All Forum Posts by: Robert Motch

@Paul Staszel - @Jana Cain makes some very good points.

I grew up in the horse business and personally would never touch it. My parents have been training racehorses and boarding horses for more than 30 years. If you do not have extensive experience with horses and love them, I would not go near it.

Simply put, Horses are a 24/7/365 business. In real estate terms, You would essentially be buying an all inclusive resort for horses. Really an operating operating business, not an investment. Stalls cleaned daily, horses fed 2-3x per day, daily grooming, etc. 

Finding employees can be difficult because it is outdoor manual labor. Think cleaning stalls while it is -20 degrees or 110 degrees. Can't skip a day because the weather is bad. Can't not feed and water because there is a blizzard and roads are impassible. I remember a blizzard growing up and my parents' employees calling to say they couldn't get to work. My stepfather spent the day driving all over town on a snowmobile picking up and dropping off employees.

I'm not trying to be Debbie Downer, I am trying to show some of the reality that comes with taking care of horses that people don't realize from seeing them on TV while watching the Kentucky Derby or Breeders Cup. (Think house flipping in reality vs what they show on TV)

Send me a PM if you would like to discuss further.

I agree with @Joe Villeneuve.

Real estate investing requires a certain set of service providers (RE agent, PM, lawyer, accountant, bookkeeper, contractor, sub contractors, handyman, etc). There are good and bad options for all service providers and All service providers require oversight and management.

For the most part with each of these services, you have the choice of whether or not to outsource the job or do it yourself. Depending on your strengths and experience, you may choose to do some of these services yourself but like most things in life, you are trading your time for cost of having someone else do it for you.

I think it really depends on your strengths, how you want to spend your time and much you want to scale your business. 

More scale=More outsourcing.

I am fairly new as well but I agree with @Anthony Hurlburt. Step one is to run the numbers.

1) what would property be worth post rehab

2) how much would the rehab cost

3) what would the units rent for

4) what would be you ongoing costs

5) will the cash flow cover the cost of financing the down payment and rehab costs

If the numbers make sense, then you figure out how to finance the deal. 

Scenario:

Let's assume you need to go to a bank to get financing on the property and you need to access equity from your primary residence for the down payment and rehab costs.

$300k purchase price with 80% LTV mortgage

$65k for down payment and closing costs

$35k rehab budget

All in you need $100k in order to close and get the house rent ready based on the rehab budget. You decide to be conservative and pull $125k out of your primary residence in case the rehab goes over budget. When it is all said and done, you go a little over budget and the rehab costs $45k so you end up actually needing $110k in total.

HELOC vs Mortgage on primary residence:

Personally, in your situation I would get a HELOC instead of a mortgage against your primary residence. Although the rate on the HELOC may be slightly higher than on the mortgage, The reason I would use a HELOC is that with a mortgage you have a locked in payment and are paying interest on the amount of the mortgage no matter whether you use all of the money or not but with a HELOC you are only paying interest for the amount of the money you are using.

If you pulled the money out of your house using a mortgage, you would be locked in to a payment for the term of the loan on the entire $125k even though you only needed $110k. Also, the mortgage would be accruing interest and you would be responsible for the payment from the time you close on the mortgage.

Now if you use a HELOC instead, you would have only pulled out $110k of the $125k HELOC. You would only be responsible for interest and payments based on the $110k instead of the entire $125k. Also, the HELOC would not start accruing interest until you actually pulled the money out along the way throughout the project.

@Brian Loper @Account Closed - have either of you had any luck in finding property managers in the area?

@Natalie Schanne - just looking for a PM

I am looking to purchase single family and small multi family rentals in Monmouth County NJ. Does anyone have a property manager in the area that they would recommend?

@Mooko King It sounds like you are an accidental landlord today. I think the first question to ask yourself is, do you want to be a landlord/real estate investor. If the answer is No, then I would sell. If the answer is Yes, then see below:

Personally, I am in a very similar situation as you are. I bought a condo in NJ in 2004 for $345k to live in and then in 2006 moved out. I decided to keep the condo and rent it out (instead of selling for $400-450k) because I didn't want to spend $35-40k in commissions/closing costs/transfer fees. The money would have been gone forever. Although I have spent about $25k over the past 12 years supplementing negative cash flow, today the unit appraises for $580k. Had I sold in 2006, I would have flushed $35-40k down the toilet (even though to be fair, I would have been able to cash out the remaining equity). Instead today, I just cashed out $200k in equity, tax free, to go invest in other properties. It may not be a by the book approach but it has worked for me. 

The condo never would have made sense to purchase purely as an investment but once I owned it for personal reasons, it also did not make sense, to me, to sell it.

So with all of that being said, I'll be the contrarian. 

Keep your condo!

If you can sleep at night having a rental property that is not in your backyard, let the tenants pay it off for you over time. You may need to come out of pocket from time to time when things get tight so it isn't gonna provide you with the cash flow to retire anytime soon but it will likely over time provide you with equity that you can cash out, tax free, to buy additional properties or live off of in the future.

Even if you do not want to keep the condo long-term, put a tenant in there for the next year and then spend that year researching deals closer to your new home and in a year, you could be in a position to do a 1031 exchange into a new property closer to home that has the investment parameters that you want.

Congrats on finding your first property! This seems like a great flip opportunity but you say you plan to buy and hold. Will the property cash flow after you refi post rehab?

Thank you all for your responses and checking my thinking. Very helpful.

In my mind, it shouldn't be hard for them to find 2-3 happy clients to provide as references. 

I reached out to a potential property manager and asked for references and below is the response I received. This seems like a red flag. Should I be worried? Thanks.

We do not violate the privacy of our current owners to do this.

We have been reviewed online by both tenants and owners. We can provide your information to a few owners in case they would like to contact you.