All Forum Posts by: Randall Alan

So funny thing, your story had not popped in when I replied to you... just the title.  With more details I would say this:

Leveraging your money will get you better returns than a straight (cash) purchase.  Just run the numbers!  What we have found in our area is that there will be a target property that optimizes money invested versus rent received.  For us this is $75k property returning $1,000 in rent.  We will usually net $500 a month after taxes, insurance, and reserves putting 25% down.  If we find them cheaper or better rent, great!  But do the math for your area and figure out what works.

As for out of town rentals, we self manage our own units and REALLY like them close by.  If you have to drive 45 minutes each way to check on something that's 2-3 hours of your day gone.

As for property management, if you are in the real estate game to maximize profits, you will probably want to self manage.  A 10% PM fee equals about 20-25% of your profit on a leveraged purchase.  As previously mentioned, we manage 40 pretty easily.  Plus, you will pay extra for all the services they provide.  On a free and clear property PM starts to at least not kill the budget.  Our plan is to self manage for 10 years or so and then when ready to "really" retire, sell down to just cash properties and let PM run the show.

We really need more details to provide you a good answer...

Do you work a full time job?  Do you have the time to flip houses?  How much do you have to invest?

Without that, I would say that rentals will provide you ongoing cash flow, and let you eventually quit your day job.  I quit my corporate bank job when I had enough cash flow to replace my income, plus health insurance, plus a cushion.  My wife quit hers two months later and we are now 18 months further down the road and loving it.  We bought 12 rentals in  year 1, 9 in year 2, and 3 so far this year.  

Flipping houses gives you quick hits of money, but you have to keep doing it to stay afloat and there are a lot more moving parts with flips... did you miss something, how long will it take to renovate, will you get the price you need.  We have flipped one property as well... netted about $50k.  You might say, that will work... but keep in mind there are pretty serious taxes that go along with flipping... if held for under a year the income is taxed as regular income... so 20-24% of your profit can go to Uncle Sam.  

Our game is rentals for the consistent cash flow and simplicity of the model.  We manage 40 units ourselves with ease!  We're our own boss, work (mostly) when we want, get up when we want, go on vacation when we want, etc.

My suggestion is to either try wholesaling to get some cash saved up to where you can function on your own (i.e. Do you own deals), or to go to some real estate investor groups in your area and see if you can befriend some people... maybe be their bird dog and find them a deal to get cut in on... maybe it starts out as a finders fee, but works up to some share of the next deal at some point.   Effort will equal results!  I have always found when you circulate in the crowd you want to run in, opportunities will present themselves.

It's your right to control who rents your property.  With that said, in Florida there are notice requirements you must meet to legally tell him he has to get out.  The time frames are based on how long his lease was.... for a year lease it's 2 months... and the shorter the lease the shorter the notice.   It's all going to depend on how he plays it.  Worst case he refuses and you have to evict.  Best case he says he understands and leaves on schedule. You can really pitch anything you want.  If he's willing to leave early, great, just know what your legal obligation is first.

There are a couple of possibilities here.... cash out refi's are certainly a product... but I will vouch that since the pandemic many lenders have pulled away from them.  I had one in work in Januarary and completed it in early March.  I went back to the same lender wanting to do a second one and he was unable to originate it because the lending environment had changed for the bank.  They seem to operate a bit like the stock market... they can get spooked by world events and need time to settle back into certain products that to us seem "normal".

I went to another bank we use and where they hold one of our mortgages and they said, "We have the product, we just aren't writing it right now"... which leads me to believe it's a pretty standard pullback given the concerns over how the corona virus will impact any particular market segment.   They will hold out and let the dust settle to not be exposed to risk.  

But as to the concept that you can't do a cash out refi on an owned property, the guy just doesn't know what he is talking about as the refi part is about property you own, not whether you are refinancing another mortgage.  Just say to yourself, "Next lender please"

When we first get into a property we often have to do some renovations to get it up to speed to rent.  By the time you take your rents as your income, less all your expenses and depreciation, it is totally possible to have a loss on your property.  It's truly just a sum of its parts.  It doesn't even mean you didn't have a net positive cash flow on your property.  If you have multiple properties your loss on one will help offset gains on another.  

We have 40 units and between all of them, on paper (from an IRS perspective) we were able to write off all but $9,000 from just under $400,000 in rents.  3/4 of the properties are financed, so lots of mortgages, insurance, property taxes, etc to write off.  Any legitimate business expense counts to reduce your taxable income, cars, phones, health insurance, professional services, even business meals count at 50%.  Depreciation is along the lines of 3% of the value of your properties... at $2,000,000 in value, that's $60k right there!  Find a good tax accountant and they will work their magic!

