All Forum Posts by: Mark Ernst

Welcome Cody! 

Affordability is a big driver. Typically you want renters to make 3x rent, or another way about a 3rd of their gross income for housing. Renters are going to be on the lower end of the Median income. Let's say they make 4k a month or 48k a year. They could afford up to around $1300 a month maximum. rent. That's less than most mortgages for houses there in Bullhead, let alone the rest of the costs involved in a rental. Expect 50% (50% rule) of your rent to go towards property costs, not including any mortgage. So net on $1300 a month is likely around $650 a month for a cash purchase.

Prices on houses went up really fast. They are currently slowing, declining or staying steady. They may (and likely will) reverse and decline based on higher interest rates, higher unemployment, and the recession that's coming. (or here)

Do your due diligence, find an area with decent prices and rents. Then use the 1% Rule (200k house should rent for 2k a month) the 50% rule, then if it still makes sense look into it deeper. If you can't find an area that supports these, then maybe wait or try something else?

Can you find a duplex or triplex and live in one area, then rent the others? Can you find a fixer, fix it up, live in it, and then sell in a few years with no tax consequence? (typically 2 years) Are you in an apartment, and could buy for the same cost as renting? Tip for new people starting out - Buy less than you can afford or want - don't buy a property as a "Dream home" it is an investment. 

Maybe partner with someone? Lots of options. 

Good luck!

Mark

Assuming this is in regards to a rental property and fixing it up...Your pre-rental expenses typically add to the cost basis of the property. Say you bought a house for 100k, then you put 50k into it to get it ready for rent. Your adjusted cost basis of the property is 150k. You can't take the 50k or even a portion of it off your taxes as rental; Repairs, Maintenance, etc.. After the property is rented, then costs start to go into the appropriate buckets and become tax deductible. When you sell it, you would pay the difference on net proceeds, based on your adjusted cost-basis. (the 150k, not 100k)

My understanding and have been in this boat, and done taxes myself and this is what I found. You can and should get tax advice from a professional if it matters. 

There are a few with various pro's and con's. Neighborhood Scout will give you a bigger picture and for cities it will drill down into portions of them. Crime grade (.org) will give you details on zip codes, then you can zoom in to see actual streets and where crime is higher and lower. crime mapping shows details on the crimes, where available. Many cities not listed though. Do a Google search for crime mapping for more. 

Trulia and Realtor used to show this data, but decided customers didn't need it to make home buying decisions. Uh yep.

Quote from @Yogesh M sayanakar:

Hello all, 

I’m being forced by the builder presumably due to many reasons - yess end close etc, when the investment property is not ready. 
1. gas meter and line hasn’t been installed

2. Shower doors, bathroom glass doors are missing

3. Cabinets are cracked and will take 4-6 weeks to order 

4. Tenant ready to sign the lease but but I don’t want them bothered for repairs after they move in

financially I’m ready to close, but feel like it’s forced. What are my options ?

Thanks,

Yogesh 

If it's not ready, then don't pay for complete. Period. 

If they want to sell it as-is, would you or anyone else buy it. For how much? That's your maximum. 

Don't pay a builder in full until your have a Certificate of Occupancy. (CO) unless your contract states you have to based on the draw schedule. 

Read your contact, pay the draws per schedule, but nothing more. Assuming you are buying this on a residential retail sale contract, most states require it to be habitable. It's not. 

What's the worst that could happen if you don't close? 

The worst that could happen if you do, is you could be out that money, plus the cost of actually finishing it. (pay twice) Many builders under estimated the costs, especially with inflation. Many are struggling. Some are going out of business. Protect yourself. 

Quote from @George Knetzger:

hello. My confusion has to do with purchase price and after repair value eg  price is 100,000 and arv 125000

would that spread put the property in an unsellable position?  Should the purchase offer be discounted by that spread? 

Let's say buying and selling costs with Realtors and closings is 12%. 12% of 125k is 15k. So the spread is 10k now. How sure are you about the retail price? (ARV) Are there 0 repairs needed? Is the market dropping? 
If this was a ready for retail, buy/sell no repairs  it's easy. Who wouldn't want a free 10k? Most deals aren't like this. 

Not sure what you have read or know, so will give some basics. (for anyone who reads this)

Depending on the market, the discount investors are looking for can be 15-30%+ of the after repaired value, - repair and holding costs. (less on more expensive, more on less expensive)

e. g. 200k retail house. Needs approx. 30k work. 200k - 30% (buying/selling costs, unforseen repairs, holding costs, profit) 140k - 30k (repairs) = 110k investor offer. (total)

This isn't appealing to many retail sellers. They see what finished properties are selling for, and don't see what repairs their property needs. They also don't see the buying and selling costs. (8-15% depending) or the risk or the cost of capital. Many sellers would want 200k - 30k repairs= 170k. That's unreasonable for investors, that's not what the seller will get no matter what.

If you are a wholesaler, then figure out ARV, the cost of repairs (estimated) your fee (~5k) and see if your can get sellers under contract (atleast open to) the investors price. (previous example 110k - your 5k finders fee, so 105k)

Good luck, Happy New Year!

Mark

Quote from @Jennifer Brown:

Hello, I have sellers, but I need investors who can write solid offers. Could you email me your criteria and contact info? No offers sight unseen please. All of Greater Tampa Bay Area

 Hi Jennifer, 

I see you are listed as a broker. Welcome to the crazy world of real estate investing. Not sure what you have read or know, so will give some basics. (for anyone who reads this) 

Cash Buyers, (investors) are the end buyer and will buy a property at a steep discount, fix it up, then resell it at retail. The discount is because of the risk, costs, and work involved.

