Contractor Talk - Professional Construction and Remodeling Forum banner
1 - 19 of 19 Posts

·
Registered
Joined
·
530 Posts
Discussion Starter · #1 ·
Do any of you out there manage properties and invest in real estate?

As a contractor, are there pitfalls you've experienced? Good lessons?

My wife and I are considering this, and just curious if you have any good resource recommendations on real estate investing which you've found helpful.

We're still early on in the process, have to figure out our game plan, how much we can afford, etc.

Thanks!

Mike
 

·
Registered
Joined
·
530 Posts
Discussion Starter · #4 ·
The cash investment up front is pretty high here, 20 percent I think. It would be difficult to me to leave a place empty when a tenant moves out without having enough rent to cover the mortgage.

It would be nice to get a triplex or a quad property but they run 800k plus in the right neighborhoods :/. I'm not that wealthy.
 

·
Registered
Joined
·
247 Posts
My dad started his own plumbing company in 96' and bought his first rental in 97'. He now has around 30 properties and could retire from plumbing if he wanted. (He says 7 more properties and he will) the houses always kept us busy in the slow seasons. It was a way to generate work when things hit a dry spell.
I flipped my first house at 20 and it was a priceless learning experience...not bad profit either. I just bought my first two rentals last month. I think it's a great investment. It is definitely not get-rich-quick and it's a lot of work and headache but it will pay off.
 

·
Registered
Joined
·
2,836 Posts
Lemme see here.

I have 10 rental houses and I started back in '98 or so.

Obviously you need some income and some capital and some knowledge in business and property mgmt/remodeling/construction to do this.

In my market, I was able to build a pair of townhomes for about $100K and rent them out for $800/month. So I'm bringing in $9600/year per unit. $9600/$50k = 19.2% gross yield. That build price doesn't include my labor and it was mostly my labor that did it. Of course you have your vacancy rate and your insurance, property tax, maintenance costs, etc. as well.

I always thought there was no reason to buy properties unless I could buy them for less than that, and they had better be in very good condition because the ones I was building were built for no maintenance and good quality. But then it became possible to buy repo properties for not much money and I bought a few of those.

Also one of the feathers in my cap was that the area which I was building in had very low building permit costs, and no inspections. Also the water/sewer hook-up rates were low.

So if I were you, I would look for some town close enough to Ottawa to commute, but far enough away that the bureaucracy hasn't arrived there yet. Maybe that place doesn't exist in Canada, I don't know. Your rents will be much lower there, but your building costs will be as well. And we all know that if you choose the right side of town, the property prices will appreciate over time and in 30 years you will be sitting pretty.
 

·
Registered
Joined
·
2,216 Posts
Lemme see here.

I have 10 rental houses and I started back in '98 or so.

Obviously you need some income and some capital and some knowledge in business and property mgmt/remodeling/construction to do this.

In my market, I was able to build a pair of townhomes for about $100K and rent them out for $800/month. So I'm bringing in $9600/year per unit. $9600/$50k = 19.2% gross yield. That build price doesn't include my labor and it was mostly my labor that did it. Of course you have your vacancy rate and your insurance, property tax, maintenance costs, etc. as well.

I always thought there was no reason to buy properties unless I could buy them for less than that, and they had better be in very good condition because the ones I was building were built for no maintenance and good quality. But then it became possible to buy repo properties for not much money and I bought a few of those.

Also one of the feathers in my cap was that the area which I was building in had very low building permit costs, and no inspections. Also the water/sewer hook-up rates were low.

So if I were you, I would look for some town close enough to Ottawa to commute, but far enough away that the bureaucracy hasn't arrived there yet. Maybe that place doesn't exist in Canada, I don't know. Your rents will be much lower there, but your building costs will be as well. And we all know that if you choose the right side of town, the property prices will appreciate over time and in 30 years you will be sitting pretty.
Excellent points by Clevemen..... Basically minimize costs (really maximize value) and find a solid market for rentals.

Although I have done rentals, remember it does tie you down to location.

I do alot of flips.... big secret is to know the market and the specific property.... a major problem right now is a lot of newby's that are doing their first, and outbid you.

They don't do well, or get their butt kicked, but they are purchase competition.

As far as both rentals and re-do/flips, a hugh advantage is your basic construction and repair experience, that can often be done in your downtime...... and you know what....

No strange customer issues.... your the customer and the contractor.

Best
 

·
Registered
Joined
·
4,732 Posts
I've done pretty well on tax sale properties...both flipping and rental. I'm down to two rentals and one of them will be sold shortly. About time to line up the next one
 

·
Banned
Joined
·
2,247 Posts
Real Estate

Real estate is the only way to get rich, or filthy richer if you already have a business that is making big money. I don't know the exact percent, but most of the very richest people in the united states made their money in real estate and not in the businesses they own.

