All Forum Posts by: James Galla

Hello,

Step one in flipping is always learning how to read your market. In other words, you need to learn how to understand what values properties carry in the various neighborhoods around you. The fact that you feel the area is changing is a good sign, but what really matters is what a property can sell for, and in what condition the property was in while it sold. Knowing that will allow you to review the subject property to assess its condition in the market and what updates are appropriate for re-sale.

Before you even start down that road, perhaps you ought to do a trial run or two, or at least perhaps consider finding a mentor to shadow. Mentors can be found in a BiggerPockets meetup or a Real Estate Investors Association meeting in your area. Good luck.

Hello, unfortunately, every landlord experiences vacancies and other associated expenses with owning homes as assets. Building those liabilities into your budget is critical. I would consider whether this is a single-family or multifamily. I would also clarify what type of income we are talking about. Is PITI 75% of your rental income on that property when the top floor isn't rented? If so, that sounds much more different than if it is 75% of your income. If it is indeed 75% of your regular income, then I wonder how you survived the loan origination process beyond a review of debt to income.

If it is a single family property, you may be in for more work in attempting to fill vacancies. Typically, folks don't want long term stays when renting rooms or portions of a property not meant for individual use. In deciding whether you should pursue another property, you ought to do an analysis of what is available in your market. Otherwise, it's difficult to comment on what kind of position you are in. For now, you should work on your budgeting. The fact of an upcoming vacancy should have already been accounted for by setting money aside. On the plus side, now you'll reassess your budgeting and allocate funds to address those issues accordingly. Good luck with your market analysis.

Excellent story, @Cameron Lam

@Adam Luftig, I'm sorry to hear that you are not experiencing positive cash flow in the Akron area. Something we often see here is folks from out of town seeking to try and take advantage of the rust belt's low cost of property and relatively higher rental income. While the return may seem great, pro forma, a liberal pro forma review should be taken with a grain of salt. Often times, issues arise with the assessment of various neighborhoods. It is easy to get mislead or to not understand which neighborhoods, or areas within neighborhoods that merit staying away. There are also many issues in having a relationship with a property manager while being out of state. Combined, you are looking at management and tenant-related costs eating up that liberal pro forma cash flow. I wish you the best of luck and hope your investments turn around for you and get you some great cash flow.

@Ivan Loza

Dang, now the song is stuck in my head.

Call J.G. Wentworth! 877-cash now!

It's your money, use it when you need it.

I generally try and do some basic inspection functions such as turn the water on to make sure things work. You ought to definitely check the condition of the various appliances and big-ticket items such as foundation, electric, plumbing, and roof so you know whether you even want to move forward on a full inspection with an inspector. When you view enough properties things start becoming second nature and you'll notice issues more readily. You may even want to independently reach out to different listing agents so you can practice viewing properties.

Depending on the agent I use, they either just open the door and let me roam the property or they join in and hold a flashlight or something. I also make a point of trying to view properties when there is rain so I can see whether the rain penetrates the basement and to what extent the penetration is. I remember on one occasion I had negotiated a lease with an option to purchase with a seller and had viewed the property. Everything seemed great. Then it rained, and I wanted to view the property again. When I went to the basement, it was completely flooded and the walls were dripping. At that point, there wasn't a need to spend money on anyone else to come through and charge money since I had a new grasp on the unexpected costs.

BiggerPockets has a file place where you can search for a variety of files. I've included a link below. I've also included a link to a YouTube video with Jim Krumm, a licensed inspector conducting an inspector and walking through his basic thought process.

BiggerPockets File Place Search for "Inspection"

Basic Inspection Video Youtube

I hope those help. Good luck with your viewings.

Legal consequences of lying/inducing someone else to pick up your problem tenant aside, you ought to give other investors a professional courtesy. That professional courtesy obviously doesn't call for you lying to other folks in the industry.

Hopefully, you make the right choice.

At first glance, this sounds like an imputed interest problem when the IRS reviews it and sends you into negative cash flow. I like cash flow, so it's a no from me.

Well, it may be nothing, but I get a red flag when you go on about two multifamilies totaling 8 units listed as seller-financing available on the open market. If they are four-plexes, they would be typically open for traditional financing. So, that tells me there may be something wrong with the properties in that the seller is trying to open the pool of buyers up to folks that would otherwise not qualify under traditional lending standards as well as opening it up to the possibility of financing where it may not be otherwise eligible.

The high price tells me they may not know what they are doing or they are trying to really take advantage of folks that would not qualify for traditional lending. There is a whole market out there where folks purchase properties and resell them at a premium via seller-financing or lease-option to folks that wouldn't qualify for traditional lending.

If you're really interested, you might as well shoot out your lowball offer or a letter expressing your interest to purchase at a lower price and asking for further communication. With seller finance, without a loan servicing company, you definitely want to get to know the seller because you'll be treating them like your landlord for the duration of the note. If they aren't interested in a lower price, they'll just throw your correspondence in the trash. Or, perhaps, you do your lower offer with a higher interest so you don't completely tank the possibility of a deal.

Good luck.

While I suggest speaking with an attorney for the consequences of simply letting them move in, at the very least, you should screen the new tenant as you would for anyone else.

I'd probably not have a tendency to put a family member's money at risk. Instead, perhaps look into alternative financing so that if things don't pan out, you can then tap into that $100k your grandparents are willing to pony up. I'd probably also exercise a bit more caution than just "going all-in with all chips on the table." Sure, there are learning experiences, but those bridges ought to be crossed when you get to them.

Since you're new with no experience, you should also spend some time learning the fundamentals of real estate valuation, assessing property so as to know the component parts of a property and perhaps some basics in rehabilitating homes. Maybe shadow someone else doing flips in your area to get a handle on what they do so you can recreate parts of their business model. For that, I'd suggest either a BiggerPockets meetup or a local Real Estate Investors Association meetup. You definitely want to network and take advantage of the connections the more experienced folks have made. Otherwise, when you jump in with all chips on the table, you might find yourself in a bind picking out random contractors that don't know what they are doing while at the same time overcharging you.

BiggerPockets has a Rehab Estimator that you should check out. They also have a Flipping Guide you should check out along with Hard Money Lenders and Contractors links.

I hope that sends you in the right direction.