Buying rental income streams? - Posted by Mike Ebberhart

Posted by Ronald * Starr on November 11, 2001 at 21:41:42:


Thanks for your post with some analysis based on real world experience.

What you say makes a lot of sense to me and raises my skepticism about it as a good investment.

Good InvestingRon Starr**

Buying rental income streams? - Posted by Mike Ebberhart

Posted by Mike Ebberhart on November 06, 2001 at 09:23:44:

I stumbled across an article somewhere about buying rental income streams, and I’d like to pursue it further. Seems like a great idea, plenty of prospects, low competition, etc. The article didn’t go into too many specifics but it mentioned trying to buy a years worth of payements for the price of 10. Aside from finding apartment building owners who will go for this as opposed to just getting conventional financing if they need short term cash, the only thing I’m really concerned about is what happens if the tenants don’t pay. Obviously I would want the owner to also be responsible for making the payments if the tenant didn’t for some reason, but I like to eliminate as much risk as possible. Does anyone think I would have a chance at getting the owner to sign something that basically let me foreclose on the property if they didn’t pay up … or is there something simpler I can do to protect myself? Also, does anyone know where I can get an agreement for something like this? Or do I basically find an attorney to draft something for me? Thanks … I’m going to give this a shot I think.

Re: Buying rental income streams? - Posted by Paul S

Posted by Paul S on January 26, 2002 at 11:04:39:

I hired a management company that did this very thing. They paid me a year at a time, but the downside (for them) was that they took responsibility for collecting rent as well as keeping the property rented. Granted, I paid a steep management fee in that I took a discounted rent amount- but they took on the risks and responsibility of ‘landlording’ while I had a bit of a guarantee. Seems to me, that if the landlord isn’t seriously hard up- it’s going to be hard to get them to agree to taking on all the responsibility AND taking a discounted rent. If they are hard up, you might get stiffed. I dunno, I might leave this one lie.

Re: Buying rental income streams? - Posted by Ronald * Starr

Posted by Ronald * Starr on November 06, 2001 at 23:49:54:

Mike Ebberhart--------------

Oh yes, I remember that idea. Heard it years ago. The speaker made it sound reasonable. But, I don’t remember who that speaker was. I think it was a R. E. Guru/seminar speaker.

I have never heard of the idea since then. That makes me wonder if it might just be another of those guru gullible listener stories. Have you gotten information about actual deals? I wonder if you might be pursuing something which is a will of the wisp?

I think the idea sounds pretty sensible. But, I think you are bringing up some reasonable concerns about the lack of guarantee of the payment stream from the occupants.

I would suggest that you call around to some people who might be able to evaluate the prospects of this approach. Who might they be? How about commercial r.e. brokers? Maybe loan brokers, mortgage brokers? You could even ask them for referrals, promising them a reward. How about bankruptcy lawyers, since the person who is willing to do such a lop-sided deal might be similar to the persons visiting bk attorneys?

How about calling up and talking to the heads of some apartment house associations near you and asking them for their opinions, whether they have heard of this before, and if they know any owners who might be candidates for this service? How about driving around, finding rundown apartment buildings, or whatever types of buildings with which you think this would work, and calling the owners to see what kind of response you get?

I suggest that you do some market research before spending money developing the paperwork. You may find there is no market and save the development expense.

Good Investing*********Ron Starr

“works well in theory” kind of thing - Posted by Brent_IL

Posted by Brent_IL on November 10, 2001 at 10:16:40:

We tried this approach about ten years ago.

When receiving 12 monthly payments for ten in advance, our returns were around 35%. Pay 15-20% for the money, Get rich on the spread.

It didn’t quite work out that way. The whole concept is simply a way to conceptualize making high interest, short-term, loosely-secured loans. You don?t have a lot of control over what?s happening throughout the deal. This was our experience.

A landlord with tenants that pay on time, each month, every month, will usually have the capability to go to a bank to get short-term financing.

We get the ones that can’t. The note would most likely be secured by an assignment of rents, or a highly encumbered property. Otherwise, they?d be talking to the loan officer.

Because prompt payment depends on a full house of happy tenants, you would want repairs and maintenance to be taken care of quickly. The landlord, who will swear to you that expenses haven?t gone over 10% in decades, needs to defer maintenance to have a cash flow after his payment on your note. Expenses are cut back. Tenants withhold rent, or move. No money to pay you. What can you attach? Messy.

One solution is to take charge of everything via a triple net lease. A SFH rented at a discount over a longer timeframe, say one year plus four extensions, and re-rented at a profit might work. My thought is that if an owner would accept a NNN lease, and I am going to go to that much trouble, why not simply buy the property on terms.

A generation ago in Chicago, there was an influx of people who emigrated from Poland. Real estate was the investment of choice. Folks have told me that one method that was used for partial financing was to sell the annual rental income from one day, or 1/30th of a month, to thirty people. Vacancies weren?t a problem. I think it was a much different legal climate, and personal obligations were taken more seriously.

It can work; it?s just not an easy way to fame and riches.