Most businesses, like mine, are only jumping blocks where we make money with our regular business and then make 10 times more by investing in real estate. A good real estate purchase will make more money than a business owner can make in an entire year and the real estate takes only a fraction of the time.

There is no investment better than real estate where you can make 50% to 100% on your money every year and with very little risk.
It is very possible to double your money every year to two years when you don't let anxiety get the best of you.

I will look at up to 100 properties before making a purchase. Many times I visit the properties and many times I only look at the numbers. My goal is to look at enough properties so when I purchase a property I have enough information so I am 100% positive that I am not making a mistake and the property will be a gold mine.

LISTEN, BUT NEVER TRUST A REAL ESTATE AGENT'S ADVICE NOR OPINIONS. You have to be your own expert because most agents know nothing about the investing side of real estate and they don't give a damn about you.

I only purchase real estate when I am positive I will make 100% on my money within 12 to 24 months. This means I will get a 100% return on the money I invest in the property and this is very possible by looking at the right number of properties and crunching the numbers many times in many different ways.

The way you make 100% on your money in 1 year is by buying a property that you know will be worth more than the down payment you invest into the property such as:

a) You purchase a property and put $30,000 down. You know you can sell the property for $30,000 more at the close of escrow, so you made 100% on your money before you closed escrow. I did this many many times by buying houses at auctions and you can often finance these homes when at the auctions.

b) The property needs $20,000 in repairs and the rents are 30% less than the market. You put $20,000 into the property, increase the rents by 30%, and the repairs and increased rent make the property worth $50,000 more than you paid. So, you made 100% on your money in a few months.

c) Never believe your real estate agent when making offers and never believe the agent that represents you is trying to get you the lowest price. I always tell my agent the price I want to offer and if he (or she) won't offer that price I get another agent.

I purchased many houses through one agent. She called me and told me that 4 store were for sale in Sandy Valley Nevada for $280k and told me how great the price was. I crunched the numbers, called her back, and told her I thought the property was worth only $180k. Then, she tells me that she agrees. Eventually, the property sold to someone else for 160k and I don't think even that was a great deal because two of the store have been vacant for years.

I purchase an apartment building in 2001. The asking price was $2,250,000. I asked my agent to offer $1.9 million and he refused because he said he would be laughed out of business. I found the building through another agent I had no contract with, so I was not obligated to deal with any agent. I went to a third agent, offered $1.9 million, and the seller came back with $1,950,000. I saved $300k by not listening to my agent.

You have to have the mind-set that you are buying a property valued at what it is worth to you and not the marketable value. I have a 25 unit apartment building next door to my office. The seller called and told me he wanted $2.9 million for the property. I wanted the building really bad because it is very close and had a lot of potential, but the building is on a concrete slab and has all the original water piping and drains. I crunched the numbers, came up with a value of $2.2 million, and that was my offer. Some fool purchase the building for $2,875,000 and he thinks he got a good deal. He calls me every day for plumbing repairs, owes me a lot of money, and is going in the hole to the point of bankruptcy. Don't buy a bad property only because you think some other fool will get it first.

I never saw a fixer-upper that was prices for investing because the savings seldom offest the costs for repairs and other losses. Never buy fixer-uppers that need more than $8,000 for repairs. When you have to put too much money and time into a property you take a loss in many other ways including your time, interest costs, vacancy losses, and the return on your money you lose by tying up your investment money. I will buy an apartment building in bad condition where I can double my money, but I never buy a house that needs more than a few days of work. There is no need to!

Most landlords hate their tenants. I know this because I worked for thousands of landlords and they tell me this. I always think this is an ignorant point of view and I love the rental business. I made a promise that I would never let a tenant get me emotionally upset. My rental business is super organized. We have our rental agreements and rules that we go by. When a tenant crosses the line there is no emotion. I give the tenant their eviction notice, or go to an attorney with no emotion. The first time I have a problem with a tenant I cut verbal communications and tell them that everything has to be in writing.

Most investor's goals are to purchase *** number of properties, pay them off, and live off the income. This may be fine for many, but you can't get rich by collecting rents. The big money is when you buy the right properties and double your money every 1 to 2 years.

I 1990 I met a Japanese girl who ran away from her family in Japan when she was 20. She came to the Unites States without one penny and earned $7,000 by babysitting. She invested the $7,000 into a co-op (condo) with a partner. A year later she bought out her partner and the value of the co-op increased by $50,000. This was about 12 years ago when the market was hot. Regardless, this girl is single, never had a real job, never got a driver's license, and 7 years after being us the U.S. she kept drawing money from her properties to get another property, owned 13 properties after only 7 years (mortgaged), and could have cashed out with a net worth of $2.3 million.
 

