Acquiring Rental Property

If you need help with questions about a mortgage give me a shout Broome!


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If you finance, your interests on your mortgage is deductible... I assume, as it is here in Canada.

Always good to keep money in the pocket for the unlawful tenant that decides to not pay or leaves without notice.

 

If you’re not a people person don’t go into a business that involves directly dealing with people. Find a Dave Ramsey certified Smartvestor and put your money into mutual funds. They’ll probably know a reputable CPA. You’ll likely need a lawyer to help you draft a will. Build yourself a good team. They’ll be like your very own board of advisors. Interview a few of each and get references. See how long they’ve been in the business and research the brokerage the investor is associated with. It will be the simplest route to generating returns. Edward Jones and Charles Schwab are both decent but you should still interview the brokers. There are others such as Fidelity, etc.

Also, listen to a lot of Dave Ramsey podcasts. Go through the list and look for ones that talk about investing. You can learn a lot from just listening to him.

Seriously. If you don’t like dealing with people don’t go into real estate.

 

thats why you have do the diligence on the front end... like any good management company SHOULD be doing.
Nobody wins in an eviction... but alot of folks get paid before you can even get a judgement and Im not even including the time taken to file the paperwork or the loss of rent. Like Nigel says... you cant be emotionally invested. So any application you approve... go ahead fill out the eviction paperwork and keep it in the folder with you copy of the lease. I would even go so far as to keep a copy of a demand letter to deliver immediately after the "late" rent date. Time is of the essence and if you let a slimey one occupy your property you will hate the 1st of the month...lol. And NEVER ever let someone occupy w/o a security deposit. Another aspect... multi-family like 4 plexes present another problem, if you have 1 tenant making the other 3 miserable.

 

lol... he was here!

 

I would agree with this logic fully, and I am a big fan of Ramsey's logic. The problem is these investments are boring to me, so I have diversified using this and commercial RE investments. I would NEVER get into residential rentals again. No toilets or light bulbs anymore. You can likely manage commercial property yourself, but there are mgmt companies that handle this for you. Look for some warehouses/flex buildings to buy. If this is in high demand like it is around me, you might want to look at buying land and building some of these. This has been very lucrative for me over the last 5 years. And for leveraging money, they only time I ever borrow is for an appreciating asset like real property, just keep your L to V close to 50% if possible and you are going to be in a safe place financially.
Real estate investing is a lot of fun, part time.

 

Did you have an arch or engineer do the plans? Im wondering about the utilities like high voltage requirements. Do you wait for a prospective tenant or do you just start with 220 and bring in additional service as needed?

 

Thanks for that. That is good info.

 

I haven’t discussed it in this thread, but I’ve thought of that also (buying land and building storage units).

 

Monthly rents and if they fail to pay their shit gets auctioned off.

 

I only supply 220 service. Most of these tenants are small businesses, not manufacturing. They need some office space and warehouse space. The best design has drive in doors and dock doors.
You really need to find a good GC that does this type of work. He will have all the contacts for the architect and civil engineering.
I have found my best property's are single buildings with excess land that I can develop. This gives immediate income potential and allows me proof of interest in building more units. A 3500-6000sf bldg around me is a sweet spot for what people are looking for, but you need to do research in your area to decide what is in high demand.

 

My best properties are self storage. Just be sure you are in a market that's not oversaturated with them or you will loose your shirt.

 

What kind of cap rates do you get out there? That’s the hardest part here, values are so high and rent doesn’t come close to covering the mortgage.

I have a commercial building for my business and justify owning it, because I need to occupy something. Plus so far, appreciation makes up for the shortfall of what I would pay in rent vs. my mortgage with minimal down of 20%.

The good news for Broome is even if you leverage (mortgage) you have enough reserves and make enough income, that a loss of income from a vacant property isn’t going to bankrupt you.

 

If you want to be in the game the cash is the other property you own... take a loan against your property to buy the next and so on and so on... it’s how the game is played..
Once you have enough assets the bank will be giving you money..
Bank gives you the money not mortgage.
It is still considered cash purchase and gives you a lot of leverage.

The key is you need the tax write off in the loan to benefit most... you really need to talk to a tax expert that is what makes real money. The tax benefits..

keep your cash for a rainy day

My 2¢

 

I search for property that I can get an 8 Cap or higher. This is not the average property around here (South Carolina) as many are advertising at 6 Caps. I cannot make money at 6.
This requires close watch on properties hitting the market and looking for old listings and making some aggressive offers. There is also a lot of creativity when shopping and making offers for properties.

 

When you develop your own like you mentioned what cap are you getting?

 

When I build/add on to my existing property my goal is to cover my cost (note for total project, all in) by 50% of lease rate. (I do not think about cap rate so much on an addition, just when looking at a new purchase.) That is very easy initially since most loans give you interest only for 12-24 months. I try to keep this ratio when P&I are running though. This is harder to do if you are making an initial purchase obviously.
As always, money is made in real estate when you buy it. NO exceptions. Look at 50-60 properties to make offers on 3-5 and to buy 1 is pretty typical.

 

Thank you very much I appreciate the advice. I should most certainly have added we are looking in North Myrtle Beach, SC because neither of us like Florida.
The house was a hand me down.



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The building I’m in now would generate about a 5.3, which is pretty good out here, but it is a b or c level property IMO.

It’s auto use, setup as 6 units of approx 2500 sq ft each, some have more with small built out mezzanines with office or storage space.

I occupy all of it, but my problem when renting is the tenants in small automotive properties, are living month to month and are flaky on payments. When I bought the building 3 units were rented and I occupied the other three. Within 3 months the guy running auto repair and a tire ship was getting behind, so he closed the tire center and vacated that unit to lower his rent, and caught up for awhile.

When I finally got him evicted he was about months behind in rent

In reality I am a bad rental manager

My problem is I’m an idiot that feels bad for them, so I wait and believe the BS excuses.

For me one tenant in a big building is better, or having a property manager.

 

One of the hardest aspects of this business for me is sympathy, but at the end of the day you have to run this as a business. I try to be careful in screening my leads, and I do my best to not be friends with them. Its is a fine line and often difficult but it helps to keep the personal feelings out. That's why I have commercial rentals. Having to evict a single mother (deadbeat druggie not withstanding) was an awful feeling when I had to hire guys to move her remaining contents to the curb under the watch of a police officer, and that was the end of my home rentals. My "comfort" was that she lived rent free for 6 months and maybe had a chance to get herself together while the legal process protected her completely and screwed me over as a landlord.

Also, I would not want any business renting from me that is doing vehicle maint. Like you stated, they are often living month to month and when they leave you have some serious cleanup. Think about the worst case scenario when ending the lease when you are screening potential customers. No garages, restaurants, haz material storage or other messy businesses with low income/margins. I want my tenant to be successful so they can pay me without a hassle.