Wholesalers, find properties that because of circumstances are available to be bought at steep discounts. They add a % or flat fee on top of what the homeowner(s) will sell it for. 

Depending on the market, the discount investors are looking for can be 15-30%+ of the after repaired value, - repair and holding costs. (less on more expensive, more on less expensive) 

e. g. 200k retail house. Needs approx. 30k work. 200k - 30% (buying/selling costs, unforseen repairs, holding costs, profit) 140k - 30k (repairs) = 110k investor offer. (total) 

This isn't appealing to many retail sellers. They see what finished properties are selling for, and don't see what repairs their property needs. They also don't see the buying and selling costs. (8-15% depending) or the risk or the cost of capital. Many sellers would want 200k - 30k repairs= 170k. That's unreasonable for investors, that's not what the seller will get no matter what. (as you know) 

So if you are a broker/agent get your clients to prep the house for retail sale with their own capital. They should net ~180k less the repair costs. 

If you are a wholesaler, then figure out ARV, the cost of repairs (estimated) your fee (~5k) and see if your can get sellers under contract (atleast open to) the investors price. (previous example 110k - your 5k finders fee, so 105k)

Then advertise your deal (specifics if you have a contract, otherwise don't list the address etc.) 

If you haven't done the due diligence and work needed to prep a deal, then many/all won't bother. Get a partner to help if you think this is for you, unless you can estimate repairs and the rest. 

If you have a deal, then by all means post it. If you want feedback on if it IS a deal, there is a forum here you can post to. Don't list address, just ARV, Repairs, selling price and ask. People will help you.

Good luck, Happy New Year! 

Mark

Hi Christina, 

I was the high bidder on an occupied property, so I researched this pretty well. It changes with the WA State Governor's declarations, but this is what I read and understand from it.

Until August 1st, all normal evictions are blocked. Once August 1st hits (assuming they do not extend this again) then if you are moving back into the property, or selling it you must give 60 days notice minimum, before eviction. So assuming no more extensions (about 40-60 against my estimate) and assuming you were "going to move into the place" or sell it, you would have to give them 60 days+ notice from August 1st. So October is earliest if they want to.

There is a clause in the order around an "exceptions for property damage, danger posed by a person to the safety/health of others or property." So that might be an avenue to pursue, but in my opinion it's unlikely unless it's egregious and obvious enough. No one wants to "say yes" to an exception would be my guess, and the process isn't documented or understood, because there wasn't a plan to provide that.

In answer to the question, do you have a better chance of getting them out? No. Best option might be to work with the Landlord and agree to buy it from him after the August 1st date, + 60 days notice, and eviction (or unlikely cash for keys)

As a side note, he can sue them for damages, and if all else fails issue a 1099-Misc for the lost rent and damage repairs. They will have to (or should pay tax) on that loss he reported.

Mark

Extension to August 1st.
https://www.governor.wa.gov/news-media/inslee-extends-eviction-moratorium

and additional protections for renters not paying rent
https://www.governor.wa.gov/news-media/inslee-expands-eviction-moratorium-and-adds-additional-protections-residential-and-some

Look for a Real Estate Analysis spreadsheet, there is a limited use one on BP under tools. You can find one on Google Docs, or plain Google and find Excel one. Then start plugging some numbers in to see what price vs. Income you need. Research and use the 50% rule for a quick estimate of total costs (not including mortgage) Basics of 50% are assume 50% of income goes to costs. Ballpark. Then there is a 2% rule you can look into. Don't forget Capex (long term big expenses) and vacancy (5-9) management (8-10%) etc.

Commercial loans are different in that you 1. find the deal, 2.  your credit, and history, experience plays in to the rates, then 3. does the property cover all expenses with profit.  The rates run about 1.5%-2% higher than residential. e. g. 5.5-6% for best everything, higher depending on factors.  Plus the length of loans can be shorter, longer cost more. (7-10 years more typical than 30yr) 

Brandon shows a walk through on BP.  There is also a video.  Plus learn from the forums. 

There is a BP article (3) on commercial terms, learn those.  Cap rate, cash on cash returns.  I would filter out anything lower than a 7 cap at a minimum. 

Then look for properties, expect a bunch that don't cash flow or have enough return to make it worthwhile.  Then I would come back to BP and post it (Financials) and ask/accept feedback.  Expect it not to be a deal.  Rinse repeat. 

Good luck, going through the process myself now. 

Mark

Not a lawyer, but some of this is drama you have to take individually. The tenant isn't paying rent and various other concerns, start the eviction process tomorrow. The tenant somehow had access to to the owners credit card? If given access, then you can't claim fraud and misuse easily. If not given access and written authorization, then call up the credit card company and dispute it. Small claims court for whatever you can get up to the maximum. Document everything. If the tenant starts harassing anyone get restraining order. Do not visit or talk to the tenant without someone else to support you. I would not talk to them at all, refer the tenant to your lawyer. Or worst case get a no nonsense representative to stand up for you. This person is a user, don't listen to anything they say. They lie, just to lie. Actions count, but they will talk and claim every abuse under the sun. It is a game to them, don't play it. It sounds like you are already. Stay focused. Evict, cleanup, sell. Next item. Next.

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