·
Registered
Joined
·
530 Posts
Discussion Starter · #11 ·
Thanks. Lots of food for thought there. 50% might be a realistic target. I like your perspective on real estate agents. I can't see why ANY real estate agent wouldnt want to encourage you to pay a higher price, unless they really see benefit doing business

Up here in Canada (especially bigger cities) I think that most of the great deals in real estate are snagged by other real estate agents and their cronies. POS properties are rarely offered at fire sale prices and if they are, they're done before they even hit the market.

Hopefully we can do the math and find the right area to double up every couple years.

Good point also about rental property value increasing based on possible income.
 

·
Registered
Joined
·
2,836 Posts
Excellent points by Clevemen..... Basically minimize costs (really maximize value) and find a solid market for rentals.

Although I have done rentals, remember it does tie you down to location.

I do alot of flips.... big secret is to know the market and the specific property.... a major problem right now is a lot of newby's that are doing their first, and outbid you.

They don't do well, or get their butt kicked, but they are purchase competition.

As far as both rentals and re-do/flips, a hugh advantage is your basic construction and repair experience, that can often be done in your downtime...... and you know what....

No strange customer issues.... your the customer and the contractor.

Best
When I buy materials, like brick for example, I will ask what they have on hand and would like to get rid of. This is how you get brick for 15 cents versus 32 cents. Same deal with tile. There is only one person to please. If the tenant doesn't like an oxford ironspot, they can find another place to live.
 

·
Registered
Joined
·
2,216 Posts
When I buy materials, like brick for example, I will ask what they have on hand and would like to get rid of. This is how you get brick for 15 cents versus 32 cents. Same deal with tile. There is only one person to please. If the tenant doesn't like an oxford ironspot, they can find another place to live.
Exactly...... You can save a lot (value) by shopping best price and having the flexability of not having to meet your wife's specific preferences/taste.

There are some obvious universals to pay attention to..... neutral colors/carpets, try to match my SS kitchen.... but not even that when I got a few unmatched SS appliances that were in "separate" parts of the kitchen.

I've had rather phenominal luck on Craigslist.
 

·
Registered
Joined
·
13 Posts
I am a developer/ investor first, and contractor as a by product of putting all the systems together and partnering up with a long time friend who was contractor first and wanted to get into my end of the business. Now we enjoy doing major renovations over flips because on a flip I put out all the money, I take all the risk, I pay for everything, I am on the hook if I misread the market or overpay for something. On a renovation there is very little risk- You already have a buyer in place, they front the $ for materials, there is very little risk involved comparatively.

Rentals are another ball game- You need 2 years in a row of solid tax returns and if you are self employed (i.e work for yourself or own your own business) good luck in this lending climate. Banks do not lend on beat up POS properties so you either need to pay cash, or borrow hard money which is very expensive and then refinance to a traditional loan after you have stabilized the asset (fixed up, rented out, and owned for 1 year) to pay off the hard money loan or get your initial investment back.
Most rookies overpay and overestimate their potential rental income as well as under estimate the expenses. If you think its just mortgage, taxs, and insurance, there is a hell of a lot more than that -especially if you operate like a real business and manage more than 1 or 2 houses.

Also in regard to some comments above- You CAN NOT finance property bought at auction - you need to bring cashiers checks and pay usually within 24 hours of the sale. Good luck buying property using a traditional real estate agent that can be acquired at 30% bellow market value unless it is a pocket listing. The market is HOT right now and no one is giving anything away anymore. There are TONS of wanna be investors right now are driving the prices way up because they do not understand all the costs and work associated. Also if you buy a house and do only minimal repairs up front, if you plan on holding it odds are there will be deferred maintenance. I believe in NO deferred maintenance and so we replace anything that is suspect at the time of purchase before there are tenants in place.
This is a real business just like construction- dont be fooled by tv shows and info-mercials. There is a ton of money to be made, but it is a capital intensive business with high risk of loss associated.

My suggestion- go into a local community bank and talk to someone in the lending department to get an idea of what if any they would be willing to lend to you to purchase your first rental. Make sure you can dedicate sufficent time to rehabbing and managing the property and then if you see a deal that pencils out go for it!
Whats the worst that could happen? You can loose your principal but at least you tried, and odds are if you make a smart decision, rehab smart, and manage it well, you will be getting a couple hundred bucks a month forever!
 

·
Registered
Joined
·
2,836 Posts
My bank promoted the guy I had been working with and they hired a young guy who I will be working with. He is the third or fourth guy I have been through.

