All Forum Posts by: James C.

James, 

Is this typical?  Not usually. 

That being said, there were a few things that you could have done better. Your have stated some of them, but let me see if I can give you some ideas to fix them.

1) You didn't mention anything about the numbers.  First and foremost the deal has to cashflow. At 435k you need to rent each side for 2200 to even think about breaking even,  especially in a high property tax state like TX. Don't buy the BS about sub 1% and appreciation. If it don't cashflow don't buy it. Quite frankly if you are having to put out 3 years of profit on 7300, of expenses,  the deal sucks.

2) 5k for an electrical panel in a completely renovated 420k Duplex is completely untenable. At that price point, the property should have NOTHING wrong with it. Add to that the missing garbage disposal outlet. That is a good sign of someone who doesn't know how to do a punchlist for renovations. In the future come up with a checklist  (read The Checklist Manafesto) and make sure you check EVERYTHING on it. Which leads me to point 3.

If you are investing out of state, and don't have excellent support,  cart your butt there and meet them. You did this deal entirely from your chair in CA. You've never been to Austin for any reason. I don't buy the BS that you can invest in a location without ever having been there. So for the price of a plane ticket and 2 to 3 nights hotel, let's say 1500 bucks you risked 110k of your own money on a 440k deal. Save 1500 (10% of your hard earned cash) to lose, what another 7300? Next time slow down, spend the dough to go see the place and establish the relationships to truly make it work.

Finally, stop the pitty party.  Stop feeling defeated and taken advantage of. Watch spending money on an attorney. Both the agent and the inspector have no liability no matter what they have said. You signed a document that absolved the inspector of any liability and the broker is not responsible for the condition of the property,  only the purchase and sale portion of the deal. Plus,  they were probably a sellers agent, with no fiduciary responsibly to you.

Look, I'm not trying to rub salt in your already open wounds. What I am saying is that most  of this is preventable. Stop focusing on "I have to invest in Real Estate" and focus on "Is this real estate a good business/ investment decision". Get back to basics.

Stay out of multiple offer situations when you first start, and for good measure stay the heck out of "hot" markets. You got creamed because you got in over your head. 20k over on something that doesn't cashflow properly is an impulse purchase not a level headed business decision. 

I would take my next long weekend in Austin,  find an excellent inspector (lose the entire group you are dealing with now) and spend 2 to 3 hours going over the house from top to bottom and getting to know the property. Once you know what you are in for, then you can decide if you want to keep it or dump it. 

FWIW, I bought a SFR 4 months ago, and just had to put a new AC in. Completely my mistake for not insisting that it be pulled apart and looked at. The roof I know about (2 years max before replacement), but was blindsided by the AC. I won't make that mistake again.

You will do just fine in the future. Everyone effs up a deal. You got yours out of the way sooner than others. Keep plugging along, you'll get it. 

Hope that helps. 

Good luck, 

Jim 

Nicole, 

Melbourne has undergone somewhat of a resurgence in the last few years. Unemployment is low, and house building (Viera master planned community, Melbourne zip code) is going gangbusters. 

Depending on what you are looking for in Melbourne,  there is lots of stuff in the 150k range.  It's mostly older CBS 3/1 and 3/2 stuff. Rentals run 1000 to 1800, maybe a bit more depending. These are "B" type neighborhoods.

Rockledge, Cocoa, Meŕitt Island and Palm Bay probably have a wider variety in the price range. Palm Bay is the low rent area if the group. Highly variable, lots of trailers and vacant non - buildable lots on paper streets. 

Investment "A" grade houses in Melbourne & the area will run 250 and up. Check out Rockledge,  specifically Viera North/East (Osprey Landing,  Cross, Crane and Six Mile Creeks) or Indigo Creek.  All these areas should rent for between 1800 to 2000/mo.  Watch Indian River Colony Club. House prices are good, but the monthly fees run around 700.

After that, check out Leavitt Parkway area (Rockledge). Those run 150 to 200 ish and are the next tier down in rents (1500 to 1800 ISH).

MFR won't generally be available in any quantity in these areas. Some condos are available.

Hope that helps. 

Good luck, 

Jim 

Jason, 

First, look at your business plan.  Do you both want to hold together,  or only wholesale together? 

This will dictate your strategy.  If you want to hold together,  then make sure you figure out how to account for the property.  Something like the sale price minus the loan balance and sale expenses split in half, or all the proceeds stay in the company until it's dissolution. 

If you don't want to hold together, then probably some version of purchase price plus 1/2 the standard markup, with that going to the non buying partner. Another option is to pay the whole thing and the standard markup goes into the company.  This treats the buying partner as if it were a non partner buying, and builds the value of the company. 

