All Forum Posts by: Kyle McCorkel

@Kaustubh Johri

Are you paying cash or using hard money?

Do you pay for a property manager?

Are you licensed yourself, or do you plan on listing FSBO? Either way you'll need to pay the buyers agent in most cases, right?

@Ari Hadar

All of my best deals have been precisely since there was no competition. There’s not a list of “motivated sellers”. There’s probate, tax delinquent, preforeclosure, absentee, etc etc.

But nowhere is there a list that reads everyone’s minds to determine the perfect list of all the motivated sellers.

First of all, Merry Christmas!

Second of all, this thread is driving me crazy and now I feel compelled to respond.  I apologize preemptively for being a buzz kill.

Let's get this out of the way, of course you can find deals on the MLS. People have at least a little motivation to sell or else they wouldn't have listed their property. Of course.

But you need to get ridiculously lucky, or be willing to take on a property with so many issues that everybody else (can be literally hundreds or thousands of other buyers) aren't willing to do it.  If it's that bad, then you will be taking on either a HUGE headache and/or a HUGE risk.

Let's talk about the example that was praised above.  Property listed for $240k, buyer negotiated down to $215k and got a "deal".  Is this really a deal???? NO

Option 1 was to sell for market value of "230k-235k".  Let's run the numbers, and I'll even give the benefit of the doubt that you don't have interest/loan costs since you claim you're purchasing with cash.

Buy for $215k plus $3k closing costs.  Assume hold for 3 months until it sells.  Utilities $500, taxes $1000(?) insurance $300.  You collect $1200X3 = $3600 in rent. Sell for (best case) $235k.  Commissions at 6% would be $14,100.  You'll have another $1000 or so in closing costs on the sale.

Total credits = $235k + $3600 = $238,600

Total debits = $215k + $3k +$1800 + $14,100 + $1,000 = $234,900

If you used hard money then you lost money, for sure, but let's assume you didn't. You just tied up over $220k for 3 months to make $3,700, best case. This assumes there's no maintenance issues, the renter pays you all the rent, and you get the max asking price. If that's a return that excites you, cool (and maybe you plan to do FSBO and save commissions?), but chances are not everything will go perfectly and you'll end up losing money. You have to factor in your risks as well as the potential reward.

Here's the other thing, you buy it for $215k cash and do nothing, then expect to get $235k.  First of all, what are buyers going to think? Hmmm, this sold for $215k a month ago, the pictures look the same, it must be worth $215k! Even worse, appraisers will (correctly) think the same thing.  The property was presented on the open market to hundreds of potential buyers, and the seller took the best offer presented to him which was $215k.  Nothing was done to the property, and how much did the market change in 1 month? (probably not much) Most appraisers will say it's worth $215k and use you're last purchase to justify that price. 

This is all not to mention who is going to want to buy a house for $235k with a renter in it paying $1200? Rent to value is abysmal, less than .5%, so most investors won't accept that.  If it's a primary home buyer, they won't like that there's a renter in there.

Sorry for the diatribe, I really am.  I feel like a Grinch.  I just could help myself.

Let's bring this back to the original post, regarding why people want off market deals. If it's truly off market, and I mean that you've contacted the seller directly and are the only buyer who knows about the deal (not a "wholesale" deal that's listed on the MLS), you have a MUCH higher chance of getting a real deal. The definition of going under contract with a seller is that you have the highest/most acceptable terms that a seller is willing to accept. If you're the only buyer, there's zero competition. If the property is "on market", then literally thousands of buyers could have looked at the property, and dozens could offer on it. If you win the contract it literally means you were the highest bidder. By definition, in a liquid market with plenty of buyers and sellers (on-market), whatever the property sells for is market value. It's only in an illiquid market (limited buyers and sellers, i.e. off market) where a deal can be made below market value.

This is exactly right.  The government doesn't need to outright lay claim to properties; there are enough laws in place that they can make the general population think they own property when in reality they don't.

