All Forum Posts by: David Faulkner

Look into the hot new trend that is sweeping the nation, luxury house hacking ... right @Ben Leybovich? :)

Sorry to hear that Brenda ... I've had similar such experiences out of state ... the difference was that I DID have property managers and this sort of thing STILL happened way too regularly ... not just an isolated incident with one PM either ... I fired 7 PMs in 5 years after repeated abuses like that. In my experience, having a PM does not necessarily prevent such things, it is just yet another person in a long line of people to rip off an out of state investor, knowing that there is not a darn thing you can do about it ... fortunately mine were in Phoenix, 5 hours drive from me instead of more than 2 days ... I was actually driving out there monthly to clean up the mess my bad PMs, contractors, and tenants made, and ironically was spending more time and effort managing my out of state properties that I paid PMs to do that job for than I did on my self managed in state properties.

Great point regarding stale listings ... that is actually how I got a great deal on my primary residence. I would also add with stale listings that you can sometimes "game" them as to when and how much to put your offer in for. For example, sometimes if you look at the listing history for a stale listing, you can see a pattern ... as in, the seller/agent has reduced the list price by $10k every month it doesn't sell for the last 3 months ... then, if you see a pattern like that you can get a feel for if/when it will get down to the ballpark it needs to be price wise ... make a mental note to check back around then, and you can then put an offer in the night before you expect them to drop their price again, with the anticipated price drop, plus an additional smaller price drop to get you a great deal ...

 Yep ... the fact that it is very niche, requires specific knowledge that not everyone has to spot things that nobody else even knows how to look for, and capital intensive is the very reason I'd imagine it works so well ... sounds like it would be the type of strategy right up my alley, actually ... would love to chat with you about that more offline if you're up for it Jay, or online is fine too, but may be straying a bit from the OPs original topic at that point. Also, I fully understand that you can't possibly explain in one post how it all works, nor should you even if you could, but more interested in the path to develop the vision to be able to spot and execute on such things ...

Readily apparent good deals show up on the MLS from time to time, even in a hot market ... the key is speed to get your offer in fast and lock it up before your competition does.

There are two other ways that I'm aware of to get good deals off the MLS, one which is unscrupulous IMO and the other that takes some vision.

1)The unscrupulous way: you bid the property at or close to asking price, with no intention of closing at that price. Then you work the inspection to try to retrade the deal in escrow to a price you want, and then walk away if you don't get it. Essentially this takes an on market property and attempts to turn it into an off market deal after it is in escrow. Please don't do this, but if you are an agent you need to be aware in order to protect your sellers from such strategies. 

2)The visionary way can be summed up in 2 words: hidden value. It is basically being able to spot situations where the property isn't currently at its highest and best use. An example would be a small 2 BR property on a large lot surrounded by huge 4 BR properties. Take a property like that, on the MLS, pay market value even for its current state, and unlock the hidden value by adding beds and baths in a cost effective manner (converting attics and/or basements, converting the garage and then adding a detached garage structure, etc). It takes some work and some vision to see things that others miss because they aren't looking for it in this way, but you could pay retail and actually still make a profit by spotting and extracting this sort of hidden value. Many more examples, like logging the trees on a property and selling the wood like @Jay Hinrichs used to do, or breaking up the lot into parcels and selling them off like he currently does ... any other examples, Jay? I think you may be the BP master on such techniques :)

Possible, yes. Likely, no, at least not in the way you've spelled out.

It goes against the grain to say, but the best way IMO to make passive money in REI is in market appreciation ... the trick there is in how to get into such investments in such a way as to still make money, or at the very least not lose money, in case you don't get the market appreciation, but those methods tend to NOT be passive, at least not in the short run.

Thanks for the interesting case study ... I've heard that this strategy, like many others, is much harder today as the profits have been all but bid out of these liens in AZ, especially in Maricopa county (Phoenix). Are you seeing this as well? Perhaps you are focused on N AZ counties where the competition is a bit tamer?

Listen to your wife. Even if you're right (which you're not in this case IMO) then you're still wrong ...

Do you have an appropriately sized four legged friend you could bring along with you?

There are two possible issues here that I would like to try to untangle, because they are two separate issues with potentially to different solutions:

1)The market you live in is too expensive such that you can't afford to buy anything either now or in the foreseeable future. If this is your problem, then the only ways to solve that is to rearrange your finances such that you earn more, spend less, or both so that you can afford to buy investments near you. If you still can't or don't wish to do this, then as harsh as it may sound I'd argue that you can't really afford to live where you live, and the best course of action may be to move to somewhere more affordable. This advice is actually regardless of if you want to invest in RE or not.

2)You think that because the market is expensive it is not an attractive place to invest and you don't think you can make profit there. I've spent most of my time here on BP arguing that this is 100% FALSE ... you can still make profits investing in RE in expensive markets, and in my last 15 years of experience doing just that it can actually be MORE profitable investing in expensive markets. If this is the issue for you, then I'd advise going to a few REIA meetups near you, seeking out some local investors, and seeing what they are doing locally to succeed. They may beusing different strategies and techniques than what is commonly preached on BP, but I guarantee there are plenty of RE investors all around you making plenty of money consistently. Money can be made in every RE market in the nation, even (and I'd argue especially) in expensive ones, and I'm confident that your market is no exception to this.

Finally, as to venturing out of state as a newbie, I'd definitely advise against it. You do not have the knowledge, experience, or systems in place yet. You do not yet have the capital to scale up. If you go to a far away market to invest, you will give up all of your control and be 100% dependent on strangers to keep your best financial interests at heart and make or break your investment for you. Way too risky IMO.

Good luck!