All Forum Posts by: James C.

Joseph,

Welcome to real estate market cycles. We are on an upswing (some say at the top).

Here are a few things that you should know.

1) Your numbers are your numbers. You have a business plan (or should) that defines your parameters under which you will purchase. You find properties that fit that model. Anything outside of that model is a non-purchase. This is what folks mean when they look at the deal funnel, and say it takes 1000 leads to give me 100 properties to look at, which gives me 10 to offer on and 1 to buy. You can adjust your model, but always keep profit as your goal.

2) 1-4's are financed via conventional loans, based on market comps, NOT cashflow. I have yet to meet a single family that cashflows properly. Forced appreciation can work, but if you figure 10% vacancy, 10% CAPX, 10% property management, it's a tough go. 2's can work, but again, they are usually bid up to the point where they don't. Typically, 1's &2's aren't held by investors, but investor wannabes. 3's and 4's tend to cash flow better, since your buyer pool is slightly smaller and more business savvy, but depending on location they might be bid up as well, since the financing is easy.

3) 5+ units are commercial financed. Right now, there is so much money in the system, and interest rates are so low, that to have a 5 or 6 cap is great if you have (or can get) a bunch of cash. Heck, if you are making 1% (1 cap) in the bank, property at 2-3 cap sounds great. If you have a cap rate that approaches the "real" or "average" risk adjusted rate, then you won't be competitive in the market. Junk bonds are only paying 5% or so... FOR JUNK BONDS! The risk has been removed from the system by the government QE programs, and nobody wants that party to end (Actually, I would like to see it end, and it should have never started IMHO). But it will have to end, or we will go the way of Japan, stagnation and deflation, with overpriced assets (i.e. all risk removed from the market) propped up by the central bank. A risk-less market ain't good for anyone.

4) If your one trick pony is not doing it's trick, find another horse to ride, but keep training the pony. Right now, you are focused on MFR rentals. That trick pony is about tricked out. Find another horse to ride; Fix/Flip, wholesale, Air BnB, new construction, affordable housing, or something else. You need to learn how to make those horses do their tricks. Another analogy: right now you have a hammer, and you can't find a nail to save your life. Go figure out how to use a screwdriver, and go find some screws to turn. No screws? Get a drill, and go drill some holes. No holes that need drilling? Get a saw and cut something. You get the point.

You aren't insane. What you are seeing is normal for the market we are in. Could you use some polish on your approach? Yep, we all can. Get better at what you are doing, and find some different things to do, it will come. 

Also, you aren't putting yourself in the sellers shoes, you are putting your shoes on the seller. You are approaching an "irrational" market where "anything goes" in a very logical, rational (and correct, I would submit) way. If a seller can ask for and get a 3 cap, a seller will ask for 2.5 cap (and probably get it.) Stick to your model, modify as needed, and see if you can find another way to make some cash in this market. 

Hope that helps,

Good Luck!

Jim

Lynn,

First thing, I would want to know why it fell out 3x. If it's not a problem that worries you, then I suggest:

HELOC SF to 90% (should give you $1MM cash) with a resulting1.8MM loan on SF

Offer 1.5MM on HI, 1MM cash in, 500K loan from bank, HML, or Seller. Adjust HELOC/cash/loan to suit needs or conditions.

This should be a low cost option compared to HML.

If the HELOC at 90% worries your banker, then tell them you will cross collateralize both properties on the same loan (blanket). That should give them about a 66% LTV overall. 1.8M SF + 0.5M HI = 2.3M loans vs 2.0M SF + 1.5M HI or 3.5M assets. 2.3M Loans/3.5M Values = ~66% CLTV.

You should be able to get that to go, even in the commercial realm (probably as a refi/purchase) . The only issue with the cross collateralization is being able to pull one property out to sell. Make sure you set up the required pay down before signing on the dotted line if you want to sell them out individually. 

Hope that helps!

Good Luck,

Jim

Ryan,

I'm not familiar with your specific area. Your estimates look reasonable to me. 

A few questions

1) Why are you building in broker fees on the buy? Your purchase should include the real estate fees, even on a HUD property.

As a general note, I would bid what my business model suggests, and don't chase an asking price, even if your broker says to. It's not their neck on the line. If they want to JV with you, and provide the cash, then they have a say, otherwise tell them what you are going to bid. If they balk, find someone else.

