All Forum Posts by: Michael S.

@Melissa Nash - just curious, you mentioned "appraisals are having a hard time keeping up" - is this your first hand experience?  I have not heard of this being an issue whatsoever for other Huntsville investors presently, so I am curious to hear your experience in this regard.  

As far as overpriced, this may be true - the problem is that quality inventory is ridiculously low right now in A/B neighborhoods that is under 2000 sq ft.  

Huntsville, Birmingham, Montgomery, and Mobile are all very different cities.  The crime rate for the state in general is irrelevant when you are evaluating each individual location.   

Now, that being said, you can find crime in any of these cities if you plan on investing in C/D neighborhoods.  

@Shannon D. - As others noted, city of Madison properties are very desirable - currently, there is little inventory, and the best properties are in multiple offer situations within 48 hours of listing.  I could not comment on Athens, as I have never looked for investment properties in this area simply due to distance and my property manager not covering that area.  If you want to get a Madison property, you need someone on the ground here who can check out the listing for you within 24 to 48 hours of list, and you have to be prepared to write an offer immediately with funds ready to go.   

I agree with @John White.  We also have zero properties in 35810, and are unlikely to consider any options in this zip code in the future.  I agree with the C+ to D assessment.

If you proceed with purchasing a property here, you should do it solely based on cash flow.  Appreciation is not something I would bank on - in fact, should the economy here ever notably worsen in the future, you could potentially take a loss in this zip code.  

There is additional debt to also consider here. . .the cost of buying into a practice, or starting one on your own if your current group does not work out.  Also, potentially buying into your office building should your practice own it.  

In light of this, I would recommend holding on real estate investing until you have a handle on what these endeavors will cost, and how you plan to fund it. Once you are settled into a practice for the long term as an owner, and you've vetted the option of owning your own office building, then revisit REI otherwise

@John Moore  The comment about different areas of Huntsville growing at different rates is absolutely spot on.  Some of the zip codes I see out-of-state investors buying houses in makes me shake my head, because they are in for a rough ride - several of those zip codes will see minimal appreciation, and are ripe for developing D class neighborhoods as the city grows.  A lot of those duplexes you referenced are likely C/D neighborhoods.  

While Huntsville is not a big city by any stretch, it still has pockets that will continue to be in demand and rapidly appreciate, and areas that investors will be dealing with frequent evictions and headaches for years to come.  Spending time studying the city and surrounding area can really pay dividends for you long term.  Those who say "I got a killer deal in zip code 358**" and really have no idea about the city...well, they will see soon why they got a killer deal there.  There are no killer deals right now in the high demand areas unless perhaps it is off-market.  

We bought a property that currently has a negative cash flow of 75 dollars a month (on a 15 year amortization, not 30 year, however).  

A lot of folks on here would say that was a bad move.

Well, the land alone is worth more than we paid for the house, as it is in an A+ neighborhood in downtown Huntsville.

The neighborhood is in enough demand that half the homes on the street have already been torn down and rebuilt with $700k homes now in their place (as in they have sold for that much, not appraised).  

Have already been contacted with an unsolicited offer to buy our property (which we promptly declined).

So there can be opportunities that are excellent without good cash flow.

As @Carl Fischer mentioned, you essentially have already pierced the corporate veil on this property. The property should have been purchased by the LLC itself, and the loan should have been originated with the LLC as the sole name on the loan. Any other manner essentially throws the asset protection by the LLC out the window.

I suppose you could "sell" the property to the LLC itself, but now you are spending a lot of money on closing costs in this manner. However, it would be much "cleaner", as the LLC then is recorded as the sole legal owner, and the loan is issued solely to the LLC for the purchase. That way, in theory, you have restored the "veil" of asset protection.

Disclaimer - I am not a lawyer, and no legal advise is being offered.  Only my 2 cents from experience.    

@Joseph Charles

Your one comment here concerned me:  "I can run up the number of properties very quickly"

That is a red flag for failure.  Just going out and buying a bunch of properties because you "can" is not the way to do this.  

First, figure out your business strategy. Buy and hold? Flips? BRRRR? SFH? MFH? Business partners? Loan strategy (ARM, 15 year, 30 year, line of credit, HELOC, hard money, etc)?

Once you have your business plan, figure out your location to focus on - local?  Growing market?  Turn key OOS?  A, B, C, D class properties (would strongly recommend against D class for a new investor by the way).  

Then, once you have your plan, WAIT until the right deals present themselves.  It could be 3 at a time (very unlikely but does happen) or one every 6 months.  

How to avoid going bust?  Avoid "settling" on properties that don't fit your goals.  Never buy a house you couldn't sell tomorrow and get your loan paid off at least 90% in full.  Stop buying properties if you could not pay the monthly debt payment on the notes on ALL properties simultaneously for 3 months without wiping out your savings and other investments.  Avoid high risk properties (some C and all D class) until you are experienced.

This is not an exhaustive list but will get your started

Good luck.

Agree with the points made by @Jeff Schechter;  here's some of my own thoughts (disclaimer - I do not know anything specifically about the Indy marketplace, and am drawing on my knowledge and experience of the landscape here in Huntsville):

-Throw out the 5% appreciation for several reasons.  Number one, the turnkey seller does not have a crystal ball.  Number two, you lose a lot of appreciation "potential" given that you are paying a retail or higher acquisition cost on the house.  Number three, turnkey is not the way to go for an appreciation play - especially when your personal knowledge of the market is not comprehensive.

-Insurance costs will increase with time.  Their rates didn't change.  Bad assumption in my opinion.

-5% increase in rent is really wishful and probably not realistic.  That would imply a rapidly increasing population to that particular part of the city with a flat or diminishing amount of SFHs.  

-If the deal was that good, it probably would have been gone in 48 hours given the number of investors that are now in the Indy market.  

-I would not pay anyone $5000 as a "coordination fee".  That's almost 4 months of rent for this property, and not including the fee to place the tenant also.  Subtract that from the cash flow, and you're negative cash flow year one.

-The 8% property management fee is the most reasonable thing I see on the analysis.  That's better than we pay (10%), but we don't pay a month's rent for placing the tenant.