reality check, please... - Posted by Bob (Md)

Real Estate Investing
1

Posted by DanT on March 14, 2001 at 08:46:41:

For an individual just starting out, doing 4-5 rehabs in a year, working a job, having a life, is a pretty aggressive goal. With more experience it would go faster of course. You state you are nervous about a possible economic down turn, if you are holding 2-4 units at a time during rehab, the same risk exists, only now you have no income available to off set the carrying cost.
Not the worst plan in the world, just maybe a little aggresive starting out. As far as carring the paper, you are still somewhat of a landlord, with less day to day contact. I guess what I am saying is you can’t be totally risk adverse and invest. If so CDs at the local bank would be a better bet. And it is hard to control many factor in a rehab. There are many things going on, undicovered problems, bad contractors, cost control etc.
I am a rehabber/landlord. I like that mix but do much of the work myself. I also have a full time job. Start slow the first year and see how it goes. Then speed up, change direction, modify direction based on what you find with experience. DanT

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reality check, please… - Posted by Bob (Md)

Posted by Bob (Md) on March 14, 2001 at 24:36:06:

I think I’ve just about figured out what my interest and comfort level would be in REI, and it’s a little bit different than most. I’d like a reality check from some of the folks who’ve been in the biz for a while.

I have a full-time job and don’t want to make REI my full-time profession (at least for a few years). On the other hand, I want to do enough REI to allow me to retire in about 10 years or so. Therefore, I want to build a portfolio that generates a cash flow. The traditional way to do this would probably be the Sheets approach of buy and hold rentals with low down, try to make them cash flow, and wait for the appreciation.

Honestly, that scares the bejeebers out of me, because I don’t have any control over macroeconomic forces. My nightmare would be to own 20 houses, have the market turn, and have the cashflow turn negative on all of them! I also don’t think I’d be a really patient or empathetic landlord.

So, here’s the plan. I’ll do rehabs, contract out the work, and try to pull at least 15-20k out of each one. The goal is to rehab and sell 4-5 per year. I’d keep every 6th one, owned free and clear. Then, I’d sell it and carry the paper myself. After a few years, I should have a pretty nice monthly income without the hassles of managing rental properties. Every sixth property (that I financed myself) would be a bit more upscale than the preceding five, to appeal to a higher-income clientele.

I figure after 10 years, this should generate enough monthly income so that I can essentially retire if I so desire.

Ok - challenge time. Punch holes in my theory, please. Remember that I’m rather conservative and pretty risk averse. I’m also a control freak - I like things to be rather predictable. I don’t like surprises. I do know a fair bit about renovation work, and I’ve done project management and job costing on some pretty large scale projects in the past (but not in the rehab field).

Fire away!!

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Re: reality check, please… - Posted by Chenel Moore_Fl

Posted by Chenel Moore_Fl on March 15, 2001 at 01:49:42:

Didn’t I post to you earlier today?? If not, anyway, here is the clincer to your theory. In MD you need to be prepared while rehabbing properties for things taking longer than expected. I only did one rehab that was supposed to take 3 weeks, but took 4 months. I didn’t pull out the cash that I had expected after paying out all of the holding expenses. Dealing with subcontractors can be harrisome. They can almost never deliver in time,and let’s be honest some things just have to be contracted out.

Other than that, in REI this is what I found. Do what your gut is leading you to do at the time. For example, mobile homes just isn’t calling my name…right now. In the future, 6 months from now that could change. Right now I am into building cashflow and using some of the courses I bought earlier on lease options. But I always remain open to other possible strategies.

Hope this helps some!!

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Re: reality check, please… - Posted by Brenda

Posted by Brenda on March 14, 2001 at 08:55:18:

Bob,

I asked some similar questions of my mentor a few weeks ago, and he filled me in on something about Maryland that I did not know. I will quote his email:
“Just one
quick
tip- my opinion in Maryland- rentals are better then financing. The
laws in
MD protect the payors and not the lender. If your buyer stops paying,
it
will cost you a fortune to get your home back, about a year later and a
trashed home, between lost payments and out of pocket expenses you will
usually be out of pocket by about $15000 for a $100,000 home.”

I’m no expert, but thought I’d pass along the advice of one with way more experience than myself. Good luck!

Brenda (MD too)