All Forum Posts by: John R.

What advice would you give this new investor?

I connected with a friend's sister recently who got into financial trouble via a money pit renovation project prior to/during the recession. She has recovered from that mess and now has some $ on hand, a pretty low cost of living (low-ish rent for her area, no car payment), and a small business that demands a lot of her time and attention. She wants to get started investing in real estate. She likely will not struggle with 'analysis paralysis'; she is pretty quick to take action. In fact, I'm hoping to help her avoid getting stymied by some early misstep in her enthusiasm to get started.

I suggested she start with education and networking...podcasts, the BP forums, books and local meet ups if she can find time for those...and to think about her business plan for carefully growing the nest egg she has worked so hard to earn back.

I've heard such stories on the podcast through the years but cannot recall which episodes nor do I know how to search that. And surely there are some hot threads on the topic that I don't know how to find!

Do you have any advice you would share with this enthusiastic new investor?

Have you read Scott Trench's new book, Set for Life, yet?  It's worth your time.  An owner occupant with a room mate can take down a duplex here and live 'free' or nearly free in good neighborhoods.  Like you've heard countless times before I'm sure, getting started with that first deal can seem very difficult.  You just need a base hit to get into the game.   

Congratulations!  Thanks for sharing. 

Wow!  That looks amazing. Congratulations.

@Mike Wood Thank you for adding that point, which could be relevant for the property Raven is considering.  This is probably similar to any other unaddressed code issue.  In the neighborhood we are talking about, I have been told every building in the entire area was zoned single family residential around 1970 regardless of its actual use.  Commercial, multifamily, all of them...but they have all continued to function in their intended capacity despite the zoning errors.

But your point underscores the value and importance of engaging experts.  A coupe thousand dollars in consultation fees can save much more than that in the future, and at very least give you a better idea of all the variables at play as you evaluate a deal.

I have spent less than an hour on this issue.  All that time was on the phone with the attorney. From my discussion with him it sounds like it should be under $3k, but then I have not gotten the bill yet!  The deal was attractive enough that I did not want to walk away from it over this issue.  The attorney had a paralegal dig into the records, as I mentioned above, and pulled a few other things together to support our case prior to closing the deal.  So we knew beforehand that we had pretty good data to make our case.  It still has to work through the system, but it will be peculiar if it does not work out.  None the less, I have considered the 'what if' of the zoning correction failing for some reason, and I will still be o.k. in the deal if that happens.

As for your question of 'What kind of problems would we have if we continue to rent out this house which has been rented for years and years?' ....the only issue I was able to turn up in this regard is that of bank financing for you or a future buyer.  The difference in the zoning and the actual use created some hiccup for the conventional financing underwriters.  This was baffling to me as I know there are numerous multifamily properties in this neighborhood which have traded ownership since that time.  I just got one that had been in the same family since the 1940's. I suspect the underwriters are more tightly regulated or scrutinized these days and so they are balking at these.  I don't think you will have any problem continuing to rent out the units of the property that you are not occupying.

I hope this helps.   If you are interested to talk to the attorney who helped me with this, I'm happy to connect you and you can see if you want to go that route.  PM me in that case.  Best to you!

Raven, we bought a 4 Plex along Eastern earlier this year and had a similar issue.  The bank wouldn't finance it as a conventional loan (although there is no doubt that it was and always has been a multifamily building), so we closed with a commercial note and meanwhile have an attorney working on getting the zoning corrected.  Before we closed on the property, this attorney gathered the data to support the case (the property had been continuously used as a multifamily since 1970 via phone records).  This was also a purchase from an estate, and we were unable to fully resolve the issue before closing. The final outcome is pending, but I'm anticipating having the issue resolved for what will be a very small $ sum in comparison with the very nice yield on the investment.   

If you plan to later sell this as a multifamily property, your buyers will have the same issue.  It's worth considering engaging an expert zoning attorney to help you out.  Sort of an ounce of prevention.

Congratulations; nice to hear of someone getting a great deal in the tightening market. Seems like you should have a nice opportunity to either flip or hold this one. Hope it goes well for you!

James, my friend Mark Franco has mentioned such a project to me, but of course I have no idea if this is the same deal! Do you know Mark??  It is a smallish town after all.

Either way, I'm interested to connect with you and hear more about your work and this deal.  

Best,

John Rothpletz

Cell 502-345-3535

Welcome!  There are so many ways to invest and work in real estate, it's amazing.  And you have access to more resources than ever before in history via BP, podcasts, etc.  The suggestions above are great.  

I'll add my little bit that you should not be shy to tell people about your interest and work in real estate.  I'm continually astounded when I learn people I 'randomly' meet also invest in the sector, and I've made a variety of nice connections and learned about myriad models/ideas in this fashion.  All the same, it's pretty hard to beat the density of expertise and information that is at your fingertips here at BP.  

Best of luck!

John