All Forum Posts by: Jeremiah B.

I'm not an attorney, and frankly do not know the answer to your question.  But I have some thoughts:

First, does your father own the property free and clear?  And I'll tread lightly around the second question, but is your father in good health?

With that said, I doubt a trust is the right tool here.  Trusts are great for passing assets to heirs at the passing of the parent, but I don't know that they can be used to get around the IRS gifting limits.  In this case, the property were put in a trust, I doubt you could get financing to get money out of the property.

Hey Devin,

Your answer is a big and complicated one.  It's also a question with only one right answer:  it depends.

Have you done a business plan?  Have you fine tuned your long term goals?  Your short term goals?

If I'm in your shoes - I'm probably keeping the house as-is and renting it out, ignoring the equity that you've created.  As you can see from some of the other comments, others would be more aggressive with a cash out refi.

While @Ryan Billingsley is right that the best time to get started is now, and @Account Closed is right that real estate is a good long term investment, I think that you need to consider one additional factor:

Is the market that you're looking at a good place to buy?

You may very well be right!  If the number of houses purchased for rentals exceeds the number of possible tenants looking for a rental, you shouldn't buy in that market.

There are two pretty easy ways to see if the market is saturated.  Follow the rental market for a few months and see if rents are strong, and the rentals are being filled quickly.  If houses are sitting vacant for long periods between tenants, and prices are declining, I would encourage you to look at other markets.

The final thing to remember:  Just because there's always a deal somewhere doesn't mean that there's always a deal everywhere.  To say it another way, if the market that you're looking in is saturated, simply look at another market :)

Happy hunting!

I'll provide a bit of a dissenting opinion on this one.

While it's true that you will not need much actual math, the ability to analyze a deal, quantitatively, is huge - and a skill that is often lacking.

For example, let's say that you want to calculate the ongoing maintenance expense for a rental over the next 5 years.  The simple answer is to use a number like 5%/year.  But the nuance is in determining if 5%/year is the right number as this number will be driven by the age of the property, condition of the property, type of tenants, landscaping, size of the property, labor market, ability to secure contractors, projected vacancy of the property, upcoming big items, whether you have a capital fund as well, etc...

To say it another way, combining the numbers is easy.  But figuring out the right numbers to use takes a little bit of art and a little bit of science.  If you're taking Business Calc (is that even a think???), you should be fine.

Happy hunting!

Hi Michael,

Congrats - that's a great problem to have :)

I am not quite to my limit of 10 yet, but I'm getting close enough to start researching the topic.  Here's what I can gather:

Technically, yes - you could get another 8 (?) properties in her name.  The Fannie limits permit it, and the resource provided by Stephen is the right one.

However, logistically - this will be a nightmare.  The few banks that I've spoken with that will even entertain the topic, basically say that you and your wife should have separate finances to make this happen.  This doesn't just mean that she would need to quality as an individual, or even filing separate taxes, but also having different bank accounts, expenses, etc.

My wife and I talked about this, but felt that sharing in our finances was more important than getting to mortgage #11 - though I'm a hopeless romantic and obviously the right decision for you may be different.

I hope I'm wrong, and I'll be interested to hear where you land.

Happy hunting.

I've also never purchased through MemphisInvest, but echo the above comments.  I have never purchased a turnkey rental, but if I do, it will probably be through them.

Without exaggeration, you will not find a turnkey company with a better reputation.

Hi Sharee,

Eight percent for a private, non secured loan is pretty good.  Outside of family or friends, I'm not sure you will find a rate much lower than that.

One option may be to get a credit card with a zero percent into period,  but this can be risky, and selling in a timely manner is important.   I would not necessarily advocate this route.

Either way, be sure that the work has a positive roi.  No shower in the master bath is probably a negative,  but may not be the reason the house is not selling.  Buyers have a habit of listing the most obvious negative factor when there are really a dozen real issues.   Is the house well lit? Clean?  How are the carpets? How old is the house?  How is the lawn?  How are the online pictures?  Are you getting enough traffic?  Priced right?.... So, be sure to exhaust your free and cheap fixes before dropping 6k on a upgrade that may or may not make the deal.

Hi Laura,

These decisions are normally complicated, but this looks like a pretty clear sell.  Holding a rental house that doesn't cashflow is a huge risk, and likely a huge expense.  If you have a chance to get out of it with $30K cash, I'm very comfortable with the decision to take the cash.

All inspection reports look bad, and will list a lot of items.  This includes inspections on newly rehabbed, or even new houses.  

Still, in this situation, I would walk.  Here is my biggest concern, from the report:  

"Although apparently a "new" AC unit was installed the day of inspection, the unit was actually older than the home itself. This unit was well past it's design life and had many flaws."

Yikes.  I don't mind having an old AC unit, but having a 15+ year old AC unit being packaged to me the buyer as a "new" unit is a huge red flag.  Forget about the house or the rehab - that speaks to the type of seller you're working with.

Combined with all other factors, I would walk and not work with that seller again.

Each situation is unique.  But this is similar to the situation that I was in a few years ago - I made the decision to rent it, and it was the best financial decision of my life as it got me started in my real estate investing.

A few thoughts:

I would try and not focus on 'how much cashflow will I make/lose each month' and instead ask 'how much cashflow will I make/lose over the next 5 years.'  You're smart to be thinking about things like vacancy and rehab as those will always lead to bad months.  However, if you have those bad months, and still be making money long-term, you may be OK.

According to standard metrics, it sounds like your house would be a below average investment. This is a complicated discussion, but generally speaking, I'd want my rent to be twice my mortgage (including PITI).

But even a below average real estate investment may be a good decision if it's better than the alternative, and gets you started.  Your first investment will be your most difficult investment to make, and it's hard to think of an easier to get started than using your old primary as a rentals.

Real estate investing is great, but buying and selling real estate is very expensive.  And while the down payment is simply your cash that becomes your equity, there are other huge expenses that convert your cash into nothing at all.  Conservatively, it will cost you 10% of the gross cost of the house to sell, and around 5% to buy.  So, if you wanted to sell your 100K house and buy another 100K house that's a better investment - that will probably cost you around $15K in expenses (i.e. money that you burned).  

So, reading between the lines, I'd say that keeping your house may be a good decision, if it's not the best investment.

This is all contingent upon one thing, and you already know what it is: your ability to manage the risk. I'll sidestep the insurance/LLC discussion for now, and say that you both cash, and excess cash flow to keep this as an investment. How much cash? At least $10,000. I'd actually recommend something like $20,000 + your personal emergency fund. Then, you also need to be able to have a positive cashflow, by a fair amount each month, factoring in your rental being vacant. If you couldn't absorb the additional PITI with your current income, I'd be hesitant to go this route.

So, the decision is yours.  And it's a huge decision.  For me, the decision got me started down my RE investing journey.

Happy hunting.