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Old 08-17-2007, 07:12 AM   #21
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Yup,temperament is needed.
Visualize walking into a trashed out unit.Holes in the walls,carpeting destroyed,broken windows.Couple,three grand in repairs.What do you do?
Wring your hands and sing a rendition of woe is me?
Or look at everything objectively to understand one very important rule in landlording?

The walls,the carpet,the windows and everything else in that unit are just tools.They should not be looked at as your furnishings.They are there to get a tenant interested in the unit.
Renting a unit is selling the features of it.
What is selling?
Selling is mental fornication,creating the desire to buy.

If one treats the furnishings in a renatl as their own personal stuff,they lost the battle.
It's just stuff.

Now,do you call your local friendly insurance man and cry the blues?
Absolutely not!!!!!
You bite the bullet and get the work done to restore the place yourself.
Calling the insurance guy is the same as begging for a stiff rate increase.

I've had two bad trashings this year.
The first was a sect8 tenant that was a partial pay.She and her kids collected $3200.per month through SSI (still considered non collectable as that is not earned income).She did not pay her water bill and the city cut her off.........they proceeded to take their dumps on the carpeted floors.Even animals know better than that,don't they?
I evicted her,she got a new voucher from sect8.Here is the kicker though.
Sect8 would not pay her new landlord till repairs on my house were completed by her.The new landlord replaced two windows,vanity faucet and some other minor stuff.He almost fell over when he came over and saw the damages,never did his homework on her.I wound up replacing the carpeting though.

Second incident:Both sides of a freshly rehabbed duplex empty.Vandals kicked in all four doors,broke all the downstairs windows out and kicked holes in the drywall.
My insurance deductable is $3500.I was able to repair three of the doors,replaced the fourth with an old one I had in storage.The drywall cost very little to repair (lots of years practice on holes).For the windows I used plexigalass rather than glass replacement.My total cost was less than one thousand,time was about 8 hrs work.OSB was placed on all the downstair doors and windows for a just in case.
Was I upset? YUP.
Was it the end of the world? Nope.

As I posted in another thread........you gotta have a landlord's gut to get in the game and keep sanity.

The game has changed,not for the better.
Bleeding hearts make us landlords out to be the worst,meanest,most heartless bastards in the world.Look at the 11 o clock news.They will show an apartment with all kinds of filth in it,broken windows,holes in the walls,torn carpeting.Then they say........look at how this landlord forces his tenants to live.
I've yet to be able to interest someone into renting a trashed unit.
Landlords do not create slums.........tenants do.
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Old 08-17-2007, 12:42 PM   #22
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This may be a poor analogy.
Investing as active landlord is like double down at blackjack, only it is on real estate in your area.
You don't do it unless you have real advantages on hand.
In my area, CA foreclosure poster boy city, to invest in rental requires an ironclad stomach and fried brain.
But there are late bloomer cities where the RE tsunami is just rolling.
When the house you live in go up by 400K, what are you going to do? Unless you move to a lower cost city, your equity is locked up. But you could sell your rentals and make real money. It is not easy, but it can be done.

When house prices are rising, it was relatively painless to pay $600 to replace a water heater when equity was rising 10K/mnth.
But I still did the work myself, it is much prefered to listening to my former boss talked out of both sides of his face.
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Old 08-17-2007, 02:41 PM   #23
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1. $2,000 down now worth $400,000 1978
2. $5,000 down now worth $600,000 1986
3. 23,000 down now worth $300,000 1994
4. $40,000 down now worth $400,000 2003
5. $54,000 down now worth $400,000 2004
$124,000 investment for $2,100,000 Present Market Value


I only buy properties that I would live in. I would not want to deal with ďpoorĒ people as a business. I'd rather put a $500 stove in a $2000mo. rental than a $200mo. rental.
I pay fair market value for properties. I think foreclosures are too much work for the return. I only rent to people I would associate with. Iíve never had a vacancy I couldnít fill. Iíve never had a plumbing problem. Iíve never retained more than 10% of the security if that.

