All Forum Posts by: Jimmy H.

JScott did a great job illustrating why expenses, theoretically, will exhibit a strong correlation to market rents - keeping the 50% guideline in proportion across different markets.

I would like to add, though, that this correlation relies on the efficient market hypothesis. It's pretty clear that even the stock market, which is significantly more liquid and operates on more "real-time" data, is not entirely efficient. So, it makes sense that each individual property you come across will be at a unique place in searching for that "equilibrium".

Markets, not just individual properties, ebb and flow in search of their equilibrium, as well. Individuals who complain that a certain market does not offer the same opportunities as another are experiencing an inefficient market in search of an equilibirum. In the long term, if properties don't cash flow well in a particular market, prices are likely to come down to a point where investors are attracted back to that market. These inefficincies are exacerbated by the fact that not all real estate investors are equal in their goals or analyses.

Perhaps we should update or alter the "rule" nomenclature to more accurately reflect its' appropriate application. Therefore, I make a formal motion to officially rename the "rule" as "The 50% Guideline".

The 50% guideline should be used for screening purposes. After which, you should conduct proper due diligence, taking into account the actual property expenses, condition, location, and other qualitative aspects of analysis.

I formed a single member LLC for purposes of purchasing tax liens in my county this summer.

My intention is to get some experienc ethis year so that I am knowledgeable enough to raise capital for next years tax sales.

My question is: Is LLC appropriate.

It is a single member, and I know many people would advise that a single member LLC doesn't provide much seperation or protection as it is viewed as an extension or your personal business activity.

But, if I plan to raise capital eventually what is the best entity type.

Also, for tax purposes, should I elect S or C corp status or just let it pas thru as a typcal LLC?

Other thoughts?

I don't know that this classifies as a "hot" stock pick....but REIT's may be a part of the equity market that appeals to the RE investor here on BP.

In specific, I really like (and own) SNH.
SNH is an REIT focused solely on assisted living, nursing homes, and senior housing. It has 200+ total facilities in 35 or so states. It owns the real estate and leases to health care and nursing facilities management companies.

It has a 6-7% dividend yield right now. Enroll in the DRIP program with your broker and have the dividends reinvested automatically to acheive compound interest at no transaction cost.

Good place for LT invesmtent and/or a good place to accumulate a liquid capital position for potential RE acquisitions.

I have noticed some decent deals in my area through the Homepath website. Homepath offers a 10% downpayment for investors.

With the current situation in the credit markets, it seems that this is one of the best options for financing LT buy and hold properties with a low down payment. I am considering acquiring some cheaper SFR as rentals.

What are some of the best financing programs out there right now? Homepath seems to be a good opportuntiy to make acquisitions - but what other financing programs are offering such low downpayments for investors right now?

Steve Babiak- I've stated my opinion and will stand by it: Presented the right situation I think the majority of BPers and most people, on average, would commit the technically unethical acts I mentioned.
It was not a comment directed solely towards BPers, rather a contention that the majority of people would not take the moral high ground presented the correct situation.
Also, I appreciate that last line of advice you threw in there as some sort of revenge insult; or perhaps it reflects your own values and how you would view the situation in your own life. Either way, I know you love a good internet fight, PM me for my email address and we can have an electronic thumb war at your convenience.
My comment is a valid one, albeit arguable; but, instead of arguing you hurl an insult. Let me match your sarcasm by saying that I appreciate your constructive input.

Steve Crawford- I fully agree that most every individual I have interacted with on BP has not struck me as unethical by any means (especially those who comment and frequent this site the most), quite the opposite in fact.
As a RE lawyer, do you know of any resources I might be able to access to research case law of mortgage fraud(and other interests) on my own? And again, I appreciate you lending your advice/expertise and participating constructively in this thread.

Jon - Interesting case, I agree that white collar "victimless" crime is not always truly victimless, but that is a bit absurd IMO and leaves no question as to why our penitentiary system is overburdened.

Bryan - I appreciate your advice and confidence in my character. You are correct that I would not involve myself in any such deal and you're right that the "reward" would be marginal at best. BTW, congrats on 3000 posts, you are a mad man.

