All Forum Posts by: JD Martin

I would go with Nicole's advice. I don't think the fact that they can put a lien on your property makes any difference with respect to evictions. You may want to consider adding water into the lease and increasing the price if unpaid bills can be placed on your property as a tax lien, or have a copy of the bill sent to you and begin the eviction process as soon as you receive information that the water bill is unpaid or scheduled for cut-off. 

Thoughts in no particular order:

1. I would consider it lucky if I consulted with a tax accountant about how best to structure a business for tax purposes, and they said "Go ask someone else in that business", as I would certainly not want that guy/gal/firm as my accountants! That's just damn crazy - the accountants that I know, if they do not specialize in some type of accounting, know everyone in 100 miles that does, and would refer me to someone that could provide that information.

2. Be highly suspicious of anyone that wants to sell you their magic formula for making money. Most arenas for making money are ridiculously competitive (seems like everyone wants to make a lot of money, imagine that!), and if I had some secret, system, or insider knowledge on how to make a lot of it I sure as hell am not going to share it with anyone else, even for a price, unless I've decided that I don't want to make money doing that anymore and would rather make money teaching someone else to do it. For example, there is already a ridiculous amount of competition in the real estate market - if I was still in it, why would I want to invite more people in to compete with me? And if I wasn't still in it, wouldn't you wonder why if it was so profitable? 

3. There are good courses out there on learning the basics of just about anything; it would be illogical to suggest otherwise. Most of these should be the end unit, not the sales pitch into another program.

I will close with this: there's no "secret" to making money in real estate investing. It is like any other legitimate business. I've done pretty well in it (so far - you never know what the future holds), and I'll tell you my secret: I bust *** harder than any of my competitors. My places are nicer, my rents cheaper, my tenants better, and none of that is an accident. In my experience, most people who go bust in this business do so because they like the idea of money but not the idea of hard work. Hence, my signature:

In theory, if you max all your cards and pay them all off your credit should be better when you are done. In the meantime, your score will be lower and you will have some financial risk, but self-funding is not a bad way to go about rehabs; I've self funded all of mine because it's essentially free. 

I think granite is most durable, appealing to most people and reasonably timeless. Even if it gets chipped it can usually be fairly invisibly repaired, or you can buy granite already has the edges rounded off so it's less susceptible to chips. I have Corian in my own house, and while I love the material (integrated sink, totally seamless, renewable) I don't think it would be  appropriate for a rental property - it can be repaired easily but it's too soft for renters. Laminate is the cheapest and may be exactly what you need depending on the price point of the rental and how long you plan on keeping it. I put laminate in my last rental rehab, but to be fair I wanted granite but was under a severe timeline with a tenant coming in on a fixed date and I couldn't get what I wanted in time. 

 Exactly. There's a James McMurtry song (Choctaw Bingo) in which the protagonist rents trailers to own specifically so he can take them back and do it again. Aside from not wanting to be the bank, if the bank won't loan someone enough money to buy something, what do I know that the bank doesn't about their ability to pay? 

Thoughts in no particular order:

1. The idea that household balance sheets are in good shape made me laugh. This is obviously anecdotal evidence, but we see a lot of people that want to rent our places but can't even come up with first month's rent and deposit. And I am in a reasonably healthy local economy. Based on my own experience, a lot of renters are would-be home buyers but for wrecked credit and an inability to come up with anything resembling a down payment. This may be my experience because I rent SFH, which would tend to attract people who might want to own a home, but I don't think it's off base talking to other investors, realtors, builders and bankers.

2. The focus on MFH leaves out all of the people who are renting SFH who "appear" to be homeowners. Apartment construction does not tell the full story of the rental market.

3. Most of the US has reasonably strong population growth, so housing will always be needed.

4. Some markets are undoubtedly developing a real estate bubble. I don't know which ones they are, but rapid appreciation/cost rising without commensurate wage increases (or rabid influx of outside money) won't be sustained indefinitely without a correction. 

If you feel you have covered every contingency, and it is still as cash positive as you say, but that you believe you would be upside down by a couple thousand on what it's worth, easy solution is to roll all of the cash flow directly into the loan until you are on the upside, then you have the advantage of having equity and cash flow. If you can't afford to do this (i.e., you need this money to live from), it sounds like quite a risky proposition.

Anyway, at the end of the day, there really aren't any rules, only general guidelines and suggestions. Anything structured the right way can be profitable, and anything structured the wrong way can bankrupt you. If this area appreciates 50% in 3-5 years, you will have "stolen" the property; if prices collapse, or the gentrification never comes, you will have overpaid based solely on the value of the property as property. If you can (more or less) guarantee positive cash flow on the property, it really doesn't matter which side of things you are on unless you need/want to sell. 

Aside from technical issues like Jeremy mentioned, it also depends on your market. What does your market expect in an apartment? I would probably not want to try to rent out apartments smaller than 600 SF in my market, and in a new building tenants would expect 2Br 2Ba, central heat & air, dishwasher, w/d hookup in the unit, and elevators beyond 2 floors. So a 10 unit building, 5 up/5 down, is probably looking at about a 60x60 building footprint, minimum, plus common area, plus compressors/utilities, plus parking for whatever mandate is in your zoning (2 per unit, or maybe more). By the time everything was laid out I would think you would be looking at least an acre of flat land to do that type of project.

OK, that sounds a little more plausible. Keep in mind that renting out and managing 3 units is a fairly decent time investment outside of a job, even if you live on site. If the medical program is involved enough to give up your current job, you may want to consider a simple duplex, or even a single-family purchase with a paying roommate, to get you started on the road. Owning a 4-unit building is pretty ambitious as a starting project, especially with limited funds to cover the expenses that will surely arise. 

I would not be too dogmatic with the credit score. Sad to say, but half the people you see walking around have wrecked credit scores. My father sold cars all his life (retired) and the last 10 years or so selling told me that if they (the dealership) didn't sell cars to people with wrecked credit and horrendous scores, they wouldn't sell any cars, period. 

I consider the score and the items on the score, along with stability of job and level of income as a whole. I do not rent to anyone with an eviction and probably not to anyone with a felony conviction, though I suppose I might consider what it is. But I live in a fairly jumping market, and price my units a little below market and can be picky.