All Forum Posts by: Michael S.

Ryan,

Most of the info you need to get started is "free" in books. Over the years I attended quite a few of these guru presentations always as friends' plus one guest.  The presentations are almost all the same with just the name of the presenter changing. The strategies require a good amount or luck and effort and sometimes finding and taking advantage of a seller with equity. Then there is an upsell for another strategy.  

There are plenty of good real estate books.  Read the books.  Learn the basics.  Buy a home and house hack.  Keep it simple to start, then eventually take on leverage to amplify your winning strategy.

As part of being a landlord you with sometimes encounter repairs that require the use of a skilled trades person, such as extensive electrical or plumbing repair.  In this case you need to hire a local attorney who specializes in landlord tenant law and evictions.  

You may want to work with the tenant, if they are generally a good tenant and the vacancy they create may take more than a few months to fill, but the legal contract for this should be drafted by your attorney, not the tenant.

Review your Purchase Contract carefully.  Regardless if the contract is a standard Realtor contract or a builder specific contract, there are usually a few clauses in the contract outlining scenarios when the earnest funds can be returned.  Often there is a clause referring to purchaser's failure to qualify for financing. Failure to qualify for the loan is traditionally the #1 reason a buyer gets their earnest money back.  Another "out" allowed for the buyer is during the inspection period, but the inspection out is not a guaranteed out since the seller may agree to all inspection repair requests to keep the contract alive. There are a few other ways to cancel a contract and retain your earnest depending on your situation.  Best to consult with your (buyer's side) agent and your lender.

Good luck!

I just challenged an appraisal this month. Appraised value increased from $164k to $229k. Here's how I did it in 6 steps:

1). Review the appraisal report, look for better comparable properties, inaccuracies in the report, and overlooked upgrades in the subject property. Carefully review the comparable properties used by the appraiser. In my case the appraiser failed to use the home home next door that sold the month before and instead used homes that sold a half mile away. Additionally from reading the original descriptions from the realtor MLS listings I found that one of the comparables was sold at auction.

Look for anything inaccurate such as the sqft or the appraisers assessment of the condition of the home, perhaps there are upgrades that need to be be brought to the appraisers attentions.  

2). I submitted the better and closer comparables to the appraiser along with a list of renovations and upgrades that were overlooked.  The appraisers response was to disregard these findings.  (Sometimes step 2 has a better outcome). 

3).  Confident the original appraisal was wrong, I worked with the mortgage broker and a new appraisal was ordered at my expense.  

4) New appraisal came back 35% higher with the use of more accurate comparables. Mortgage broker has requested a refund from the first appraiser due to their incompetence. 

5) Await completion of cash out loan at corrected higher appraisal. Await refund check for the original appraisal.

6).  Reinvest the proceeds and assure your spouse that you are not going out of your way to add more stress to your life, just the opposite. :)

Good luck!

Unless you have an immediate use for the land, it can often be a small alligator and tie up investment funds.

By "alligator" I'm referring to the negative cashflow vacant land generates with expenses such as property tax and weed abatement issues.  Additionally consider the funds you will have invested in the land and opportunities/alternative investments you have to forego with finite investment capital.  Also consider it is usually easier to refinance a house and pull out your original investment versus land financing.

When I've looked at the land vs rental house equation I've always choose rental house.  Both should appreciate overtime due to the devaluation of the dollar but the rental house provides both appreciation and monthly cashflow. Factoring in the cashflow, the rental house is usually the winner in the equation.

All that said, there are still a few land deals I wish I had taken because the land was so mispriced/undervalued to the surrounding area.

@Jason Crowe    Thanks for the reply.  I'll give them a try along with the other lenders I am reaching out to.  If anyone is interested I'll post the results.

Question:

In today's market what mortgage rates are you finding when refinancing your investment properties?

Why I'm Asking:

I'm in the processing of shopping around rates/APR to refinance some rentals and put the equity back to work. I'm beyond 4 mortgages so my my recent offer was 5.3%.  In the past I've paid 0.5% to 1% above the primary residence mortgage rate, but the current rate is 1.6% (5.3%-3.7%) above the primary residence mortgage rates. What rates is everyone else finding for cash out refinancing on their investment properties? (Especially for those who have more than 4 mortgages).

