All Forum Posts by: John Clark

"I just want to beat the stock market as passively as possible."
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And I want someone to give me a trillion dollars tax free. -- What you're saying is less likely to happen. You will always have risk. You have to work at your investment selections, and you are sacrificing liquidity. NOBODY beats the stock market long term, especially when adjusting for risk and time.

"FHA 203k loan"
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What repairs/replacements are encompassed in your 203k loan? I ask because they MIGHT allow you to cheat down your capital repairs/replacement fund down some. New stuff is less likely to fail than old.

That said, others have mentioned the need for personal reserves and for business reserves. If you have a relatively new house (all the 203k repairs here), initial CapEx demands should be lower than normal, so you might be able to lower those reserves somewhat. Your business reserves will have to increase, on the other hand, to account for vacancies, non-paying tenants under moratoria, and your inevitable rookie mistakes. So all in all, it's probably a wash.

It does tell you, however, to look at your market. If your CapEx is likely to be low for a few years, then your probable hits are vacancies and deadbeats. What's the rental market like (vacancy rates), and how is the labor market/wages in the neighborhood (deadbeats)? That will affect your vacancy percentage and probable turnip losses. Make sure you have strong, consistent, conservative, WRITTEN, tenant screening criteria, that you use religiously. The best problem to have is the one you avoid.

As the building ages CapEx requirements will increase, and with any luck, vacancy and deadbeat reserves will go down. You would like the vacancy/deadbeat side to go down faster than the CapEx increases.

So look at your market and figure out carrying costs for vacancies and deadbeats, ASSUMING you have an extensive 203k loan rehab in the works.

"Two days later I get an e-mail from the sellers attorney disapproving of the deal."

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I have not read the remaining posts, so this may be duplicative: What was the basis for the attorney disapproval of the sale? The attorney can only disapprove for certain reasons. You then swept away any objection to the attorney disapproval by submitting a new offer.

Three ways

1. The property manager screens tenants, thereby doing a better job than you could in terms of reducing vacancy rates and reducing potential damage from asinine tenants.

2. The property manager should be able to get you lower repair/maintenance prices from his stable of contractors and repairmen.

3. The property manager saves you time and headaches.

"So my question is can I still make an offer lower than full price without turning the seller away completely?"

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You're asking us to read the seller's mind. Maybe Madam Zelda or Karnac the Magnificent could help?

"potatoe"
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Thank you, Mr. Quayle.

"If the entire carpet needs to be replaced due to something they did to it - that isn't 'normal'."
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Your statement is too general. Traffic wear on a carpet can be so severe that the carpet has to be replaced in 5 or 7 years, even if there were no stains, burns, whatever. Large family with lots of kids for example.

Courts use the reasonable man standard (I show my age -- reasonable person). One cannot say that there's no such thing as "reasonable wear and tear," and yes, that can mean wear and tear to the point of replacement.

"I don't see how the length of time matters . . .. "
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Try walking normally on a carpet -- regularly cleaning and vacuuming it, no stains (shoes on or off, your call) -- for 1 year. Do it under identical conditions only this time for 7 years.

Then tell us which carpet has more wear and tear.

"There is no such thing as normal wear and tear! "
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I defy you to name a single state whose landlord/tenant law, or any accounting method, that does not permit and allow for normal wear and tear.

"Main risk as I see it is if the borrower stops paying after a very short time, and the money I have put in is close in value to the as-is property value."

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The opposite is true. Your main risk is that the buyer makes all his payments and gets the property. Then he gets all the appreciation and the house, and all you've gotten is the amount of interest on the note. If you're going to do that, then you might as well simply buy bonds backed by mortgages.

You'd be better off with a buyer who defaults quickly, so that you can keep his down payment, foreclose, and start all over again.