I was working on a house between tenants-ripped out all the flooring and replaced with wood & tile, removed and re-installed the lower kitchen cabinets, did some painting, etc.

I called up the new banker and told him to come and check it out. So we had lunch together and checked out the project and I drove him around town and showed him some other properties. I told him I wanted him to see how I operate. I explained to him that he probably already knew all about the business so in the worst case he could be wasting an hour.

I think in the end he was sincerely appreciative and I know now that he understands what I do.
 

·
Banned
Joined
·
2,247 Posts
Auction Financing

Also in regard to some comments above- You CAN NOT finance property bought at auction forever!
You wrote a really good post and I agree with everything with the exception of the financing at auctions. There are many auctions that will finance homes AFTER you win the bid and here is a link to one of the largest.

http://www.auction.com/financing-information.php

Go to auction.com and they had several live auctions in Las Vegas that I went to. At the auctions:

A bidder needs to pay a $1000 refundable deposit

The bidder bids on the house, wins the bid, and the auction has a booth set up to finance the house. When the bidder does not qualify for the loan the house is put back on the block, or you will see it on the block at the next auction.

The auctions were the best deals I ever got in my life and I purchased 24 homes at the Las Vegas auctions. The highest price I paid was $120k. I purchased a 2700 sq ft 2-year old home for $107,000, a 3300 sq ft 2-year old house on five acres for $120k, and every other house was with the exception one was less than 7 years old and the price was less than 100k. We inspected every home before the auctions and every home was move-in ready with the exception of maybe installing new carpets and painting. That is the reason I don't waste my time with fixer-uppers and I don't buy houses that are more than 7 years old.

"Never buy something you have to feed and clothe"

"Don't buy a dinosaur you can't afford to feed" (if you could buy a dinosaur)
 

·
Registered
Joined
·
2,216 Posts
I am a developer/ investor first, and contractor as a by product of putting all the systems together and partnering up with a long time friend who was contractor first and wanted to get into my end of the business. Now we enjoy doing major renovations over flips because on a flip I put out all the money, I take all the risk, I pay for everything, I am on the hook if I misread the market or overpay for something. On a renovation there is very little risk- You already have a buyer in place, they front the $ for materials, there is very little risk involved comparatively.

Rentals are another ball game- You need 2 years in a row of solid tax returns and if you are self employed (i.e work for yourself or own your own business) good luck in this lending climate. Banks do not lend on beat up POS properties so you either need to pay cash, or borrow hard money which is very expensive and then refinance to a traditional loan after you have stabilized the asset (fixed up, rented out, and owned for 1 year) to pay off the hard money loan or get your initial investment back.
Most rookies overpay and overestimate their potential rental income as well as under estimate the expenses. If you think its just mortgage, taxs, and insurance, there is a hell of a lot more than that -especially if you operate like a real business and manage more than 1 or 2 houses.

Also in regard to some comments above- You CAN NOT finance property bought at auction - you need to bring cashiers checks and pay usually within 24 hours of the sale. Good luck buying property using a traditional real estate agent that can be acquired at 30% bellow market value unless it is a pocket listing. The market is HOT right now and no one is giving anything away anymore. There are TONS of wanna be investors right now are driving the prices way up because they do not understand all the costs and work associated. Also if you buy a house and do only minimal repairs up front, if you plan on holding it odds are there will be deferred maintenance. I believe in NO deferred maintenance and so we replace anything that is suspect at the time of purchase before there are tenants in place.
This is a real business just like construction- dont be fooled by tv shows and info-mercials. There is a ton of money to be made, but it is a capital intensive business with high risk of loss associated.

My suggestion- go into a local community bank and talk to someone in the lending department to get an idea of what if any they would be willing to lend to you to purchase your first rental. Make sure you can dedicate sufficent time to rehabbing and managing the property and then if you see a deal that pencils out go for it!
Whats the worst that could happen? You can loose your principal but at least you tried, and odds are if you make a smart decision, rehab smart, and manage it well, you will be getting a couple hundred bucks a month forever!
OP..... Take the time to read Dream.... he doesn't know what a paragraph is, but his principles are solid.

Not sure I would play in RE rental markets for a couple hundred dollars a month, but the principles are valid.

Dream.... Just kidding about the paragraphs, and I can;t spell or type worth a darn

Besrt

Peter
 

·
Registered
Joined
·
13 Posts
I have a goal of a certain amount of monthly revenue and a specific number of units it will take me to get there. Its a lot of work but if it were easy everyone would be rich.
Main point I have is do your research and treat it like a real business. It is a job and if you treat it as such you can make money.
Its not get rich quick but it can be pretty exciting!
 
1 - 19 of 19 Posts
Top