All Forum Posts by: Mike McKinzie

Like Joshua Springer said, when you start out, it is like starting a new profession.  I am sure you mentored under someone when you first started doing electrical work.  Real Estate is a little bit different in that there are really NO absolutes, like in electrical work.  Real Estate is about PEOPLE and the relationships that are created along the way.

One area that a lot of people miss is talking to Property Managers.  PMs usually have a LOT of connections.  Let them know you do electrical work and that you are interested in starting to invest in Real Estate.  You may have to talk to a dozen to find one that is willing to help, but from my experience, most QUALITY PMs are always looking for a good electrician and that will help you with making RELATIONSHIPS.  8 of the houses I own is because my PM had an investor who wanted OUT and they contacted me about buying them out.  If you can get a few "side jobs" from a PM, and you do good work at a fair price, and they know you are looking to invest, you might get on their "leads" list for when one of their rentals comes up for sale.

Don't get over whelmed, stay excited and stay focused, and when it comes to in-laws, try to have a part humorous and part wisdom type of response.  For instance, when you tell them you are buying a rental house and they respond, "That will never work."  Just say, with all the politeness and class you can, "You know, you might be right.  But then again, you might be wrong too.  This is something that 'wifey' and I are excited about we want you to share in our excitement."

And here is a little story that will emphasize my point.  I was in college, in the very late 1970s and early 1980s.  We had an accounting professor try to give us some investing advise one day.  We all thought, how in the world could an accounting professor know anything about Stocks and Bonds.  He told us that there was this NEW Computer company just starting out and that we should buy some stock in it.  He said the name of the company was APPLE!  The room just busted up laughing as if we were in a comedy nightclub.  We said what a STUPID name for a computer, Apple.  Sounds pretty 'fruity' to us.  At the time, IBM was it in the computing world.  None of us bought Apple, but the professor did.  And you know the rest of the story..................!

Don't let anyone talk you out of something that you really want to do!  AND, listen to advice that is told you to try and HELP you.

While that is funny @Account Closed is referring, I have nothing to sell, no agenda and only share my 30+ years of personal experience.

I am pleased the original poster backed out, good deals will always abound, you just have to work to find them.

@Rob Cee

You make several inaccurate assumptions. First, I paid $142,000 for a house that I paid for an appraisal that came in at $151,000. Next, my property management fee is 7% of the months rent. Next, my TOTAL out of pocket costs to buy was $140,300 due to prorations of rent, property tax, HOA, etc... My property taxes are $290 a month. Insurance is accurate. HOA is $10 a month (ouch). My return is closer to 7% the first year, along with a 6.5% gain in equity the day I closed. So 13% my first year. In 5-10 years, I will sell the property, carry the paper, in the 7-10% range and come out OK. Even if the property appreciated ZERO, I will have the depreciation write off and a monthly rent that will most likely increase annually (all my TX rentals increase annually).

Notes are great investments but they do have limitations.  The income is FIXED, you can't raise it with inflation.  There is ZERO chance for appreciation.  There is no depreciation write off.  There is no 1031 capabilities.  And much more.

@Aaron Mazzrillo  and @Jay Hinrichs  have written some fantastic posts in this thread, no doubt about it.  They give good, sound advice.  And if I were a Newbie, I would follow their advice very closely.  I have always said that a persons FIRST investment should be as close to home as possible.  Learn the ropes of being a long term real estate investor.  But once you understand long term rentals, it may be advantageous to expand your horizons.  My first "out of area" investments were only about 200 miles away, in the Fresno, CA area.  I still own 10 rentals in that area.  But they did so well, I expanded even further.  I teamed up with an experienced Texas investor, learned that market, and am doing quite well. That led to Colorado, then Oklahoma and then Tennessee.  I picked up an AZ rental along the way as well.

You want to talk numbers?  I bought a rental in Visalia, CA last year for $40,000, paid cash and it already had a tenant paying $795 a month rent.  I had it appraised this summer and it came in at $75,000.  My PM fee is a flat $50 a month, insurance is $35 a month and taxes are $40 a month.  My PM does not charge any extra to fill a vacancy.  Is it a low income area?  Of course, but my PM also owns properties in that area and keeps a very careful, watchful eye on all the rentals she manages there.  In about five years, I will get my total purchase price back and then it's all FREE money.

My point is, an investor can make money on all types of properties in all kinds of locations.  As we say on BP, the investor makes his profit on the BUY end, not the SELL end.  The key is experience, knowledge, hard work and perseverance.  There are investors on BP who make money on long term rentals OUTSIDE of the United States.  It can be done.

@Aaron Mazzrillo 

Congratulations on your day, sounds great.  On June 24, I closed on a deal that netted me over $300,000 in equity, I love those days.  But I am sure there are more differences than just 1,400 miles.  Things like age, size, rental amount, deferred maintenance, etc...  You are right about Texas Property Taxes, but since it is free and clear, it doesn't cut into my net that much.  While you tout how close the rental is, I wish all of mine were on Mars!  LOL!  Different strokes!

My plan is to sell everything in ten years or so and carry the paper.  I figure around $10M in notes at 8-10% should be a good position.

If I misread your posts Aaron, I apologize.  It just sounded a bit critical for investing out of area.

