Just some questions for you experienced investers.

Rehabbing, Fix and Flip, Rental Properties
1

Hello all,

To start, yes I am new to investing, no I don’t have any investment properties (YET!!!). I would like to get into rental properties at first and expand out after I gain some more knowledge. I also plan on attending a few REI Clubs soon, and hopefully they can be as helpful as everyone says. I have also read quite a few books on Flipping properties to general REI books. Can anyone point me in the direction of a Rental/Landlord focused book(s)? Or better yet, if you live in the Tampa area I’ll buy the coffee, you let me pick your brain?

My questions to you guys:

Is Florida, specifically Tampa and surrounding areas, the worst place to invest right now? Should I wait it out?

With all of the foreclosures looming, will the rental market go up? It seems that there would be a positive correlation between the two.

How do you determine your total monthly expenses for a rental unit?

Having good credit, but little money (5k+/-), what would be a good/best plan of attack?

Would setting up an LLC prior to purchasing a property be a good thing? Or would this be something to do after acquiring a few properties?

Now on to actually finding properties:

There are many website’s that say they are wholesalers, or places like craigslist where wholesalers list properties saying X amount in repairs, and that Y house has this much equity in it after the repairs are done, are they trustworthy?

Would getting little road signs and placing ads in the newspaper, then just waiting on the “right” deal, be the best course of action?

Is setting up a website anywhere near a priority?

I apologize for so many questions, and I have searched these out, but I haven’t found anything that answers directly. I have already learned a lot from this site, so any info that you could provide would just be a HUGE plus!

Thanks,

Scott

2

Hi Scott,

Welcome to the world of rental properties. Wow, you have asked a bunch of questions.

I’m sure that Tampa isn’t the worst place to invest. It is difficult to find properties that will cash flow in every market. Finding suitable rental properties is HARD WORK and is nothing like the gurus advertise.

With the impending subprime fiasco and very shaky real estate market (with all the pending foreclosures), I do believe that the rental market will improve. In fact, it is alrealy starting to improve here in Ohio.

Operating expenses run 45% to 50% of gross rents (including capital expenses). Of course that does not include the mortgage payment (P & I). Regardless of the money you have, you should buy properties at a BIG discount and buy all of your rentals with little or none of your own money. I would set up a LLC to hold your properties, starting with the very first one.

The rental property business is not an internet business. Forget all the silly websites offering properties - they are simply making money off of newbies by selling near retail. Get out of the house and meet people. Find your own deals. Read the post by Benjie (he gives a perfect example of how great deals are found).

You do not need a website for a rental property business. This is NOT a priority.

The most important thing for you to do is get educated in the rental property business. Read books; join your local REIA and make friends with SUCCESSFUL investors in your area; and learn your market. Then write a short business plan that will get you from where you are now to where you want to be.

The vast majority of newbies fail in a short period of time. The number one reason they fail is lack of cash flow. You need to learn and understand this cash flow issue. The number two reason that newbies fail is the inability to deal with tenant issues. You should also thoroughly understand this issue BEFORE you buy anything.

One newbie that was on this forum a few months ago lost $10,000 just because he didn’t understand how to properly handle tenant issues. He hasn’t been heard from lately and may have already crashed and burned! Do it RIGHT the first time!

Good Luck,

Mike

3

Since I posted this I have been scouring through basically every post you have, of course I have a LONG way to go. I was really hoping I would get a reply from you; it seems that you are well versed in Rentals. I see at the bottom of your signature a link to a book, was this written by you or one you just recommend? Any others that you could recommend?

I am also trying to comprehend this 45% to 50% expenses thing. In one of your posts you stated this: “management, maintenance, advertising, entity maintenance, evictions, exterminations, capital expenses, court costs and fees, fuel for your vehicle, office supplies, legal fees, lawsuits, damage done by tenants, etc, etc, etc???”

Do all of those and more relate to an investor with 1 to 3 properties? I am not trying to “get rich quick” or anything like that, but rather set myself up to turn this into a career. Now, I know that this will be hard work, but I feel as though I am up to the challenge I don’t want to be a statistic and never do a deal, nor do I want to fail.

I will look into Benjie’s post, hopefully that will help with finding the “right” property for me. Right now I only have long-term goals in place. But I would like to have my first property by 2008; any sooner would only be a plus.

Being able to spell “investor” correctly would be a good start…hahahaha. I just noticed I spelled it wrong in my Topic.

4

Also could you point me in the right direction for Benjie’s post? I tried searching for it with no luck.

Thanks,

Scott

5

Homebrew,

Benjie’s post can be found at http://www.reiclub.com/forums/index.php/topic,26313.0.html
Yes, I did write the book out of frustration at the lack of information out there and all the ridiculous hype by the gurus. The rental business is not all sitting on your yacht while the money falls from the sky (although I saw that on an infomercial).

The operating expenses do apply to you regardless of the number of rentals you have. The tricky thing about the operating expenses is that you might get lucky and not have a major expense (like damage done by an angry tenant) for years when you only have a few rentals. You can easily think you are doing great, but then one incident wipes out years of cash flow. So, you’ve got to buy right and account for all the expenses if you want to make a real profit.

My suggestion is to forget the word “investor” and learn to spell “business owner”. In the rental business, you’ll be more of a business owner than an investor.

Good Luck,

Mike

6

Scott,

You have received some very good advice here. I won’t reiterate but address the portion of your question that I am familiar with, the Tampa market. Tampa is certainly not the worst place to invest but you will have to dig to find deals that make economic sense. Florida in general and Tampa in particular have seen considerable property appreciation over the last 3-5 years and in my opinion the overall market has now flattened. There are neighborhoods however that will fare better than others so you need to get to know those areas well. Also, owning investment property in Hillsborough county can be challenging with very high insurance rates and exceptionally high property taxes. The local property appraiser is mandated to asses property near full market value and with investment property you do not benefit from any homestead exemption or limitation on your annual increases. Having said that I am a big believer in Florida rental property. There are new people moving to the area everyday so demand for housing is strong. But you have to buy at the right price.

7

To help back Mike, I read his book and have given it to a couple of friends. It is a no hype, no bull crap book, and if you want to succeed in owning a rental property business, know that is takes HARD work!

Remember the saying “If it was easy, everybody would be doing it.”

I strongly recommend Mike’s book.

8

71tr,

I assume that you are a Florida resident at the least, maybe even a Tampa area resident? Either way it seem that you know about the Tampa area, hopefully you don’t mind if I ask you some questions.

As you stated, taxes and insurance are through the roof here. With that being said, it almost seems impossible to buy a house cheap enough to have it be a positive cash flow rental, have you had any luck recently purchasing properties?

Do you think this insurance bill that was just passed is really going to be a help? I know it doesn’t go into effect until June 1st, so I will most likely be waiting until at least then to purchase my first property.

Could I run some neighborhoods by you to get your opinion on the area, as well as their long-term investment strength?

Thanks,

Scott