All Forum Posts by: Jeff Ronningen

@Larry Spradling. Larry, you didn’t state where the property is located but I’m familiar with SW Ohio. There are many homes in that price range so I’m going to assume you live within a reasonable driving distance. I would do my own research and I’d invest a lot of time and effort. You stand to lose your down payment and over $10K more, so tens of thousands which is worth a lot of time and effort. Research the area and make your own determination of the value. Determine if improvements to increase rent or sale price are a good idea. Evaluate market rents. Research PMs. Research the rules for rehab/improvements, changing PMs, selling, etc. so you are equipped to make good decisions. Then make your move.

@DeWayne Counce. Start with neighborhoods you know that are within a 20 minute drive. Analyze 2-4 unit properties for cash flow. Talk to lenders to make sure you can get financing for investment property with 20-25% down. Look for a property which strikes the right balance between how much maintenance the building will require, the quality of tenants you’ll be able to attract, and cash flow. The best expert on your market, your business model, and your risk tolerance is you.

@Elvis Sosa. Elvis, haven’t you read about house hacking? It’s a great strategy to get started and start building a rental portfolio. The big advantage is by buying as an owner occupant you get more favorable loan terms, such as lower down payment. If your investable funds are such that you’re not prepared to put down 20-30% on an investment property, this allows you to buy sooner. For the second property either save up 20% or more down payment or wait until the occupancy period is past. For some loans I think it’s only one year. However even for investment properties you have a seasoning period of 6 months before you borrow against the full value. Bottom line, don’t let this stop you.

@Patrick M. Doesn’t this mean you’re engaging in risky and/or illegal behavior? Such as willfully collaborating with the contractor to avoid declaring income? What about your liability if a contractor is injured? If they’re uninsured and don’t pay worker’s compensation aren’t you exposing yourself to liability?

@Kyle J. This is the correct answer. Doesn't matter where the money came from. Could be cash advance on credit cards, HELOC, loan against 401K, loan from investors, savings, etc. If you come to closing with a cashiers check for the entire settlement amount that's all that matters.

@Chris LeMay Lots of good advice on this thread. I agree that you should consult your attorney about returning the deposit and about modifying your standard lease to address a future repeat.

Keep in mind, these people probably did you a favor. Someone who would do this is likely to be a problem tenant. Shrug it off and move on.

@Laura Williams. The question to ask yourself is......if I had $1M (or whatever your equity is in these 3 properties) in hand today, what would I do with it? Would your first choice be to purchase 3 single family homes which collectively cash flow at a loss if $20K per year?

@Laura Williams

Sell them yesterday.

Based on your stated annual income of $500K and the fact that you’ve purchased at least 4 different residences, I assume your net worth is in the millions, maybe tens of millions, and I assume you’ve got at least $1M equity in these properties.

So you’ve got $1M sitting in real estate “earning” negative $20K cash flow per year. Not good. There’s opportunity cost of what that money could be earning. You could probably double your dividend income.

What about if a tenant is injured on the property and sues? Are you properly insured and are your assets protected? Lawyers are motivated when they see deep pockets.

What if you have a fire or other disaster which is a partial loss (as happened to me)? Are you prepared to be a project manager for several months to oversee a large renovation project to recover the value of your property?

What about in a few years when these valuable homes look dated? When you need to paint? When the kitchen needs remodeling? When the driveway needs to be resurfaced? When the landscaping needs to be redone?

What if we experience a reversal of property values just half as bad as 2008-2011?

@Jonathan Greer. People don’t get rich quickly because, as much as they want to, they can’t. It’s not as if people choose to get rich slowly when they could have done it quicker. It’s like saying I want to quickly be a scratch golfer, a concert pianist, or a world class marathon runner. Trying to get rich quick in real estate involves leverage, timing, the ability to scale operations, risk, etc. Markets aren’t easy to predict and many people have lost it all in real estate (even Dave Ramsey). If you really want to get rich quick why not go to the casino?

“Steady plodding brings prosperity, hasty speculation brings poverty.” - Proverbs 21:5

@Maurice B. You didn’t include utilities in your expenses. Unless you can do the lawn management and property management yourself to reduce expenses this is not a good cash flow deal. Even if you can do these things it’s marginal.