Flipping America

Alison Feliciano at 5 Credit Restoration Mark Hall. As always I am going to share some investing tips for you and answer a few questions. Later in the show I’m going to tell you why I prefer RE investing to stocks. But first let’s check some emails. Wrap up with about 7 minutes Open: Mailbag: From Tyler in Tampa, FL. “Roger do you have some guidance for what you would pay for a rental property and where you would buy it?”

1. Rent times 60 is almost always a good deal.
2. Stable neighborhood or one with upside.
3. Avoid chronically bad parts of town. Who wants to live there? Only people who want that lifestyle or who can’t afford to get anywhere else. Our heart goes out to good people who are struggling financially. Been there done that. We can do things to help out in other ways including support for local and national housing charities. But this is business and it is not a good business decision to own assets in areas like this.
4. Small low maintenance homes. - brick is great.
5. Duplex, Triplex, Quad - usually excellent choices.
6. The town doesn’t matter that much to me as long as I can find good property management. I recommend you secure the property manager before you close on the purchase. I also recommend purchasing multiple properties in the same area if possible to get you preferred treatment from the property management.

From Virginia in Atlanta, GA. “Roger I need some help. I am a real estate agent and I see properties out there that look like a good deal, and I know I want to get involved in investing, but I’m nervous. I haven’t done this before and even though I know a lot about the transaction, I don’t know for sure whether I can make money and I don’t know how to get the rehab done correctly and most of all, I don’t have enough cash to buy the property and fix it. Is there anything I can do and if so, what?” Virginia that’s a GREAT question. I hear this one probably more than any other.

Frank Rolfe has literally written the book on buying Mobile Home Parks. He's our guest today on Flipping America and will be here in a few minutes to talk about it.

Frank Rolfe has literally written the book on buying Mobile Home Parks. He's our guest today on Flipping America and will be here in a few minutes to talk about it.

Pat Dornan is Guest, Ultimate Rehab Estimator News You can use: Washington Post: Article on Selecting a Realtor, Ilyce Glink Very good - Some differences with selecting a realtor to work with you as an investor Treat house as inventory, not home

• Daily costs
• Cash flow
• Opportunity costs

Forbes: How To Get Rich In Real Estate - Without Being A Landlord REIT: If you're good with a 4.5% return, go ahead. Book Review and Notes: Donald Trump: The Best Real Estate Advice I Ever Received.

• It's not just location. It's also price and product.
• Go where wealthy people are living and playing
• Fit buildings to the area
• Know your point of indifference. When it is crossed, walk out.
• Commit to win.
• Don't count on luck.
• Take your profit and move on.
• Know the local conditions and traditions.
• 98% of real estate is the same everywhere. For the 2% you must have to win, find a local person who is knowledgeable, reliable, and trustworthy.
• Buy the neighborhood, not just the house.
• Watch the pennies and the dollars will follow.
• Puppies become dogs.
• Buy low, sell high, and don't be greedy.

Questions from listeners: Alex from Denver: "I'm about ⅔ of the way through a rehab, but my contractor has disappeared. I can't get him to respond to texts, calls, or emails. I have found that he took several shortcuts and created problems I have to fix. There isn't enough money left in the rehab escrow with my lender to cover all of these problems. What do I do?" This is actually 3 problems rolled into one question:

1. Contractor disappeared
2. Fixing contractor problems
3. Running out of money

Contractor disappeared:

1. What does contract say? Notify, then dismiss. You have interim lien waivers for all work done so far, right?? This is why we are constantly interviewing contractors.
2. The contract stipulates that all work will be performed to code and to the standard described in the Scope of Work. Contractor will make all needed corrections until standards are met at his own expense. Contractor disappeared? It will come out of your pocket, so KEEP A CLOSE WATCH.
3. Running out of money. Could happen even if the contractor is fine. Unexpected problems occur. (almost an oxymoron - "expected" problems aren't usually a problem). The Unexpected can drain cash and cause budget concerns.
   1. Contingency in budget
   2. Cash Reserves
   3. If budget is busted, can we sell for higher?
   4. Dump to another investor with cash to finish. Try to break even and move on.

Contractor problems are the NUMBER ONE issue with rehabbers and their work. My business limped along until I found a good one and then struggled mightily when my good one went bad and I didn't have others lined up. Marty from Dayton OH: I'm looking at 4 or 5 possible deals that I can buy for less than $20,000 each. I can buy two of them. All of them are in the same area - it's not a great area, but it's not a war zone either. The realtor tells me they will rent well and the return will be pretty good. My concern is the value of the property isn't going to increase much over the years. What are your thoughts?

1. Begin by reviewing your personal goals. If it is long term relatively passive cash flow, these may be a good option.
2. One good question I've learned to ask myself over the years is this: "How could this property kick me in the fanny?" Your answer to that question may guide you. In many cities there is an ebb and flow to neighborhood quality. They are either improving or declining. This is less often the case in suburbs or small towns. Look at the larger trends in the area.
3. A similar question is to consider the upside. What are the potential rewards? Barnesville, GA, 2009, $8000. $650/month rent.
4. Unless you buy a distressed property or a temporarily distressed location, real estate isn't typically going to appreciate much beyond the rate of inflation. In high growth areas you will see an exception, but everything has cycles. High growth areas are good places to buy now, but even they will eventually level off.