@Aaron Mazzrillo , I currently own a home in Santa Ana, CA.  The average sales price in that zip code is $707,000.  I am getting $1,700 a month rent on it.  Could I get a better return out of state?  While I don't mind you hawking the virtues of investing in Southern California, I do take issue with your criticism of those who choose to invest elsewhere.  I used to own a real estate office in Santa Ana and another office in Riverside.  There are still active Realtors in OC and RC that I trained!  So let me ask you, what would a 2,000 square foot house, built after 2001, cost and rent for in Orange Crest, or Indian Hills, or Lake Hills, or La Sierra, or any other middle class area in your market.  I wouldn't count Rubidoux, Moreno Valley, or other war zones.  I just closed on a house, in the suburbs of Dallas, for $142,000 with a tenant already in it paying $1,450 a month.  It was built in 2007.

Remember, every investor has a different style.  Just because something works for you does not mean everyone else has to do it that same way!  The original poster backed out of an out of area deal, not because of location but because of unprofessionalism by the marketing person.  I retired at age 50 with a comfortable income.  Others may want more before they retire and others may want less, to each their own.  I applaud everyone's success!  I try NOT to criticize someone who does it differently, but I will criticize those criticize others.  We are all after the same goal, to SUCCEED!?

@Jay Hinrichs , none of my out of state rentals rent for under $1,000.  All properties are Class A.  I have had NO cash calls this year.  My main PM has over 5,000 houses under management, not much fear of them being gone tomorrow.  Only three of my out of state rentals have a mortgage.  All out of state PMs do a Direct Deposit.  In other words, I have made owning rentals about as passive as possible.  The number one type of email I get states, "Your tenant has renewed their lease."  Out of state investing can be hassle free!

@Jay Hinrichs, I am curious why you sold 350 out of area SFRs?  Was it just to buy some investments locally?  If we were to sell all of our Out of Area SFRs and buy locally, our monthly income would drop 75%.  And as for the original poster, I wouldn't really call it a BUST, it was just a NO GO.  To me, a BUST is when you actually purchase a loser.

I am curious, what do you call "turnkey?"  Does a house require a "rehab" to qualify as a "turnkey?"  The house I closed on yesterday, in Texas, was being managed by the PM that manages my other Texas rentals, and the investor just wanted out.  Not only did I get an appraisal, home inspection and know the area through my research, I also had five years of Property Management Bookkeeping, knew EXACTLY when the tenant had paid rent, every repair request for five years, practically everything about the property.  And the house was built in 2007.  I have to replace the AC unit because the builder used a CHEAPO brand, but I got the seller to reduce the price by the cost of the AC Unit.  My Home Inspection gave me the heads up on the AC, there is no way, even with an onsite inspection, that I could have caught the crack in the copper tubing deep inside the unit.  How many of you, when you do your VISUAL inspection, crawl the basement, attic, open every appliance electrical access points, etc....??  For me, an ONSITE inspection of a property is a complete waste of time and money.  A state licensed Home Inspector is far more qualified, PLUS, is a non interested party in the transaction as he/she gets paid no matter what is found.  You know what happens when you SEE a house, you get a FEELING!  And what is a FEELING but just an EMOTION!  Buying Real Estate is like playing poker, "LEAVE YOUR EMOTIONS AT THE DOOR."  When emotions get involved, decision making becomes poorer.  25 years ago I would have NEVER bought a house without seeing it AND the neighborhood.  But today, with the internet, you can practically walk the neighborhood from your own computer screen.  Yes, it is difficult to find good "boots on the ground" but when you do, it can be a lifelong PROFITABLE relationship for both of you.

If you want to actually SEE a house before you buy it, that's fine, I understand.  But don't criticize me because I have no interest in seeing a house I am buying.  I know what I am doing and having seen over 10,000 houses in my lifetime I am tired of it.

I buy turnkey all the time and have great success.  I own 26 houses and have NEVER seen 23 of them.  The last thing I want to see is another house!  But having systems in place is vitally important.  On one turnkey contract I was in this year, with a BP member, the apraissal came in $7,000 under contract price so I backed out.  On another turnkey, one that actually closed TODAY. in Texas, the apraissal came in $9.000 higher than my purchase price.  So don't get discouraged.  You were right to back out, incorrect information, aka LIES, is reason enough to back out of any deal.  You want to deal with honest people.  It may take a while to find the honest turnkey companies but they are out there.

Many investors like to see a property before they buy it, and that is fine.  But in my experience, an apraissal, home inspection, internet research on that market and my personal parameters are all I need to make my decision.

Good luck on your next out of area deal!

Great job  Philip and Ben is right.  I was visiting my uncle, who lives in Colorado Springs, a couple of months ago and at that time, I had eight houses under contract.  My uncle currently carries over $10,000,000 in 38 different mortgage notes and has a couple of rentals.  At one time, he owned 50 rentals.  He told me, SLOW DOWN MIKE!  When I said WHY?  He said, "You'll see".  Four years ago, I had 3 rentals, today I have 26.  I had more a few years back but unfortunately divorce took a bunch of that.  And while I want to reach a minimum of 50, it's not going to happen this year.  I am only 53.  The term Ben used, "SEASONING", is an excellent term.  You need to get reserves built up.  You need to see if any large expenses come unexpectedly (and they do!).  You need to make sure tenants are stable and quality (a well fought eviction can go six months).  Obviously, you want to take advantage of good deals when they come, but just because Burger King has a $1.00 Whopper doesn't mean you need to buy 100 of them.  Each property you purchase carries inherent RISK and inherent REWARD.  You won't know either until you have owned them for a while.  This is where the 'seasoning' comes in.  Slow and steady wins the race while the rabbit is taking a nap!  Keep up the good work.