All Forum Posts by: Jim K.

@Markus C.

All you would need would be the tenant going to the media with that story and even the hint of a shred of proof, and your name would be mud as a landlord where you live. If your cancer-patient tenant can set up a website and host it on a free server...small businesses do not survive long by abusing their customers.

@Sherman M.

I do not know the one best way. I am sure that there are multiple good ways. But what I'd do if I were you is to buy a small, cheap investment property, or better yet, an inexpensive, run-down house for you and your family to live in that has an additional apartment to rent. Even two extra bedrooms or even one would fine nowadays in the age of Airbnb. I would buy that investment property/house hack and move into it and/or rent it. Then I would aggressively focus on paying down whatever financing it took to get the house, fixing up the house in my free time, and learning how to be a decent landlord or Airbnb host.

I would learn how foreclosures work in my county and state, doing the research and spending the time to figure it out. I would choose a target neighborhood in my area to invest in, and I would learn the area frontways and backways, walking the streets, taking notes, printing up a big map and making notes on it, visiting the shops and stores, eating at the restaurants, learning my way around the municipal building of the place. Of course, you should already have been doing quite a bit of this in your attempt to become a wholesaler. I would get to know agents in my target neighborhood. I would take them out for lunch to pick their brains about the neighborhood. Above all, I would use public records to find out who the tradesmen that most frequently service the area are, starting with the master plumbers and locally licensed electricians, and I would get to know them and ask them about the agents they most frequently work with.

All properties that you consider will need to be renovated, in some way. Either they need to be renovated as durable, hardened rentals or they need to be renovated as high-value for-sale properties. I would spend a great deal of time and energy learning the nuts and bolts of how this is done and what it typically costs. The more effort and energy you spend here, the better flipper you'll be and the fewer times you'll be taken advantage of as a novice in the field.

If you have any questions, don't be afraid to reach out, OK?

@Sherman M.

Here's my take on wholesaling as the first step into REI:

You're not going to become a good wholesaler with two years of experience. Wholesaling of course involves finding deals that other investors can't and passing them on to investors who pay you for them.  By definition, these deals have to be better than the deals that the investors might find themselves. They have to be spectacular deals, special deals, awesome deals, super-duper deals.

An awful lot of guru training seminars tell you that the way to get into real estate investing is wholesaling. They call it all kinds of things, but really, it's finding deals for well-established real estate flippers and passing them on. The well-established flippers are supposedly too busy flipping to find their own deals. This is wholly untrue, of course. It also only works reasonably well in an up market, where there's plenty of money to be made in flipping.

The reality is that everyone is exposed to unexpected real estate deals in various ways, through our jobs, through our network of family and friends, through living in the neighborhoods that we live in, through our various professional contacts. A great deal of real estate exchanges hands under the radar. The guru training seminars that tell you that the way into REI is through wholesaling really just expect you to be able to mine a deal or two from your little slice of the under-the-radar real estate market and pass it on to flippers who would otherwise never be able to find it. It's the same sort of reason why Kirby keeps training vacuum salesmen for the opportunity of a lifetime. The Kirby people don't really expect you to be able to sell dozens vacuums door to door. They expect you to be able to sell one or two of their vacuums to your own friends of your family, whom they could not otherwise hope to reach as customers.

So the gurus are feeding you a lot of hype about how to find deals when all they really expect is for you to tell an established flipper that your Aunt Martha's friend Juanita's neighbor Billy Ray just died and Billy Ray's sister told Juanita's hairdresser Marq that she just wants to get rid of Billy Ray's old house because he had a huge stash of transvestite porn in his basement that she really, REALLY doesn't want to go through and throw away to get the house ready for retail sale.

What do you want to do in real estate? Let's start from there.

You're being forced to pay a compassion tax that the people who don't want to change heath care in this country are never in a position to be forced to pay -- they're not hands-on landlords. The compassion tax is levied rather unfairly and haphazardly on people like us, as you can obviously see.

Here's my solution: find her a nicer apartment/house than the one you're renting her. The place should be closer to her care centers than your apartment or house. It should cost more to rent than what she pays you. Go to her and offer to let her out of her lease. Offer to subsidize the difference between your rent and the new rent for the next year. Offer to reimburse her for a moving truck.  She hires it, sends you the bill, and you'll pay it. If she asks why you can't just pay for that moving truck, well, explain that the truck and mover's rental has to be in her name "for tax purposes." Trust me, she'll never ask what that means. Offer her the world, just put nothing in writing.

Go with her to sign the lease for the new place. Give her the money for the security deposit, cash up front. Subsidize the first month's rent as promised, cash up front, if you need to. That's your minimal tax.

The moving truck will come, you'll say your cordial goodbyes, and voila, she'll be living elsewhere. As she left, she probably told the whole neighborhood what a fine fellow you are. Your problem is solved.

