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Finding Vacancy Rates

Question:

How do I find a vacancy rate for a particular neighborhood? I have found vacancy rates on city websites, but they don’t have it broken down by neighborhood?

-Student

Answer:

There are various ways to get vacancy rates both free and paid

1) Internet Resources Include:

Free:
www.rentbitz.com (info, not broken down) www.redfin.com (info, not broken down)

Paid:
www.loopnet.com
www.costar.com
www.grubb-ellis.com
www.marcusandmillichap.com

2) The best way to get free LOCAL information is basically doing what appraisers have done for years; it’s called a Rental Survey. This includes first calling your local newspaper for rental ads and calling on individual landlords and interviewing property managers that rent in your area and then driving your chosen neighborhoods, writing down information on rental signs and inquiring on the rental as if you were a tenant.

-TA

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What is a “wrap” transaction?

Question:

What exactly is a “wrap” transaction?

-Student

Answer:

A wrap transaction means you’re buying a property that typically has an existing first loan. The seller carries a second loan and you wrap both of them to make one payment. That is a simplistic explanation of a wrap. Wrap around loans are used in many different creative way. Creative financing is a world unto itself. Back in the 80’s it was just about the only way we could get deals done. I suggest if you ever have a chance to listen to Bill Tan, Shawn Watkins or Aaron Mazzrillo, this is exactly what they attempt to do every day.

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Original Owner regaining ownership

Question:

Does the original owner reserve any rights of regaining ownership?

-Student    

Answer:

Whether an Owner/Seller has actually reserved any rights has to do with how the actual sale was consummated and whether the law was violated in the process. The law that governs how to approach a seller in default in California is extremely specific and detailed and if you intend on pursuing sellers in default I strongly urge you speak with an Attorney who specializes in this area before attempting to do this on your own. The California Association of Realtors CAR) has a purchase offer form called, “The Notice of Default Purchase Agreement” which highlights the items that must be addressed. Also Tuesday Forms sells a an offer form that is also customized for this specific use.

Having said all of THAT, I must warn you, this is a highly sensitive area of real estate especially inside this real estate storm we are experiencing. government agencies, as well as, lenders are extremely sensitive to protecting Homeowners’ rights because it is being perceived as being politically correct. Their regulations, restrictions and (protectionist) laws are going way beyond anything we’ve ever seen before in the real estate industry. Keep in mind that just because something is legal, it may not be perceived as fair and prudent by controlling government agencies or by the courts.

-TA

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ARV or Cash flow for REOs

Question:

Tony, what is the highest percentage of ARV that you will offer for an REO? Or, do you strictly look at your cash flow?

-Student

Answer:

I look at my cash flow. Each case is different. I’ve paid probably as high as 70%, but it depends on what I’m going to do with the house. If I know it’s a house that I don’t want to keep as a rental, but I’m not going to have to fix anything, I can just turn around and flip it and make $10,000 after all is said and done, why would I say no to that? People sometimes think “oh I don’t want to waste my time with that.” GET OUT OF HERE! Listen, if I can do $10,000 on a house and do $50,000 a month, I’ll take 3 of those a month. The rest of you guys can keep the rest of them. So, yeah, I’ve done as high as 70%. But again, everything is in line, if you look at the way I calculate numbers on my stuff, I’ll pay a little more if there’s less repair. I’ll pay less if there’s more repair. If there’s no carrying cost, if I have no hard money loan on it, I adjust the numbers so that it makes sense, because that’s what makes the difference between someone who will walk around complaining that he can’t find a deal or someone like myself or Mike Cantu or any of the successful people that you’ve had an opportunity to meet that understand that it’s not about finding a deal. Once in a while, we find deals and they land right in front of us and we trip over them like a rock. But most of the time you’re making deals, ok? It’s creating deals. You’re looking at something and asking yourself, “How can I tweak the numbers or something on the property?” It’s about being creative in the way that you see real estate. If I only had a dime for every time I heard someone who would walk a house with me and go, “my god why would you even touch that? Why would you buy that thing? Are you crazy?!” I was so happy to hear that because I knew this is why I’m making the money I’m making because most people cannot see that and they get stressed out.

