All Forum Posts by: Michael Hayworth

Well, it's getting hard to make rentals cash flow down here at all. Somewhat depends on what sort of mortgage you have on them. Easier if you're buying personally on 30-year notes at residential rates instead of buying in an LLC on 15 or 20 year notes at commercial rates. But I have rentals all over the DFW area. While I know there are some city/ISD combos that are more expensive (City of FW/Keller ISD is going to be more expensive than NRH/Birdville ISD, for example), my sense is that your examples are the extremes. Most city/school district combos shake out around $2.40-2.50/hundred. What city/ISD combos are you citing in your example?

A foreclosure auction, tax auction, or what? There are hardly any foreclosures happening right now, since anything with a federally guaranteed mortgage is under moratorium.

But to answer your general question assuming it's a foreclosure auction: while there are differences from state to state, there are no states in which foreclosing on a secondary lien cancels the primary lien. I have seen someone spend $60K cash on a property, thinking he was going to go flip a house, and then realize he was in 2nd position and would likely never see his money back. Buying at auction has all kinds of challenges, and I strongly recommend you go to a few and watch before you plunk down money. 

@Michael Scrogan

Texas has no state income tax, so accounting isn't very complicated. Any decent CPA should be able to handle it. My local Texas CPA handles tax filings for my property in Indiana without any issue.

I've been investing in Texas for 11 years now and have yet to need a RE lawyer. Not certain why you'd need one unless you're doing something unusual.

The whole "putting together a team" thing sounds great, but until you're actually involved in a deal, the team is largely theoretical. If you talked to a contractor a month ago about your plans, don't assume he'll really be attentive if you get a deal 3 months from now.

Been investing and renovating for 11 years. Probably 70ish single family homes plus a handful of multifamily. Only now, with tons of experience and a sizeable infrastructure around me, am I even starting to think about OPM.

I know many investors are much more aggressive than I am, but their natural constituents are family & friends. I grew up in a family business and saw the fights that money can cause. Then for 16 years, I owned an advertising company that focused on small businesses. Met with hundreds of small business owners over that time, saw dozens of them have difficulty in their family/friend relationships if they took investors and made promises they then couldn't keep. It can kill relationships.

At this point in my journey I've got enough experience and had enough friends ask me to help them invest in RE that I think I could ensure them a good return, but many of the OPM structures are set up to guarantee the primary emerges unscathed even if the investors are left with nothing. That's maybe OK for an arms-length investment, but I just think it's wrong if you're taking money from friends & family.

Welcome. The DFW market has been very good to me, but it's getting tougher and tougher. The two biggest things are finding deals, and accurately estimating reno costs. Dozens of wholesaler deals come across my email every day, and only a small percentage are actually deals.

If you've good deep cash reserves - i.e., you can afford to make a mistake without it killing you - then do the best you can and just jump in. There's no book learning that can substitute for actually doing it. (Plus, the "team" you're describing is only really a team if you have projects for them to work on.) If money is tight and you can't afford to make a mistake, maybe see if there's a way you can make yourself useful to an established investor, go through a project with them, and soak up learning.

I do recommend spending the $100/mo or whatever it is for a Propelio subscription and learning how to run really good comps.

Good luck!

There are a lot of bad property managers out there, just like there are a lot of investors who really don't know what they're doing. I don't know either @Lucia Rushton or @Kyle Mccaw, but I can say that people I respect have recommended Kyle's firm to me if I decide to outsource some of my properties. (Currently have ~30 units managed in house by one of my employees.)

Hi, Kris. Fellow Hoosier here. Well, really a Texan now as I've lived here for 35 years and love it, but Indiana is still dear to me.

I honestly didn't even realize there were franchised property management companies. But I've owned two franchise businesses among my several businesses, and known dozens of franchisees of various franchisors. For myself personally, I'll never do another franchise, but that's largely my personality. However, a franchise is only as good as the franchisor. What value do they provide? How will they speed up or limit your growth? What tools do they provide? Franchisors make everything sound great when you're looking at it, and when you do your due diligence, they'll carefully select which franchisees they let you speak with. But they do have to do public filings, so some of their success is a matter of public record. An attorney or business broker who understands franchise issues should be able to help you dig down into that. (Just be sure the broker isn't trying just to get you to close a deal on the business so he gets commission.)

Then there's a related issue of whether it even makes sense to buy a small business. Below a certain level, the money you'd spend to buy it could be better spent just starting your own operation. 20-25 clients doesn't seem like very many. I have ~30 rentals and one of my employees does the property management in-house. It takes maybe a third of a full-time employee's time, on average. Some weeks it eats up a lot of time, many weeks hardly any. If the average rent is $1200/mo and you're getting 8% of that, you're getting $96/mo per house, or roughly $2000-2500/mo. How much do you have to pay to buy this existing business that generates that revenue? (And remember, that's revenue, not profit - you have expenses out of that. How much of that do you have to pay to the franchisor? What are your other expenses?)

Usually, if a business owner wants to sell, there's a reason. Sometimes, it's that he's made so much money he just wants to go enjoy it, but that's not going to be the case here. I suspect this business is not really doing all that well. Furthermore, if you know what you're doing in property management, I suspect it wouldn't take you long to start from scratch and build a portfolio of 20-25 properties, without having to pay to buy that business.

@Jake Jordan

Fort Worth is a good market. It's getting very hard to find deals, so depending on your strategy, you may want to look a bit further out, but it's a good place to invest.

I've done it once with a 6000sf house that had originally been multi-family, then converted over the years. We got the zoning change and then got hung up in permits because we couldn't produce a parking plan that would have sufficient number of spaces.

As @Bruce Lynn said, if it's already zoned for multifamily, that's one thing. Fort Worth's zoning for that will be B (duplex), or CR or C (lower-density multi-family). If you're in one of the A zoning districts, it's very unlikely that they'll change it unless you can show that there are other multifamily properties in the area.

You have to go to the zoning commission, then if they recommend approval, to the city council. You'll definitely need the support of any neighborhood association, bc they can kill the deal. 

If you got all that approval, then you'd need permits and construction work, and it's not as simple as it sounds unless the house was really built as a duplex way back and has been converted somewhere along the way. It would have to be really profitable for me to consider all that. 

It can be worthwhile if you have a 5-star rating and a well developed customer service operation and sales team. It's often very hard to reach the prospect, so you have to have someone able to do ongoing follow up. We get decent results off of it, but I have a dedicated customer service rep to manage leads and two estimators besides myself to run estimates. Still, HomeAdvisor leads close at around a 20% sales rate, Angie's List at 25-30%, and repeat customers/referrals over 50%.