All Forum Posts by: William C.

Clancy Catelli there is no way they replaced the roof, hot water heater and HVAC. I'd be willing to be they touched none of those items. It was most likely paint and carpets, which last 1-5 years tops in rentals. 10% in this scenario is only $76 a month. Capex as a percentage of income isn't always a great option since the roof doesn't care how much the rent is, it's going to cost over $10k when it needs to be replaced. So the point I'm trying to make is percentages are great, and a 19% cash on cash return looks amazing running across the headline, but in real dollars I fear large break downs will cut into those numbers too deeply to ever get ahead. Then again I admitted to maybe being too conservative when running the numbers, but surely we'll see some vacancy, and a rental property will need more than $900 a year in repairs over the next 10,20,30 years.

@Account Closed, that law seems impossible to enforce to me.   Surely the seller is allowed to have some sort of qualifying criteria like min credit score and income qualifications?  We as landlords simply need to the learn the law inside and out just like a professional tenant might.  That way we can use it to our advantage, or at least poke loop holes where we need to in order to keep destructive tenants out of our investments.  

No one can force anyone to do anything in my opinion.  If I'm not available to show the property, prospective tenants wouldn't even step into my rental until I had a good feel for them from a few conversations. That law would make me really good a screening over the phone which I typically do anyway.  If the person never steps inside of my unit they have no "right"? To be able to rent it.  I'd use my favorite question, and since we are renovating the units, I'd be able to move the availability date either way I wanted by hiring more or less help.  

And I'm in no way saying I don't believe you, I just wish you luck having to deal with such a law.  That seems a bit overboard to me and I'd know every little nuance that gave me an out if I needed one.  Lastly I'd use location, price, condition, and unit size as a tenant screener as well.  There's a price point that unemployed tenants just wouldn't be able to look.  Or problem tenants just simply couldn't afford.  

@Ned Carey wow, perfect explaination.

It's all making sense now. Now that I know the difference, I understand exactly what the guy was doing when he was telling me how he bought tax liens in NJ at auction. I couldn't wrap my head around the idea, given how PA handles sales compared to NJ. They were doing it with no intention of being in real estate, but to earn a huge ROI on the money they spent to buy the lien.

 With that said, and to refer back to the OP, @Roy Ghai I wouldn't consider PA any "better" or "easier" in terms of purchasing property through a tax sale because of this difference.  It's just different.  In fact, the system the guy was telling me they used was brilliant, spit out amazing returns, and they never had to take ownership of the property and deal with tenants toilets or termites.  In the rare case they couldn't collect on the tax lien, they would then foreclose and take the property but that wasn't ever their end goal.

I'm interested in learning more about this subject, but I really think it would require becoming an expert to be able to cash in on this type of approach.  Maybe I'm wrong and it's something learned relatively quickly.  

Roy, was there something you were told or read that compelled you to try to go down this path as the"newbie" you call yourself?  

Im not implying this is case here, but nearly every time a client has come to me asking how to buy a home at a sheriff sale they had heard or seen somewhere that a home sold at auction for $10,000, and thought that means that was the entire cost to buy the property, free and clear.   

It probably varies from state to state and market to market but the cost to obtain, and maintain real estate license is not very much. There's probably a good article are the internet titled something like "the real cost of a real estate license" but I can tell about what I pay. About $400 year for NAR dues, about $350 a year for MLS access, a few hundred every other year for CE and license renewal, and I think that's about it for the "standard fees". Aside from that is going to depend greatly on the brokerage you hang your license at. Iv worked for the large ones , Remax and KW, but recently switched to Realty Mark for their 100% commission model. Most brokers will take a percentage of you commission, called a split. Some Remax's will charge a desk fee, but take. I split. I wouldn't suggest that for a new agent since the desk fees are upwards of $500-1000 a month, deal or no deal. KW cost $1200 a year, plus 36% of my commissions up to $24,000 for the year! In order to make $42k I really needed to earn $67k in commissions. It takes a lot of time and energy to produce that kind of results and it's unlikely to be achieved part time unless you have built a large book of business you can rely on for referrals. My cost at Remax was similar, but fees capped at roughly $18k a year. Now I pay only $100 a month, $275 a deal up to $2750, and that's it. I'll literally keep $20k more this year by putting a different logo on my card. Clients hire the agent, no the brokerage. It's a no brainer in my opinion for an agent that buys and sells a lot of their own investment deals, or someone doing between 2-20 deals a year. Feel free to PM me if you have any questions about becoming licensed or what to do once you get there. Oh and by the way, there is simply no answer to the question "what does an agent in X make on average". There is no such thing as an average agent. As an agent you make what you earn. And there's a 95-5 rule. 5% of agents earn 95% of the money and the other 95% of agents earn the other 5%. Seriously, it's that lopsided. It's not something you can dip your toes into. You'll be competing with the other 95%.

