All Forum Posts by: Matthew Trotter

I would like to hear your thoughts, experiences, and stories!

So here is what I want: buy 1 rental property in 2015.

And here is the strategy: direct mail to single-family homes near my own home. I want to come across as "the guy next door" that you can trust will give you a fair deal. The actual dollar-amount I offer will never be retail price, but I want to put out an image of a trustworthy guy. I'll send out the mail in late January through early March (winter), when prices are generally lower for the year.

Here is my target market: any 3+ bed/2+ bath SFH within 5 miles of my home with 50% or more equity. Basically, this means family residences with owners that have been there awhile. To me, this proves the house is worth enough that a family would stay awhile - ultimately, that's what I want my renter's to do. According to listsource, there are about 5000 of these homes.

Here is the letter content:

----------------------------------------------

Hi Mr. and Mrs. Johnson,

I would like to buy your house. You might be having troubles with repairs, the bank, taxes, attorneys, or anything else. I’m here to listen and help work out a deal for you. And, if we work together, you can avoid the 3% buyer’s agent and 3% seller’s agent fees.

My current home is actually right around the corner in [condo community] on [street name] Street. You can tell I like the area, and I’m looking for a rental property nearby. I have two options. I could either stay in my condo and rent out your house, or do the opposite and move into your house and rent out the condo. I’m still deciding, and your house looks great either way.

If you’re interested, please give me a call on my cell at [cell number] or an email at [email address]. I hope to talk to you soon!

Sincerely,
Matthew Trotter

----------------------------------------------

What do you think?

Hi @Kurt Kwart how is the rehab going? Any new pictures to share? I'm getting excited imagining myself in your shoes. Also a bit scared too. Hire any contractors to do some work? All yourself?

@Mike Sumsky yes I see your point. I also forgot to include costs of ink and paper. And then there's the time spent putting the letters inside the envelopes and addressing them. Even with those costs, I believe it's still a great deal. 

I'm playing around with how I'm going to filter properties now. I'm thinking owner-occupants who are delinquent with at least 50% of principal paid. That way, I can offer to pay off their balance if they're in dire straights.

So, I just discovered listsource.com and how detailed you can make your lists of homes to direct mail. Very excited! My goal is to buy rental properties, and I was going to simply use an agent... but I found that the cost of using listsource may be much much cheaper. Here's my cost analysis:

• Costs:
  • Purchase a list of 3000 names and addresses from listsource: about $500.
  • 3000 envelopes: $114 (Amazon)
  • 3000 stamps ($0.49 each) : $1470
  • Total: $2084 or $0.695 per address

Now let's say that, after you send out letters to all 3000 addresses, 5% of call you back. Then, let's say that you visit the properties of 33% of those callbacks. And let's say that you buy 20% of the properties you see. These numbers are up for debate, but I think they're okay.

• Breakdown:
  • 5% call you back: 150 callbacks
  • go see 33% of callbacks: 50 properties seen
  • buy 20% of properties seen: 10 purchased properties
  • unit cost: $208.40 per purchased property
  • vs. agent: 3% of purchase price (usually to the seller, but still affects purchase price)

After reviewing these numbers, I am simply floored by how inexpensive it is to do this. If I get my listsource criteria just right by targeting only homeowners in my target market and no one else, then this can be very lucrative.

Has anyone done this specifically to purchase rental properties for themselves? Would love to hear your experience. I might have missed some costs as well.

No update yet, @Will F. I've been making offers through an agent lately. I like the hand-written note idea. Could get tedious to write 40 letters, but I could make it short and sweet.

That's great news, @Nathaniel Busch . As a single man with no kids, I don't mind moving around from home to apartment a few times in this process. I've got about $18k in the Roth IRA as principal deposits. I'll have to go see how much I deposited 5 years ago. Here is my understanding: Hypothetically, if bought a house on July 15, 2014, then I could withdraw principal for the down-payment from my Roth IRA that was deposited before July 15, 2009 up to $10k. Is that right?

@Elizabeth Colegrove , I will call my mortgage guy at the bank to see if I can get a 5% down conventional loan. Thanks!

Thank you both.

@Richelle T. I thought the $10k withdrawal was a lifetime amount. You can withdraw $10k multiple times as long as you live in an apartment for 2 years before each home purchase?

@Account Closed

Did you purchase the home with any sort of first-time homebuyer tax breaks or benefits like taking distributions from an IRA? If so, is it legal to convert that property into a rental property?

Thanks John. That is what I'm afraid of. I can easily get a bank loan with a low interest rate, but it's hard finding a lender who will do 90% LTV.

I have a question where I'm not sure of the legality. Looking for your helpful advice.

Here is the plan: I purchase my first home for $100k. I use $10k from my Roth IRA as part of a $25k downpayment as a first-time home buyer. I pay the other $15k of the downpayment from my savings. My lender is a private lender and not a conventional bank. I live in the home for a couple of years. So far, everything is legal and fine.

Here is where I'm concerned about the legality: Next, I buy a 2nd home as an owner-occupant and move into it. I rent out the 1st home while continuing to pay the monthly principal+interest payments to the private lender. I'm making positive cash flow, and things look good for me. I don't change ownership of the 1st home to an LLC, but I do get extra liability insurance. The private lender should be okay with this because we talked about this plan before I bought the 1st house and there is language in the loan agreement that indicates it's okay.

But what about the IRS and the $10k I took from my Roth IRA for the downpayment on the 1st house? It was intended for owner-occupants, not investors. Will there be a penalty? Will the IRS even be aware? Has anyone does this?