All Forum Posts by: Jim Costa

WOW! I read every comment and it took a while.  I understand where you are coming from @Shiloh Lundahl.  Great comments @Bob E. and @Joe Splitrock @Tim S.  I have been a real estate investor for 20 years.  Not as successful as some but let's say I am comfortable where I am at.  The point that people are missing, is to be successful in real estate it takes TIME and MONEY.  The better you get the more efficient you become at using other peoples TIME and MONEY.  My first introduction to real estate was a Carleton Sheets infomercial for $100 course.  I was hungry and read the book from cover to cover and got to the point where I could teach it.  I have taken a few other classes nowhere near the 75K one for $500 and a few books.  The point being is whether you watch and listen to a free podcast or attend a 75K seminar, your "eductaion" will either cost you time or money.  When I went to the $500 3 day class, I was hoping to get new information and take my knowledge to the next step.  I found that I knew 90% of what they were talking about and wasn't going to pay the $50K for the "next step" week training.  However, I was shocked to see several dozen people sign up that had no experience whatsoever in real estate.  Some that never should have been signing up (company helped them apply for credit cards so they could charge the class) to successful business owners wanting to make a career change.  During my 3 days, I was watching these people listen with dreams of making big bucks in real estate but knew few would ever take the first step.   I talked a lot with a successful business owner that sat next to me and followed up with him for a couple months after the 3 day.  He went to the next stage and the next and I think was up to $75K.   I haven't caught up with him but wonder if he ever purchased anything.  I took the 50K and bought a duplex.  I realized a few things.  I know more than I realize but it took me 20 years to gain the knowledge.  A lot of people don't have or don't want to put in the time to gain that knowledge.  The alternative is to put in the money and either learn the hard way or find a coach/mentor.  I believe their is no substitution for doing.  The more deals you do and even look at the more knowledge you gain.  @Shiloh Lundahl is offering a great deal for someone that wants to learn and doesn't want to take 20 years or have the $75K.  I'm not saying it takes 20 years but if you don't have someone who has the experience and knowledge to give you the cliff note version it will take longer.  The problem is, if you don't put in any of your "TIME" or "MONEY"  initially, you are likely to have no commitment.  It's because he sold his multi family that he held for 5 years, it's because I took the time to read cover to cover and look in the paper(at the time) and on-line and research my market, so i know a good deal, that I am successful.

@Shiloh Lundahl  Not to question your methods because I am a buy and holder and not a flipper.  A few things jumped out at me.  Arizona is not a depressed market  my guess is the average home is $250K+  at this price point $95K in 6 deals is only $15K a deal.  Congrats on the $95K but that seems like a pretty tight margin with little room for error with commission and repairs and liability.  Risk/Reward?  You have to be sure you know your numbers.  When I was at the 3 day training I could see some misrepresentation of the real estate market and I wanted to share my knowledge with a few people sitting around me so I can understand your desire to save someone the $75K and learn from you.  But I think this is 2 different things.  If you truly want to grow your business, and to find someone that might have the commitment level to stick with you, you should attend a local investor meet up.  They are also more likely to have the resources for long term growth.  If you have a strong desire to share your knowledge, rather than have a newbie try to invest money offer an educational internship.  Don't charge any money but have them learn your process and what you go through.  Have them stuff and stamp and send out the letters.  Have them listen/sit in on your negotiations.  Have them check your job sites and subs.  If they don't have "MONEY" let them put in the "TIME".  Free you up for research and deal generation.  They can still have a day job and see the process succeed.  Once they save up a little and understand what a good deal is they can invest in a project.  You only need 1 or 2 people and think you will find.  A win win for everyone.             

