All Forum Posts by: Roger Poulin

Your dad is very wise and has probably learned a great deal by having gone through the up and down cycle of real estate many times. Many on this site would say he is too conservative for his good. Everybody has their comfort level for risk.  I would offer the following strategy to balance the risk to growth relationship somewhere between your ambitious goals and your dad's aversion to risk. 

1. 1. Buy - Do the analysis (BP has a calculator). Use the hard money to fund the purchase and repairs. The cost is worth it but you need to keep the time short!
2. 2. Rehab - to a renter level of finishes quickly (Formica or Corian countertops belong on Vermont Ave).
3. 3. Rent - to good, background checked tenant with a solid income.
4. 4. Refinance - Do you need to pull out ALL of your equity? Can you pull out enough so you can cover a down payment on the next project?  Find a good mortgage broker for your team to get you into a 4 to 6% loan as quickly as possible, and leave some equity in the property.

While there is 30-year hard money available the cost might eat you alive in the long term. Most banks will let you refi 80% or more of the appraisal. What happens when the economy turns and vacancy rates rise? If the landlord next door cuts the rent to stay occupied can you compete? In this case, leverage is your enemy. A storm will come one day, and you will need to maintain the cash flow if you are retired and living off those funds. The cash flow is much greater at 50% LTV than 80 to 90% LTV.

Listen to @Luka Milicevic on this. As a rookie, a 25k mentoring program will do nothing except drive up your debt.  Do the free education first, network, and get out there and try to find some deals.  Later, if you find a weakness, or you want to specialize in some niche, spend some money a course or conference that focuses on that.

Good luck, and if you get a deal wholesale it to me.

@Jillian Sidoti I agree with you about Anthony Chara. He does his own presentation in small groups (<30) so you get time with him.

I do not agree with you about Than Merrill and Fortune Builders. I attended his free 2 hour seminar where they tell you about the secret 3 step process (buy, fix, sell). Loud music and about 100 minutes of sales pitch for the boot camp. another 10 minute on the gold package.  I later heard from one of the people that did sign up that to buy everything it was $50,000, and the first thing they teach you is how to raise the limit on you credit card.  

I suggest to take $1,000 and join your local REIA, and take some veteran investors to lunch. Then take $5,000 a month and invest it in postcards and yellow letters. You will be miles ahead of the guy that maxed out his credit to make Than rich.

Full disclosure - I am working with a marketing coach.

I went to a real estate auction that was not far from were I live. A guy that had a huge estate died, someone bought it and split it into 5 ac lots.   I went mostly to network, but I was ready to buy. The sale requires payment in 5 days, so the people buying had to have access to cash quickly. I registered at the check-in tent to get a bidder number, and saw they had a list of all the bidders on a yellow pads. I asked if I could take a photo of the pages. The nice lady at the table grabbed the pads and made photo copies of all the pages.  So now I have names and addresses of 89 people that potentially could get their hands on money quickly.  

Would it be out of line to send each a letter asking them if they ever considered private lending?

Would it violate SEC syndication rules?

How would I word such a letter?

Thanks in advance

@Marc Winter's story is very familiar. The millennial generation wants convenience and are willing to pay for it. Some in this group want to so convenient that they don't need a car. That means close to urban hubs (if that applies in your area), close to mass transit, work, shopping, dinning, and entertainment. They are young and healthy, so access to green-ways, gyms, and parks is a nice plus. If you are building, they are not afraid of steps; here in Nashville new 3 and 4 story homes are going in (with roof top decks) so they can fit 2 on a lot and give them a view. Just make sure you can have ultra fast internet. 

@Alex Vargas my first suggestion is the contact Staria Clark at Remax Elite and ask her about the duplex she just listed for a more reasonable price (tell her I sent you).

