All Forum Posts by: Robert Smith

Welcome Emmanuel. Charlotte is a great area to invest in. I dabbled there for a short time while living just outside of Wilmington before moving back home to the Knoxville area. Many great investors in that area doing good things and many conferences and seminars in the area constantly to glean plenty of information from. It went through a rough patch for a while back 2009 era but I think it has bounced back well and a fairly strong area. Good luck.

@Daniel Cruz Generally you would try to budget 5%-10% each month for vacancy and for repairs. I tend to lean more toward 10%, especially if the property is older or systems are beginning to end their functional life. In a perfect world things would not break until we can pay for them but that is not the case. One thing you could look into for general breakdowns would be a home warranty for the property, they offer this for multifamily as well as single family homes. For the repairs needed when a tenant vacates, how well you screen them before placing them in the home can be more valuable then having money in reserves when they vacate the home. If they have done the damage and responsible you can go after them with a little effort. In the case of a long term tenant, with is the case I am sure with Fibian, wear and tear cannot be prevented and something the owner must bear. I consider broke the tenants problem, wore out my problem. Again, as you reach the end of functional life or know that the tenant has been in a home for a long amount of time and when they move out you will have to do major repairs, start putting more money back every month to cover these costs. Using Fibian's numbers as an example, I am not saying you did anything wrong and it is easier said then done even on my own properties, if the tenant was in the home for 10 years and you were able to put back $1K per year (about $100 per month) the repairs would be covered for the most part. When you first take over a property it is hard to put back $100 per month, sometimes that is all you make in the beginning per door at times, but as your equity builds and you adjust the rent accordingly you should be able to build that cushion as time grows. 

I own and also manage for others professionally so have seen it from both ends. If I can answer anything else for you or help you out give me shout. 

It is illegal to pay an unlicensed individual a commission however the investor could easily place a lien against the property or work out something with the owner of the home and collect a consulting fee for their trouble and effort. A license would work and could be the best thing if this is something you plan on doing often. Sometimes you have to take a loss in the beginning so that maybe the agent you refer the home to would be able to work exclusively for you and send you leads on homes that they cannot list and sell. Be very careful with how you progress. It can be done and the best thing you can do is ask questions. 

Investor Opportunity! Between Knoxville and Maryville TN
This investor portfolio deal includes 8 homes! 4 single family homes and 4 mobile homes on 7 total parcels.
These homes are turn key, professionally managed by a real estate firm, no repairs currently needed, and 6 occupied, 1 accepted application and 1 currently for rent and would make great investment income starting from the first day of ownership. Great cap rate! Management can stay in place and leases will transfer to new owner. 
Located south of Knoxville in Rockford, minutes away from the Knoxville airport, major employers in the area, and a constantly growing community. 
Call for details and information or schedule an appointment if you are in the area. These homes are occupied, please do not disturb tenants. Owner will not finance or break up portfolio. 
Potential gross yearly income $65,000, asking just over tax value at $395,000. 

Sending you a PM. 

If hiring someone look into using a VA. I have had a lot of luck with upwork. You can screen the hires and pick the best ones for your position based on your questions and communication with them. There are many other virtual VA sites out there to choose from, you should be able to get this marketing done at a reasonable cost. You could also use the many letter and list companies that are out there to market for you. Don't reinvent the wheel when it is already working.

As for getting the deals, how many offers have you made? Most investors getting the deals are making many offers a day at a price they are comfortable with. You never know until you ask, and if you keep asking they will either figure out you are serious about buying or they will remember you next time they go to sell. And getting in with real estate agents in the area will help as well if they are the top under market price lister in the area. Generally it is hard to find deals on the MLS unless you are in an extremely secluded area. Drive for dollars, keep your eye on the FSBO sites, and make as many offers as possible. For multi fam properties I would check out the evictions and see what owners are having issues and hit them up. Cash for their headache may be offered at the perfect time in that situation. You could also set up a search on craigslist, zillow and the other real estate websites to be the first to know when a new property is listed. When searching the MLS one thing I try is find the expired properties and see if they ever transferred. If they wanted to sell at one time they may be willing to again, but this time they wouldnt have to pay an agent fee which works in your favor for a better deal. They are out there but you have to dig, and keep digging. A VA could also write up your offers and mine for properties online as well.

