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Ken Fenner
02-06-2009, 07:03 PM
Are you buying properties through an LLC? Do you use a seperate LLC for each property?

Does anybody out there use a personal holdings company?

Scott Davis
02-06-2009, 07:09 PM
We have 2 rental properties that we own under an Confident Investments LLC, and when I come home, we plan on ramping up and buying more. We've bought 10 homes under it, but sold or re-assigned 8 of them. My goal is to have at least 10 rentals by the end of 2010, but more preferably.

Ken Fenner
02-06-2009, 08:20 PM
Scott, do you worry about the liability of any one property affecting your entire portfolio/LLC?

Tim Fields
02-06-2009, 08:22 PM
Ken,

We have separate LLC's for: commercial rental property, residential rentals, and finished building lots.

Thanks,

Don M.
02-06-2009, 10:30 PM
We have one llc that owns 8 rentals.

7 of the 8 are rented through section 8:Smiley-2000:

Ken Fenner
02-07-2009, 07:29 AM
Don, I've been advised to start a new LLC for each property purchased so that someone cannot go after all the assets of a larger corporation. I can understand that, especially in today's world. Are there tax or other advantages to putting them all under one umbrella?

The market is sweet right now. There are some good buys out there. I bought my first property in October an am getting it ready for section 8 rental. I really like the duplex and triplex real estate model. Every property I have looked at has positive cash flow at today's money rate and property value. I know many of you have other business vestments outside of pressure washing so any input or guidance is welcome.

Tim Fields
02-07-2009, 07:55 AM
Ken,

When we started buying rentals, our attorney advised to consider up to ten houses in one LLC before we should consider forming another. We never got to ten (all at once). One interesting note as it applies to LLC's in Maryland, several years ago it was proposed at the state level that the filing fee per LLC should go from $100.00 to $1,000.00. Per LLC, per year. They eventually settled on $300.00 per year.

What are the downpayment requirements in your area at this time for non owner occupied, less than four units?
Thanks

James Foley
02-07-2009, 08:12 AM
I was in a Partnership before LLC's and owned 16 rentals and some were Sec 8. Best advice is see your CPA. Got out of rentals 15 years ago . May get back in.

When dealing with Sec 8 enforce the rules ! With Sec 8 you can not be an absentee owner! I had a guy get out of jail and torch my house where his ex-girl friend now lived and had to deal with allot of domestic problems .The area your property is in dictates the level of trouble you inherit. I inherited some problem renters. I have friends with properties and Sec 8ters and there great.You will be dealing with the Jerry Springer Crowd !!!

Don M.
02-07-2009, 08:27 AM
Don, I've been advised to start a new LLC for each property purchased so that someone cannot go after all the assets of a larger corporation. I can understand that, especially in today's world. Are there tax or other advantages to putting them all under one umbrella?

The market is sweet right now. There are some good buys out there. I bought my first property in October an am getting it ready for section 8 rental. I really like the duplex and triplex real estate model. Every property I have looked at has positive cash flow at today's money rate and property value. I know many of you have other business vestments outside of pressure washing so any input or guidance is welcome.

Ken, this where it gets "complicated". This might start a discussion.

If Joe Blow slips and falls I have insurance in place to take care of him. If he wants to sue me for my assessts, go right ahead. He can have my 6 figure debt. I think 99% of the time that would run someone off.

With the taxes, I have shown a "loss" every year since I have owned the property.

BTW, about starting a LLC for every property...do you think Trump has started an LLC for every property. I dont think so. Imagine at tax time having all those EIN numbers and everything.

One thing to ask about this year when having your taxes done is meals. My Dad is my property manager and two years ago I was able to deduct $8 a day for meals.

I do agree with enforcing section 8. We have a good reputation in Cape Girardeau, and we fix something within 8 hours if it goes out. Right now we have a waiting list.

I'll share this link, some of you guys might already know about this. Go to hud.gov. There is a link on there for homes for sale. There is a TON of links from there from HUD, the VA, etc, where they have houses for sale. I have picked up good deals from 15-25K. The 15K house was the best. I put 10 K into it, section 8 rents for 675 a month, appraised at 70K before the market took a hit.

This is window were are in again. I predict it will stay open for 24 months, but I am afraid interest is really going to be on the upswing here soon.

Ken Fenner
02-07-2009, 09:24 AM
Great dialogue.

Tim, the bank will give me a 75% LTV at 5.5% no pts. I haven't started shopping yet, thats the deal from the bank I have used for awhile.

