All Forum Posts by: John Stovall

Yael,

I buy only nicer places where I can get the best tenants. For this, I use the 1% rule -- and actually try to do even better and get twice my mortgage. (20% down, 15 year.) My expenses are much less in nicer neighborhoods because I have few evictions, they stay rented, they are nice when people move out, etc. I think they will appreciate but I'm confident they are not going to depreciate. I like all my tenants, and most are or become friends.

Others can use the 2% rule, but of those people, many are buying and renting in more challenging areas. (OK, I know not all. I have a couple of 2%'ers in the above.)  This is great if your objective is cash flow, but it is hard, and often, you have to be hard on your tenants. More damage, more evictions, and a higher cost of doing business.

Finally, there are those of us who invest for an appreciation for the property, and if that is what this one is, it may be a good investment. You're getting just shy of 1%, but if you feel you're getting a big discount on the property, it may be a good investment.  If I found a house for $156,000, felt it was worth $200,000, but I got a good deal because of cash, I might purchase it in a second if I could get $1550 AND I felt it would appreciate even more in a few years.

I do agree with others: Where did the $1550 come from? 

I hate to say it, but i usually hang around the neighborhood on any place I'm buying and ask all types of questions. (Sort of boorish behavior, right?) I make sure the first words out of my mouth is that I want to make the area better, but I just need advice.  (And I do want to make the neighborhood better.) I also give tours to neighbors showing what I'm going to do to my house. I often rent it in the process to their friends.

I require them to put it on a pole. I liked the idea above where the landlord found a place that works for everyone. I may do this also.

So, really, the answer is no. Except in VERY rare cases will you receive a discount.\

But also pay attention to what the others are saying: If you're going into this thing head first, like I did, my best resource so far is my real estate agent. My guess is half of my purchases did not include an agent because I purchased them directly from the owner. But in EVERY case, my agent who's also my friend gives me his opinion. I also try and steer as much business his way when friends ask me for a realtor.

I sort of laughed at this post because my partner and I constantly refine the way we work together. When we signed the partnership agreement, I joke that he only has 3 tasks for me: and the third one is "do everything else not mentioned in this agreement."

I would say the most important part of our partnership is that we have veto power over the other. We've gone from 2 houses that are split into 3 apartments each to owning 20+ residential homes and some commercial property. I do the operations for all residential, and he handles the commercial property. (Although I still control the workers, etc, on those.) I probably work double or triple the hours he does. We both have other jobs.

But what he did that was smart is he accepted all the duties that I hate: Bookkeeping, dealing with the city, organizing financing, and when I have a problem, he comes through. We are both very happy with our arrangement, and to this day, have never had an argument.

Yesterday, I told him I wanted to buy another property. I REALLY wanted it, and although he didn't veto me, I could tell he wanted to take a break from acquiring any new properties for a while. We had a counter that I would have accepted, but I called our agent today to not accept the counter and pull out of the deal. Why? Sometimes you just need to cede to your partner's viewpoint and not "win" all the battles.

So my advice is not to worry about the duties listed in the agreement, although they are important, and find a partner who will support you -- and know when to support them back. I have loved what I do, but I found my partner worrying about our growth. We've been lucky enough that everything we've acquired has been successful -- far more successful than what we've planned -- but it might be a good time to spend a couple of more days at the pool instead of continuing the growth. Instead of using every dollar acquiring new property, I am now working to make his job easier by building up a larger reserve and paying off more of the properties we now own. 

I know that's what he wants to happen for the next year or so, and as I said, sometimes you really do need to make the partnership stronger by supporting your partner.

My guess is there is a reserve on the bidding. There has been a house on auction.com in my area for $15,000, and I have bid up to $25,000 and not met reserve. They just started a "no reserve" bid on it with a starting bid of $53,000. I think, fixed up, would cost $18,000, and it would sell for about $75,000. Not a great deal.

You never know what's going to happen. I got a great deal for a commercial property under bankruptcy. It took about a week to get everyone to sign off on it.

David, I didn't know either when hiring a roofer. I don't like to give my partner a big head or anything, but I'm sure glad I have him. Running the operations takes more hours, but having someone who knows all this to run financials makes me sleep easier at night!

Another thing he told me was to be completely honest with our bankers, and whenever we told them we'd do something, to do it. (My inclination was to oversell a project to get financing by giving them the best case instead of probable case analysis on future costs and revenues.) It's made me be more choosy in what I buy, and because of the trust built up over time, they bend over backwards to help us on every project.

Legally, you are correct. But I agree with others: You should make it clear that you are going to 1099 someone when agreeing on a price. You probably got the best of both worlds: A cash price, where it's understood that no 1099 will be sent, and an IRS proof expense.

My business partner handles this end of the business, and early on, he stressed that I could not enter into any agreement with an individual without telling him/her. Sure, some people didn't want to bid on our work, but since I live in a small town, I haven't lost any friends.

Oh, let me add something: We originally considered selling him a smaller share of the original LLC. We would all have to agree to change the LLC agreement to new ownership percentages, and get the banks blessings, and that might be the best way to do this. (As long as the partner who doesn't want to invest also is willing to take a lower share.)