All Forum Posts by: Diane Menke

Tom,
Can you tell us what city you are in?
Who is your usual tenant?
These houses look like they were fairly turn key - true?
What kind of equity development can you expect? By that I mean is the city doing things, or the neighborhood perhaps, that will increase the value of your property? If so what and what is the time line you are looking at?
Can you tell us a little about why these houses came to foreclosure? What economic events occurred to make these houses available to you?
Did you buy these for cash or with a mortgage?

Thanks very much
Diane

Sounds like a nice approach.
Thanks
D

Taz you make many good points in a short posting. Thank you.

Whats the best way to find that attorney? $200 sounds very reasonable indeed.

Diane

Folks, someone else recently posited the idea of starting a small scale REIT. We have been discussing the same idea here. There must be a way to do it I just have not figured it out yet.

My ideal set up is a bunch of people (less than 10) put cash into a pool that our mini REIT would tap to buy properties, probably REO's that we would flip. Time frame 24-36 months max. Still need to ID a trigger to sell/close out and pay out. Minimal cash needed for the pool is $300K. $500K is better.

Mind you, this was not a hammered out plan just a "what if" we ran by some folks in casual conversation, who said they really wanted to invest in RE.

Here are some "issues" we saw right away with these 'investors".

1. Folks would say they were interested but when we dug further, what they really wanted to see was a garanteed % return and they might like to pull out at any time.

2. They wanted to get very excited about a particular property. This usually meant they were emotional and very turned on with renovation ideas. Not the balance sheet. They were looking at the wrong thing.

3. SEC rules state that you should have a qualified investor. Clearly these small time investors were not SEC qualified.

4. In PA its illegal for me to advertise looking for investors.

5. My family and close friends are not good sources for investors.

6. I do not work well in committees. I like being the person in control. Many of these small time "investors" wanted to be noisy "partners".

OK so whats the best entity to use for my mini REIT and how do I attract real investors without breaking the law?

I'm sure the mini REIT is a model that would make money for everyone. I'm just having a rough time getting it off the ground.

Thanks all

Diane

Our remodeling business peer groups had similar back and forth and arguing for a period of time until they set upon a standardized chart of accounts all the companies agreed to use. In this way they could really compare their company operations, and see where each might improve.

Until you standardize, its apples and oranges.

Perhaps the originator of this thread would propose a standard chart of accounts to use and then this group could really start seeing the numbers operate?

Its very worthwhile.
Diane

Matt the guys have already given you a lot of good advice. I second the question re grad studies.

We have bought and sold in the marginal areas of our city and we have done well this way. Look for areas where coffee shops are opening, artists are moving in, craftsmen...the artsy dynamic areas seem to "move up" quickest. Your student rental population is gonna be web savvy so we market on Craigs List and in the local university lists. The latter is new to us. I also put up fliers in those coffee shops.

You are a smart guy so why not put together a balance sheet and income statement? Look to see where you need to improve financially in these 2 statements. You will probably need to get a few hundred dollars in positive cash flow each month and buy so to see your equity grow. Maybe put a 12-24 month equity growth plan in place where you can tap that equity in 12 months to get property #2. So make these 2 = minimum cash flow and minimum equity growth in 12 months your plan.

So for example if you are buying $100K 3 bedroom houses to rent to students, you want to see $300 or more in positive cash flow each mo + the potential for at least 10-15% equity growth in 12 months so you can tap that equity to get prop #2.

Keep all the financial info on your Quick Books software, and a couple of Excel spreadsheets. Because that is what you will show to the bank when you go for your second home loan. You show them the proforma and the cash flow statements.

Keep your money seperate from the rental prop money and any costs of improvements too. The clean books will attract a bank and make tax time much easier.

While you put this plan into action, you should have a job that pays all your personal expenses and allows you to save. Don't touch your property cash flow for personal expenses yet.

Good luck and remember you make your money when you buy. So buy wisely.

Diane

When we first started having tenants, we wanted to be sure to capture all possible income. The cash flow was good. But we could see how even a few expenses and a bad tenant could sap the positive cash flow.

My partner the lawyer wrote the lease to cover any potential problems like this. When we give the potential tenants the lease ap. we take the time to tell them to read the doc, and we tell them what it says about the security deposit and any fees.

In our city, renting a house means that you pay your own utilities, you run it like your own home. You keep the yard nice and the house sano. Problems come into play when we have a tenant who doesn't know what clean means, or that they need to call us when there is a leak, or that the garbage belongs outside and cat food in a bowl - stop feeding the mice already. Of course I want to take care of any pests before the problem gets too big. So if I bill them for that, maybe they will just not let me know about that problem. So a conundrum of sorts.

We will keep looking at it. Thanks fellas.

D

Jon,

I appreciate what you are saying. I can hear the experience and wisdom in your points.

We have a few entities now so creating another is not a big deal but it initiates a self reckoning.

It makes me wonder why anyone would want to landlord and do the day to day work themselves. Jeez you could loose your GP for the year if you didn't charge for expenses and every single one of them.

By the way my wonderful CPA has discussed with me exactly what you articulate. If I as landlord physically involve myself, that is not passive income so its taxed at a higher rate. So make it passive ASAP.

OK thats good to know and certainly a cue. There is ANOTHER way to do this. "Stop being a hobby. Make it a business. "

It also makes me ask "why am I doing this?"

So far I do "this" to develop wealth and cash flow/income.

So far so good.

Its the buying and holding that have helped up create a nice cash flow and pool of wealth. Hey the rent is a nice perk. the good tenants I love 'em.

Now, the thing I want to do is get the pool of wealth to grow. In the past its always been equity we "farmed". Equity is on a no growth curve at this time. So perhaps the thing to do is grow the wisdom we have gained so far???

What is my next move? Something tells me its gonna be a little bit different. I really do not want to be distracted by tenants who destroy a rental season for me - or my houses!

But I love buying and selling and putting developing projects together. I have a great remodeling team and a great spec development team.

I am gonna be pondering these things over this holiday as part of my NY planning.

Cheers and thanks for your helpful insight. Toast the NY to come.

Diane

So if we created a management service company, this company could then create a bill for during lease service charges or charges incurred after move out (all costs marked up) , and this bill could be presented to the tenants without grounds to dispute?

I would just as soon not do the work myself anyway. But I am a super fast painter so I am probably cheeper in the long run than a painter who I would have to hire at $200 a day.

Our lease document does state any cleaning costs, unusual wear or damage...these things would come out of the security deposit. So we suggest tenants hire a hauler and a cleaning co to make the place rent ready when they leave.

From what you guys are suggesting, we should double check our proceedures to be legal, and if necessary, create that small property services company so we can bill as needed.

Its not that we want to gouge tenants but when we get a house full of students they tend to think "mommy and daddy" are going to clean up and fix everything they leave behind. Its astonishing. Typically what they leave behind in junk and damage, plain filth, can eat up a $1400 -$3000 security deposit very quickly.

Thanks again guys all good information!
Diane

Thanks Frank,

My business partner is a lawyer so we will look into the legality of the bill rates/methods we use.

It is surprising how the tenants think all this service comes for free and is so easy. Like you said 'Why didn't YOU do it?". It certainly all takes a lot of time.

In remodeling we mark up costs a straight % to arrive at price. I can't imagine how a management company might make any money if they are not allowed to MU a cost.

Happy holidays
D