If he sells all cash he will have to pay taxes unless this was his primary residence or he does a 1031.  Explain his tax advantages for owner carry.  IF he wants a large amount of cash do an 80-20 or 70-30 loan.  Buy low sell/refinance high.  Depending on your credit.  If it is just the cash you don't have, have the seller finance the down payment.  Talk to a mortgage broker and see if you can get a loan.  Get a new loan for 80% of the purchase price and have the seller finance a 20% second.    the 80% first will get you out of pmi (private mortgage insurance), lowering your payment (allow you to write off interest and depreciation).  Sounds like he wants to get out and a little flexible.  Negotiate if you can give him 80% now with carrying a 20% 2nd if he will take a lower price.  If you can shave another 10% off you can refinance after a year.  You should be able to negotiate, specially with no realtors involved.    Get creative.  I don't know your area or numbers so I will use round numbers and you can adjust accordingly.  Lets say the place is worth 100K and rents for $1000.  Tell him you will get an 80% first if he will let you spread out the down payment over the next 24 months.  That will be 80K now,  5K in 6 months 5K in 12 Months  5K in 18 months and the final 5K in 24 months.  He will get 100% in 24 months.   You will have essentially borrowed 20K at 0% interest.  You will have to come up with about $250/ month to pay for the first and to pay him off but after 2 years you will have about a $5-600 cash flow, your first property with no money down and 20% + equity depending on purchase price.  If he wants to lease option have him give you a moratorium on rent for 6 months to get the place leased and do similar to above.  Allow your rent to go towards purchase price.  

Have him create a first and a 2nd.  The 2nd (same as above) you will pay off in 2 years.  Give you an option to refinance and pay off the first in 2-5 years.  This will give him higher cash flow than renting selling or lease option.  Allow you to buy with no upfront money pay a little extra for 2 years and have huge cash flow after 2 years so you can hopefully refinance.

Good luck.   

@Rob Z. Side note, I'd love to get into another rental but I have to free up some debt first

It is not the debt that needs to be cleared up but the debt to income ration that needs to be improved.  This is according to you.  If you bought a 47K car you must make some good w2 money.  I would check with a mortgage broker and find out what your options are.  With the right down payment and FICO scores they can push the debt to income ratios to 50%+.  If you qualify use the cash as a down payment.  If your ratios are off it will have very little affect paying off a 45K home loan (you can get another 45K home loan).  Depending where you are at on the amortization schedule, need more numbers to give you accurate information.  On the other hand a $750 car loan can get you a $140K home loan.  Its all about the income to your debt payments.  It comes down to your time line and goals.  The car will need to be paid off before you can get a new mortgage.   If you want to buy another property before 60 months you need to pay the car off.  

I wouldn't worry about paying off the mortgages until you are done with acquisition faze of your life and you want to pay off to increase cash flow. If you have a rental I assume you have a primary residence. As mentioned before, obtaining new mortgages are based on income to debt payments. I would recommend getting a HELOC (home equity line of credit) on your primary residence. These have the most favorable rates and will probably be in the 4.5% range. They are usually interest only for the first 10 years making your payments as low as possible. Some banks under 100K are quick/easy qualify old school stated income (just did one a few months back). Very little paper work and verification.

What this does is allow you to pay off your car payment  and take it from a $750 car payment to a $170 car payment (heloc payment) increasing your income by almost $600 and potential borrowing power for new mortgage to over $100K.  Keep in mind you have done all this by keeping the $45k cash in the bank.  Let's look at the net affect.

You apply for a 100K HELOC get approved and funded in 3 weeks (Don't pay unless you use the money). You take $45K from your heloc and pay off the car increasing your cash flow by $600. You now qualify for $110K new mortgage which will keep your payments the same as they were when you had the car payment. You also have the $45k of cash to use which brings purchase price to $155K. You also still have the $55K left in your equity line that you can use that brings your purchase price to $210K.

This is just an example of how you can purchase another piece of property without having to wait the 6 years until you pay off your car and build up another down payment.  You will only have a $110K mortgage on your new piece of property and it should generate enough income to pay for the new mortgage as well as the equity line.  You still have taxes and insurance but you will also have rental income to offset this.  You also have the car payment savings of $750 that has been in your budget that could potentially make up any temporary short fall.  Just be sure you know your numbers and it makes since.    

