All Forum Posts by: Steve Smith

Stay in Tampa, long distance ownership and landlording just doesn't work well. And there's TONS of opportunities in Tampa. 
However, Port Charlotte is a really nice area. 

Just for clarification. An appraisal that really counts is an appraisal from state licensed real estate appraiser. Banks don't do them, they hire the licensed guy. The tax rolls, Zillow or market analysis, are often WAY off.

And the licensed appraiser can be off buy a bunch, too. In a really volatile market the comps he uses are already out of date. Now, you can get them to update their numbers and change the appraisal, and often they will bend a bit with an offer from the bank to make it work.

Appraising is not an exact science.

And, yes, in some markets prices are over appraisals. 

Originally posted by @Cody Davis:

@Steve Smith Good ideas! Thanks for replying. I think I will enjoy the upsides of these tenants until there is an actual problem with rent. Could you elaborate on the deposit slip option? So you give them deposit slips that are already set up for your account? Do they deposit them at your bank?

Cody,

Yes, I give them printed deposit slips to deposit right in my bank. I code them so I can identify that property (they show up online when I check). I'll use the banks blank tickets and print them myself on my copier, adding my account number and a code for the house so I know who it's from. (yes, the bank will give me a ton of those without issue). You don't need them MICR encoded. Been doing this for 15 or 20 years... no issues and works for me. The banks I use for this are BofA and Chase. (don't like those banks, but it works)

Mikhail,

For some reason, the numbers don't add up very well. You're going to pay $2237 for $37K in cash... that's 6%. I'm surprised that you can get a better deal. 

However, if the 37K you borrow gets you only 4% on a 200K house, you'll end up better. (and the 4% is not hard to get)

But there is always a cost to a refi, so do it for a good reason. And highly  leveraged properties gives the higher the returns on you dollars, but also the higher the risk... so have a plan B in your back pocket for safety.

You need to crunch the numbers... but overall, IF property two will at least break even or better and you're in a good market (reasonable appreciation and reasonable rental market), go for it.

Dave,
Joe has some very good points, especially about partnerships and why we would do a partnership. I subscribe to his philosophy and just don't do partnership, however, I do a LOT of joint ventures, and would suggest that for you. Bring to the table what YOU do best (and can do) and likewise with your partner. And split things according to that, it may not be a 50/50 and that's probably best.
I could also argue for you to have your properties and you buddy to have his. And you really don't need an LLC (yet). Hold the properties in trust.
So, what can you provide and what can your friend provide.
Quite comment, a joint venture might look like this:
You find the property, negotiate the purchase, and manage it.
He provides the down payment.
Who ever has the biggest income tax problem owns it.
The rent is split on whatever numbers you decide on, and you need to decide who pays when there's negative cash flows (big maintenace or vacancy).
The non owner gets an option to buy part of the upside when sold. (whatever percentage you decide on).
I've done both side of the above. The big requirement is that the negotiator/manager have some experience. Sounds like you've read up on things, so time to apply them. You might want a good experienced investor to coach you thru the first deal. Your real estate buddy could be that guy. Now, he's an apartment guy, I'd strongly suggest single family homes for you.... there's tons of advantages.
Another point....as Joe said, don't make a calendar commitment date, make a financial commitment goal.
Don't know your market in Cape Girardeau, but I could argue just to stay there. Most likely you can make all the money you want right there. Big enough. However, you do want a nice home that attracts a great tenant and you want a motivated seller to get a reasonably good deal.
BTW, love your town, been there many times!

Cody,
Inheriting tenants has its goods and bads. However, with a 9 year history, YOU FOR SURE WANT TO KEEP THEM.
But you want to also get them over into doing things your way. For a starter, I'd ask them what improvements or changes they would like. And, if reasonable, do them. You might not put a new kitchen in, but could update blinds, doors, appliances, etc.
Then explain to them how your method of collecting rent might be easier for them.
Picking up a check is a PITA.
I just give my tenants 12 months of deposit slips that are coded to them, and all they do is deposit it at the bank. Most of my friends do similar. A few with a lot of properties use ACH.
However, the goal is to "save" this tenant. Tenant turn over is very expensive!

Cortez,
Sorry to hear about this. I know it's a bit too late, but a few things for next time: 
1. Have a penalty clause for timely performance. I could argue to give them some sort of grace period after which it costs the xxx a day. BUT, also have a bonus if they finish early.
2. NEVER EVER, pay a contractor in advance, unless you know them VERY well. Even for the little stuff. I got sloppy recently with $300 and guy said he would finish and I should pay him so he wouldn't have to drive across town for payment. Guy was gone. (We all make mistakes).
You might try to friendly negotiate this. Tell him your job is time critical and you really expected him to be there and you needed someone that who would work unsupervised and get the job done. Suggest he return your 25% and we part company. He just might comply, or he might jump on your job and get it done.
Would like to hear what other folks do.

Tim, First, sure looks like you have way too much on your plate and there's a thought to pass on this one and catch up and/or delegate some of your responsibilities to others. The "WE" you mention, can the other person do the land deal, and can your partner (wife?) manage the fix up and remodel? I would guess not... but you'd want to be involved. As for the triplex, first, the number aren't really attractive. If it were a single family home, I'd say go for it. As to cash flow and creative financings, ask the seller to be paid interest only at a low rate (like 2 or 3%, which you can explain is more than he'll get in a bank), and remind him that for an installment sale, he'll pay tax when the dollars are received. If he doesn't like 2%, tell him you'll increase the rate later on... perhaps 4% after 5 years.... 6% after 8 years, etc. I don't understand the "downpayment" until refinanced. Sounds like you'll be looking for 100% financing? Pretty hard to do. Why not sell your friend part of the upside for his downpayment?

Dave,
I wound STRONGLY suggest that you stay away from ANY formal investment groups, especially anything that comes under the grips of the SEC. And you don't need it if you're not "holding out to the public" to sell shares in some investment.
Also, with family and being a new investor, you might want to be VERY CAREFUL AND CONSERVATIVE. The last thing you need is family issues.
And, flipping has risk and you can loose money on a flip. And with family you need to personally need to be able to make them whole. (Heck, you'd want to do that for anyone that put money with you).
You might want to look into just getting a good single family home and renting it. And do them one at a time, with just a few family member with you in that venture. Get good at that one, and then go to the next with a few other members.
Doing the paperwork on this will be easy. If your family puts in the money, they get paid first. In a very simple example.... You could buy the property in trust, the investors would be the beneficiaries in percent as to what they contributed. They could give you the option to buy a percentage of the property upon sale, perhaps 25% at a price of 25% of what it was originally purchased for (so you share on the upside when sold). They would give you the right to manage and take the rents. You would give them easy back part of the rent base on their % of investment, and you might keep a smaller amount, perhaps 25%.
There lots of ways to split things up so do some planning and put our a few examples and discuss with your family to see what they think. One thing, you most likely do NOT want to give them control over management or maintenance or it could turn into micromanagement. Meet occasionally and have a "how we doing" lunch.
But the main thing, is try to keep this simple!

I'd could argue the important thing is to know what maintenance takes, and have a good idea of what it costs. There are MANY successful RE guys and gals out there that have never touched a hammer.
Being a handyman or even a skilled electrician or plumber is NOT a requirement to be successful in real estate. There are far more important skills. For example, certainly picking a good tenant is much more important.