Turnkey, in my opinion, is more of a convenience fee. The work is done so you don't have to deal with the headache and heartache of getting the home fixed up and ready and all that entails. You go straight into money making from day one. This is ideal for out of town or state investors looking for a hot area. I have seen this work out well however I personally would not do this. I would rather put the time and effort into the home and pay myself instead of another. There are many things I will pay someone else to do however taking a property turn key is not one of them just yet. 

The fees are going to be higher however for someone starting out I can see the appeal. Typically a buy and hold investor will pay more money then a traditional rehab and resale investor will due to the long term goals and money making. If the deal makes sense in an appreciating area I can also see the appeal. If the numbers make sense and you can justify or afford the expense then go for it.

I think you have answered your own question. For the roof at end of functional life, that is sort of a catch all for the inspector to say you cant hold him responsible. From your inspection could you get another year or two out of it and maybe patch here and there as needed until you get the property cash flowing or would it need done immediately? I bring that up first because that is not really an issue. 

However, with the health department, fire department, building department, and all the other departments coming down on you the day you take ownership, that is not a good thing. If the numbers are strong enough then it may be worth the hassle, but if you are using cash to purchase something you will have to dump the remaining cash in it may be time to cut the ties. 

You should buy the worst house in the best neighborhood but it sounds like you are buying the money pit in the worst area. 

No paperwork being supplied is a problem, there are obviously more problems then he is letting on. He was hoping you would not be diligent and find out these things obviously but now he either needs to pay or renegotiate. It would not be the first time someone came back after a contract was made and ask for adjustments. One or two small things can come up, but you started by saying you have a triplex under contract and ended with a duplex with major issues. 

Don't be labeled the slum lord by the inspectors, they are the ones you have to play nice with. If you get a bad name and on their list they will haunt you forever. They are only doing their job so I do not fault them, but unless your kids play t-ball together 2X a week you should not be on a first name basis with them and it sounds like this owner is. 

$800 net with $90K contract plus repairs don't sound like a solid deal to me. There is not much room for error and if you end up with even one vacancy it sounds like you won't be making anything when its said and done.

If it was me I would pass or renegotiate. With new ownership see if the inspectors would give you some time to conform and look at increasing your income throughout the units in addition to signing new leases with the tenants to make sure you don't end up vacant at ownership. I prefer to get my own tenants in the property however if you must take it preoccupied make sure you protect yourself as much as possible. 

Offer the home as an owner financed handy man special. Instead of taking a large down payment you can take a smaller down payment and allow them to work off the rest with sweat equity. One risk is shoddy craftsmanship, but if you already have to fix the home in order to get rid of it that may be a risk worth taking. Is there no equity in the home you can pull from with a refi after renting it out for the last ten years? I would look there as well.

Let us know how it goes, good luck with your agent tomorrow. 

For the taxes and insurance payments, if the seller has a mortgage with an escrow account you can leave this in place. If there is no escrow account you can pay them yourself, this would be my suggestion to make sure they are getting paid. For the insurance you can do one of two things. The more expensive option would be to get your own policy, which you would end up paying for insurance twice cutting into your profit. The other option would be to make yourself an additional insured on the current policy. Banks and interest holders do this often, the insurance company will be familiar with this. 

For the authorization to release form, that for me is a must. I also get a power of attorney for the seller so that I can do anything I need with the home without his constant approval, generally once they are out of the deal I rarely ever hear from my sellers in a sub 2 deal. For lease option it is the same. I would only do lease option if he would not transfer the ownership or you were concerned with the due on sale / acceleration clause. The first offer I would make him would be payoff but remember someone has to pay your agent. I would only offer him money as a last resort in addition to pay off.

For the refi on the home, if he is not pushing I would wait until you have to. Other peoples money and credit are what sub 2 are all about. You could tie yourself up financially and not be able to get other loans for other deals out there when you are ready. However, I can understand the refi to put money back into the home if you can cash out the equity, if any. Again, with the lease option, if you go that route, make sure your contract states you can sublet the property so you don't have any issues down the road. 9/10 times tenants don't care who the owner is, you can be the "manager". Even on homes I own or control I would much rather be know as the manager then the owner. As a manager I am carrying out the owners wishes and they have someone else to blame when I don't give them a break on rent and such. As the owner you will hear every sob story in the book and get the 2am calls for the leaky toilet. 

Good luck and keep posting, interested to see if it works out for you. And we all get busy and can't post as much as we like, if you would like you can pm me and I will get to your questions soon as I can.