All Forum Posts by: Alexander Merritt

@Arlan Potter 

Over what period of time did you acquire your 60+ rentals? What was/is your job at the time when you first started out? When you were first starting out did you build up cash reserves or just have a nice home with a decent HELOC that you could draw against?

I would assume from the OP that he is just starting out in the rental side of things and doesn't have the huge reantal income you have coming in which you can just draw from.

@Michele Fischer Can you tell me what your turnover rate is? From a few readings of your blog it seems it is very high, like every couple of months. I think you said the longest tenant you had was 1.5 years.....

@William Robison Hmmm some interesting points. Yes I'm a little bit younger so asset accumulation makes since but didn't Rich Dad Poor Dad say that property is not an Asset but rather a Liability until you own it free and clear?

I'm not completely concerned with cash flow, but IMO it is important when building a Rental portfolio. You have to be able to have enough cash flow to pay for proptery, live off, and also to reinvest back in the business.

Maybe I need to adjust my strategy a bit and do some flips to build up some capital for the rentals. It's not really what I want to do, but maybe it's a necessity to accomplish my long term goals. Thoughts?

@Jackie Lange 

I'm not sure I necessiarly agree with that you are saying. There are plenty of properties in lower income areas which do not rely on subsidys (Section8). I do agree about the burn out factor, though.

@Dawn Anastasi 

So are you saying that even in lower income areas that if you have a "nicer" (relative term) property for that area that you will attract decent tenants who won't give you so much of a headache and will pay rent on time? I'd really love to hear more from you.

Keep in mind that I don't intend to be a slum lord. My properties will be average or slightly above average for the area and maintained properly. I think it was @Mike H. 

who said that you'll get more interest if you pick one or two things in the house and over improve them (aka granite counter top in one of the bathrooms, etc...) so that it makes the property stand out from just all of the other plain properties.

Also, being in the Baltimore area really is a challenge. After thinking about what  @Nat C.  said a bit more I did go back and look near the hospital and found some decent properties that I could afford. But, even that area has some spots that are not so great. For instance I found a property there for 40K completely renovated (very nicely too) with the potential for $400+/month cash flow but on the same side of the street the house next door on the left hasn't been maintained and looks like a dump from the outside and then the house 2 doors down on the right side is boarded up and looks like it may have been involved in a fire. So would potential tenants look at that and think they wouldn't want to rent the property becasue of that, even with it being in a "nicer well established" neighborhood? I don't know.

Please don't misunderstand me, I definitely welcome everyone's advice and thank you all. I'm still learning a lot and I'm just trying to look at all of the options available to me.

@Matt R. 

Yea I mean obviously I would sacrifice higher "paper" return for actual return and less headache, but I'm just starting out in this world of RE and I don't have a large capital base to be able to buy a bunch of nice properties. Now if your going to say well you can always do creative financing and get seller financing well yea I guess I could, but I think that would be extremely difficult for me seeing as I have no track record and the seller would be less likely to do that considering that I can't demonstrate that I have a history in the business of honoring my deals. Also, the number of sellers willing to do that is extremely limited (according to the BP community) so I might get a 1-2 of those and then what.....

If I buy in the good area and use up all of my starting capital on the first house, how do I go about increasing my portfolio? Ideally I'd like to get 3-4 properties per year. That wouldn't be doable.

Don't get me wrong, i completely agree with you about better location and tenants and not having to worry about evictions, damage, late rent etc. That's the dream, right? You do minimial work and just let your rent money roll in and everything runs like clockwork.

@Jackie Lange 

I know there are 0% down financing options out there but I've heard they are very difficult to do, especially for someone just starting out that doesn't have a track record. What is a Master Lease? I've not heard of that before.

@Aaron Montague 

Yea it actually seems like sometimes the numbers actually work better for lower income than middle income. The example in my OP actually gives me slightly better cash flow than the house in the good area. I'm not playing the appreciation game since I think it would take literally decades for some of the areas to really appreciate significantly.

Hello BP!

When first starting out using a Buy and Hold strategy and with limited capital, do you think it's better to purchase a bunch of lower priced properties in lower quality / depressed areas or spend a little bit more but have less quantity or rentals (but presumably higher quality tenants) for properties in an area that is well known for being a "good" area?

When I say "quality" i mean the quality of the neighborhood, and not necessarily the property.

For example I am looking at a property that is being short listed for 20k fully renovated (zillow estimate is 35k) but it's in a depressed area with a few rowhouses boarded up around it, but there is an existing tenant there and the rent, cap rate, and cash flow look excellent on paper. As opposed to another property in the 60-80k range that's not as nice rehab wise but is in a much better area that is known to have medical job types that would still have decent cash flow. Buying cheaper means more properties but probably the possibility of less desirable tenants in that area. 

Thoughts? Thanks in advance.

I'll just throw my two cents in here with some creative deal making. You could offer to get the property under contract but set the closing date for sometime in the future when you know you'll be done with your 1st deal. In the mean time, you tell her you'll split the  "upkeep" (mortgage?) where she pays X and you pay Y, until the closing date and you either offer to pay her back at closing, or make the offer for an amount that would essentially pay her back.

I would go with a 30 year loan. If it's a conventional loan, usually there is no prepayment penalty so what you can do is just simply make extra payments towards the principal to pay it down faster. Using a 30 year loan gives you a lower payment so that in the event that something happens and you need that extra money for something else, you will have it and still be able to pay your normal mortgage payment. It's true that going with a 10 year loan will save you on interest, but that's when compared to a 30 year loan that you spend all 30 years paying on. If you choose to pay it down in 10 years, then you'll have actually spent less in interest than a 10 year loan, plus you get that added security of being able to drop back down to the original payment amount if you need to.

@Brendan Spaar 

Unless the Realtor has already spoken with the other Realtor who is representing the sellers and found out that the sellers will absolutely not accept anything below full price, then I would say your advice is sound. Your Realtor should be representing you and your best interests, which, from the limited details presented in your OP, it sounds like they are not. This is one of the reasons I don't usually mix business with friends or family.