I would rather be out of pocket a couple of grand a year to get $100,000 in appreciation.
Markets are local. What works in one area may not work in another area.
People who suck at being landlords blame the business not themselves when they are actually the problem. You canít learn from their mistakes when they wonít admit them. Successful people in your area are probably happy to help you start. I'll take 100% financing anyday at the right terms.
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Old 08-17-2007, 02:57 PM   #24
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Wow, your only expense was the down payment? That must mean all of your properties were cash flow positive since day 1. Teach me!
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Old 08-17-2007, 04:02 PM   #25
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Wow, your only expense was the down payment? That must mean all of your properties were cash flow positive since day 1. Teach me!
I thought I offered to in exchange for beach front property at 50% off. Actually all were slightly negative cash flow for a short period before the tax benefits but the first one actually kept my portfolio cash flow positive on each successive purchase. Think of a snowball rolling down the hill, like in the cartoons! And due to the strong rents in Honolulu I'm already cash flow positive on my 03 and 04 purchases. Not that the rent is what I'm looking at. I'm up $324,000 in value on just those two properties. So it's all good! And..and...and, close to $200K annual( that's each and every year on average) appreciation at a historically conservative rate..still over $100K if that rate tanks by 50%. All properties that have mortgages are fixed mortgages and two properties have artificial caps on the property taxes. But..but..but my rents are increasing every year. Never had to drop rents even in what some considered bad real estate years.

Growing income-semifixed expenses=$$$$$$$$$$ YMMV
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Old 08-17-2007, 04:15 PM   #26
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I thought I offered to in exchange for beach front property at 50% off.
Patience. Patience.

Here are some roll-backs in the area to whet your appetite while you're waiting:

Irvine Housing Blog
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Old 08-17-2007, 04:52 PM   #27
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Patience. Patience.
I think they need to learn patience. They seem to be premature ejasellers. Leverage and time grasshopper.

And how am I gonna learn ya if you keep getting your education from the street? First you have to compare actual sales price against actual sales price. Asking price is just a fun number to put out there. I know you know that alot of properties in California sell for hundreds of thousands more than the original asking price.

Here's one for you. I looked at a bay front condo 38 Bryant #906 listed at $475K that was a foreclosure!! Bought 3/3/2006 for $650,000. I comped it now and as of 3/3/2006. Probably should have sold for $450K then and should go for $475-500 now. So some smuck didn't use a Realtor that could have shown him he was overpaying so he lost his $130,000 down payment. Or did he? Smart guy probably did a 0 down and split the $200.000 with his partner, the seller, and stuck it to the mortgage investors. Maybe.........

But the real lesson here is that you cannot say the market has dropped $175,000 based on this info. You need to compare market sales price to market sales price. That's the lesson for today. Study leverage and next year we'll tackle elasticity of demand!
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Old 08-17-2007, 04:58 PM   #28
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Study leverage and next year we'll tackle elasticity of demand!
Speaking of elasticity of demand, how's your Vegas condo investment doing this year?

Low affordability + no more speculation + increasing foreclosures + tightening of mortgage underwriting = future demand gone bye-bye while supply goes up up up.
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Old 08-17-2007, 05:53 PM   #29
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Speaking of elasticity of demand, how's your Vegas condo investment doing this year?

Low affordability + no more speculation + increasing foreclosures + tightening of mortgage underwriting = future demand gone bye-bye while supply goes up up up.
It's actually a single family detached and still doing quite well. Even before the Vegas boom the bank was quite comfortable with a 3% appreciation rate. Thats 3% yearly increase on the market value($300,000) not the $23,000 I have in it.
Here's another lesson. Before you buy a specific property ask yourself why this property will still have demand when everything around you enters the supply chain. It won't be the same for all areas or even all property types. In this instance location was first. I'm located approx 6 miles to downtown and about 8 to the strip. It was an infill in an established neighborhood. And it was in a small development of only one story homes and located at the best location per traffic and noise and view etc. It was also moderate in size, a 1500sf 3/2/2.

It seems that the properties that are in trouble are the "fantasy" neighborhoods that were being built out along the not quite built 215 freeway. Most of these are monster homes built out in the boondocks and were priced on a concept price. Most of these developments never were completed or allowed to mature and ended up with alot of speculators that filled them with any kind of tenant to get some cash flow which in turn drove the inflated values down probably past what they would have been if real home buyers had bought and occupied them.
Buyers that would be interested in my house would not be looking in these neighborhoods so their values have minimal effect on my property.

