All Forum Posts by: Paul S.

First thing I would do is get rid of that whole life insurance policy.  Those things are a scam.  You're a frugal guy, that $140 could be put to better use elsewhere.

Don't waste your time with the RE investing clubs.  You'll just end up getting pitched to buy courses and invest in boot camps instead of real estate.

For your first house, I wouldn't look at it as an RE investment.  I would think of it more as your home.  Every time I've seen buyers buy a home to live in, thinking of it as a money making investment they tend to be disappointed. 

Duplex's are in pretty high demand at the moment.  I would put the money towards a slightly larger single family and you can always get one of your buddies as a room mate to offset some of the mortgage. 

I'm not buying as aggressively as I was when I was your age, but 200k to 500k sounds high for your first home.  Since it sounds like you come from a family that's pretty handy and you're 30 and full of ambition.  I would look for the stinkiest, flea infested hoarder house you can find.

If you go the fixer upper route, forget about FHA financing. My experience is that they are a pain in the butt and you can qualify for a conventional. Better yet, if you can borrow cash from your family and refinance in a year when the place has been renovated.

If you're spending your time educating yourself.  Learn the basics of plumbing and electrical.  Learn how to deal with title defects (liens, backtaxes, ect).  Learn how to negotiate, always remember you can negotiate terms as well as price.  Learn how to fill out a purchase agreement.

Last piece of advice, spend the summer getting yourself and your finances situated.  Then start seriously looking in the November December timeframe.  Then make LOTS of offers.  I can't get over how scared people are to make lowball offers these days.  I would make 30 offers that were 50% off asking in one day, just to see who was willing to come back with a counter offer.  If your realtor gives you pushback, fire them and get yourself someone else.  Pick an area you want to live in, then get to know it really well.  Not just touring around on google street view.  Get on your bike, or walk it.  If you see someone mowing their grass, go talk to them.  Tell em you REALLY want to live in their neighborhood.  Some of the best deals I've ever had came from these conversations.  If you do manage to find an off market deal, when you meet a seller ALWAYS bring a purchase agreement with you and sign it right then and there if you agree on a price.  Seen it happen dozens of times where the sellers uncle tells them they should up their price the day after you looked at a place.

Good luck

Find a realtor that works with investors. Back when I was much more active, my realtor gave me his MLS log in, and I would do my own research. Basically, he would just email documents and show up at settlements to collect his commissions.

You're in too much of a hurry.  I would say, since you sound like you have some experience and aren't intimidated by doing some rehabbing. 

Start looking at the super crappy properties, stuff that smells really gross and has lots of issues.  Then make no-brainer offers.  LOTS of offers.  A handful of offers isn't enough.  Back in the day, I would call my realtor and make 20 offers at 50% below asking a week.  Just to see who was willing to come back and negotiate.  I had a rehab for sale all summer, I was amazed that I didn't get a single low ball offer (which I would have been willing to take).  The idea of "offending a seller" is completely ludicrous.

If your realtor doesn't like that, get a new realtor.  Realtors that deal with investors are completely different than regular realtors.  You shouldn't need someone that drives you around all day and manages the details of closing a deal.  You want lock box numbers so you can let yourself into those crappy houses, and you want someone willing to beat up a seller.

Learn the ins and outs of sheriff's sales.  They are fairly competitive at the moment but there are still deals to be had.

The books won't tell you this, generally, but learn the legal ins and outs of real estate.  You can make fantastic deals on real estate that has title issues such as messed up inheritances or piles of liens.  Then you get to cut your teeth on negotiating all those debts to make them go away.

Keep your ear to the ground.  Best deals I've ever gotten were through word of mouth.  Someone down the street is moving or getting divorced and just wants to sell out.  If you ever show up to something like that, bring a purchase agreement with you!  Negotiate a price, and have them sign it right then and there.  If you wait (it happens all the time) their uncle Fred tells them that night that they should up the price because "didn't you know its a hot real estate market?".

Lastly, learn how to negotiate terms.  Even if the price is a little higher than you want to pay, you can work your contingencies, or financing, or dates, or conditions of the property ect ect ect.

No sprinklers required in Philly for less than 3 units

Wow, what a crazy thread.

Doesn't sound like a red flag to me.  Sounds like a GREAT deal!  A property where you have a ton of leverage to negotiate the price, PLUS you have paying tenants right off the bat?  Tenants that will probably live there for a long time?  This is a total no brainer in my book.

Unless the sellers are saying you have to keep the rent below market for a house in its current condition and location I would personally jump all over this deal.

Sign em up for a year long lease right away and move on to finding the next house for your gut and remodel.  Put it this way, unless you have a bunch of experience doing remodels, it's going to take longer and cost more than you think.  Lets say it takes 6 months, how much rent would you have collected in that 6 months that you would have to make up for with higher rents on a newly rehabbed house?

I had this exact same problem several years ago except I wasn't able to complete a sheriff's sale purchase.  Right now, you are considered to be tax non-compliant and therefore you are not allowed to do any business with the city.

Exactly what you will have to do.

1: Find a CPA that understands Philadelphia's messed up tax system.

2: If you are a single member business entity, NEVER EVER set up a city BRT entity using that entity.  You do all your business with the city through your SSI# and a BRT# in your personal name.  It's a pass through entity so it doesn't matter anyway, but the city can't wrap their heads around it.

3: You or your CPA will have to shut down that business entity with the city.  Be prepared to follow up with them several times over the years because it usually doesn't take.