Change the locks on the rental. Change your phone number. Throw the mover's bill away when it comes. If she comes out to your house, call the cops. If she vilifies you in the old neighborhood, you should sadly shake your head. "It's really sad, but she couldn't hear what she didn't want to hear. It doesn't matter that I paid (insert inflated number here) to help her. People in pain get that way..." Get your alternative narrative out there.

What, does the taxman always get nothing but God's honest truth from you at tax-time? Or do you work to avoid paying the highest tax rate if there's any possible way to do so without running afoul of the law?

In closing, I'd like to point out that this sort of promising and alternative truth-telling is obviously the royal road to success in real estate investing. Just look at our President.

And if she gets too mouthy, you can send a guy to talk to her in a parking lot.

@Gilbert Lugo

This is one of those things that people seem to wildly disagree about. We do our own flooring installations in low-cost units, and it's been six years since I've done anything other than triple-polyurethaned hardwood and high-strength (PEI 5) tile.

This is not worth doing unless you handle your own flooring installations AND handle your own maintenance AND you plan on holding the rental for a long time. If these three things are true, tile and hardwood are absolutely the best way to go. It took me a long time in this business to understand this. PM me for details.

No, never, and it sounds amateurish and shady as hell. I manage and work on my own properties. That security deposit stays in escrow, and is returned in due course or used to pay for repairs made. Often, it's more trouble than it's worth to treat that money correctly. That's how it's supposed to be. In Pennsylvania, you're supposed to return the security deposit after a year passes.

We've run up against story after story here of landlords pocketing security deposits from tenants who feel powerless to stop it. Our business model is to have long-term, well-vetted tenants in our properties and monkeying around with security deposits is a bad-faith gesture beloved by fools who can never quite grasp that the rental business is by definition largely a people business.

Definitely call the city first and get whatever info they're willing to share first. A warning -- there are a LOT of yahoo contractors and shady moneymen in this side of the business that are just looking for a way around what they see as unnecessary code requirements. Of course, local code officials are the first people the hammer comes down on when structures burn, so they hate the yahoos. Don't be a yahoo and you'll be fine with them. Give off a whiff of yahoo and these officials can get weird.

Here's the situation in the City of Pittsburgh for new construction: a piece of fireblocking goes in at 10 feet maximum between floors in wall cavities. Standard insulation is not required for fireblocking -- it's nice, of course, as part of any rehab, but not a fireblocking requirement compliance issue.

Regular 2x4s are probably not going to cut it in your area. You're probably going to need fire-retardant pressure-treated lumber. This is difficult to get in my area. 1/2 in. drywall, on the other hand, cut to the right size and doubled up, is dirt cheap.

The foam, and you are almost certainly going to need it to be compliant, is what's going to cost you the most if you go that way. The most usual way is to go with Great Stuff Fireblock. It's almost twice as expensive as the regular Great Stuff.

Good luck, Brad. The local municipality's code compliance officials all know best. They can make you hurt if they choose to. Keep those relationships professional, respectful, and open.

The Millionaire Next Door and The Two-Income Trap. These two books were written by authors at radically different ends of the political spectrum, but when you read them together, as I was lucky enough to do, the research laid out in both will take you to exactly the same conclusions.

It's an older balloon-framed structure versus more modern platform framing. Yes, your friend is right. The cavities in the wall go from the basement all the way up. This means that a fire that starts in the basement (primary fire point in residential construction) can more easily get air from above to keep burning and also use the cavities to migrate upwards.

A third way this is often done is to use two thicknesses of 1/2 in. drywall cut to size and glued together. Then you go with the fireproof foam. Using fireproof lumber throughout is really going to get pricey. You can also use other materials for fireblocking depending on the building code your community uses. I would investigate.

The rockwool insulation your friend suggests, the stuff made by Owens Corning, is called Pure Safety. You can get it delivered from homedepot.com. It's a bit pricey.

The rub of this is that picking which fireblock method to use really depends on the structure. The 1-inch gypsum board and fireproofing foam is probably going to be cheapest, even though it won't be particularly cheap.

@Amy Rodgers There is a huge element of terror involved in putting up a lot of your own money or risking your credit for a real estate investment, especially when you don't have a particularly remunerative job to fall back on. Nobody in this business would stay in it for long if homebuying or renting were firmly based in logic and wholly unemotional. The first investment is by far the most frightening for most -- our first rental property certainly was for me. Once we realized that the investment was clearly making us money, things got a lot easier.

So I wouldn't say it was money, Amy. It was terror. Fear of the unknown tripping us up. A vague foreboding that it could all go terribly wrong, that you never really know, that one day we could get a call that the whole building had gone up in smoke, or a giant sinkhole had opened underneath it, or a particularly bad windstorm had flattened it, or bad wiring caused one of the tenants to be electrocuted, or, or, or...

We are all afraid of failure, and worst of all, failure right at the beginning of something, a failure that completely exposed our incompetence for all the unkind people we all know to laugh at behind our backs. This fear stops us from doing a lot of useful things in our lives.