In my opinion locking you into 100% rent for both units for 3 years is unreasonable. There is a normal overturn of tenants.  Every time someone moves out you have to find a tenant, there is an expense to that. Who covers the rent while it is empty, YOU!!  Who paints it to get it ready for the next tenant and make repairs?  Who is going to be on the hook if rent is late or you have to evict?  You can't do all of that without a reward of some type.

Before you plan on Airbnb, know the rules and restrictions on short term rental in Nashville. They have basically outlawed them unless they are owner occupied or zoned commercial. Do the research.

Full disclosure, I have never entered into such a deal and I am a bad one to give such advice. A better plan would be to attend tonight's "Deals, Deals, Deals" meeting and talk to Tylor Cauble, or you could try to reach him today at Vastland Realty Group (he has a book coming out soon), but I shy away from bugging professionals unless I plan to involve them in the deal. You could reach out, and if he has time he is a great resource. For more info on the meeting, go to the REIN website and click on events.

Full disclosure, I have never entered into such a deal and I am a bad one to give such advice. If I were to do the deal with the duplex you described, I would offer rent be 75% of market rate. I would pay an option fee monthly of $100, to keep the option up to 3 yrs, and that fee would apply to closing cost when I purchase. I would do any needed repairs, but get that amount credited toward the rent payments. The purchase price to be 75% of appraisal.  

I would make this offer expecting the seller to walk away, but once in a while the seller will accept my crazy offer or make a counter offer. I would be ready to give a little here or there. Those are the deals worth doing.

Call Staria!

@Kim Sparks if you are in Nashville you need to keep company with real estate people in Nashville and start to build you network. You can find meet up in BP, but the best place to network is at Real Estate investors of Nashville (REIN).  @Brandon Turner of BP spoke at one of our meeting last month (it was so awesome). Go to REINTN.org and check out events. Tuesday night this week is a really good meeting called (Deals, Deals, Deals).  I hope to see you there.

@Alex Vargas, you are correct that most lease options don't work out, so be prepared for that.  This deal would cause me to ask a number of questions in addition to what you have addressed.

1) What are the market rents?  Rentometer.com can help with this. By signing a 3 year lease you should get a discount over the normal 1 year lease rate.  By renting both units you should should get a discount over the single unit rate.  Think about it.  You are taking on all his management head aches for the next three years. 

2) Why the 300K purchase price?  Typically the sale price is close to the market price at the time of signing, or maybe slightly more. Think about this, you are assuming his headaches, guaranteeing him roughly 25% appreciation, you're paying down his balance, and he probably gets cash flow each month. 

3) Who pays for repairs?  If the existing water heater goes out, will he replace the 50 gal. unit with a used 30 gal. unit that is not big enough for the house and will fail again once you own it?  How about the roof, will tar work until it is sold? He has 3 years to cheap skate repairs.

A lot can happen in the next three weeks. Look at the value of Bit Coin.  As an investor, you should always be trying to buy at (significantly) below market price.  To put your money in at a hoped for future market value is not investing, it is speculation. 

It sounds like he is a experienced investor that is trying to take advantage of your aspirations.  This deal stinks and you you wise to get a second opinion.  Get a 1 year deal, or buy it today, or walk away. My guess is that he is not motivated to sell.  Only buy from people motivated to sell. 

@Wayne Woodson  There are title companies that are investor friendly and will do assignment closings.  It is both legal and ethical to do so.  Interview the title company's attorney and ask to see their forms.  Some of them do not make it obvious that the line item is an assignment fee.  With most sellers, they are expecting the get a check for $X, and if it close they will sign the deed, grab the check, and run to their bank.

@Account Closed

There has been many new MF built in and near Nashville. Unfortunately much of that inventory is NOT being absorbed.  The cap rates are very low (4-5% for class A) because hedge funds and REITs are buying in sight. Class B and C are somewhat better, but it is tough to cash flow if you use traditional bank financing unless you but a big down payment. That does not mean you can't get lucky and find a motivated seller or a value add property.

Rural Tennessee has better chances to cash flow.