2)Why the MLS fee? For 5% it should be included. See above about brokers.

3) Is it possible to cut a deal with your title company for round trip costs? 

You might want to put a finer pencil on your rehab costs, or reduce your bid price. 

If you are frustrated, you need to go find better deals, or change up your strategy. 

HUD deals are way too easy, and accessible. Everyone and their mothers uncle can bid on them. There is too much cash in the system at the moment, and financing is a hindrance, not a help for public deals.

Hope that helps.

Good Luck!

Jim

John,

Home inspection referrals usually come from agents, brokers or other satisfied customers. There is something you should know before you get into the game. 

Real estate agents are paid only when a deal closes. If a home inspector creates anxiety in a buyer about a home over a fixable item that isn't fatal or obvious, then that broker will not call that home inspector again. Furthermore, that agent will tell everyone what happened. 

So, you might have the best of intentions to help a buyer, but your client is really the agent, or you have two clients the agent and the buyer. Make sure you have a good, relaxing, easygoing manner. Don't create issues where items are fixable. I once had an inspector hold forth on the fact that the outlets around a sink weren't GFCI's, which was about $50 to fix at the time. The buyer was so put off, he failed the building inspection over the issue. I never referred the inspector again, nor did anyone in my office when I told them. Switches that apparently go nowhere, the odd loose wire, or open junction box, stubbed off pipes, or dead outlet aren't big deals. They are part and parcel to a used house.

If there is a serious issue, like rotten joists, missing roof tiles, lack of joist supports, hidden mold, etc. then indicate that it warrants further inspection from a contractor or engineer. 

Most things are fixable in one form or another, and it's usually a negotiation on the cost. Sellers might not know, and are surprised and willing to help, other times, they have a take it or leave it attitude. Your job is to be factual, separate the important and urgent from the unimportant and not urgent. Low key is the best key here.

Hope that helps.

Good Luck!

Jim

Patrick,

Nope, sitting by the phone doesn't work. I am guessing you are using "knowledge" as in the technical bits of Real Estate, then that's only 10-20% of the battle.

The difference between an agent that gets lots of business and one that doesn't is "Hustle". They are doing a few important things constantly, namely:

1) Client Networking - they are building lists of contacts who are interested in Real Estate, sorting them according to how soon they are going to buy or sell. They are using some version of CRM to follow up. If they have been in the business for a period of time, they are calling former clients for referrals.

2) Dialing for Dollars - They are cold calling (or having someone do it for them). They are calling to get leads, either buyer or seller. Most agents are looking for sellers, since sellers have the product (properties). The theory goes, once you have product, the buyers will come. Those leads go into #1 above and are cultivated. Calling expired listings would fall in this category.

3) Professional Networking - They are building their professional network (if they are new). They are previewing houses, talking to other agents, mortgage brokers, banks, appraisers. They are building those relationships to know where to place their clients to get the job done. Occasionally, I would have a broker who was unable to sell a property refer the clients to me, and take a referral fee. This was a direct result of networking with other agents. I got countless good buyers from my mortgage broker connections, including the mortgage brokers themselves. This is often overlooked when you are an agent.

4) Farming/Advertising/Marketing. They are getting to know folks in their farming area, they are trying to get name recognition and their particular message/properties out to the public. Keep in mind, a farm can be a specific location on the map (usually) or a specific type of property they deal in (say c-stores with gas). On occasion, farming can take on more of a networking bent, especially when working corporate (REO/RELO) or NPN type business.

5) Listing and Selling properties - The culmination of 1 to 4. The "easy" part of the business. Getting some deals to close is an absolute nightmare. Others go like a hot knife through butter. Some listings are a pain, others a joy. The only thing worse than no listing is one that is overpriced and not selling.

There are certainly countless other things an agent does to generate business. Mostly it's getting yourself and your name out there, and keeping the folks that hate your guts away from those that haven't made up their minds yet.

Good Luck!

Jim

Erik, 

Yes it is allowed. If production were a prerequisite for having a license a good whack of brokers would be living on the street. The issue, as @Russell Brazil  pointed out is why? 

It becomes an economic issue. Figure that to hang your license (even paying no desk fee or splits) will run at least $1000 per year in most states. That includes MLS access fees, dues (including REALTOR dues), continuing education, and cost of licenses.