Hi Michelle,

Yes, this can be done.   

Here is my experience: The lenders that I've worked with will complete the long term financing (30 yr mortgage) even before a tenant moves in. The loan takes into consideration a percentage of the projected monthly rent. This projected monthly rent is then used to off-set my DTI (debt to income ratio) when qualifying for the new mortgage. The only holding period I experienced with this method is that the home had to be in appraisable condition, i.e. I could not have the toilet in the hallway as it was at the time of purchase :)

First have your lender lined up and know your numbers (APR, etc).You don't want to tie up all of your cash and then be stuck for months trying to find a lender to work with. When I first started out, I ran into some dead ends with lenders stating they could provide the financing but failed after a few months and a small mountain of paperwork.

With the exception of the first 2 mortgage, traditional banks would never work with me.  For mortgages 3-10, I worked with mortgage brokers who were able to think outside the box.  Mortgage rates for investments ranged from 0.5% to 1% higher than a mortgage rate for a primary residence.  

After renovations, I did the cash out. One thing that I experienced is that the specific mortgages I used would allow for the lesser of the appraised value or the purchase price. So in your example of purchasing a 100K house my cash out was 100k even though the appraised value would be 130K. I was able to complete this method many times.  My investment in each house was the repair costs and the original capital would be redeployed to the next acquisition.

Good luck!

Let the numbers help you with your decision.  Try to find something that offers you positive cash flow each month.  If you are living in half of the duplex, on paper you can add in the amount you would be paying for rent.

 In Los Angeles it can be difficult to cash flow on a rental, so you need to take into consideration appreciation, both "forced appreciation" and local market appreciation.  Forced appreciation refers to the increase in appreciation from your improvements and repairs of the property, such as finding the worst house on the block and improving it.  

Monthly Cash Flow keeps you in the rental game and provides you with the ability to pay the mortgage on the investment but the extra cash flow provides you with a pat on the back each month to keep going and sometimes tolerate undesirable tenants.

In the event there is a recession "R", your monthly cash flow should help you to get through the though times.  Rents as percentage,  usually do not proportionally fall as much as home prices during an "R".  A little bit of cash flow (after expenses are paid) can really help you to make it through an "R". Keep it 30 years and you will probably experience 3-6 recessions during that time, but at the end of the 30 years (provided all mortgage payments are made) you will have a paid off home in the Los Angeles area.

Final note: Try to make your money going in and always look for multiple exit strategies.  Buy it right so that you can choose to flip it or just keep it and rent it.  Many of my acquisitions started as a possible flip but I kept them as rentals.

Final Final Note: Not are recessions are the same.  I think everyone still has the severe 2007-2009 recession in mind but some are very mild.

Good luck!

I'm sorry that you are experiencing this with your rental. Events such as this will really test your landlording fortitude.

I experienced something similar years ago on my D class property.  I became aware of the situation when the local police called to let me know that I was flooding the street (apparently the thieves were not considerate enough to turn off the water when they stole the water heater).  In the D neighborhoods the cash flow returns appear greater in theory, but in reality the area will always create additional wear and tear.

My solution was to build an enclosure to conceal the exposed water heater, adding "fake" security cameras (real are better but it wasn't in the budget at the time and still did the job). Additionally left a light on inside the home and spoke to the neighbor about the situation. Taking these measures prevented another theft, though it is possible the thief was just all stocked up on water heaters ;).

**Of special note** The thefts are greatly reduced when the home is occupied with a tenant.  This leads to another set of problems, because I was always really motivated to have a tenant in the home and we were not as picky as we should have been.  Because occupancy reduces the incidence of theft, you may want to wait to replace the AC until you have a tenant.

Ultimately the problems of the extra wear and tear and the quality of the applicants motivated me to eventually sell years later for a 3x gain. The proceeds were 1031 exchanged into a better C class neighborhood. Compared to D class, buying in a better (C class) area has many benefits such as less turn over, few unforeseen "emergencies" and problems.  This leads to a savings in time and frustration that lets you focus on your next acquisition.

Hang in there!