Yes.  I will have to look into more.  After 3 years of experience you can apply for a brokerage license.  You can also ask for a waiver if you have experience.  Was thinking of going this route because of my rentals I manage. 

Just started studying for my Washington RE License  and leases came up.  By definition a lease for specific time period is called an estate for years:

Definition: In real estate, one type of leasehold estate is the estate for years, or estate for term.

In this type of lease, there is a defined specific beginning date and an ending date for a specific term. This means that no notice to vacate is required, as the ending date of the lease is when the tenant should vacate the property.

The lease cannot be terminated before expiration unless both parties agree.

The question that came up in review was can a landlord give notice of not renewing a lease a move someone else in after giving notice of not renewing the lease.  That answer was true.   

The prupose of a lease is that it has an end date with no further obligation from either party.

Seems like making a landlord renew a lease is illegal.

The rights and obligations of the owner or landlord and the tenant are spelled out in the lease.

@Corey Smith Any update !  Considering doing the same but have been putting off because of the "Professional Status" designation.   Which brokerage did you go with and how has it been working out.  What additional fees have you had for the mls and other necessary tools.  Any other hurdles, surprises, expectations. 

It is common to not view the actual units until offer is accepted.  With that said it is very important that the offer be written properly to protect you.  Definitely need to have your own agent if listed.  You need to give yourself outs with financing, inspections, review of leases.  Watch your time lines.  You should be able to get some documentation prior to offer.  Get actual numbers to do your evaluation.  You can't always judge by time on the market.  It is very likely in hot market they could have had an offer and went into escrow in days.  Escrow can take 30 to 60 days.  Many times while in escrow status changes to pending and property wont't show up on searches or potential buyeers won't look at because it is pending.  3 or 4 weeks later they fall out of escrow for many reasons.  Buyer didn't qualify or inspection found something.  They put back on active status and accept offers again.  If this happens 2 or 3 times you can have a property that seems like it has been for sale for 2-3 months when in reality it has had 2-3 buyers not follow through while being on the market for 2-3 days each time.  The good news is the longer it goes the more open the seller is and willing to close with qualified buyer.  Many small units like this have identical units.  If the owner is living in one he should be able to show his unit.  This should at least give you an idea of layout.  The income that the units generate will affect your qualifying.  The banks are only going to allow you to use a percentage of the income usually max of 70%. If rents are truly at 50% (know your market) you could have a huge buying opportunity.   Many smaller units (2-4) the "commercial investors" don't want to bother with.  A lot of beginning investors and agents strictly look at the numbers for what they are and don't  price accordingly.  Your value added (raised rents) is where your potential is.  It is very hard to take someone who has been renting for years and double their rent in any given month.  This is another topic about raising rents that much.  I just bought a unit in similar situation.   Replaced some tenants and have a 2-3 year plan for the rest of the tenants.  Vacancy and turnover is expensive.  Be sure you have the reserves and plan accordingly.