-TA

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Referrals from Trustee’s Sales

Question:

Can you elaborate on getting leads from “referrals from guys at Trustee’s Sale” on 119 of the course book? Thanks

-Student

Answer:

Lovely, yes! You got a bunch of guys out there buying at the trust deed sales. The more remote your area is, the better they love to do this. If you’re in some area, they want to know they got a sure thing to sell something. Sometimes they have what’s called “drop bids.” Where they find out that morning that some property that was going to sell for $195,000 has now been dropped bid down to $100,000 or $110,000, whatever it is. They want to be able to get on the phone, be able to call you and say “Hey, Tony, now I got a house on Lancaster West now here’s the address. Go check it out. They just told me I got 15 minutes.” And I’m telling you, I am not exaggerating some of these are like 15 minute deals. But I can go there, knock on the door, see if the property is vacant, see if there’s a person living inside, and find out quickly. I try to find out if it’s the owner or not. And there’s little ways you can use to get your foot in the door. If it’s worth buying or not buying, I’ll tell them on the spot. I have Sabrina doing the comps, immediately, and I say “okay, here’s what I’ll give you. I’ll give you $65,000 max.” So now, he knows what he’s got to add to that so he can get that to the price I’m willing to pay. And trust me; I just had another meeting with two guys in my market that do this. And over the course of time, I don’t work with a lot of different people doing anything. I’m very specific about who I use. But I use people that are very good at what they do and people that I can trust. That’s the whole thing for me is trust. If I can get some money where I can rely on them and I can trust their word, I’m in!

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Chosing an Exit Strategy

Question:

Tony, given that you stated you do the majority of your investing in Antelope Valley where the price points of the homes are relatively close to each other and the price range is narrow, could you briefly discuss when you would apply the various Investment Exit Strategy scenarios? Does your exit strategy depend on your tax bracket? If you sell before 1 year cap gains, right?

-Student

Answer:

First, I don’t agree with your assessment of the Antelope Valley. We have condos and houses for under $100,000 and we have custom homes that sell for over $1,000,000. Everything is geographically specific.

I only buy if the properties qualify for both of my Exit Strategies:

  •     Buy, fix and sell, with at least a 10% net profit.
  •     Hold as long-term rental for at least a 10% cash on cash return

   
What he’s saying is, if you sell before 12 months, you’re going to get wacked, but here’s the thing when you’re starving and you need money, capital gain should be the last thing on your mind. It’s all an individual thing. It’s not just your tax bracket, it’s your food bill, your rent, your mortgage, whether you have kids or not or whether you lost your job. There are many other things that come into play, but what I think you’re trying to say is yes it’s an individual situation.

For me, nowadays, I like to buy and sell just enough to cover all of the expenses in my office. The rest of my houses, I like to keep them as rental houses, because I know where I made all my big bucks. I don’t need to go to anybody’s seminar to tell me how to make $10 million dollars; I know how to do it. So, I know it’s not going to be “buy and sell,” and “buy and sell,” all this “flip this house” nonsense. Yeah, that’s lovely if you want to have Uncle Sam as your partner. But if you want to make some serious dollars, look at the guys who have been around. And you know what the problem is? The guys who really make big money in the real estate business, they’re what’s known as the “silent majority.” They’re quiet; they’re the guys sitting at the back of the meetings, the older guys that are very polite to everybody and they’re bringing in $100,000 a month in rental income and you wouldn’t know it by the way they dress.

But you’re very, very accurate, you have to be very specific, you have to know what your tax ramifications for your decisions are, but when you have no other choice you have to flip or you have to wholesale to someone. You have to get a finder’s fee, something to start working in the business.

My perfect example for that is the kids who started in San Diego, Erin and Joey. And they’re on the website, I’ve told you a million times, if you haven’t seen that video, shame on you! Go to www.tonyalvarez.com and click ‘video interviews” and listen to those kids that started with nothing.

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How to determine GRM for 4 plex

Question:

How do you determine the GRM for a 4-Plex property? or for the inland empire area?
-W.A.

