All Forum Posts by: John Chapman

@Diane G., I actually generally agree with everything you say about investing in CA as opposed to going the out of state route, particularly as to rust belt markets that are flat or declining.  The only thing I would say about your Texas friend is that it sounds like he almost certainly bought a turd.  Appreciation (at least in DFW) has been ridiculous in addition to rent increases over the last few years.  However, as @Jay Hinrichs often says about Texas, it really is a local person's game.  Taxes, structural issues, etc. make it a very easy place to lose money in the long run.  (And I can never figure why someone in a high income tax state with low property taxes would choose to invest in a high property tax state with no income taxes)   I would also say that DFW experienced some long overdue run up, but that I can't possibly see it being sustainable.  

@Thomas S. is right.  Get the tenant out.  No good will come from trying to sell a tenant-occupied home.   (I don't even like trying to sell owner-occupied homes).  Aside from the friction with the tenant, which you will have,  the only people who will offer on it will be landlords, who will likely offer less than a retail buyer.  

I've done some business with wholesalers over the years but never more than one deal with one wholesaler.  (It's a brutal business and most people do a deal or two and then drop out.)  Here's a couple of pieces of advice I would offer:

• If the "deal" that someone is trying to wholesale you is on the MLS, it is a marked up piece of crap. Nothing that is worth anything stays on the MLS.
• Stay away from large wholesalers and blast e-mailers.  You're not going to find a deal from them worth doing.  Sorry.
•  Be really careful with any wholesaler of any kind down here.  It's really the wild west, and I actually ended up in litigation last year over a double closing that went bad.  (Wasn't even that great of a deal.)

There are probably a number of better ways to find a deal than from a wholesaler, but any route that involves finding an actual deal will require an incredible amount of work.   Our market is just that hot.

I've done a couple of these in the last two years.  First,  neighborhood needs to be working class not ghetto. Second, these types of homes need to be completely gutted and built back up from the ground up. You need all new electrical,water, mechanical, sewer line, siding etc.  Otherwise, the maintenance will eat you alive.  Don't try to patch.  You also need to have central heating and cooling to get a good class of tenant.  

Basically, the only way I will do these is if I end up with a brand new house that will be maintenance-free for at least a decade.  If you are buying it from someone who is flipping it, there's no way he or she did all the required work.  The margins are just not there as a true rehab with these types of houses usually is between 50 and $70,000

I'd stick with TurboTax, just my two cents.  What you are describing does not seem that complicated.  I've tried using CPAs here and there but they are ultimately disappointing and save me very little in the way of time.  (Often I find I know more than them.)  If you were flipping, had self-employment income, etc, then I would probably get a CPA, but buy and holds and some 1099 income is pretty basic.  TurboTax has been more than sufficient for me.

Why do you need an attorney?  Also, can you clarify what you mean by "investor friendly"?  I hear that term over and over again, and I don't really know what that means.

I'm in a similar boat to Aaron in that I'm trying to figure out how to bridge that last income gap for retirement. I've been doing BRRRR before it was even a thing and, as Aaron pointed out, it's great for minimizing capital requirements. I think BRRRR is awesome for starting out and lets you acquire a lot of properties quickly. At some point, though, you will reach a point where it's just not as attractive. You will reach a point where the time and effort required to be in a deal with low or no money down is just not worth the effort and time. You've accumulated a capital cushion and you've got too much to deploy. (There are obviously exceptions to this statement, some people never get tired of the thrill of the deal and chase them forever.) I think a lot of investors start looking at value adds in larger properties or just simply look for higher quality (less equity) deals, and recognize they'll be making less return on their money. Some simply start deleveraging. You just hit a point where BRRRs don't move the financial needle like they used to.

@Aaron Z., it seems like you are almost doing it in reverse.  That is, going the easier route first and then ramping up to do BRRRs.   I'd question whether you're going to want to maintain that energy level for long enough.  You've been doing this long enough that you know landlording isn't all sunshine and roses, and if you've got financial independence, what is your motivation for continuing on?

I'd also add that I would be careful about following the "Section 8 Bible's philosophy."  Maybe it works for Class D, War Zone properties, but in general it's a pretty bad philosophy for anything above that class.  I'm not referring to the learning aspect, but rather the attitude of treating your tenants like animals and basically providing a cinder block dwelling reminiscent of the prison at Abu Ghraib. 

I'm sorry @Hilary Hageman, but you have simply not been doing this long enough to experience the true joy of significant cap ex (which is unavoidable for any property), stagnant rent growth, increasing expenses, and the general illiquidity that comes from owning the type of property you are describing.  Moreover,  you have not honestly looked at what your numbers could be if you were investing in a healthy market.   (Looking only at cash flow is not a good method for investing.)  Not saying you cannot make money doing what you're doing (though I've run the numbers many times and struggle to understand how people make any money on SFRs in a flat or declining market over the long term), but I would be hesitant to conclude. given your newness,that you have come across the best strategy for wealth building. 

I'm sorry, but that is terrible advice by your mentor.  If he is suggesting that you should never get rid of a problem tenant except and/or unless you can drive them off by raising the rent, then that is dumb.  If you are self-managing, a problem tenant like the one you describe is not worth it.  The amount of stress is not worth whatever extra you might make from increased rents.  I went on a housecleaning last year, getting rid of the 20% that were really annoying and problematic and replacing them with decent ones, and it was the best move I ever made.  Give them the boot.  Yes, you may end up with another problem tenant, but there is also a greater chance you'll get a good one assuming you screen properly.  Staying the course guarantees you a problem tenant.