All Forum Posts by: Steve Karp

I own properties out of state since the cost is considerably less than LA. In fact I rent. So I'm a double agent. :-) I am looking at multi units in LA with the intent of using an FHA 203k to do the deal. What I'm finding here is sales prices barely work when using all cash (ROI, CashOnCash, 2% CAP Rate WooHoo!). I get that LA is more the land of property value appreciation vs monthly cash flow. OK. I'll accept a neutral cash flow in exchange for that appreciation. When I run a sales price through the spreadsheet calculated as an FHA (3.5% down) the numbers are very negative. As a FHA I would occupy one unit for 1 year. That's fine, I accept that. That also gives me the opportunity to rehab a unit while the other is rented out.

What have the LA investors done to handle a negative cash flow that justifies buying at these prices? An example would be a 2 unit bldg., sales price $600k, lets say the front unit is a 3/2 that rents for $2200 and back unit is a 1/1 for $1400.  Factor in property tax, insurance, maintenance, cap ex and vacancy.    I'm more interested in the long term math than the year or two of me occupying a unit so for arguments sake, you can consider that both units are rented at market rate.

I think many real estate investors speak of $0 down more in theory and slang for low $ down or low risk getting in.  The closest I've come was my first property years ago.  I had cash and was ready to use it. This was early 2000s which offered exotic loan programs. I found a loan program that was very low down and penciled out better than me dropping 20% down so I took a leap of faith went the exotic route.  I bought a $275k house for an out of pocket of $8k.  Some of it is timing.  Those crazy loans are mostly extinct and should be.  I too worked hard to save and build a bucket of cash that gave me leverage.  So the idea of $0 down is real.   Often to obtain that magic of Zero it takes showing that you have cash otherwise.  Its leverage and it shows that if push comes to shove, ya, you got it.  Strong credit ratings and reserves are built over time by hard work and sacrifice and patience.   Leverage is the operative word.  Whether that's creating a relationship that translates to someone willing to take on risk on your behalf, loan you money or otherwise further a deal, that's how you can put together a deal with little to nothing.  Its a group effort that takes some kind of underlying value on your part.  If you lack real dollars, identify what you can bring to the table that someone sees value in and use that as best you can.

You can certainly borrow against a 401k which is a nice option. I'm not an accountant. I had some rolled over IRAs from former employers with the big financial firms. It takes a lot of research to understand what a Self Directed IRA is, does and what you can and can not do. Once you feel like you get it, set that aside, have an adult beverage of your choice and be prepared. There's a few working parts to the equation. First, you'll want to find the place to open your account. I'm fortunate to have found a great place for my account (thank you RealTrust). Amy Holmes and the staff there have been immensely helpful. Once you get your account setup then put on your kevlar. When you call to roll over your IRA to a Self Directed vehicle (elsewhere), you'll encounter a gauntlet of resistance from the firm that holds it. Its not quite as bad as cancelling your cable subscription but darn close. Its your money, your choice. They'll tell you about all the wonderful tools and products they have to suit your needs. Can you choose whatever you want to invest in? Yes, if you want to invest inside their walls. Anything that doesn't involve them, Um, NO you may not. Therefore, you choose to use a Self Directed IRA. There's some particulars as to how the money is transferred which the holder of your Self Directed will tell you about. I have to say once I opened mine and fought to get my money free it was a real buzz. It's liberating to have control of your own capital. So my suggestion is read up on the subject and talk to some places that offer Self Directed IRAs. They'll have a good amount of knowledge to share. There's more complexities to a Self Directed that require awareness. They're not for everyone. That's ok. You're in charge so its really more a matter of how much risk you're comfortable with and how much time you want to spend managing your own money and learning the nuances of how to get the most out of it. I love it.

ah the "I'm different" seller.  Yes, we're all different, which... makes us the same!!  :)    Really everyone has differences of reference, history and personality.  What allows us to consummate a business transaction is Law.  That's all that matters.  It doesn't matter that the Seller wrote/authored/invented some kind of fresh perspective on a lease agreement.  You are entitled to see it as an agreed upon matter of this Sale agreement.  Unless there's some innovative language in it, the bottom line is its giving someone the right to occupy the property for an agreed upon rate and length.   I'm also curious about what she's written in to the lease that so secret since they give the impression there's something unconventional about it. 