I did manage to find out that the OO restrictions apply for 12 months from the date of occupancy and that you may rent it out thereafter. This rule varies by region though, according to FNMA, so contact the listing agent to be certain of the rules applicable to your region.

Also, for what it's worth, I realize that the numbers quoted in the OP do not meet the 50% rule requirements to cash flow - I have other interests in this property.

Will - Yes, it is occupancy fraud, as I mentioned.

What has happened to others in such a situation is relevant and is of key interest to me as I would weigh the potential outcomes against a rough approximation of $7,000 in savings.

Regarding intention, again, I present the theoretical situation of an intended OO who unexpectedly must move within a week of closing. He can't sell the home or manage the carrying costs so he rents it out to avoid foreclosure. Based upon his intent, is this still fraud?

Also, is anyone aware if there is a specific mandated time period after which an owner occupant may rent a property out as an investment? I cannot find this info either.

Scott - thanks for the link, I have been looking for something along those lines on the fnma site but couldnt find it myself.

According to that link, such a situation would be "occupancy fraud".

I would not be a straw buyer in this situation because she would not be buying the property for me, rather it would be me advising my girlfriend to make an investment.

I appreciate all of your input. But let me say that choosing the ethical path is easy in a case study. Occupancy fraud, straw buyers, mortgage brokers making ninja loans for commission, or the terrible banksters on wall street packaging MBS, etc - when there is no clear victim I would argue that these aforementioned "unethical acts" would be undertaken by the majority of BPers (or the average individual - however you'd like to look at it) if presented the correct situation/opportunity.

Scott, on your mention of premeditation, it strikes me that a truly intended OO who, within one week of closing, takes a job offer in another state would encounter no problems in renting the property out.

I suspect this type of thing happens frequently and I view it as no more unethical than fnma making a loan to the original buyer who apparently could not afford it.

In sum, I will not be pursuing this transaction; I see your point that I may as well pay the extra 7% to transact legally and I appreciate your cautioning.

Criminal offense of what nature?

Does anyone have any experience or heard of any such deal?

I can imagine worst case is a foreclosure, and I can;t imagine them wanting to do that as they want to get rid of inventory. If they offer loans to investors OO I can imagine they'd be just happy to unload the invesntory either way.

Is there any precedent of how they deal with this?

For me it may be worth it as it at least doubles my cash on cash return. And allows enough cash for me to pursue another property.

Steve, I appreciate your advice and would like to hear more

I have a question concerning a Homepath property in my area.

The home is priced at 99,000. I could purchase the home as an investment with 10% down using homepath financing. I have also thought that I could encourage my girlfriend to acquire the property instead of myself so that we may obtain the property at 3% down and a lower net cash investment to us.

The home is in good rentable shape. Payment would be around $525 + $50 insurance + $125 property taxes = total carrying cost of 700 (no utilities included).

I think I could conservatively rent this property for $800+ with no utilities included - this would be my prefered method rather than charging more and offering utilities included.

My question is: Will this work? Will they check to see that my girlfriend is actually occupying the unit? If the utilities are in another name will that draw suspicion - should I pursue a utilities included strategy? Would they even care that much if they found out it was being rented? ( I cant imagine them taking the property back, but that would be worst case) Or should I just fork over the extra cahs and put the investment in my name?

BTW there is no issue of having my griflriend own this property as we are essentially married, except in the eyes of the law - I figured I would take advntage of that fact that she could obtian the property with less cash. And yes my girlfriend qualifies in terms of income, credit, etc.

I too am interested in tax liens. I have no experience with them but have researched them by reading my states law statutes. You can probably go online and find the chapter of your states' statutes dedicated solely to property tax leins and all the accompanying rules, regulations, and procedures.

I have researched as much as I can online for free, and I started this BP thread: (CI Jones I would love your input here)
http://www.biggerpockets.com/forums/70/topics/56190-preparing-for-tax-lien-sales

At this point my plan is to do my due diligence and try to purchase a few of these this year. I think that the best way to learn is from hands on experience. I started an LLC recently, solely dedicated to hold these liens. I am going to buy a few liens and see how things pan out...by the time the 2012 sales roll around I will be knowledgeable and experienced enough to know if I want to more seriously pursue this as an investment, and would have a much easier time raising money, and be much more certain of the process.