All Forum Posts by: Mitch Messer

Hi @Marvin McTaw. Unless you have a compelling reason to offer owner financing, such as an enormous down payment from your buyer, I'd strongly recommend you lease-purchase.

First, Dodd-Frank is a hassle, and will require you to work with a mortgage loan originator (MLO) who understands all the rules and regulations. Also, should you have problems with these residents down the road, lease-purchase (at least here in GA) offers better and faster provisions for getting your house back and them out.

Does the buyer have a plausible reason for not having a SSN? My suspicion is that they might have one, they'd just prefer to give you a tax ID instead. You didn't mention whether you had obtained pay stubs yet, but that would be the definitive source of info. If they are earning legitimate income, they are probably paying Social Security taxes: One way or the other, Uncle Sam is going to get paid! Might be worth taking a closer look.

Good luck and let us know how things work out!

Hi @Charlene Garrison! If you are just starting out, I would strongly encourage you to wholesale these deals to a landlord, rather than becoming one right now. Right now you are busy learning marketing, and marketing is the #1 skill to develop as an investor. So, stick to mastering that and the world will be yours!

That said, here are my answers to your questions:

What other data is needed regarding the rentals? In addition to taxes, insurance, and year built, you'll also want to know:

• What are the rents and are they consistent with the surrounding area?
• When do the existing leases expire? How long have these tenants been in place?
• What's the overall condition of each property? Any deferred maintenance? Any major recent repairs?
• Who's currently performing the property management function? How much is it costing?

Can private money be used for property maintenance and taxes as well as property purchase? Absolutely, private money is just funding from regular individuals. You can use it however you need, as long as you're paying the private lender their negotiated rate of return.

The real question here is does private money make sense for this situation. Let's say your net return-on-investment from this deal would be 10%. If you have to pay a private lender 9% to borrow the money to do the deal, you can see that it stops looking like a deal pretty quickly!

If this is truly a great opportunity, sell it to a hungry landlord, make a quick buck, and reinvest that money into your marketing. At least, that's what I would do!

Good luck!

Hi @Jeff Burns, welcome to BP! Yours is a good question. Actually, it's two questions:

How do I protect myself from a buyer going direct to seller? Provided you have a valid contract with the seller, you can record an instrument (e.g. an Affidavit of Purchase and Sale Agreement) with the deed clerk that formally announces your intentions as buyer. The idea is that, if buyer and seller then try to close without you, this instrument would be flagged by the title agent as a cloud on the title, thereby halting a sale until resolved.

Couldn't the buyer wait out my contract with the seller? Yes, they could, but serious buyers make money buying, not waiting. I wouldn't worry much about this one.

The real solution to both of these questions is to always offer real value to your buyers. If you are presenting truly great deals to serious investors, you're going to be their new best friend. There's no way they're going to jeopardize that relationship just to save a few bucks in wholesale fees. If they did, you'd never send them another deal.

Hi @Raul Otano! The good people over at RealtyTrac appear to have answered this question for you: http://www.realtytrac.com/real-estate-guides/foreclosure-laws/

Hi @Brad Schmitz. Your question (self-manage or pay a property manager) is a fair one, but your example concerns me a bit. Even if you had chosen to manage that property yourself, you would still be ill-advised to repair that faucet yourself. That's not self-management: That's being a contractor!

Embedded in that $150 bill is the material cost, the time expense for the plumber, plus the (management) expense for someone to process the repair request, coordinate the repair, verify the repair, pay the plumber, and then generate that bill you saw. You need serious systems and well-trained personnel.

To me, property management covers the handing of client issues (non-payment or late payment of rent, lease renewal), repairs and maintenance, and property admin (payment of property taxes, insurance, etc.). Unless you have serious landlording skills, or a burning desire to develop them, I'd leave it to the pros.

If your goal is to build your portfolio, then I strongly recommend you focus on that and avoid the distraction of property management.

Hey @Austin Faux! Looks like a good deal, but note two things:

• Assuming you plan to credit the full option payment toward the purchase, you're double-counting the $10K in your profit. After 36 months, once tenant/buyer (T/B) is ready to close, their purchase price will be $82,995, not $92,995. In fact, if you spend the $10K long before closing, you'll actually have to come out of pocket $5K to close, so be careful.
• If you do get two T/Bs in succession, you should plan for at least a light rehab (paint, carpet) between them. After three years, the home will likely need it.

I agree with you, though: As an out-of-state operator, I would definitely wholesale this to a local investor. Your ability to create owner financing generates massive value out of thin air. Everyone can't do that, so investors will pay those wholesalers who can! Good luck!

Hi @Drew T.! Your expenses seem mostly reasonable, but I would suggest that vacancy is more a function of the landlord than the location. Just because an experienced landlord is seeing 5% doesn't mean every landlord can expect the same. I'd recommend you assume 10% vacancy.

Also, you seem to be missing management expense. Someone will have to deal with the tenant and their issues, either you or a property manager. Here in Atlanta management fees run 8% - 10% of the rent.

Hi @Douglas Booth! We've had success for many years using Rentals.com to market our homes. Our most recent listing was for a 3/2 lease-option for $995/mo and $3K non-refundable option consideration. Ad ran for 30-odd days (Aug 8 - Sep 7) and generated 104 leads (55 email; 49 phone) with 10K search impressions and 516 unique visits. Best of all, the qualified tenant/buyer we found came through Rentals.com.

For the record, this was using their "Standard" ad, which at $60/mo is the cheapest option available. Standard gets you 10 photos in the ad, plus placement on their Rentals.com, Rent.com, and RentalHouses.com sites.

And, no, Rentals.com isn't paying me to say this (although, perhaps they should...)!

Hi @Laurie Johnson! We do work with bird dogs. Usually they find us and BP has been a great place for many to do so.

Look for small- to medium-sized operators (Google "we buy houses <your-local-area>"), call them up, and see if they are open to receiving leads and then paying if they buy the properties.

The biggest challenge of being a bird dog is quickly learning how to recognize a bona fide deal and not waste your time (or the operator's) with non-deals. You've often got to kiss a whole bunch of frogs before finding a prince. It's your job to find the deals that we can't find on our own.

While it is hard work, it's probably the best practical training in deal recognition and acquisition, which I consider to be the #1 and #2 skills of a successful real estate operator.

Hi @Account Closed! Just so we're on the same page: If ARV is really $230K and the cost to repair is truly $40K, then the absolute most anyone should pay in cash for this home is $190K, right? So their $210K asking price is probably not what they are (or should be) really expecting. As the expert, it probably falls to you to break the news to them.

If what they really need is an income stream, you should definitely make them an offer involving seller financing. For example, you might offer $200K as follows: $25K down and $1500/mo until the balance ($175K) is paid in full (in just under 10 years).

Do I need to say this constitutes zero interest financing?

You could then either do this deal yourself, if you have the down payment and repair money, or wholesale this sweet deal to another investor who does. If you were to sell it for the same monthly terms but asking $35K down, you could walk from closing with $10K in your pocket with zero repairs and zero hold time!