I think I've addressed every component of your equasion. Mortgage underwriting is the one thing I have little control of except that I would always be able to provide seller financing if necessary.
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Old 08-17-2007, 06:30 PM   #30
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I think I've addressed every component of your equasion.
Yes, you have, and I'm sold! If I understand you correctly, all I need to do is:

1) find a cash-flow positive SFR after PITI, maintenance, vacancies, etc

2) in an area with constrained supply and increasing demand

3) find problem-free tenants

4) let simmer

And I've tried. Really I have. I'm pretty sure I've got (2) and (4) nailed, but (1) is causing me real problems these days, and (3) seems like a game of Russian Roulette (and I've already taken a bullet).
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Old 08-17-2007, 06:36 PM   #31
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Hi Honobob,
I don't doubt that you bought those properties in Honolulu. Good for you and I mean it.
So it is simple, buy rentals only in good areas before prices go up.
I'd like to go region of Northern CA, the center of the market is collapsing.
If you bought prior 2004, it's all good.
After 2004, it's all tears.
Go to,
Sacramento Area Flippers In Trouble
for laughs.
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Old 08-17-2007, 08:15 PM   #32
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One thing we can all agree on ... the days of paying full price and getting double digit annual appreciation are long gone. Need to buy below market (foreclosure, REOs, distressed seller ...) to make the numbers work today.
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Old 08-17-2007, 09:40 PM   #33
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Yes, you have, and I'm sold! If I understand you correctly, all I need to do is:

1) find a cash-flow positive SFR after PITI, maintenance, vacancies, etc

2) in an area with constrained supply and increasing demand

3) find problem-free tenants

4) let simmer

And I've tried. Really I have. I'm pretty sure I've got (2) and (4) nailed, but (1) is causing me real problems these days, and (3) seems like a game of Russian Roulette (and I've already taken a bullet).
1.) No, probably won't find that in a high appreciating area and doesn't have to be SFR, $1.2M of my portfolio is Condo. Suck it up and deal with the negative cash flow because your research has shown a high probability for rental increases to flip that and the appreciation more than outweighs the NCF. Shortly this property will subsidize # 2 property Snowball..snowball...If you did 2 right you won't have vacancies.

2.) You still have to buy in the top % in this area. If you buy in the bottom half expect your results to be in the bottom half.

3.) The problem is you not the property if you did the proper 2.) Why would anyone jepardize losing one of the top rentals in the area?? Usually in Hono I've always had 20+people wanting my Diamond Head properties. In the 80's there was a slump and I even panicked when I only had 10 candidates of whom I thought 4-5 were good. Deep Breath. I got 4 more qualified people than I have rentals. Problem solved. My 6 year tenant realized the competition was tight and invited me to dinner that nite. They knew they were good candidates but they also knew there were other good candidates. They pay on the last day of the previous month. My year+ tenant on my other DH property pays 2 days before the month ends!! Oh, and number 2 pick took my number 1 picks old place that they were vacating cause it was number 2 desirable place in the area available #2#2#2.



I may be an idiot savant on tenant screening but I think it is an ability anyone can develope. I never do Credit checks. I think its a crutch people use to rationalize their choice. Good Credit equals good tenant?/ Doubt it. I deal with the person without preconceived notions. When I used to hire in the hospitality industry years ago there was always competition among the managers over who hired the best people. Back then it was hard to hire day workers. i interviewed alot of young people who were on "independent study" so they could work during the day. I figured these people were smart if the school let them make their own hours. I would still put them thru my interview hoops and hired quite a few of them and they were all successful. Not being from CA I didn't know about the program and it wasn't til years later that a teacher friend told me that "independent study" kids were the losers who didn't come to school anyway. Would have screwed my good hire average if I'd hired on that notion. Same goes with tenants.

4.) Simmer...simmer... cause the markets always hot at the top.
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Old 08-17-2007, 11:25 PM   #34
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1.) No, probably won't find that in a high appreciating area and doesn't have to be SFR, $1.2M of my portfolio is Condo. Suck it up and deal with the negative cash flow because your research has shown a high probability for rental increases to flip that and the appreciation more than outweighs the NCF. Shortly this property will subsidize # 2 property Snowball..snowball...If you did 2 right you won't have vacancies.
You mean that, unlike you, I'll have to pay more than the down payment? Ugh. You're already making this seem much less appealing to me.

So, all I need to do is convince myself that the rate of appreciation going forward will be similar to the historic rates, right? Man, that's a tough one.

Let's see. Cap rates for the highly desirable rentals you're talking about are what these days? 4%? 5%?

Cost of "leverage" capital is 7%. Taxes, another 1%. And you say I can't buy an SFR, so that means condos with asssociation fees of another 1%?

So, I need to bleed 4-5% per year until rent inflation catches me up to break-even and then pray that appreciation makes it all worthwhile at some point?