Tim Fields
02-07-2009, 09:51 AM
Great dialogue.

Tim, the bank will give me a 75% LTV at 5.5% no pts. I haven't started shopping yet, thats the deal from the bank I have used for awhile.

The last non owner occupied we got was at 6.25 so that 5.5 looks pretty attractive. We had been on some three year balloon notes and have been converting them to twenty year amoritization as they come due. As I'm sure you're aware, relationship is everything in banking. Yes we've had to change lenders over the years as they change what they look to add to their portfolio. But it sure feels good to be able to call your banker and have him show up at your office two days later with the papers ready to sign.

Owning real estate can be fun. The fellow that introduced me to investment property made it all the way to 100 units in his portfolio before it blew apart. Slow and steady works for me.

Thanks,

Scott Davis
02-07-2009, 12:04 PM
Guys, look into "subject 2" investing. We buy houses w/ no loans, $10 out of pocket, and you can buy hundreds if you want to. I know it sounds like an infomercial, but thats how we do it. My mentor owns in excess of 170 homes, buys an additional 6-8 per month and sells 3-4 per month. Like I said we bought 10, and currently hold 2 but will go on a buying frenzy when I get home. Also, we only buy 5 years or newer so no repairs, and we get better renters.

Jim Chesmore
02-07-2009, 12:29 PM
Guys, look into "subject 2" investing. We buy houses w/ no loans, $10 out of pocket, and you can buy hundreds if you want to. I know it sounds like an infomercial, but thats how we do it. My mentor owns in excess of 170 homes, buys an additional 6-8 per month and sells 3-4 per month. Like I said we bought 10, and currently hold 2 but will go on a buying frenzy when I get home. Also, we only buy 5 years or newer so no repairs, and we get better renters.

HUH!!! :Smiley-2031::Smiley-2031:

That interests me!!! Where can I learn more about "Subject 2" I am living in my last investment home.

Ken, remind me when we talk and I will fill you in on what NOT to do with flips, UGH...

I don't have the energy to deal with Section 8's, when I get around to doing it again I will be looking are higher end tenants who care about and respect the property they are living in.

Maybe work with real estate agents who have high end buyers that have just moved into the state and need a place for only a few months till the news place is ready.

Ken Fenner
02-07-2009, 12:56 PM
Jim, I am not into the whole flipping concept. Too much risk at this stage of my life. I've thought about it but I am looking more for long term tax shelters and investment properties where tenants are covering mortgage plus. The section eitgh property is a home I picked up for $70K. Its right near a planned expansion of Widener University which will bring up the property values in the neighborhood nicely in five years. For the time being I have made it livable with minimum expense. Section 8 has guaranteed $1200 per month. Once the neighborhood comes up, I will renovate and flip that property.

I have a backup plan with the owner of a duplex unit I am looking at right now. He does want some cash for his equity, but he will hold the paper. It keeps my credit line clear but his interest rate is around 7%. I don't want to tie everything up in real estate and I will be acting as property manager for the time being and that can become a burden with the other stuff in my life.

Scott, have you had trouble buying "schedule to" style? I know you have to be a hell of a salesman in today's world. You are obviously making it work for you. I have taken the no money down seminars so I know the basics.. any tips you can give for us RE noobs?

Scott Davis
02-07-2009, 01:42 PM
It actually doesnt take much in way of selling to get people interested. Lets assume that we are in a down economy and you lose your job. Your house is 5 years or newer so you dont have much (maybe 10-25k) in equity, but you need to sell quickly. But you run into some issues...

1. Selling costs. Realtors fees, closing costs, etc..Those usually equal about 10-12% of the sale.

2. You have to hope you can sell it quickly, otherwise you have to make the payments every month.

If you owe $150,000 and in a decent market you can sell for $165,000, when you factor in closing costs and holding costs (mortgage, maintenance, insurance, utilities, etc), you are looking to shell out well over $20k, leaving you in the hole by $5k+. If you just lost your job, you probably dont have that kind of cash in the bank or dont want to spend it if you do.

Now I come along. I will buy your property in 3 days. No escrow period, no inspections, no closing costs, no realtor fees, no more utility payments or maintenance fees. No showing the property to dozens of tire kickers hoping for one to bite, then worrying about having to pay money to sell it. You leave free and clear 3 days from now and never have to worry about it again.

Easy sell? I think so.

Jfife
02-07-2009, 02:06 PM
AWESOME THREAD!!

Scott---do you have some recommended reading for all of this?