Miko,

Look at the numbers and know your market.  Some of the best deals are properties that have been mismanaged or owner/managers that have been lazy and not raised rents in years.   Their are some great advantages with 2-4 unit complexes.  I am biased I own 7.  Multi units are a great way to spread your risk.  Financing is also favorable treating 2-4 units almost the same as a sfr.  Easier to qualify with leases in place.   If I was young starting out again, my first house would be a 4-plex and buy as owner occupy.   More to consider.  Depending on the layout, assuming 2 up 2 down.  You have half the roof as 4 units.   You will still have 4 of everything else so plan your capex accordingly.  The advantage is if you have a vacancy you can still make your mortgage with the other units. The adage is by single family for growth and multi unit for cash flow,  if you can get both you struck gold.   As far as insurance is concerned, it varies for building costs in your area.  The quickest and easiest way is to call your insurance agent (car insurance agent) and ask him to give you a quote.  It will take him 10 minutes to put together and won't cost you a dime to get an accurate number.   Review your leases.  This will tell you a lot.  How long have tenants been in place.  How often have rents been raised.  Deposits and fees collected.  Ask what improvements have been done over the last 5 years.  Ask for a copy of the tax returns for the property.  This will give you actual numbers for the property.  Be leery of proforma's (numbers aren't real) If property is listed, agent should already have all this.  Check with your financing and see what the add ons for non owner occupied are.  It is hard to use cap rate for just 4 units but see what other 4 unit complexes are selling for and what the rental rates are.  Review several and this will give you an idea of current rents and what value could be if you raise rents.   A rent increase could be a way to get rid of trouble tenants.   Ask for copies of the water/sewer garbage bill. Who takes care of the yard.  Watch the water bill.  This can be over $100 a unit.   Check and see if units are on individual meters.  A lot of things to consider but could be great investment.  With that said...remember...location...location...location.  If you don't like the area or are uncomfortable with the area it might not be the right property for you.  Research area on Trulia.  Go to Trulia and scroll to the bottom of the page.  On the very bottom you will see "For Professionals".  Click stats and trends.  Click your state, then click your city.  This will tell you all kinds of information about the area.  This will tell you the Crime, best school, Rent, income, Age ETC.  Good way to research area.  Hope this helps.

Happy investing and buy right!

Man, you guys have high taxes and insurance.  A college town is good and bad.  Low vacancy but high turnover.  Don't forget to calculate the turnover cost.  Doubt you will have a tenant for 5+ years in reality multiple people on lease.  Look for opportunities with lazy or uninformed landlords, where rents have not been increased for several years.   Think outside the box and possible other marketing opportunities.  Don't know the college area but perhaps renting units as furnished.  $2k in furniture might get you $3-500 more in rent,  specially for out of state renters.  If you are in a touristy neighborhood maybe sign 9 mos leases during school and rent 3 months as VRBO or AirBNB.  Furnished comes in handy.  Just some additional thoughts. 

I'm not an expert but talked to my mortgage GURU Lorne Harvey (I just got him to sign up for BP) hopefully he will chime in.  This is my understanding:

Fannie Mae guidelines only allow up to 4 applicants on a loan, this limits the possibilities. If you want to do a partnership or have multiple owners an LLC comes into play(one option). This usually means a commercial loan. A commercial loan means looking at the numbers a little different. bank is now looking at the collateral and the numbers on the deal not so much the borrower. With that said, every bank is different and may require a personal guarantee. Even though you personally guarantee, because of the commercial loan, it is by default a non Fannie Mae guideline loan. A commercial loan does not show up on your personal loan information and therefore does not count towards your 10 properties. This would explain why on my last purchase they required me to pay off personal credit cards but did not even mention the business credit cards (in my name).

What this means for us next step investors. Because we have small 1-4 unit properties, mostly non owner occupied with a purchase LTV of 70-% we have options. If you have owned the property for awhile and have seen the appreciation and rent increases the numbers are looking good. You may not necessarily want to sell, or even cash out because you ultimately want them paid off. Let's say you have acquired another down payment either through current job or cash flow but you are maxed out at 10 loans. You can take a property that has equity and has great cash flow numbers and get a commercial loan setup with your LLC (great for protection as well. ) This will release a property and open you up to get a new 30 year fixed mortgage.

Other than a few exceptions i.e. multiple partners, If you own less than 10 properties certainly less than 6 it would make since to purchase the property (1-4 units) in your name, better finance terms. After you own the property you can transfer the property into an LLC for asset protection and liability purposes. The LLC owns the property (you are just the guarantor on loan). This is different than getting a loan in the LLC (a commercial/portfolio loan).