That seems like a lot of red ink to bleed. And I don't know about prices in your area, but unless appreciation is essentially 0% over the next decade or so, I don't see how normal W2 Joes will be able to afford them. So, we're back to supply and demand again. I expect equilibrium to be reestablished, but we ain't there yet....
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Old 08-18-2007, 03:11 AM   #35
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1. $2,000 down now worth $400,000 1978
2. $5,000 down now worth $600,000 1986
3. 23,000 down now worth $300,000 1994
4. $40,000 down now worth $400,000 2003
5. $54,000 down now worth $400,000 2004
$124,000 investment for $2,100,000 Present Market Value


I only buy properties that I would live in. ... I'll take 100% financing anyday at the right terms.
Perhaps you have been successful at this technique. I suspect that for every person that is successful, there are many that are not.

It is a form of investing, and it is leverage. The reason you can do so is that the property is collateral for the loan. Real estate is one of the few areas one can do this. The other is owning a businesses. For most people that do the realestate thing (being a landlord), it is a small business.

If one has nothing (and no great paying job)... no money down and being a landlord can be a way to success, but I suspect few have the skill, savvy, and discipline to make it work for the long-term. Just like other endeavors in life.
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Old 08-18-2007, 07:53 PM   #36
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Here's a useful spreadsheet for the would-be landlord:

http://www.mortgage-investments.com/...ads/10YEAR.XLS

It calculates cash flow and RoE over a 10 year period based on your assumptions about rental inflation, appreciation, etc.

Properties in my area would have negative cash flow over the entire 10 year period. Bummer.
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Old 08-19-2007, 06:47 AM   #37
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Suck it up and deal with the negative cash flow because your research has shown a high probability for rental increases to flip that and the appreciation more than outweighs the NCF. Shortly this property will subsidize # 2 property Snowball..snowball...
Tried this in the late 80's: paid full price, little/no money down, negative cash flow. Locked myself into a 12 year hell-hole (north of Boston). Prices tanked, economy went into a recession ('91-93), rents tanked, and mortgage rates dropped. The negative cashflow nearly tripled on every unit because your neighbor bought much cheaper than you did and could over equal/better units at a lower rent. Also a recession strangled wages driving rents even lower. Couldn't re-fi to lower rates because I was upside down on the mortgage. Would have needed a 5 figure check just to get right side-up. Soooo I "sucked-it-up" for TWELVE YEARS. Finally sold in the late 90's; wrote checks at 3 closings as a SELLER. Learned ALOT ... I'll never buy into a negative cash flow again.

Point being, it can snow-ball the other way too.
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Old 08-19-2007, 02:37 PM   #38
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i didnt read this whole thread, but here's my .02


first, whoever mentioned 5% vacancy must be lucky. in MANY INVESTING BOOKS, AS WELL AS MY EXPERIENCE, EXPECT MORE THAN 5% VACANCY.

Best bet right now, imho,is to get a foreclosure that needs work, put in some sweat equity, and go from tere. this will help insure you have apos cashflow. if you really bu right, use the equity in one to buy the next. i bought 3 this way, and they all cash flow

SCREEN SCREEN SCREEN. one more month going by un-rented isnt half-bad if you consider the alternatives (google landlord horror stories) lol
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Old 08-19-2007, 04:21 PM   #39
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Soooo I "sucked-it-up" for TWELVE YEARS. Finally sold in the late 90's; wrote checks at 3 closings as a SELLER. Learned ALOT ... I'll never buy into a negative cash flow again.

Point being, it can snow-ball the other way too.


What would the deal look like if you'd held and sold at what you consider the recent "peak"? I would imagine a very different result.

Did you buy the wrong location, product, price, mismanage it or was the failure entirely the result of external forces that were completely unforseen?

From your description you would have went negative even if you started positive because of rent decreases. I've never reduced rents in 25 years. The fact that you bought with neg cash flow didn't cause the failure yet that is what you're condeming. Other than being able to refi to a lower rate what difference would it have made if you'd had 50% equity? Now if you were overleveraged then I would agree that THAT was the problem, not the financing.

The people I see fail generally are people who buy "deals" without asking why it is a deal and how that will effect future income.
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Old 08-19-2007, 05:33 PM   #40
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I've had two bad trashings this year.
The first was a sect8 tenant that was a partial pay.She and her kids collected $3200.per month through SSI (still considered non collectable as that is not earned income).
I'm a bleeding heart and spouse and I used to be landlords. I know there are bad tenants and I know there are bad landlords.

I am questioning the 3200 a month in SSI. Was the whole family disabled? Seems unlikely. The maximum SSI payment where both a husband and wife are disabled is $934 for 2007. I don't want people to get the impression people are getting rich off of SSI. Disabled parents with children can get something like 100 or 200 (don't recall the exact number) a month extra for each child.

SSI Payment Amounts
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