All Forum Posts by: Pete Harper

I just wanted to introduce ourselves.  We are a small mom and pop operation with 40 units in small market towns in Central Texas.  Looking to connect with others in Freestone, Limestone or Anderson Counties.

Investment Info:

Large multi-family (5+ units) buy & hold investment.

Purchase price: $340,000
Cash invested: $209,000

1031 exchange from Killeen 4-plex into a 6-unit apartments. The Killeen market seemed to be topping out in rent growth and price appreciation so decided to cash out and buy an older 6-unit apartment. The new property has more room for growth. We used 1031 exchange to roll over all the profits postponing taxes. This was an off-market deal that my wife found through networking. The previous owners had inherited the property and realized they were in over their heads managing the apartments.

What made you interested in investing in this type of deal?

Our strategy is long term buy and hold investors looking for solid cash flow. We saw opportunity for rent grown at an attractive price.

How did you find this deal and how did you negotiate it?

This was an off-market deal that my wife found through her personal network. We negotiated the deal ourselves without the need for an agent.

How did you finance this deal?

Portfolio loan through a local bank that we have a good relationship with. This is the fourth deal they have financed with us.

How did you add value to the deal?

The property has a lot of differed maintenance. The roof needed to be replaced immediately. We were able to negotiate a new roof into the deal. Rents are way below market. We plan to fix up each unit as they open up and raise rents to market.

What was the outcome?

Long term hold for cash flow.

Lessons learned? Challenges?

Be patient. During title search they discovered an old issue with title. Seller's deceased father had transferred title to his now deceased attorney. With neither party being alive it took a while to short out with heirs. Ultimately title was cleared but it took a while. Rather than giving up we postponed closing.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

This is the 4th portfolio loan we have done with CBTx. They are a small regional bank willing to make commercial loans to small investors. Low closing costs, with minimal documentation and competitive rates.

Investment Info:

Large multi-family (5+ units) buy & hold investment.

Purchase price: $340,000
Cash invested: $209,000

1031 exchange from Killeen 4-plex into a 6-unit apartments in Wortham. The Killeen market seemed to be topping out in rent growth and price appreciation so decided to cash out and buy an older 6-unit apartments. The new property has more room for growth. We used 1031 exchange to roll over all the profits and postpone taxes. This was an off-market deal that my wife found through networking. The previous owners had inherited the property and realized they were in over their heads managing the apartments.

Long term goal is buy and hold for cashflow. We plan on renovating each unit as they come available, increasing rents to market.

What made you interested in investing in this type of deal?

Our strategy is long term buy and hold investors looking for solid cash flow.

How did you find this deal and how did you negotiate it?

This was an off-market deal that my wife found through her personal network. We negotiated the deal ourselves without the need for an agent.

How did you finance this deal?

Portfolio loan through a local bank that we have a good relationship with. This is the fourth deal they have financed with us.

How did you add value to the deal?

The property has a lot of differed maintenance. The roof needed to be replaced immediately. We were able to negotiate a new roof into the deal. Rents are way below market. We plan to fix up each unit as they open up and raise rents to market.

What was the outcome?

Long term hold for cash flow.

Lessons learned? Challenges?

Be patient. During title search they discovered an old issue with title. Seller's deceased father had transferred title to his now deceased attorney. With neither party being alive it took a while to short out with heirs. Ultimately title was cleared but it took a while. Rather than giving up we postponed closing.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

This is the 4th portfolio loan we have done with CBTx. They are a small regional bank willing to make commercial loans to small investors. Low closing costs, with minimal documentation and competitive rates.

We are in Freestone County just North of Fairfield.  The majority of our properties are in East-Central Texas.  We are long term buy and hold investors.  We buy ugly properties and fix them up for cash flow.  We have 40 units over seven different properties.  Not many BP members in our neck of the woods.  I would love to connect with others.

Pete

Quote from @John Mocker:

Pete,

Apartments are a class of business that some Insurance companies like and others avoid.  I would get this out to quote with multiple Independent Agents (they represent multiple carriers) and if you can determine any agents that write a lot of apartments that would help also.