4: You will have to amend all your personal and business tax filings going back 10 years or to the beginning of your business.  Basically, filing your business income as zero, and moving all the earnings to your SSI#.  They will refund the business taxes paid and charge them to your personal so you break even in the end.

Hope this helps. I know all the books tell you to set up an LLC to own real estate. But if you dig into the legal and tax ramifications, it's really not worth it, unless you own a property with business partners. If you're worried about protecting yourself from liability, purchase more insurance. If you ever did get in hot water with your property and incurred a big liability, a judge could overturn your LLC protection anyway if it appears that the only reason you hold it in an LLC is for the legal protection.

I've done evictions.  Both myself and via an attorney.  It's a pain in the butt, and makes everyone feel bad.

Evictions aside however.  I would invest in rental properties as close to where you live as possible, if you plan on managing them yourself.

Do you really want to drive all the way to Fishtown when when one of the hundreds of things happen that require a landlords attention?

I was a little luckier in my timing when I started my RE investing career.  It was the early 2000's and there were ton's of houses that just needed lots of cosmetic work.  As the RE market picked up headed towards 2007/2008 (and the TV shows started coming out) the deals were harder and I had to cut my teeth doing houses that were increasingly more difficult.  During those intervening years, I bought a big building to use as my shop, started a GC business and hired a full time crew.  That was all before I ever did my first gut and remodel.

Doing one out of the gate is a big job.  You will get there, take your time, visit the site very regularly and make very concrete plans for how you want things to be in the end.  Making changes half way through will be costly.  Don't be scared to "offend" someone that is working for you.  Buy books on how to do things like plumbing, and wiring, don't rely on youtube videos.  You don't have to do the work, but you should be able to recognize if someone you're paying is taking a lot of shortcuts.  

Some of the mistakes I have made over the years:

Replaced the sewer line and cheaped out on replacing the water line at the same time.  Ended up having to dig up the brand new sidewalk.

Installed plumbing vents through the roof and didn't know how to properly tie that all into the roof.  Sucks to rip out all your new drywall.

Bought a house and after gutting it discovered that the 2 story addition was falling off....in the middle of winter and a snowstorm.

Had my copper stolen by a neighbors kid that was a junky....3 times.

Hung and finished all the drywall in a house before I practiced like crazy and got good at it.  It came out absolutely horrible.  Used so much joint compound the cabinets didn't fit when it was all done.  Plus I think it took me about a month to do it.

Not knowing what a banks underwriter will look for when inspecting a house.  Having to rip open the ceiling in a brand new bathroom to install a vent fan before settlement stinks.

Cheaping out on windows..if in doubt...just replace them.  It's a HUGE pain after everything is finished.

Installing jaccuzi tubs, total waste of money.

Sprayed a house before installing windows.  Sounded like a good idea, until I had to pay to get a neighbors car detailed.

I'm sure the list  goes on.  Actually there should be a thread on rehab mistakes.

Biggest bang for your time is doing your own plumbing and electric. 

Next would be framing.  If you have never done it, get a good book.  There are some details to framing that will make your life miserable later if not done properly (like proper inside corners or framing doorways that don't match prehung doors).

After drywall is done, either buy a sprayer and do it yourself or hire someone (descent sprayer is about $500).  Spray the entire house with primer (I like to tint the primer slightly).  Next day spray ceilings flat white, spray trim gloss white.  Then do the walls yourself with a brush and rollers.

Give yourself some extra time before hanging drywall.  A drywall crew will rock over absolutely everything.  If something is accidentally unfinished, you're going to be cutting open your brand new walls to fix it.

You can also save some money doing your own tile and finishing work like installing cabinets and what have you.

It really depends on your skill level and how comfortable you are with the work.

Unless its just 1 or 2 rooms I always hire out; Demo, HVAC, Drywall hanging and finishing, Floor refinishing, Carpeting, Roofing and Brick pointing or larger masonry jobs.

I have done quite a few gut and remodels.  I like to think of things in rounds.  For example, you probably won't have one single round of electrical work to do.  More than likely you will have 2 to 4 rounds. 

I like to start off a gut and remodel by hiring a demo crew.  It's one of the places where people feel like they can do it themselves.  But in reality, a crew with a bunch of dump trucks can get it done in a couple days.  Where it might take you a couple weeks, and it's exhausting work, save your energy for later in the project.

Then I prefer to get the basement in shape.  Installing mechanicals in a house with a well lit clean basement makes life a lot easier.  If you're going to install a new electrical panel, sewer line, or water line, this is the time to have that work done.  Another first thing I like to do is drill 3 or 4, 1" holes through the joists along the length of the basement.  This way you your electricians and plumbers have a nice tidy out of the way place to fish all the wiring and water feeds.  If the basement stairs need to replaced this is when I would do that also.

Getting things set up initially so that work can go smoothly will make your life a whole lot easier.  For example, is there a place to get water.  If someone is working on your house and has to use the bathroom are they going to have to leave for an hour to find a facility?  Is there a place to plug in a bunch of extension chords for tools and lights?  Do you have a plan for construction debris?  Make sure the neighbors have your contact information, if they get bent out of shape over parking, noise or a messy site and they don't have anyone to call, L&I is the first one on the list.  Lastly, make sure you can secure your site from the very beginning.  It's a horrible experience to come in on a monday to find all your brand new copper is missing and all your tools have been stolen.

My 2 cents....