I have experience with Memphis Invest.  I did my research which included reading through many threads here on BP.  They are strong stable and unquestionably the best.  What tipped the scales for me was a post you can find on BP.  Someone had purchased a property from

Memphis Invest and was unhappy.  While that investor may have had unrealistic expectations, inexperience or simply bad luck, once the deal closed, they were miserable.  Short of it is, Memphis Invest bought back the property.  If nothing else tells you about the company or the value of their relationship, that should.  As for me, I've financed and paid cash for their properties.  I've also financed many a property elsewhere.  Memphis Invest properties are different in that they're Not owner occupied, and turn key.  That's where the pool of lenders narrows, and where the benefit of a lender having worked with Memphis Invest is an advantage. You can also pay cash, then find your own financing if you choose.  Do you pay more buying from Memphis Invest?  Perhaps a slight premium, however the properties Memphis Invest sells are impeccably rehab'd with the kind of work I admire, and from top to bottom they're an organization that understands the investor.  I never have to worry about what's going on with a property.  There's consistent constant contact and their portal stores all the statements I need.  I'm not a landlord. I'm a Real Estate Investor.  With Memphis Invest I can focus on what I'm passionate about, finding properties that fit for me and putting the deal together.  From that point on, I leave it up to Memphis Invest to fulfill their role. They're experts in the markets they work in. I trust them to market, screen, sign a tenant and service the property. Its a huge benefit to have a partner like Memphis Invest that handles All the other responsibilities that go with an income property.  I'm very particular. Rick Luebbert is a great guy to work with.  I've also had the opportunity to meet Rick and the Clothier's which was amazing.  I may sound overly exuberant, I'm being candid.  Investing out of state was a Huge mental obstacle for me for many years.  I took a baby step in my head and started some due diligence.  Once I took that leap of faith it changed my approach for real estate investing.  Being successful is not a solo venture.  Its working with good people like Rick and organizations like Memphis Invest that go a long way towards reaching my goals.

If your Purchase Agreement states that the current tenant's Lease is a requirement to Close, of which they've signed off on, you have Rights.  You have to right to Demand the agreed upon paperwork or enforce your right to Damages.  When in doubt, there is no doubt.  The Seller is hiding something.  If the deal is worthy, you can choose to Close it.  You could also ask for a modification (discount) to close without the Lease copy.  Its a garden variety document to a closing.  Its value is the path to running the property as you choose.  Keep the tenants, raise the rent etc.   If you do want to close, you could talk to the tenant if that didn't piss off the Seller.  There's definitely something fishy going on.  Also depends on what state the property is in.  You should find out what the consequences are when ownership is transferred in regards to how that impacts an existing Lease (if there is one).   Bottom line is, it sounds like both parties agreed copies of tenant Leases would be provided prior to closing.  Seller needs to Perform or face the consequences.

Love the thread.  Nearly spit out my coffee laughing at Jeff Sherman's comments.   I own 0 self managed, 2 SFRs which are managed.  My passion is finding properties and financing to build the portfolio.  That isn't work to me, its enjoyable.  I appreciate those that self manage. I know its work.  I'm fortunate to have a Great property management group I trust. I consider them an integral part of my team.  Success is not a solo effort.  Finding the properties, putting deals together, getting the units leased, that takes several moving parts and people.  I wouldn't be able to progress towards my goals without creating those relationships.   Its not always roses though.  I've dealt with plenty of "No"s and incompetence along the way.  Its getting past that which makesit all worthwhile.