The type of info you should gather that will help in the quoting process:

1. current coverage.  See if you can get a copy of the current policy)

2. Loss Information.  See if you can get the "Loss Runs" for the past 5 years or more.  Current owner will probably have to request that for you

3. Dates of updates to the Roof, Electrical, Plumbing, and Heating systems

4. Are there any Underground tanks (active or inactive)

5. Any of the current tenants have pets (if dogs, what breeds)

6. Any student housing

7. total annual rents

8. Is it a non-conforming structure (would have to be rebuilt differently)

9. are there Landscaping or other maintenance contracts in place

Let me know if you have any questions on the above info.  Good luck with the new property.

Seriously Captain Obvious?

We are purchasing a 6 unit Apartment building in a small central Texas town.  I would like to get a quote for insurance.

6 unit single story building.  1960's construction, all brick exterior, cement slab, and new asphalt shingle roof.  Aproximately 5600 sqrft.  We are scheduled to close April 4th.
PM for details.

Pete

Quote from @Becca F.:

Quote from @Steve K.:

I’m glad I happen to live in a landlord-friendly state that also happens to be blue,  but also recognize that people are finding plenty of success in both red and blue states. If executing a cheap and fast eviction occasionally is critical to your business plan, I’d say rethink that business plan. I’m not really evicting that often personally. I try to avoid that with screening, charging late fees and serving the notice to quit any time rent is late by even one day to avoid anyone getting behind on rent and developing bad habits, good management, quarterly inspections and mutual respect with residents. I have heard some horror stories coming from both red and blue states, landlord friendly and tenant friendly ones too. In places where an average eviction takes months instead of weeks, I’d stick to Class A’s and B+ and my understanding is that not every eviction goes through the courts in some of those places. Roughly one-fifth of the total US property value is in CA (blue state) and far more people have become millionaires by investing in real estate there than any other state. Personally I wouldn’t turn down a property there just because it takes a little longer to evict, it’s not high on my list of the most important metrics to consider.  

 I completely agree on the part about more people have become millionaires from real estate in California for all the "California is a terrible place to invest" statements I've heard. Yes it's not the most landlord friendly state. 

I know lots of multi-millionaires in the Bay Area. All the people who bought pre-2012 in the Bay Area have seen huge appreciation, some did 1031 to better performing properties. The people that really hit the jackpot in 2008 when values plummeted, bought and  held onto them and it's now worth a couple of million. Many people who were lower/middle to middle class (janitor, librarian, accountant, etc) who bought in 1970 for $50,000, house is worth $1.5+ million now. I've met a lot of people here who own 1 or 2 rentals, not big time investors or trying to scale, net rental income coming in equivalent to some people's salary  and that real estate is passed down to their kids and grandkids. The more recent buyers (primary home owners and investors) are very high W2 income earners like software engineers and physicians.  

I also live here so I can do a renovation, check on the property multiple times a week, screen and meet the tenants in person. I've had a couple of people suggest to me to 1031 exchange my SFH here to buy multi-unit OOS or many SFHs...sounds like huge headache venturing into the unknown and all those tenants, repairs, capital expenses etc. I have a reasonable property tax which goes up 2% a year, not 15% or 30% like some other states. Given a choice I'd get rid of all 3 Indianapolis homes (one is a money pit so far) before I ever sell off a California property. I should have bought in Nevada or Arizona before the prices started skyrocketing. Texas is a common choice among my CA investor friends despite the high property taxes - San Antonio and Dallas, haven't heard too much about Austin.

I'm sure there's someone in Alaska doing well with real estate or some other obscure market we haven't heard about. What's a good investment for one person could be terrible for someone else since we all have different financial situations and risk tolerances.

I hit the California Real Estate Jackpot.  We purchased a house in the South Bay with land in 2012, renovated the house, developed two building lots, retired in 2018 with $3M in equity.   It took some work but we jumped through all the regulatory hoops and were able to get site approval on two separate land tracks.  Was is a PIA? Certainly was! But the rewards are worth it if you have the patience.  After retirement we relocated back to Texas because of family.  We've taken our CA nest egg and reinvested in TX cashflow properties.  We've more than replace our CA Hi-tech W2 incomes.  Enjoying the good life thanks to California.

Quote from @Emilie Adamovic:

Hey BP I am an investor in Northern New Mexico and have a tax deed auction question. In my county they post the list of properties that will be up for auction at the tax deed auction ahead of time. I have been using deal machine to look up the properties on the list to find information about the properties, owners etc. I am finding properties that are not in that much tax debt that are completely paid off (this matters in NM because other liens like a mortgage are not erased with a tax deed auction like many other states). Basically, is it possible that all these paid off properties with not a ton of tax debt are going to be sold at these auctions? It seems insane to me that someone owning a 500k+ property that is in less than 10k of tax debt would let that happen... Am I missing something or are these properties really being sold at tax deed auctions and the owners with hundreds of thousands of equity have no recourse? 