I think the short answer is this:  Managing properties is really pretty easy.  We manage 40 units that we own.  On an average week we get 2-3 calls from tenants ... sometimes none.  Sometimes I need to go check on it, but usually I can trouble shoot via text to figure out, “sounds like I need to call the ___________ (plumber, AC guy, septic people, etc).  

We use Rentec-Direct to both collect our rent and to affiliate market through Zillow.  We can fill units in less than 2 weeks EASY. 

So you have to ask, “Why would I give 10% of gross rent to someone to do so little??”  Keep in mind that if financed, 10% of your rent represents about 30% of your profit. 

The other question you have to ask is, do you have the time, patience to manage them.  It’s our full time job.  And that is not to minimize a lot of other things we do as to maintenance... we paint properties, pressure wash, replace pool liners, do what preventative maintenance we want to do and farm out the rest.  It’s a full time job.. but we may start at 10am, finish at 2, or just take the day off if we want.  

If you are just getting into properties, the secret is to get a couple of resources for each type of issue you have...  a couple of plumbers, a couple of ac guys, etc, etc.   Network  with people to make that happen.  Once you have that in place there just isn’t much you can’t handle as a landlord.

 By choosing our tenants carefully - holding them to the same standards that banks do (3x income to rent) - we very seldom have issues collecting rent.  Even with the pandemic we only have about 10% of our tenants having issues paying and they are all paying what they can.  

Why would you use PM if you have the time and inclination to do it yourself?  It’s just not that hard.  In addition to their fee, you are going to pay a premium for everything they do.  My wife had a PM before we married and they wanted $1,100 to replace an existing garage door opener... we did it ourselves for $200 in 2 hours.  Lots of vendors will up charge and rebate back to the PM as an additional profit stream.  No thanks!  We’ve got this!!

Removed double post.

I've bought and sold quite a few properties - currently owning 38 of them.  What I have learned is that it sometimes takes eliminating all the reasons why someone shouldn't buy a property for them to buy it.  

What I mean is - if each element is on its mark, there isn't a reason the property shouldn't sell.  

After showing a house for 45 days, we finally changed the sort of worn out carpet we were trying not to have to pay $4,000 for... it sold the next week.  We did that instead of lowering the price by $5,000.

Its just one example, but if you take an objective look at your property, as if you were looking to buy it - you might be able to answer your own question.  Is your price above the comps?  Does it need new paint?  Does it have curb appeal (nice flowers / landscaping, mulched flower beds, etc), Are the amenities like screens and fences clean and looking good - no mold, rust, etc?  Is the paint job done well, or is there paint on the ceiling and trim items?

My experience has been if you price it right, and there are no reasons to object, it will sell.  Yes, that usually means you are spending some extra money to spruce up the place - but it is typically offset by the speed at which it sells.  If you have to sit on the unit for a month or two, that may be $2,000 you had to fork out in additional mortgage payments.  If you would have pressure washed the driveway, and did a little landscaping for $500 - you might have saved yourself $1,500 and been out of the house 2 months earlier.

I had an older tenant die in the rental house we bought out of foreclosure.  He was renting the house back from us and 4 months into his lease we got a phone call from a relative that he passed away.   Friends had called police, etc and had taken care of the body and the animals... so far, so good.  We called the only living relative... they decided they couldn't afford to travel out of state and miss work, etc to come down and clear out his stuff.  We had to wait 60 days for the house to be considered abandoned, all the while rent not getting paid.  We got into the house after the 60 days and the entire house wreaks of ammonia from all the cat litter boxes left sitting around... there were like 10 of them- apparently never emptied.  I'm half-way convinced that the ammonia seriously contributed to his demise.  It took two of us 2 weeks wearing respirators to sort through and clear out the contents of the home (where he had lived for 20 years).  We brought in a 20 yard dumpster and filled it up with cat-destroyed furniture and carpet, as well as a ton of trash - only to make multiple other trips to the dump with a 12 foot trailer.   His really nice stainless steel fridge apparently had quit working at some point before we bought the house - he unplugged it and left all the food in it and just left it sitting in the kitchen! One more thing that went straight to the dump!  We were left to clear the 1400sf house and are now probating his estate as a creditor probate to try and recoup some of the back rent we are owed since the family was unwilling to participate.  Never read about that one in the 'book' on "What to expect being a landlord"!!