All Forum Posts by: Michael S.

If it is a prime location in Hazel Green, I'm sure it will rent.  However, I don't think the property will appreciate much, and nothing like the property appreciation being seen in Huntsville, Madison, or even Athens currently.  I am also not as bullish on growth in Hazel Green, but that's just my humble opinion.  

I think checking for a gas leak is a very prudent idea.  If nothing else, it would show the tenant you are taking their concerns seriously.

I would also do a search on the property history;   it's very possible the tenants did this as well, and uncovered something disturbing about the house that is the root of this.  

For those that don't have experience with an LLC, I can't emphasize this point enough - you can NOT co-mingle your personal and LLC holdings whatsoever, otherwise your LLC could be worthless if a lawsuit were to occur. People keep referencing simply flipping their holding into an LLC - it is not that simple. To be done correctly, it needs to be done with a lawyer to show a formal transaction occurred between you (and your SSN) and the LLC (and the LLC EIN). The mortgage can NOT be in your name whatsoever - it must be in the name of the LLC. The bank account? You guessed it - LLC. The LLC must file a formal corporate return, and issue a K-1 to all shareholders. The lease agreement? LLC. You have to cross every T and dot every I to make the LLC "legit" so to speak. Also, your state has the right to audit your LLC to verify you are running it correctly - this happened to one of my colleagues recently.

This is not to discourage anyone from doing LLCs - on the contrary, we have all our properties in an LLC. But we do it by the book and air tight so it is clear the LLC owns and runs the properties.

And no, I am not a lawyer nor am I offering legal advise - LLC terms vary by state, so it is worth the money to verify you have set it up correctly.

I will split the difference here - ha ha.  As @James Lowery noted, there is opportunity in 35805 - however, as @Hamlin Caldwell alluded to, you absolutely have to know the area/neighborhoods. . .a house on one street in this zip could be a cash flow winner, where as the next street over house with the same square footage could be a disaster/cash flow negative.  I would not recommend this zip whatsoever for out of town folks who don't know the city (unless they have folks on the ground here they trust without a shadow of a doubt).    

@Account Closed is correct that the medical industry is fairly recession proof.  The problem is that a lot of private practices are being slowly pushed into oblivion by insurance carriers and hospital systems for a multitude of reasons that are beyond the scope of this thread.  As such, practices owned by hospital systems will NOT be renting from you - they will be situated in office space owned (or to built) by the hospital system itself.  So you need to know the local medical community - is it heavily private practice (which is becoming rare)?  Or is it heavily hospital owned practices (or groups like Kaiser for example)?  In addition, you will be paying a very high premium for office space near hospitals, so watch your numbers carefully.  But this is not nearly a "sure thing" compared to 10 years ago, and much riskier now.    

Absolutely nothing comes close to the experience of owning your first investment property.  You can read all the books in the world, read every thread on BP, and take 25 courses...but none of that compares to the experience of actually owning, renovating (if applicable), and renting/flipping your first property.   

There are a lot of good points made in this thread.

In general, a property that has a negative cash flow is not a wise choice, as everyone has noted.  

However, @Dan H. made excellent points to consider.  There are occasionally scenarios where a negative cash flow does make sense long term.  It also depends on your calculation of negative cash flow - we look at negative cash flow relative to 15 year amortizations, not 30 years.  

We have one property that has negative cash flow with a 15 year amortization.  Why did we buy it?  The location.  It is in a AA location in Huntsville (if such a thing exists).  When it was appraised, apparently the appraiser laughed and said the land alone was worth more than what we paid for the property.    It has already appreciated since we bought it based on comps of the neighborhood.  We are happy to "lose" $100/month on it, as we could never get in this neighborhood again at that price point;  it was being in the right place at the right time with the money available to close quickly (which the seller wanted), and it was not a "low ball" offer either (agreed price was within 95% of asking price).   Rather than get paralyzed by analysis, so to speak, we jumped based on common sense understanding of what value the location had.    

@Luke Pierce - I don't know if I would call myself "active" per se.  My business partner and I do this as a side business - if the right opportunity presents itself, we are potentially buyers.  I am certain we have less properties than about 80% of the folks on BP, as we both have full time employment in a field not related to real estate.   I will tell you Huntsville is tough right now, as the cost per square foot has crossed into ridiculous territory in most of the city area;  there are limited opportunities in C/D class properties and locations;  but a B/C property in an A/B and even some C areas are in negative cash flow territory right now due to the asking price.      

Agree with @Anthony Dooley - you've got to read the market first before trying to read the seller.  The southeast in general is still very much a sellers market.  Expecting him to drop 70k off asking price, in this market, will likely be viewed quite poorly.  In addition, at that low of an offer, he likely won't return your phone calls if you want to negotiate further.  That said, don't let that deter you from future offers on properties - but definitely get a feel for the market first, and then do your assessment on the seller and property.  

@Kyle Marek  The property manager we use was recommended by our real estate agent.  However, I did my own research on them first, and then sort of "interviewed" them in person before signing on.  

I'm sure issues will arise in the future that aren't handled exactly how I would like - but, so far, so good.  Time will tell.