Amazing input and discussion in this thread.

You mentioned it was an "off market" deal, yet mentioned the seller had a broker. Which one is it? I'd highly recommend you get your own representation in some capacity, whether it be an agent or attorney, before you go any further. It's obvious from your questions you are not familiar with the buying process, or at least for this property type, so it's in your best interest to get an expert involved before it's too late. If there is a sellers broker involved, it's likely the seller has already agreed to pay the buyers broker, so the cost to you would be zero to have someone working on your behalf, and answering all of these questions directly and immediately, rather than having to jump on the forum at every twist and turn of this deal. Vetting an agent shouldn't be hard or at all time consuming. Call a brokerage or 2 or 3 in the area of the property and ask for the agent that sells the most property similar to the one your looking at. Or google it yourself. Bingo, you have a rock star agent who does this on a daily basis at your beck and call whenever you have a question or concern. BP is a great resource and the advice you've gotten so far has been great, but I don't think the site can be a replacement for vital team members like an agent, attorney, CPA, PM, etc etc. If your afraid to lose the deal, the LOI won't hurt since it's Non binding agreement, but then again it's a non binding agreement so they could easily just go with another buyer if one happened to come along, so just another reason you need help Asap. Best of luck either way. I'll be following along to see how it turns out, but you'll thank me the day of closing that you had someone in your corner along the way.

Congrats. It seems like a solid deal. I have a similar market in my area and I simply haven't been able to pull the trigger on anything. If I were to analyze a deal similar to this I'd likely account for at least another 10% for capex, around 10% for management and another 8% for vacancy (1 month). With that said I'm only left with $1700 a year in cash flow. Sure it's an 8% COC return, but in real dollars I'm a hot water heater away from losing a years worth of Cashflow. Let alone having to replace the $14k roof and being set back close to a decade. I read Brandon Turners blog on calculating capex, and he drives home the point of his Hell House where he loses money every year. I try to stick to multi family for the economies of scale like the roof, siding, driveway etc that are shared between more than one unit, although these deals are much less prevalent than the single family deals like this one. So with all that said, I'm I being too conservative for my own good and missing opportunity?

Is the "cash only" stipulation the sellers, or because of the property? If I had a dollar for everytime a seller has required "cash only" because they THOUGHT a mortgage wasn't possible, only to be wrong, I'd have a lot of dollars. Maybe there is an opportunity to finance it through a local lender or commercial bank somewhere? You can let the seller know "cash" doesn't mean you show up with a briefcase at settlement, so either way they walk away from settlement with a check in hand, mortgage or not. Again, sellers and their "cash" is sometimes just a silly misconception. If financing is in fact no way possible, ever, id look for more favorable terms for the reasons mentioned by posters above. Having multiple exit strategies is crucial in any deal, especially if the mobile homes will really have zero value at some point down the road.

You should be able to tap into your equity to some degree as mentioned above since the collateral is real property opposed to blueprints and lumber. The amount might be lower due to DTI but I would expect you to at least have enough to purchase the lot. Could you use other forms of credit for materials since your doing the building? Is the low income due to a high number of write offs? I'd talk to a CPA, but similar clients in the past have made the decision that the tax savings they receive from the huge write offs is less than the benefit of the lending options they have with a higher income. They write off less, and therefor have a higher income. The higher income might cost them $5000 more in taxes that year, but in turn they can make $50,000 on a flip, or in other cases qualify for $100-$200k more in buying power. Again your CPA would be the person to talk to about if or how you could show a higher income, I don't know the laws regarding write offs nor am I suggesting anyone commit fraud in anyway. Would paying a little more taxes be worth getting the loan and building the spec home? My favorite line is "I make a lot more money than I show on my taxes, can't the bank just lend based on what I really make each year? ". Unfortunately what they tell Uncle Sam their income is, happens to be the income the bank insists on using to qualify the loan. That's typically where their home buying process ends. Best of luck tapping your equity. Now is certainly the time to be building.

Simply DO NOT deny them for any reason that would fall into fair housing lawsuit. Any other reason for denying is up to you. My favorite question is when do you need to move in? It just always happens to be either too soon or too far out whenever they are not a good fit, it's really a darn shame sometimes....