Answer:

It’s the same thing. The GRM is basically the Gross Rent Multiplier. Just look at other 4-plexes in the area, figure out what their rents are, the total yearly rents. And figure out what it sold for. If it sold for $200,000 and the yearly rents are $20,000, that would be ten times gross. Just divide the total purchase price by the rents, by the market rent, and that’ll give you the GRM. That’s for any area. Just look for comps within that area.

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How do you train an agent to know what’s a good deal?

Question:

When you first start working with a new agent, and he sends you a prop that is not a good deal, how do you “train him or her” on what is a good deal??

-Student    

Answer:

You think they don’t know?! I think you probably have an inexperienced agent, meaning that the agent is new, not the relationship. That’s just a process of really taking them by the hand and really explaining to them and being respectful and sensitive to not insulting them. Sometimes it’s like walking a tight rope when you first start working with an agent and he sends you a property that is not a good deal. When you’re dealing with a professional agent it’s tough. I explain this in my presentations and in the course that you have to go in there and sit with them, show them your stuff and say you can’t make this work, but if these numbers change, I will make the deal happen. Always leave an agent, especially a professional agent, with the possibility of making the deal if they get the numbers to change, because the numbers are going to change. Let them know that you will buy this if they get the price to a reasonable number. You never say “no, I don’t want this deal.” You say you can’t buy this deal because there’s no profit and you show them why. You want to show them that you calculated it and that you know what your fix up and carrying cost is, but if it’s a new agent, that’s even more simple. Unless they have a large ego, then you got to be careful about not stepping in it. It’s basically just a function of spending time with them. And geographically with a map, showing them these are the zip codes I want to buy in, even taking the time to show them some properties that have already sold. That’s why I tell you all to look at the MLS as to what sold because you have investors that have already bought stuff and you look at deals and go “how did I miss that?!” Then you rub salt into your wounds. It’s a very educational process. And you’re able to explain to someone else, it’s a great instrument. I use this in my mentor programs. I use actual transactions, deals that have actually happened to make a point. I say, “Look, this was happening at the time that I was buying this other thing.” You can use that same kind of stuff to train your agent and the more you train that agent, the more you develop that relationship, especially if they’re new, the better they’re going to be for you. Because, you want to get to the point where you guys are working like it’s a symbiotic relationship. I hope I explained that thoroughly for you.

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What is Wholesaling?

Question:

I still don’t fully understand the term “wholesaling.” Can you give me a few examples? On page 88B it shows a mild fix as a wholesale. I thought just flipping a house, “as is” was wholesaling.

-A.N.

Answer:

A mild fix wholesale, for example, is when you buy a property, instead of doing repairs, you trash out the house and clean it up so that its somewhat presentable. You have the lawns cut and the yards cleaned.

What you’re looking for is just to clean up the property and make it neat. No extensive rehab.

You’re in essence making it appealing for new investors so they don’t get scared off.

You would be surprised at what you can do with a little bit of touch up paint, gardening and clean up. Sometimes you can put that property back into the MLS as a “fixer” that needs TLC and sell it with multiple offers and can sometimes make almost as much profit as a full rehab.

The name of the game is to look at each property, individually, and try to figure out how many different Exit Strategies you can create to dump that property as fast as you can, for as much as you can. A mild fix wholesale is just one type of wholesale deal, it’s just taking wholesaling and slicing it to many different pieces.

-TA

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Annual Inspections

Question:

Hello Tony,
I’m talking to my JV partner and I think it’s a good idea to do annual property inspections. He thinks it will cost too much money and the tenant will give a list of things they want fixed during the inspection. Do you have someone do regular inspections on your property? If so, how often?