Also, how do you locate these needy sellers, or how do they locate you?

Scott Davis
02-07-2009, 03:17 PM
AWESOME THREAD!!

Scott---do you have some recommended reading for all of this?

Also, how do you locate these needy sellers, or how do they locate you?

Jon, let me rustle some material up and Ill let you know.

We go to Ziprealty.com and narrow down the homes for sale by our criteria, and by how many days on market. Then we go to the tax records and get the homeowners names and make postcards directed to the homeowner using the homeowners name. We use different ones but the one that works the best says somehting like "Selling is home with a realtor is one way, but not the only way! We can buy your house in as little as 3 days." and some other info, but thats the basic.

If we send out say, 100, we usually get anywhere from 10-20 responses, and only about 2-5 of them are houses we end up looking real hard at to buy. Then we have a vetting process we go through to see which ones fit our criteria. Then it is just selling ourselves to them.

Ken Fenner
02-09-2009, 04:06 PM
Scott (and others) how do you judge whether a proeprty is investment grade?

Do you use a GRM factor?

What is an acceptable cap rate for investors when money is cheap like it is now?

Most of the properties, including the one I am looking at now come in at a GRM of 9 and a cap rate of 9 also (give or take a couple tenths). Green light?

Don M.
02-09-2009, 04:16 PM
A banker told me early on to use 75. If the rent is 500 than the value of that investment is no more than 37500. My last rental fell at roughly a 40.

If I am understanding your lingo right, and if your formula is the same as I am using above, why havent you cut a check yet?

Also, did you get my pm, or is that a family secret?:headshakesmile-fast

Scott Davis
02-09-2009, 04:28 PM
Scott (and others) how do you judge whether a proeprty is investment grade?

Do you use a GRM factor?

What is an acceptable cap rate for investors when money is cheap like it is now?

Most of the properties, including the one I am looking at now come in at a GRM of 9 and a cap rate of 9 also (give or take a couple tenths). Green light?

When you purchase "subject 2" it is purchased subject to the existing mortgage. Which means we purchase the deed, but there is not a new mortgage taken out. We only purchase homes that have an existing % of 6.5% or less and they have to be fixed rates. 5 years or newer and no repairs needed.

Ken Fenner
02-09-2009, 05:15 PM
Don, I haven't disected the formula yet, this is what is printed in the finance section of one listing.

Asking price: $184,900
Rent 1: $800
Rent 2: $800
Rent 3: $150 (garage)

GRM: 8.68
Cap rate: 8.99

Total Ann Exp: $4,674 (property taxes)
Net Operating Inc: $16,626


The Breakdown and questions:

At a 5.5% rate on a 15-year mortgage and factoring tazes and insurance I would have a nut of $1,160 per month. My out of pocket will be about $55,000. Positive cash flow over the fifteen years will be about $10,000. That should cover repairs or is that far too low? Both units have new electrical and panels, new appliances, new carpet, new HVAC, and water heaters are two years old. Rubber roof is four years old. I figure an additional $20,000 in expenses over the 15 years for moveouts, property maintenance, etc. These units do not stay empty. the area is desirable and actually hard to find two bedroom units.

Investment: $55,000 (down payment and settlement)
Operational Costs: $20,000
Property value at end of loan term: $300,000 (these units were selling for $235K 18 months ago)

So is turning $75,000 into $300K over the course of fifteen years a good bet? With yearly compounding, that comes out to an interest rate of 10.5% per year.

You guys that have owned investment property, are the parts that are bolded above realistic?

Tim Fields
02-09-2009, 06:33 PM
Positive cash flow over the fifteen years will be about $10,000. That should cover repairs or is that far too low? I figure an additional $20,000 in expenses over the 15 years for moveouts, property maintenance, etc.
So is turning $75,000 into $300K over the course of fifteen years a good bet? With yearly compounding, that comes out to an interest rate of 10.5% per year.
Ken,
We don't really count on spending the positive flow when we put the minimium down. It does build up on some properties and is nice to have, we just don't make it a part of our spending budget.
We fiqure 7% total on average for vacancy, turnover touch ups, and minor repairs. That would put me close enough to your $20,000 to be comfortable.
Our average tenant stays a little over three years so we actually do a bit better than we plan for.
I wonder if the $75K into $300k question would be better phrased as $55k into $300k as after we get to closing, the property is expected to cover all of it's own expenses.
Thanks,

Ron Musgraves
05-05-2013, 12:44 AM
Good Thread