If you think that having access to the MLS will make you more than investing that $1000 in say direct mail, driving for dollars, joining a REI, or even a few good books or real estate investing, then invest in the license and MLS. Chances are it won't.

Now, if you are looking to broker deals, or need the license to do (or make it safer to do) wholesale work (like FL) AND you can make some money at it brokering deals, that's a different ball of wax. At that point, now your license can be a producing asset. 

It's all up to how you view the license in terms of YOUR business plan.

Hope that helps.

Good luck, 

Jim 

 Barri,

First, find out if they want to buy it, then work the deal from there. If the don't want to or can't, then talk to the agent about the listing.

Make sure that you keep the rental business separate from the sale business. For example don't do a reduced broker fee in exchange for rent.

Also, do your research, if the agent is terrible or has a bad reputation, invite them to compete for the listing. If they are on their game, then you should be good to go. Have you purchased anything from them? If not why not? If so how did it go? That will tell you alot.

I'm sure some folks will say don't list with your tenant under any circumstances. IMHO you should vet them as you would any other agent. If they pass, great if not that's the way stuff goes.

As far as your mom's place goes, the most appropriate thing to do is introduce your tenant to her and let your mom make her own decisions. Obviously this assumes she is capable of doing so.

Hope that helps.

Good luck!

Jim 

PS Your title says how do you tell the owners.  I think you meant tenants. Hopefully future owners! 

Jason,

I'm reminded of two things... 

One: Someone once asked Ray Charles how to get to Carnegie Hall. His response "practice,  man, practice"

Two: is something along the lines of "if you don't know where to start,  throw a rock up in the air. The next person who walks by where the rock landed say 'you're the first person to walk by the rock'"

You've got 9375 voices in your head saying "how", "you can't possibly", "that will never work". You need to ignore those voices and go do something.  Go find a deal. I absolutely guarantee you'll screw it up. Probably the next 10 too. Get them out of the way, and learn from every screw up. Eventually, you'll find one you won't screw up too badly and you'll close it (or wholesale it, or whatever your exit strategy is)

When I started in Real Estate  (as an agent) they would send buyer calls back to my desk and I would walk away. Literally let the phone ring until they transferred it to another agent. 

I threw a newspaper route from 4 to 6 AM, in the office by 7. Worked until 5 PM, taught night school until 9:30 PM ish. Went to bed and did it all the next day, for 3 years until I had enough of a client base to give up the newspaper route. Kept the teaching, because I liked it. The newspaper route became my farm. Made some good money on the farm, could have made more had I been smarter. Could have made a bunch more money as an agent, but was young and dumb. I did make a decent living, and had a bunch of fun.

I bought my first property (Condo) 4 years after becoming an agent. From there, bought a bunch of NPN, and bought (house hacked) a 2 unit in year 5. Lost everything in divorce in year 6. Just getting back into REI, but much smarter this time.

It doesn't happen overnight, it doesn't happen by wishing, it doesn't happen by studying. It happens by willing to be wrong, by willing to learn, and by strapping on a set of big old brass ones until you get it right. 

Put a bit more impolitely: Pull off the Huggies, pull on the pants and get to work.

Good Luck!

Jim

Mark,

The DreaMaker program is not a FHA product as far as I know. FHA 203B/203K loans are not "first time buyer" type programs, they are owner occupant programs. The other restriction is that you cannot have another 203B/K (only one at a time).

So, you should be able to do a 203B, as long as you owner occupy the 4 unit.

Good Luck

Jim

@Russellholmes

Your broker course covers the law, not "How to buy and sell real estate". The 5400 spent by the "wholesaler" was probably about some of the different ways to make money in real estate. It was most assuredly not about the law. Unfortunately there is probably a small disclaimer in the contents about the fact that they need to check their state laws and the party supplying the  information is not responsible for anything the purchaser of the information does or doesn't do. In short the "Teacher" saught legal counsel, the "Wholesaler" didn't. Keep that in mind when you are practicing real estate. 

@JohnThedford is correct about Florida state law. He should, as a professional contact the Florida state licensing board with all the particulars on the wholesaler. I haven't read anything in Florida state law about "intent" only about "actions". Of course,  I'm not a lawyer and nothing I say constitutes legal advice.  I always advise to consult an attorney. 

Good luck!

Jim