Sincerely,
MM

Answer:

This is a touchy area indeed. But, a system we have had in place for many years and we follow a very specific routine with a detailed list of items we inspect, interior and exterior, from the FIRST walkthrough inspection with the tenant BEFORE they move in on the first day of the tenancy. We tell all of our applicants that they will be signing a lease or monthly rental agreement that includes a quarterly (NOT yearly) ”Health & Safety” inspection. This means a representative from our company will be inspecting the interior and exterior of the house every 3 months. THIS TAKES TIME AND COST MONEY, SO WHAT? Now, why? Two reasons:

1- PREVENTION- If they are such good actors that they get under our screening radar, and they are actually problematic tenants such as – sell drugs, rob banks, are hookers, grow pot, have uninsurable dogs,( Pit Bulls, Rots, etc.) or they are just plain pigs, they will never agree to these inspections and move on; that will save US from a future costly eviction.
On the other hand, “Normal” tenants are typically very happy to hear that we will be staying on top of items under the category of “health & safety”

2- PREVENTION -Should you ever find yourself being threatened with a lawsuit or actually being sued for some item such as a fire due to smoke detectors that did not function properly because of battery removal by the tenant because it kept going off every time she burns dinner, or some tenants kid cutting their jugular while climbing through a broken pane of glass on a window they broke because they forgot the key to the house. It will be pretty tough to prove that you as the landlord are responsible due to deferred maintenance seeing as you have an established system that goes beyond anything any property management company has ever done to prevent problems.

Of Course we video record every inspection which includes recording the whole conversation with the tenant and the list of questions about any problems or required repairs (NOTICE I WROTE REPAIRS NOT IMPROVEMENTS) as well as have the tenant sign a sheet which indicates no problems were found during the inspection and they are happy with the condition of the property, or you both agree that the window was in perfect order when they moved in(as evidenced by the VIDEO and signed inspection sheet from the initial move in inspection) and they are responsible for the cost to repair the problem. Or the problem is a slow drains, or plugged up toilet due to the lovey child putting his plastic toys or bar of soap in the toilet (which would be on the tenant) or constant problems with sewer line backing up due to tree roots consistently blocking the main sewer line in which case it’s on YOU, the landlord, to repair before you spend 50% of your yearly rental income on Rotor- Rooter.

Inspections or the threat thereof is all about PREVENTION! As a matter of fact- GOOD property management is ALL about developing systems to PREVENT the expected and the UNEXPECTED possible potential nightmares. It’s about developing and implementing systems that help you identify minor issues BEFORE they can become HUGE disasters.

You don’t even have to keep them quarterly- once you confirm that the tenant is not problematic then BACK OFF! Just drop by every 6 months or yearly if you like- BUT you have gotten them to agree to quarterly which usually means THEY are probably pretty good people with not much to hide.

I like doing the inspections anyway because it also builds rapport with your tenants; they appreciate a landlord /management company that cares about taking care of maintenance items that make their lives difficult. So you increase retention.

The comment we hear most is either “we love you people because you’re always there for us” or “we hate you people because we can never get a hold of you when we have a problem,” which tenant do you think actually stays longer?

If you are more concerned about saving pennies on doing repairs that NEED to be done or items you anticipate tenants requesting, you have never been stung by the wasteful costs of litigation and you are headed in the wrong direction as a property owner. Dealing with tenants is an art form more than a science. When your decisions are based on fear of tenant requests, you’re out of control; YOU have to be in control of that conversation. BTW-Make sure you have GOOD insurance and READ the fine print on your policy- many will NOT cover if you can be proven to have contributed to the deficiency that caused the end problem /liability by the slightest neglect; some even require fire extinguishers in at least the garage.

Anyway, I think you get my point. Whether you decide to utilize yearly, monthly, quarterly or whatever inspections, it’s more about WHY you’re doing them. The end reason is what will help you design a detailed & complete system based on the outcome you desire or problem or situation you want to prevent. Inspections without a SOLID focused reason and subsequent systems are just a waste of time and money. Inspections based on well thought-out preventative reasoning, dictate their own process, make the costs negligible and are irrefutably INVALUABLE!

There are only two ways to manage real estate: With well thought out proven systems or by the seat of your pants; both are equally effective at delivering you to a predetermined end result.

If you want to learn more about how we have managed our stuff for the past 30 years, including surviving dealing with over 100 Section-8 tenants, two fires, a shooting resulting in a fatality on the front lawn of one of our rentals, a young child’s death while sleeping, dog bites, burglaries and a host of other problems- without filing insurance claims or litigation – watch for the property management class I will be teaching in 2014 and make sure your ass is in one of those seats.

Hope I’ve been of service! 😀

TA