The Random Thoughts Review

About a year and a half ago, I attended a real estate investment seminar. The information given was quite valuable. I recently received an invitation to another seminar and decided to go. This one wasn’t at Bank Champaign. Instead it was at a local conference center. A different mortgage company sponsored the event (probably why it wasn’t held at the bank) and the room that we were in was quite a bit larger than the area that we had at the bank.

I sat next to an older gentleman who had a duplex that he had owned in southeast Urbana for about 20 years. He had it paid off now, was at the end of his depreciation cycle, charged $5xx a month in rent, had had really good tenants, and only had a single month (out of the 20 years and 2 units) where the spots weren’t rented. He estimated that he only spent a few hours a month on the place. The current tenants have both been there for several years. He wasn’t really looking to buy more properties. He was just curious about the topic more than anything, I think.

The topics discussed over the course of the evening ended up actually being a subset of the last seminar (with a few exceptions). So, I won’t repeat what you can read in the above link. They didn’t have a lawyer that spoke. There were a few new tidbits of info, though, and I’ll go through those.

Tom got his first 6 properties using the the method I had outlined in the last blog entry. His first two were really special cases. People contacted him personally and needed to get rid of a home. So, he got really good deals on them.

You can get 30 year fixed loans on the first 10 properties that you buy. After that you have to go with commercial loans. If you get property as a trust or an LLC you can’t use secondary market financing (such as Fannie May, Freddie Mac, etc.)

There were several questions about the Homestead Exemption tax break (for here in Champaign county) that can be used for rental properties. It only applies if there is a single tax id for the property. Multi-family housing normally has more than one tax id, and is ineligible. Also, the lessee can’t be using the homestead exemption on another house (which normally wouldn’t be the case anyway). The exemption forms can be obtained from the county assessors office in Brookens administration.

They don’t use the newspaper very much to advertise places. Yard signs seem to be effective. The thought is that prospective tenants drive a neighborhood and see the signs.

mrlandlord.com is a good resource for information about being a landlord. You can request credit checks on tenants via that site for about $10. Screen, screen, screen! One suggestion is to go to their current house to sign the lease. That way you can see how they live. That gives a good indication of how your house will look in a year. For college students, get the students parent to cosign the lease.

Tom charges first month rent and a damage deposit (equal to a month’s rent) upfront. Some charge first, last, and damage.

The “Cain Team” has access to a list of plumbers, electrictians, etc. that they can put people in touch with.

When you sell a house, you are selling the goose that lays the golden eggs.

Go single family housing, or multi-family? Single family housing is a lot easier to get rid of if you need to.

“CE Office” lawfirm was recommended as a good firm for handling evictions. They don’t get paid unless they collect. One guy was using them, and the charge is 50% of what is collected. The people he is currently having evicted owed 3 months of rent ($2,400) so he will get $1,200 out of them when all is said and done.

There was a fair amount of discussion on “Section 8” housing. I get the impression that this is basically HUD type tenants. The amount that the government pays is determined on a nationwide basis. A 4 bedroom house gets $XXX per month. The goverment deposits the cash into your account on the first, and that is that. People get “vouchers” that they can use. A tenant might get a “3 bedroom house” voucher. Then, they can go find a 3 bedroom house. As landlords, we can screen them as much as we screen anyone else. Screen, screen, screen!

The bank wants you to figure 5% vacancy and 5% repairs when you are calculating your monthly cash flow. Tom assumes 10% vacancy when he is doing his calculations.

Tom wants to have a cash flow of $100 per month from each piece of property that he has.

Best time for lease renewals around here is March – June. Winter is tough. If you have someone that wants to end a lease in the middle of winter, let them do it, but charge a little more each month on the rent.

The banker also gave a couple of spreadsheets to us on a CD that can be used to calculate a couple of important things.

Rental Cash Flow Template

Investment Property Loan Comparison

We got a packet of papers for the evening. The slides were included, along with an example MLS sheet from a house that has gone up drastically in value since being build 50 years ago. A paper was given that has a bunch of graphs on it showing that home appreciation has outpaced inflation, and a few other miscellaneous sheets.

All things considered, the evening wasn’t as satisifying as the first seminar, but still a valuable thing. Good to go to put me in the right mindset.

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