All Forum Posts by: Michael Rossi

drweltman,

If you are still sitting on that property, then I would recommend rapidly lowering the price to get rid of it. Obviously, it is continuing to cost you money and it is counterproductive to hold it. Usually, the early loss is the smallest. If you had dropped the price faster several months ago, you would have probably gotten rid of it. Now, the same situation still exists, except that you've lost money every month from then to now. That money is gone forever.

When you factor in that the current market is very fragile; that a recession is looming; and that an avalanche of foreclosures is pending; then holding a bad property is VERY RISKY. I'd drop the price and unload that alligator. Take your losses and lick your wounds. Live to fight another day.

Good Luck,

Mike

Pam,

It is not silly to have feelings for a house that your husband put a lot of work into, however it is not good business. It is like a grocery store owner falling in love with a certain load of groceries and refusing to sell them. Well, maybe it is a LITTLE silly.

If you are only planning to have one rental, you'l probably survive one bad rental. However, if you plan to run a rental property business so that you and your husband can get out of the 9-5, then you will have to do considerably better. The vast majority of newbies fail in a short period of time and the number one reason is lack of cash flow. You just need to decide whether you're doing this to make money or as a forced savings plan. For me, the only reason to put up with tenants and all the hassles is to make money.

Good Luck,

Mike

Pam,

Your mother's problem is very normal and predictable. It is usually caused by paying too much for a rental and therefore having insufficient cash flow to cover expenses. Lack of cash flow is the number one reason that landlords fail.

You should learn that lesson from her and not rent your house if it will only break even. That is a losing proposition. I would sell it and buy a proper rental if you want to be in the rental business.

It is also important that you understand the real world expenses associated with rental properties. Most new investors far underestimate the operating expenses and that is usually a fatal error for a new business.

Good Luck,

Mike

My only comment would be that you might have the house priced too high. If it's appraised value is $115K, why do you have it priced at $129K? Pricing a property above the market price is not a good way to sell a house quickly.

Also, I would consider your local market. In many parts of the country, the inventory is rising and the market prices are beginning to fall. If that is the case in your area, you need to be priced below the market.

On future deals, I would try to buy at even a bigger discount to guard against a looming housing market meltdown and recession.

Mike

If you have many properties, you certainly don't want to hold all of them in one LLC. A claim against one property could wipe you out.

I use multiple LLCs with no more than 10 rental units per entity. I also arrange them by risk. SFHs generally have the lowest risk while low-income apartment buildings have the highest risk. I put SFHs in an entity together and low income apartment buildings in separate entities. As your portfolio grows, you will need many entities.

Good Luck,

Mike

Tenants are almost never thrown in jail for damaging or stealing the landlord's property. This is usually considered a civil matter and the police won't touch it.

I have had two incidents where the tenants did about $2,000 worth of damage (materials only). The worst I have seen is one of my friends who had a tenant plug all the drains and turn on the water. They also ran a hose from the faucet into a register, ruining the furnace in the process. The water ran about 3 days before my friend realized it. This was about $10,000 worth of damage.

This is why you MUST have adequate cash flow from your rentals. When people buy properties that they think are break even (or very low) cash flow, they mistakenly think that these things won't happen to them. As your portfolio grows, you will personally experience all of the horror stories: dealing with drug dealers; BIG damage done by tenants; lawsuits, evictions, etc. All these things happen with predictable regularity.

We thoroughly screen all tenants including doing a criminal background check. We had a young girl on section 8 with a baby. She had no criminal history. After being in one of our apartments for a few months, she started doing heroin. We evicted her last month. They broke 3 windows including 2 window frames, 1 door, nearly destroyed the new carpet, there was human feces in the bathtub, removed a ceiling fan, knocked several holes in the walls; drew on the walls with permanent magic marker, etc. This is fairly normal for evicted tenants and not what I would call a horror story. I've had much worse.

Mike

Please forget everything I said.

I simply answered your questions honestly and replied to the information that you supplied. I used the information that you posted in my responses. I didn't make anything up. In the rental business, cash flow is King. Without cash flow, the vast majority of new landlords fail in a short period of time. I guess you'll just have to learn this for yourself.

I will do you a favor and not respond to anymore of your posts.

Good Luck to You,

Mike

Tjewel,

In my opinion, the next few years will be quite bad for the economy. However, for those that know what they are doing, they will also be times of GREAT opportunity.

If you wanted to make fast money flipping - you are too late. That ship has sailed and the market is in the early stages of fundamentally changing. I believe that the next few years will be a good opportunity for those who run rental property businesses. The key to doing so successfully will be to BUY AT A HUGE DISCOUNT! Also, CASH FLOW will be King (it always has been).

Get educated on the rental property business. Understand Cash Flow and understand Landlording issues. Write a business plan that will ensure success and then FOLLOW THAT PLAN!

There is no reason to be discouraged. There is every reason to be optimistic IF YOU KNOW WHAT YOU ARE DOING!

Good Luck,

Mike

I am not being negative, just telling you the truth. You asked about the deal and I explained why this is very marginal as a rental (although not as a flip). You have chosen to ignore that.

You thought expenses were only taxes and insurance. I told you the truth and then you pointed out that this is a nice house (as if that makes any difference).

You have already done two loans claiming that your investment properties were a second home and were contemplating another. I pointed out that falsifying a loan application is mortgage fraud.

Do you want to be coddled or do you want the truth?

Mike

Yes,

If you're claiming it's a personal residence when in fact it is a rental, that's MORTGAGE FRAUD! I would get a new mortgage broker. There is absolutely no reason not to do things legally and this broker is helping you commit a crime. The reason he is doing this is that the interest on owner occupied homes is lower than non-owner occupied. I would either consult with an attorney or simply not close under those conditions. This is a TERRIBLE way to start out your investing career.

The insurance is also totally different. If you have homeowner's insurance on the home and the house burns down, the insurance company is not going to cover your claim if there's a renter in there.

All of that stuff is irrelevant. Operating a rental business is about making money, not losing money with a nice looking house. As I said before, this isn't a terrible deal (except for the mortgage fraud), but it is not a good one. You need to learn how to calculate cash flow BEFORE you do another deal, otherwise you will be joining the vast majority of newbies who fail in a short period of time.

Good Luck,

Mike