In our current system of ownership rights, the government can:

• Seize private property whenever it wants
• Dictate how and what is built on each property (property owners need to ask for permission to improve their own property, and they have to PAY to ask for permission)
• Demand taxes based on a property value determined by the government and a mill rate determined by the government (under threat of seizure of said property if left unpaid)
• Demand fines if the property owner doesn't follow their guidelines
• Demand rental and inspection fees
• And now, they can keep you from removing a renter who has broken an agreement with you

All the while, since we are led to believe we own the property, we spend our time and money in maintenance and repairs, maintain our own insurance, keep our properties looking pretty, etc.

Property owners are basically tenants and we pay the government rent (property tax) every year.  If we don't pay our rent, we get kicked out. 

This is no reason to not own property - I own a lot of properties (after all this is a real estate forum) - but I think it's important to understand how the system is set up and the current limitations imposed on the individual property owner.

I think there's 2 benefits:

Psychological - you want to see that separate account going up over time (and don't feel tempted to dip into it to pay for stupid personal stuff).  I have all my rent going into one account (and expenses coming out of that account), I keep $25k minimum, and I only spend it on buying more properties!

Tracking - similar to above, then you have all your income/expenses going in and out of one account, which makes it easier to track if you are actually making or losing money

Is their lease about to expire? If so maybe just have a conversation with them and say you won't be renewing the lease and see what they say.  They might just volunteer to move without needing to be paid.

If it's more urgent then yes I think cash for keys is a good idea and @Patricia Steiner has some good ideas to make it as easy as possible.  They problem is, they can always just say no, and you might just be stuck with an undesired tenant.

$80k won't take you very far unless it's in a C or D class area.  Unless you plan to use lines of credit or other financing.

What specific towns or neighborhoods are you looking in?

@Michael Chang

I’ve converted oil to gas once, and when gas wasn’t available in other properties, we converted to a heat pump.

$5k-$6k is probably a good estimate. However to remove the underground tank would probably run you more (I’ve never removed an underground tank).

We have done a few flips and rentals where we just kept the existing above ground tank. Never had issues with selling so far. It’s just obsolete at that point.

But yeah if it’s underground that would probably be a focus point for buyers, agents and inspectors.

@Greg Lott

Begin with the end in mind - you want a SFR providing X amount of cash flow. Typically if ARV is higher (above $150k) your cash flow will diminish (rent to value ratios decrease as ARV goes up).

If ARV is too low (think $75k or less) then *probably* it's not going to be a very nice area. You'll cash flow more but with more headaches, theoretically. Decide if you're willing to take on that kind of work/headache.

So for me, I settle into areas with ARV between $75k-$120k. If you're narrowing down by neighborhood/town, understand what these houses would rent for, and make sure monthly rent divided by ARV (rent to value) is well over 1%.

Then set up your criteria for these neighborhoods.  You might want to just look at all the listings (even non-distressed ones that you aren't considering buying), to get an understanding of the market.  To be clear, don't physically look at them, just look at pics, look at what "good" condition houses in that neighborhood look like, and see how long they take to sell.  Also, sometimes people will price absurdly high just to try and get some bites (there's a lot of idiots out there, don't be one of them) but then the listing will sit for 60-90 days before they start lowering the price.  These can be good to go after 60-90 days because the seller is probably motivated to get ANY offer.

Only go look at the property if a)it looks distressed and/or b)the price is 30%+ below ARV and/or c)it's been sitting on the market for 60-90 days

If a property gets listed, looks distressed, and is priced 10% below ARV, I won't even waste my time. There will be 30 people going to look at it the day after it was listed, and some idiot will probably over pay for it. Now if I see that property 6 months later, and I see multiple price drops, maybe it went under contract multiple times and fell through, then I'm gonna swoop in and offer 50% of the original list price.

@Chris Henry

How big is the property? Must be huge to generate $100k/year

Do you have a mortgage?

What do you use the cash flow for? (Do you live off the income, or do you live off other sources of income?)