 I've attended several tax sales in Texas.  Here is what I've found.

1) All the "good" properties get taken off the tax sale at the 11th hour.  The owners scrape together enough cash to make a payment.  Frequently this same property will show up on the next sale a couple months later only to be taken off again.  I've watched the same property go to auction 3-4 times this way.

2) In Texas there is a redemption period that is different for Homestead vs non-Homestead property.  Homestead properties can be redeemed by owner for a period up to two years.  Non-Homestead is 6 months.  Meanwhile you can't make significant renovations to or resale.  Be prepared to have your money tied up a long time.

3) The majority of properties that do make it to auction have been abandoned for years.  Typical scenario is the owner has passed away with no heirs.  The property sits abandoned for 3-5 years before the property lands at auction.  Do you due diligence.  I've found homes "missing" as the city bulldozed them down because of fire hazard.  Not uncommon to see roofs fallen in or other major differed maintenance. 

4) When a "diamond" does make it to auction.  Be prepared to bid against the Pros. These guys are brutal and are willing to pay top dollar.

5) One strategy I did try was to contact homeowners pre-auction.  Offer to buy the house pre-auction for a little more than taxes.  This is potentially a win-win the seller gets a little cash and you get a property with clean title at a reduced cost.  I've had one deal like this but backed out after I found the kitchen roof had caved in.

Tax auctions sound great on paper but you really need to know what you are doing.

My wife and I have been investigating developing a tiny home village in Central Texas.  We are looking at a 15 acre parcel of land with an existing mobile home.  The site is in the unincorporated county.  No zoning issues.  The only permit requirement is for sewage treatment.  The site already has power and city water.  We would put in a shared septic system, gravel roads, gravel pad, stub out water and electrical connections.  Nothing too fancy.

 Has anyone done a similar development?  I'm looking for estimates on development costs so I can do a rough financial analysis.  I've looked at similar developments in the county and they are getting $400/month sight rental.  We have a large demand for affordable housing.  I've watched a similar development fill up within the last year.  

Thanks, Pete

Quote from @Adam Christopher Zaleski:

I had a tenant for two months. They got evicted for not paying rent and eventually left, but on their own terms. It's a 20-year old rich kid that has zero accountability. His dad is very wealthy and is a bully

His son left owing 18 days of rent, cleaning fee, late fees and some lawn maintenance fees because he didn't mow the lawn for 30 days and mowing the lawn was part of the lease. 

The dad wants a full deposit return minus the cleaning fee, which is not even connected to reality. He also mentioned that he thinks there is a gas leak in the rental unit and his son had to go to the doctor twice to get treated for head aches. This is a totally made up story. It never happened. I interpret this as a threat and intimidation. I have all the documentation needed to show that he gets zero deposit back and still owes an extra $1500. 

All deposit disputes are handled in small claims court in my state, no exceptions. If we go to small claims court, I win. He doesn't have a chance. As a result, I think he is going to try alternative methods. I am expecting a threatening letter from a lawyer in 1-2 weeks. Any ideas or suggestions on how to handle bullies? 

Agreed, the father is trying to intimidate you. If it were me I would call his bluff. 9 times out of 10 this is all for show.  He isn't going to hire a lawyer at $400/hr just to reclaim $1500. This is all an attempt to intimidate you.

When you say evicted do you mean that you went to court and received a judgment or you asked him to leave and he willingly agreed to leave.  Big difference. You have a much stronger case if you have a court judgement.  

I would not communicate with the father, only son as he is the primary on the lease agreement.  Send the son a copy of the court judgement, if available, and an itemized list of money owed.  Don't delay, in some states you only have 30 days to do so.   Once you've done that stop all communication.  Don't respond to any other communications.  If he gets a lawyer to send you a letter, ignore that as well.  You are under no legal obligation to respond to his lawyer.  Only respond if you receive a letter from the court.  At that point you should get an attorney.

Meanwhile as a CYA call the gas company and have them do a courtesy inspection.  Most will come out and inspect for free.  Don't tell the gas company about any threats of litigation.  If they find something take care of it immediately.  Don't share test results with tenant unless required by the courts.  A clever lawyer could try to spin even a negative result against you.