All Forum Posts by: Mark Bosworth

We have an investment where one partner put in more cash but we wanted to keep the equity split at 50/50.  So we contributed the extra capital as a second mortgage.  

You might advise the owner to look at refinancing the Reverse Mortgage.  Depending on what her rate is, she might be able to cash out that way.  

@Alex Bloemer Then it looks like you are getting about double the return on your real estate that you could get by putting it in the bank.  Lots of people report making much higher returns on their real estate investments - so your return could be improved.  But you gotta ask yourself how much time you have to put into it and what options are available.  For a fun thought exercise, I'd look at what kind of a real estate investment you could make with a $55,000 investment.  What return would you get? 

First off, you need to think about the rate of return you are getting on your money.  So if you sold the properties today, how much cash would you get out minus your costs?  If you invested that money in a CD/bond, you'd get around 3%.  So is your current home investment giving you more return than you could get somewhere else?  Remember to add in the annual appreciation you get from your house as part of your return.  The nice thing about living with low bond yields is that it makes your real estate investing more attractive.  

Go by the courthouse sometime and observe the property sales.  It is a very strange process.  Little knots of people around a person who is announcing a property for sale.  Usually the bank just buys the property that they have the mortgage on.  My impression is that you have to get really knowledgeable about what is actually happening in order to keep from getting fleeced.  Also, make certain you do the title search before buying.  Paying good money for a second or third position lien is not a good idea.

I think the best way to evaluate an additional investment is "Return On Investment".  

Your bed/bath example yields you a 20% Return on Investment ($250 x 12 / $15k).

Your A/C example yields you a 15% Return on Investment (($50 x 12 / $4k). 

Both of these would be decreased by vacancy rates, but they are both pretty good.

So the question is "do you have other investment opportunities that would yield you a higher return on your money?"

If you do then take them.  If you don't then invest in the bed/bath. 

The tax appraisal is only meaningful in regard to the taxes assessed on your property.  So low is better and people fight hard to get lower tax appraisals.  If you want to see how meaningful the tax appraisal is, try selling it to the government for the value they appraised it at... never happen.  

The CMA (competitive market analysis) is a much better yardstick of value, since it benchmarks your property versus the sales price of competitive properties sold in the recent past in your neighborhood. At the end of the day, a property is only worth what a willing buyer will pay for it.

You should perform your due diligence and understand what the mortgages outstanding on the property are.  If this is going to be a short sale, then you are going to be negotiating with the lender instead of the owner.  Regardless of who you are negotiating with, the outstanding debt balance is a key piece of information you need before you make any offer.

You absolutely have to account for the property taxes for the time that you own the property.  So if you own it for 3 months then you need to pay 1/4 of the annual property tax bill and you need to include that in your analysis.  It is just like insurance or electricity.... a cost to you while you own the property. 

This is interesting Joey.  What kind of interest rate do you charge for a typical deal?  I'm assuming the people you sell to don't have great credit.  What percentage of the units do you end up repossessing?  Are they trashed when you repossess?