All Forum Posts by: Cory Binsfield

Being a new investor, I'd simply find a place to rent nearby and focus on buying an income property that is turn key or offers easy financing from the seller. You could easily lose your shirt on this one. A straight FHA loan on a clean, affordable duplex or fourplex would be a better option. Not sure if FHA first timer loan will work for Multi-Unit now. It worked for me back in 2000 and I still have this property that provides me solid monthly cash flow and enough equity and experience to launch my portfolio. My motto with sellers is to trust but verify. Most are decent people but the seller is not being realistic and it's better to move on and find a realistic seller.

I would not renew the lease. If you treat your rentals like a business by being cheerful but firm, you will avoid a lot of problems. Your lease should state no alterations without written approval. A lease is simply a promise and they are breaking their promise to you. I've been doing this for 15 years and find tenants that say "they love the property and wish to stay forever" are simply jerking your chain to allow them to take over the property. Rent it out at a higher rate after making needed repairs and consider it a lesson learned.

Rent roll is simply the scheduled rent for each unit. All ya do is list the tenant name, monthly rent, lease period (6/1/2013-5/31/2014) deposit on file. That's it. If there is no lease, put month to month. It's doesn't have to fancy. A simple spreadsheet will do with the rents totaled out so the banker can estimate your annual projected cash flow compares to debt service.

Great forum discussion everybody. One thing we failed to mention is the liquidity of the REIT. With a click of a mouse, your investment is sold. Selling a Multi-family or a single family rental has major liquidity issues.

In terms of returns, this is why the REIT offers a lower return. Liquidity plus lack of control are two facets that force the return and the risk lower than direct real estate investing. I must point out that the return on the Vanguard REIT index at 9% that was mentioned is based on PAST PERORMANCE. For investors in the REIT market, it's been the golden age as the dumb money chases the higher yields of Reits over safe income plays like government bonds.

Bottom line, by taking control of your investments and dealing with tenants, taxes and toilets, you better be aiming for a 20% annualized return or you are better off in a publicly traded REIT. Whatever you do, don't fall prey to a salesman touting a direct real estate investment that's privately traded. These are extremely illiquid and make a boatload of money for the salesperson and the sponsor. Check out David Lerner and his Apple REIT for all the gory details on how these sponsors fleece poor retirees out of their hard earned savings.

David, when own property directly, you make money 5 ways. Cash flow, appreciation, depreciation, equity capture, mortgage pay down. With a REIT, you only make money in two ways-cash flow in the form of dividends and appreciation. Direct real estate offers higher returns when you incorporate all 5 returns. Be extremely careful of REITS offering yields north of 5%. The market benchmark is only 3.2%. When I see a yield of 10-15% it means the portfolio is using massive leverage. There's no free lunch on Wall Street or Main Street!

Angela, Joshua makes a critical point. When I started out, my wife did not share my passion/vision and it ended up being a constant source of tension. Flips are basically second jobs. It sounds glamorous, like day trading stocks, but it's requires a large time commitment and the risk are greater. The tax aspects are onerous compared to buy and hold. Flippers are taxed at the dealer rate while investors are taxed at the lower capital gain rate. Worse, you can't benefit from depreciation deductions that can lower your personal tax liability. It's the difference between earned income and unearned income. Bottom line, begin with the end in mind and work backwards from there. Keep building a team and make sure your values are aligned with your financial goals. For example, if you value free time, you would try to create a passive income stream of buy and hold investments that are near your work or residence. Correctly positioned, you could retire in ten years or leas. If you value generating fast cash and don't want to deal with tenants, toilets and turnover, you would focus on flips. Just some thought as you get started. Good luck in MPLS. My favorite area is Uptown.

As long as you screen the tenants and verify they are solid, you won't have any problems. I've been doing this for years and like the convenience. Plus, 90% of tenants do not like calling the landlord. Just like yourself, they don't want to be bothered.

I purchased a single family with the exact same set up last year. My goal was to convert the main house to a duplex and continue to rent the 2Br carriage house. The city wouldn't let me convert the main house to a duplex due to the accessory unit. They considered it one parcel that was grandfathered and if I changed the use, it would be illegal. I would verify that the accessory unit is legal before purchase and ensure it can be licensed. I learned the hard way when I tired to change the use. Not sure how the bank would treat it. I would contact at least 3 lenders and see if it they would treat it as conforming or non-conforming. If non-conforming, it would not be elgible for traditional financing. You would have to get a regional or local bank that would do a "in house portfolio loan" versus a traditional Freddie or Fannie mortgage. I went this route and they considered it a duplex. Terms were 20 years at 5.875 with a 10 year baloon.

Bigger Pockets Posts

One of my best deals ever closed last month. A fellow investor, I met through my contractor, contacted me before he listed his 8 unit.

It used to be a mansion back in the early 1900's and was later converted to a genteman's club.

Today, its a nice mix of 1 and 2 bedroom units that attract graduate students and young professionals.

It's an extraordinary brick building with woodwork, trim, and leaded glass windows that would cost a fortune to replicate today.

Original deal was a contract for deed where I would trade two properties I purchased last year for $10,000 down plus closing costs. The equity in the trade would represent the 20% down on the $340,000 purchase price.

After we completed the purchase agreement and due diligence, the seller asked if I would like a discount on the purchase. Due to the election, he was concerned that Obama would raise taxes if he won. He told me he would discount the purchase by $32,640 if I went to the bank and simply cashed him out before December 31, 2012.

I immediately contacted two banks and started shopping the loan. The first bank turned me down after the loan committee decided they wanted me to have more skin in the game.

The second bank offered me the loan as long as I paid the closing costs and escrowed the taxes.

After fighting the appraisal (we ended up with an appraiser that was extremely conservative) I managed to close the deal by December 21.

Total cost to close was $6,209.86 which included prorated December rents and the deposits.

The best part is I asked the bank to start the first payment in February so I could offset my closing costs. Monthly rents are $5,012 and I plan on cutting the expenses by an additional $400 per month. Within six months, I plan on raising rents and project a net $1,500 per month in my pocket.

From a valuation standpoint, I plan on capturing about $65,000 in equity capture due to the discounted on the purchase and improving the cash flow. Current cap rates in this area are 9% and my cap at purchase was 11.1.

As a buy and hold investor, this is one of my favorite deals. While I've completed a couple of flips over the last fourteen years, I prefer building passive income streams that allow me to pay little if any taxes while increasing my net worth. Like Warren Buffett, my favorite holding period is forever.

If you want to simplify your life and grow your business, I'd ditch the quick books. It's not designed for rental property managers. I dumped them back when I had 6 units and went through a couple of providers unit I found a program called rent manger. For a flat monthly fee, you get a property manger program that resides on the cloud. It's easy to use and you can integrate it with quick books if you want. I know companies that have over 1,000 units that use this same program. If you plan on growing, this is a great solution. Google "Rent manager" for details. I've grown my portfolio from 6 units to over 83 with these guys and can't believe how much time they save me. For personal finances, I still use Quicken and a free monthly spending tracker called Mint. I still use Quickbooks for my investment advisory business as well.