take those baby steps.  You will be glad you did!

Start charging 10% of the repair bill as a "Management Maintenance Fee?"  I am very PRO Property Management as I used to be one.  But each year, it seems like they are finding more and more ways to charge the investor money.  When I ran a Property Management Company, I charged a percentage of the months rent.  I NEVER charged for a Lease Renewal.  I NEVER charged to send a handyman out to do repairs.  I NEVER charged to get a new tenant.  My monthly fee covered all of these costs.

When I ask my Property Managers WHY, I get the same answer. "I went to these Property Management Seminars and they told me that I can charge this, that and the other thing!" Then they tell me that they need to hire "quality" people to do a good job. I managed 100 properties WITHOUT any help, WITHOUT a computer, WITHOUT a Cell Phone, WITHOUT a Fax Machine, WITHOUT the MLS, WITHOUT any lock boxes, etc... I kept a Green Ledger Sheet for each property, made a copy of it each month and got the investors their money that I collected on the first, to them no later than the 10th. I made all the Mortgage Payments, Insurance Payments, HOA Payments, Property Tax Payments, hand writing each check. I personally showed properties, served 3 Day Notices, did Sheriff Lockouts, everything.

Currently, my California Property Managers only charge a monthly fee, no lease renewal fee, no new tenant fee, no management maintenance fee, etc...  It is my TX, TN, OK and AZ Property Managers that are charging all these fees.

For those of you who use Property Managers, are all these fees normal in your experience?

With the exception of @Ali Boone , everyone is touting their HOME market.  I wonder how many posters on here, other than Ali Boone and Jay Heinrichs actually own property in another area?  I live in Orange County, California, I was born here.  And I own a total of one rental in Orange County.  But I have rentals in the Fresno, CA area, AZ, OK, CO, TX and TN.  The highest return on my investment is TN but I bought there in 2012.  Hedge Funds and other institutional investors have been buying heaving in Memphis, just like they did in Phoenix.  So good deals are hard to find there.  The next best return I have is in Oklahoma.  I do not expect appreciation, I buy newer homes, less than 10 years old, and get 1% plus in rent.  Texas has been good as far as being steady, but no appreciation and high property tax bite into your return.  I don't know much about other markets as I DO NOT OWN THERE.  So for all the posters on here touting your own market, how much do you know about other markets?  We enjoy reading about the returns in YOUR market, but to be fair, you need to know how they compare to other markets.  It can be great to buy a house for $40,000 and get $800 rent, but if the house needs $25,000 in refurbishing and is in a war zone, you might be better off paying $100,000 for a newer house that rents for $1,100 a month and is in a middle class neighborhood and a great school zone.

The best advice I can give is to read, read, and read some more.  Read Business Magazines, read Business Newspapers, follow trends of where businesses are moving, population growth, demographics in general are you FRIEND.

This question is asked about three times a day on BP, it seems.  And most of the same answers follow, posters marketing their home territories.  Do your own research.  Visit areas that appear to have potential.  Have a solid set of guidelines for what you want in the way of return, potential appreciation, price range, rent range, pride of ownership, and much more.

Remember, the lower you go in price and rent, the closer you come to crossing that 50% guideline threshold.  My average rent is $1,000.00 a unit and I average 40-45% expense ratio, 43% in 2014.  A water heater cost the same, whether the unit rents for $750 or $1,500.  But the percentages change a LOT!

Best of luck to you, and everyone, in 2015!

With $1,000,000, you could easily purchase $3,000,000 worth of property.  But your equity is still $1,000,000.  But if you could buy ALL of them at 75% of market value, there you have your return.  Because you would now have $4,000,000 worth of property with a $2,000,000 leveraged loan.  Is this possible?  Last year, I bought $800,000 worth of property for $500,000, so it can be done ($100,000 in cash  turning $100,000 into $400,000 in one day)

I bought a house for $30,000.00 in Southern California.  But that was back in the 1970s.  I sold it a year later for $50,000.00.  The cheapest, RECENT house, was a house in Memphis, TN for $52,000, put $10,000 or so into it, rents for $895 a month.

How about the MOST you every paid for a rental?  Not counting my personal residence becoming a rental, I think the highest I ever paid for a rental was $155,000.00

One more thing I forgot to mention.  Eva, my wife, required knee surgery on December 4, and the Surgery Center demanded $3,000.00 the day of the surgery.  If she would have had the surgery BEFORE the Affordable Care Act, our Co-Pay would have been $1,000.00.  Let's just say that the Affordable Care Act cost us an EXTRA $10,000.00 out of pocket in 2014, since we had to go on COBRA.

I use OneProp Property Management, they manage 10 of my properties.  They are not the cheapest but they do provide everything I ask.  Good service at a fair price, my rents to me within 10 days, not holding them for a month.  Great communication.  Great website so I can access my accounting data any time 24/7.  Professional folks in all aspects.

Ben

Let me add my "BLOODY" story of the last quarter of 2014.  I am 54 and bought my first rental at age 19, so I have been in the 'sport' for quite a while now.  So 2014 was sailing along just fine.  We had one rental where the rent fell below 0.5% of the value ( $1,600 rent on a house worth $360,000) so it was time to redeploy that equity.  I did some research and pieced together a deal for 8 properties in 3 states with a total purchase price of $650,000 with a retail value of $1,000,000 +/-.  As you can imagine, this took quite a bit of time and creativity.  And all was good until we were trying to close the last one. We were going 30% down with a conventional 70% Loan.  We started the process, and the process kept going and going and going and going!  I am thinking, wow, we have an over 800 credit score, we have more in the bank, in cash, than we are borrowing, the rent is 3 times the payment on the house, and the lender said we don't qualify.  What in the world?  We don't qualify?  And you want us to sign affidavits that we are not terrorists, that we are not drug dealers, that we are not human traffickers, etc....????  So we said forget all that, and paid cash for the rental.  Easy enough, but now our reserves are desperately lower that we had planned for, $100,000 lower (when you own 25 rentals, a reserve of $4,000 a rental is good practice).  Oh well, we can build it back up.

Uh oh, here comes the knock out punch! In the last quarter, a storm blows through the Dallas/Fort Worth area, knocking down the back yard fences on three of our rentals. Another Texas rental needs an entire new sewer line from house to street. Another Texas rental needs a new dishwasher. Oh yea, our Texas Property Taxes, due by year end, total over $30,000.00. Two of the Texas properties go vacant in November, found a new tenant for each, but cost me 80% of the first month's rent. And the coup de gras, the tenant in the house we just bought, the one we ended up paying cash for, gives notice and moves out December 31, 2015. Bottom line, about $25,000 LESS in net due to $25,000 more in unplanned expenses! All with reserves already low! This might have discouraged a newer investor. But our safety nets worked just fine. In this case, HELOC's on two of our houses. While I absolutely hate to borrow money to pay expenses, it is basically as if we did borrow to buy that Texas house. The HELOC's will be paid back in the first quarter of 2015 and the second quarter will see our reserves start to get healthy again, but what a bloody fight!!

There was an earlier thread about building too fast, and many folks asked why it is bad.  This is a prime example.  Sure, we gained over $300,000 in equity, just by buying right, but the monthly expenses of 8 more properties, along with the emergencies on your current rentals, can hit pretty hard!

Our goal this year?  ONE new rental!!  Let's put it on Cruise Control until all the dust settles!