All Forum Posts by: John Mireles

When I look at investing in a property, I look for all the major systems to be in good working order. I'd much rather put my money into getting a property to jump off the starting line rather than spending all my effort just getting it to the gate. I'd much rather focus my money on an upgraded kitchen and bath - things that will get buyers to open up their wallet - rather than fixing up broken systems that everyone expects to be in place.

Once you start getting into the repairs, you're going to discover all kinds of things to fix and upgrade. If all your money is spent just fixing up the property so that it's habitable, you're likely to fall into the red once you start trying to make the place look good for buyers. I'd be very cautious about this one.

Today I received this email in response to an ad I have for a property on Craigslist"

Sounds great, but...

- The ad is clearly for a one bedroom cottage, not a studio.
- This person isn't even interested in viewing the place, they just want to pay me cash
- The respondent is too perfect.

My guess is that they'll offer to send me a money order and ask me to forward them some money. Smells like a scam all the way. I'm not even bothering to respond.

What does your purchase contract say? Do you have a time period within which you may conduct your due diligence and opt out with no penalty? Are you within that contingency window?

Seems to me that since they don't have your money, they don't have a lot of power over you. Really though it all boils down to what's in your purchase contract.

Not a lawyer. But I don't think that owning the property under your name and then setting up the management under an LLC is going to help you at all. If someone decides to sue, they're going to sue you and the LLC. All you're doing is giving someone an extra entity to drag into a lawsuit. Not much point in that.

Now, if you were managing property for others, I'd absolutely suggest an LLC for that business - and keep your personal properties out of it.

When most people think of what bank to chose, they think of how friendly the people are, how convenient the branches, the cost of checking etc. But, if you're a businessperson, the thing that should be top of mind is what banks are in business to do: lend money. What you want to know is, will this bank loan you money when you need it?

Banking used to be all about relationships. It is to a small degree and the extent to which it is will vary from bank to bank. It's been my experience that the bigger the bank, the more formulaic their lending practices. With smaller banks, it's easier to form relationships not just with the branch manager but with the actual loan underwriters - the guys who will say yes or no to your deal.

I'm in the middle of refinancing a commercial property through US Bank. One of my tenants is a convenience store - which they view as high risk even though the tenant has been there for more than ten years. My previous lender was a local bank who didn't have such strict guidelines. (Unfortunately, they failed and were taken over by US megaBank).

Smaller isn't always better. I had a good relationship with California Bank & Trust - a medium sized bank. They yanked my line of credit after my divorce and then denied me when I reapplied. F#ckers. I'm looking for a new banking partner now.

Anyhow, I always recommend talking to the branch manager to make an appointment for him to come see you. If he won't leave his office for you, then look elsewhere. Bankers still do make house calls. Let him or her sell you on their bank. Talk to a few and see who is hungriest for your business.

Keep in mind that banks like to give money to people who don't need it. Apply now for a line of credit - especially if you don't need it. If you wait until you do need it, you'll probably be denied. That's just the way the system works.

Jon Holdman - Thanks for working through the numbers and explaining your thought process. It's definitely got me thinking about my own investing approach.

Now that said, my question here is if not this deal (or one similar given the market conditions in Portland), what other options are there for investing his $12,500?

- He could put it into stocks and all that that entails.

- He could buy a SF house for himself to live in. Then he has no rent income coming in and a larger monthly payment. Should he decide to move, the rent he'll be able to collect won't cover his mortgage - not even close.

- He could sit on the money, continue to pay rent and save up to a larger pot of money for investing. But let's say he continues to rent for a year and pay $1,000 per month. There's his $12,000 investment right there. Plus there's no tax savings when renting.

I'm not asking to be argumentative, just interested to know what I might be missing.

Originally posted by Jon Holdman:

I've seen fourplexes here in Denver prices like this. Or worse. They losers plain and simple. If that's the best rental you can buy in your area, look elsewhere. Or invest in something else.

But if he invests somewhere else, he won't be able to go in with 3% down. Living in one of the units would be a fraction of the cost of buying a SF home so he's saving money there. In ten years, he'll have almost $100,000 in equity mostly provided by OPM (and that's assuming no appreciation). The bank is giving him the money practically for free.

The other option is he puts the money in the stock market. In ten years, assuming the market does 6% per year, he'll have made $7,000. Seems like the four plex is the much better deal.

This deal may seem like a dog to someone outside of your area and it may indeed be a dog, but it sounds pretty reasonable for Portland. I did a tour of a bunch of properties in Portland a few years ago and was astounded by the home prices. They're about the same as where I live except that people make less money. In all, I found Portland to be a more expensive housing market than overpriced San Diego. I really doubt you'll find anything close to the 50% rule anywhere near Portland proper.

Can you fix the units up to get some more rent out of them? Come in with a lower offer? The fact that you're near break even with 3% down and that big ol' PMI payment is pretty good in my book. If you can get the value up, you may even be able to refi in a year or two and ditch the PMI. Meanwhile, you have other people's money paying down your debt and upping your equity in the property.

You know your market. If this is about as good as you can get and you don't feel like investing out of the area, then it may well be worth it.

I wouldn't touch this without legal counsel. Not only are you dealing with tenant friendly California law, you're dealing with potential San Francisco muni code which probably requires that you commune naked with the tenant and express your mutual respect in each others belief systems while downloading the latest social media app on your iPhones. Not that there aren't some great minds and a lot of knowledge here, but I'd be hesitant to follow instructions from anyone not familiar with CA and SF laws/regulations.

It sounds like this house is not on a slab foundation. That being the case, you may look into jacking up the sagging floor joists and then reinforcing the low area with a 4x4 post on a concrete base. If you've got a sagging floor and you add more weight to it (with a leveling compound for example), you're likely to force it sag more.

My suggestion is that, if it's not noticeable, sell it as is. If the buyer complains once you have an accepted offer, address the situation then. I'm not sure whether this is something you need to disclose however. In the meantime, I'd get some quotes to fix the problem.