All Forum Posts by: Jonathan Makovsky

@Rick SantosCongrats!

I think your processes look good. 

A few things to consider: 

Will you accept pets? (I would advise if the answer is yes to make sure no viscous breeds are allowed and also get an extra security deposit and possibly extra monthly rent.)

Also, something that helped us that you might want to consider is for your credit check is that the score matters, but we look deeper than the score if there are things that come up (and in New Brit there are usually things that come up).

If tenants are skipping out on "modern life essentials" like utility bills, cell phone bills, car payments that is a huge red flag.

However, if it is a result of medical bills or student loans (or possibly a foreclosure during the crash) you may want to look past some of those. The rationale is that if these tenants got hit with a $10K medical bill they probably cannot pay it and it's not necessarily because they didn't want to.

Personally, I constantly traveled to 4 different states (NY, NJ, CT, PA) when I was starting out and met with brokers, local investors and staying putting together numbers, personal preference and my feasibility to get to each place. 

I believe, the only way to get started is by getting on the phone and speaking to locals/local investors, then driving out to these places and seeing them for yourself. 

There are also a ton of local BP meet-ups and other local real estate investment clubs where you can network with locals to understand an area better. After you see a number of different areas and properties, you will hopefully get a better feel for geography and the type of investment class/type that you're looking to do.

At some point you'll need to jump in, and if you have knowledge in a particular area, I would suggest first starting out there since it will cut your learning curve by a lot. If it's not feasible, you will start learning how to value deals and start writing offers.

Best of luck!

Welcome @Lorranne Jimenez!

@Leo DonI echo @Travis Lloydand @Daniel Raposo.

There is no way you're ever going to learn everything before going forward, so using a generic number (like 3%) might work for the beginning. But as you get more into it try drilling down into that number and look at the specific costs that make-up that number which is what Dan and Travis explained above.

@Shon Butanicongrats on reading Brandon's book and looking to get started. "2% rule-of-thumb" is more descriptive of the term. There are many markets within 100 miles of NYC that you can find plenty of 2% rules, however, just because a market does (or does not meet that rule) will it make sense.

As an example, there are plenty of Connecticut markets that you can invest in and find 2%'ers, however, that alone is far from making it a good investment. I think the 2% rule-of-thumb has its merits and can act as a quick and dirty way of performing a calculation. However, it's worthwhile understanding what 2% actually means:

Definition of "2% Rule-of-Thumb": If the monthly rent is 2% of the purchase price, then your Gross Potential Rent is 24%.  

The issue with ONLY using this method as a way to invest is that it fails to take into consideration: 1) vacancies and bad debt (i.e. uncollected rent); and 2) operating expenses (including: taxes, insurance, repairs & maintenance, capital reserves and utilities, property management, super(?)).

As an example, you can find fairly easily in Waterbury, CT that many units will sell at $30K and rent for $700+ (2+%). However, your 24% gross potential rent will shrink very quickly for the following:

• About 15% to vacancies and bad debt so you are left with ~20.5%. 
• Then you will find yourself paying a premium for property taxes in this area (this is in part because the town is on a downward slide due to not much commerce and a declining population). 
• The insurance is likely to be higher than you think too because the insurer will value the building based on the replacement cost which is higher than the purchase price, so you will be paying a premium for that too.
• Many of the tenants in these areas also don't take as good care of their property as you might find in other parts, so you will likely find yourself repairing the units and building more than elsewhere.
• We also often see many tenants in these types of areas that don't pay for heat often have the heat blasting in the winter time and their windows open. So when you walk in you can actually feel your money being blown out of your pockets. :)
• Property management companies might charge more if there is more maintenance, and you might need a super if the tenants are not used to cleaning up after themselves
• If you total all these up the 2% rule-of-thumb may not be the returns you're looking for, especially when you factor in the tenant headache you are dealing with.
• Last point: often if you buy a property for $30K you will likely be selling it for $30K in 10 years, so don't expect to necessarily get rich off the appreciation.

With all that said don't let this stop you looking for property, because you MUST start somewhere - we all did. I always use the 1% and 2% rule-of-thumb as the first method of analyzing a property. In addition, I also will invest in [better] C-class areas because of the return, even though I might not get rich off the appreciation. 

However, I don't buy a property without looking at the full picture (Collected Rents & actual Operating Expenses) and that's what the 2% rule-of-thumb fails to take into account.

Happy investing!

Welcome @Aundre Oldacre

@Rico S.great question! I would suggest putting yourself in a successful investor's shoes. 

Do you think (s)he wants to hear what you are trying to accomplish? [It would be awesome if the answer to this questions was an easy yes, but] unfortunately there are many newbies (among others) that are likely reaching out to them and there is not enough time to help every newbie. So instead of thinking how they can help you and take time from their day to make yours better - think how can I save the investor time or money and in return they can use that time on me.

At this point, ask yourself "What are your strengths?"

• Are you handy? If yes, maybe you can help on a project.
• Are you online savvy/artistic? If yes, maybe you can help with website.
• Are you good at writing? If yes, maybe you can help with a blog
  
• Any experience with accounting? Maybe you can do bookkeeping.
• Do you have free time? If yes, volunteer it to drive for dollars or anything else an investor wants that will allow you to learn.

I know it's a lot of work, but remember you're asking for an investor's time which is the one commodity they can never get back.  

Hope this helps. 

@Manuel Reglatit's a great point/question, and I have tried it. But the difficulty for me was being able to negotiate terms with the seller. 

Many times the terms will need to overcome these obstacles: The seller wants to sell fast; s(he) will have hard time trusting you (or vice versa); then you will also need to put valuations (very subjective) on the house if it were to sell today and some split of the profits - all this without (likely) knowing the seller well.

I think it's worth a try (and you will definitely need to protect yourself somehow - possibly mechanic's lien for agreed upon value of work), but in my experience I was not successful.

@Jasmine Wilkeshard to know what will work without knowing all of the facts. 

However, it would seem unlikely to me that either the seller or a HML would hold the junior lien (i.e. the lien that is not in first position), so if you need $15K to close you might want to get on the phone with a lot of people you know to try to make a deal.

Best of luck!

Reach out to a rep at LS, and they will guide you through it. You might even be able to get a price-break too.

[No affiliation with company - although it would be nice.]