I think negotiating each property as it comes up may not work well. Better to have a mechanism in place before hand.

Again this all comes down to what your business plans and business model dictate. 

Hope that helps. 

Good luck, 

Jim 

Shannon, 

Not familiar with your particular county. Generally there are two ways to get insurable title. One is the quiet title suit you mentioned.  The other is usually some time requirement,  like 4 to 5 years of paying the taxes. 

Your best bet is to talk to a title company and put the question to them. They should be able to give you some general information. 

You could also have them do a title search and advise you about the title.  This should only be a couple hundred dollars. No insurance,  but they can tell you if it's insurable or what you need to do to make it insurable. If it's insurable, then you can purchase title insurance,  which may give you a piece of mind. 

Hope that helps. 

Good luck, 

Jim 

Cody,

The guy who used to own the agency I worked for did exactly that. 

It's a ton of work,  and it's best done with someone who can cover you during the times you aren't available. He had partners in the agency,  there were 3 of them I think.

Another good strategy is to be your own best customer. The guy had a philosophy that said you couldn't sell it until you owned it. It was a great way of learning the business from the inside out.

As far as finding a broker that will work with your schedule,  keep interviewing until you find one that is willing to help.

Hope that helps.

Good luck, 

Jim 

Rob,

Real Estate is a numbers game.  Your goal is to create the best deal for you. Trust me, not one seller gives a whit about you or your family. 

You offer what you think a property is worth based on your business model and numbers. Period. 

BTW this doesn't mean treat sellers poorly, treat them openly  and fairly. What it means is know who is in your corner and who is not. 

Now, get your butt out the chair and go make some offers. 

Hope that helps. 

Good luck, 

Jim 

Ken,

There are a few exit strategies, depending on your goals. 

First and easiest: leave it all to the offspring when you die. It's up to them to deal with it. 

Second, put it in some sort of trust and set that trust up to run the properties. This requires a tax person plus a good attorney. 

Third, you could transfer a percentage of the business to your offspring every year to avoid any taxes. 

Fourth,  you could sell outright and pay the taxes, then do whatever you want with the cash. 

Fifth,  sell out on owner financing and avoid some of the taxes and take your money incrementally. 

I'm sure there are others.  I would sit down with my CPA and attorney and hash through the options.  A search of BiggerPockets should net you some posts on the subject. 

Hope that helps. 

Good luck, 

Jim 

Michael, 

I'm not an accountant and this ain't legal advice. 

Short answer: yes.

If you deduct it as capex (depreciable item) or maintenance (taken all in one year) should be a discussion between you and your CPA.

Good luck, 

Jim 

Joseph, 

The BRRRR strategy works in all markets, if applied correctly.

The basic underlying strategy of the method is to buy at a discount to as is market value, and then add value by fixing and upgrading at less cost than the value of the improvements. 

The strategy requires you to know or reasonably acertain four things 

1) the as is value of the property 

2) the as repaired value of the property 

3) the cost of moving from as is to as repaired 

4) the rental value of the as repaired property 

Once you know those 4 bits of information, then you can buy appropriately and use the strategy. 

How you do that in different markets depends on how you are viewing the market.  It's easiest in an increasing market since any "errors" can be covered by appreciation.  Next easiest is a stable/normal market,  since estimating is easier (not much fluctuation) and "errors" can be covered by time. The hardest is the declining market, since any "errors" are magnified by the extent of the decline. If you estimate the decline correctly or over estimate it, you can be in superior shape coming out the other side.  It's the buy low, sell high concept. 

Hope that helps. 

Good luck, 

Jim 

Nick,

Seller financing is an option, but why? At a 4.54 cap, this is not a deal, it's a huge looser. One big capex expense and it's done. Run, don't walk away from this. 

If you really, really want a 4.54% return on your money, here is what I suggest.

1) Sent me the 1.0M you are going to invest. I'll do the investing for you, and even tell you what I am investing in. Complete full disclosure.

2) I will send you checks for 4.54% of your money (you can choose from weekly bank transfers to yearly, or just leave the money there to compound)

3) At the end, I'll give you back your $1MM. I'd even throw in 25% of the value of the company when we're done, if you really want it.

With this deal, you would come out light years ahead of what you are looking at. 

For the record, I am not soliciting your money. I am, however, showing you, in a VERY pointed way that you need to move your focus off of the "Real Estate" and back onto the "Financials". The big guys are able to withstand a 4.45 cap rate, but on a mom and pop 7 unit, it's certain death. Planning on appreciation is a fools errand. 

Hope that helps.

Good Luck!

Jim