All Forum Posts by: Leonard L.

Welcome.  I am also a real estate attorney turned real estate developer and investor.

As a lawyer, my first question is always how difficult it will be to get the tenant out.  CA and Riverside law very favorable to landlords, but the fact that he has been in house for so long will mean he will have sympathy of any fact finder.  Eg, has he suggested in your conversation that suggest he had an agreement with former owner of some sort?  Chances of him hiring lawyer?  Even if he only sues prior owner and records lis pendens on property, he could tie the property up for 1-3 years.  Or he could maliciously trash it on way out and your rehab number could go way up.  

If that is medium to high risk, I would do as @Leigh C suggests and show him how you could flip for $225k but willing to deal with him at $180k with seller take back.   Maybe even just take $145k if I were convinced he could not support more and the tenant risk is very high.   

But assuming you think this is all low risk and that he will go quietly into the night, then let's move on to other considerations.

I would almost always choose the renting angle when I get a great price because I get cash flow and appreciation.  But whether I would suggest this route you depends on your interest rate and your view of the future of the Riverside market.  

First, interest rate.  At a hard money 10%, you are paying $12.5k in interest and even if $1700 is right rent (seems high for a mobile but I trust you know this market better than I), doesn't seem like you are clearing much free cash after taxes, insurance, repairs, vacancy, etc.   With sweeter financing of 5%, this generates good cash flow.  

Then, your view of the future of this market.  John Burns among others think the Riverside market has gotten ahead of itself and may be due for either a correction or at least very flat appreciation until incomes in this area increase.   That would suggest flip rather than hold.  But I assume you have your own opinions on this important issue, but where you stand on this would very much drive what I would do.  

On the income side, I would be even more tempted to hold if I could maximize the income with some sort of fraternity or group house play.  I would definitely explore this.  But frats tend to like stick build and code issues could make group concept impossible, especially since this is already on code enforcement radar.

UC Riverside reputation is ascending, there are several large new development projects in planning stage nearby (including huge master planned community immediate to south of university along I-215), UC Riverside has a dearth of student housing and thus ample demand, and I personally see continued appreciation in this market over the next 3-5 years.  So if this were my deal,  would evict, rehab and rent. 

Gas over induction.  Wolf is very memorable for higher end buyers as OP correctly recognized.  Some of my foodie friends have gone induction, and I love all the technical arguments.  But after cooking at their houses among large group of food lovers, the few who love induction were far outweighed by the traditionalists who would not trade the control of gas for anything.  If I were targeting this demographic, I would go gas every time.

I have many rental properties in Inland Empire.  Some cities require you to have a separate business license with the city in order to be a landlord and collect rent (eg, Hemet) and some don't (eg, Lake Elsinore).

@John Schofield    When you say "these deals in the LA area" I assume you mean the LA neighborhoods I have been looking into, as opposed to my Inland Empire deals.  I have not decided on neighborhood yet in LA, so have no deals there to tell you about.  

@John Schofield Hard money investing requires a lot of knowledge.   For example, do you need a license to lend money secured by real property in California (answer, yes, with some exceptions).  Also, if the loan is not mediated by a licensed broker, you are subject to usury and other restrictions.  These are among the many traps for the novices.   Due diligence, legal documents, finding borrowers, turning your capital, all of this can add up to as much time and trouble as wholesaling if you are doing it all on your own.

There is the partner route suggested by @Mark Mynhier above.  This is a good idea.  But it does not answer the question of what strategy you should pursue, because you could as easily partner with a hard money lender as a wholesaler or fix/flip guy.

My advice is not to give up on buy and hold.  Personally, I am willing to trade cap rate for equity, meaning I would rather own the asset and have a lower cap rate than have no equity but a higher return (which is lending).    Are you better off with a 5% cap rate and equity, or a 10% cap rate with no equity?  There is no correct answer, since that depends on your view of future market appreciation, by definition uncertain.  But if you are thinking buy/hold, you are probably a believer the power of long term appreciation.  Also, if you are willing to use mortgage debt, buy/hold allows the power of leverage.  Again, something you can't easily get without owning the equity.

I buy mostly in the Inland Empire, which is closer to me in OC than it is to the Valley.  I was lucky to buy many of my assets in 2010/2011, which means I have been spoiled with a 10%+ unlevered return as well as excellent appreciation.  Those days are gone, of course, but I still manage to find deals with get a 5-8% return from time to time.  However, I am looking to move closer in and have been hunting through LA's neighborhoods myself in trying to decide where my next play is.

My thinking has been influenced by David Schumacher's book - Buy and Hold.  I believe in the future of Los Angeles and think that if you buy in a decent neighborhood (looking in parts of Hollywood, Echo Park, Mt Washington, USC adjacent, and other transforming areas of LA), get a tenant to pay the mortgage, then repeat as often as your capital allows, you will look up in 20 or 30 years and have both substantial income and massive asset base.   Personally, I am skeptical that the same will be true if you follow the advice of many here at BP about investing in distant markets (cough, Detroit).

Good luck.

@Account Closed really immerse yourself in this site and try to get a sense of what strategy speaks to you - buy/hold, fix/flip, wholesale, etc.   Learn the basics of that strategy.  Then you can reach out to the community here with more in-depth questions.   Maybe you decide you like the yellow letter strategy, for example.  Learn about it, send your first letters, and team up with a partner (your dad would be a good start) to fund your first buy or flip.  

I am not an expert at any of these strategies necessarily, but feel free to reach out further to me or anyone else above with future questions.  Again, welcome. 

yes, see a professional, but here are the general guidelines in California:

a tax sale should wipe out all private mortgage liens but the big danger is tax liens (IRS, etc).  It is extremely risky/foolish to buy without calling a title agent and having them run a quick check to make sure there are no government liens against the property or the owner.

I should disclose that I am a real estate attorney, although I pretty much work full time on my development and investment business nowadays.

I am also happy to steer you with the right questions if you can provide a little more guidance of what you are looking for, in terms of why you think you need an attorney. Vast majority of SFR transactions in California are done without one.