Pat Dornan is Guest, Ultimate Rehab Estimator News You can use: Washington Post: Article on Selecting a Realtor, Ilyce Glink Very good - Some differences with selecting a realtor to work with you as an investor Treat house as inventory, not home

• Daily costs
• Cash flow
• Opportunity costs

Forbes: How To Get Rich In Real Estate - Without Being A Landlord REIT: If you’re good with a 4.5% return, go ahead. Book Review and Notes: Donald Trump: The Best Real Estate Advice I Ever Received.

• It's not just location. It's also price and product.
• Go where wealthy people are living and playing
• Fit buildings to the area
• Know your point of indifference. When it is crossed, walk out.
• Commit to win.
• Don't count on luck.
• Take your profit and move on.  
• Know the local conditions and traditions.
• 98% of real estate is the same everywhere. For the 2% you must have to win, find a local person who is knowledgeable, reliable, and trustworthy.
• Buy the neighborhood, not just the house.
• Watch the pennies and the dollars will follow.
• Puppies become dogs.
• Buy low, sell high, and don't be greedy.  

Questions from listeners: Alex from Denver: “I’m about ⅔ of the way through a rehab, but my contractor has disappeared. I can’t get him to respond to texts, calls, or emails. I have found that he took several shortcuts and created problems I have to fix. There isn’t enough money left in the rehab escrow with my lender to cover all of these problems. What do I do?” This is actually 3 problems rolled into one question:

1. Contractor disappeared
2. Fixing contractor problems
3. Running out of money

Contractor disappeared:

1. What does contract say? Notify, then dismiss. You have interim lien waivers for all work done so far, right?? This is why we are constantly interviewing contractors.
2. The contract stipulates that all work will be performed to code and to the standard described in the Scope of Work. Contractor will make all needed corrections until standards are met at his own expense. Contractor disappeared? It will come out of your pocket, so KEEP A CLOSE WATCH.
3. Running out of money. Could happen even if the contractor is fine. Unexpected problems occur. (almost an oxymoron - “expected” problems aren’t usually a problem). The Unexpected can drain cash and cause budget concerns.
   1. Contingency in budget
   2. Cash Reserves
   3. If budget is busted, can we sell for higher?
   4. Dump to another investor with cash to finish. Try to break even and move on.

Contractor problems are the NUMBER ONE issue with rehabbers and their work. My business limped along until I found a good one and then struggled mightily when my good one went bad and I didn’t have others lined up. Marty from Dayton OH: I’m looking at 4 or 5 possible deals that I can buy for less than $20,000 each. I can buy two of them. All of them are in the same area - it’s not a great area, but it’s not a war zone either. The realtor tells me they will rent well and the return will be pretty good. My concern is the value of the property isn’t going to increase much over the years. What are your thoughts?

1. Begin by reviewing your personal goals. If it is long term relatively passive cash flow, these may be a good option.
2. One good question I’ve learned to ask myself over the years is this: “How could this property kick me in the fanny?” Your answer to that question may guide you. In many cities there is an ebb and flow to neighborhood quality. They are either improving or declining. This is less often the case in suburbs or small towns. Look at the larger trends in the area.
3. A similar question is to consider the upside. What are the potential rewards? Barnesville, GA, 2009, $8000. $650/month rent.
4. Unless you buy a distressed property or a temporarily distressed location, real estate isn’t typically going to appreciate much beyond the rate of inflation. In high growth areas you will see an exception, but everything has cycles. High growth areas are good places to buy now, but even they will eventually level off.

Jim Beach is a serial entrepreneur with success in building large companies with the systems to support them. Jim started his first company when he was 25 years old. He was the Co-founder and CEO of American Computer Experience, which he grew with no capital infusion to $12 million in annual revenue in 2000 and to over 700 employees, operating in 39 states and three countries. American Computer Experience became the world's largest technology training company for children, and enjoyed sponsor tie-ins with Microsoft, Intel, Lego, NASA, and many others. The Atlanta Business Chronicle recognized the company as one of the fastest growing companies in Georgia for both 1999 and 2000. In 2001, Jim was selected as one of the "Forty under Forty" most influential citizens by Georgia Trend magazine. He sold the company in 2000 and joined Georgia State University teaching International Entrepreneurship. Jim's first book, School for Startups, was published by McGraw-Hill in June 2011. He was featured in the Wall Street Journal (US and Indian editions), Entrepreneur, Fortune, Kiplinger, Wired, the NYT, NPR, MSNBC, CBS, and CNN. He has consulted and run educational programs for SunTrust, Wells Fargo, and Toshiba and has been a featured speaker around the US and in Egypt, Dubai, Japan, South Korea, Argentina, Brazil, and India. Jim completed 2 of 3 years of a Master's of Architecture at Georgia Tech and was a residential construction worker for 2 years. He is qualified in all areas of construction except electrical.

Jim Beach is a serial entrepreneur with success in building large companies with the systems to support them. Jim started his first company when he was 25 years old. He was the Co-founder and CEO of American Computer Experience, which he grew with no capital infusion to $12 million in annual revenue in 2000 and to over 700 employees, operating in 39 states and three countries. American Computer Experience became the world’s largest technology training company for children, and enjoyed sponsor tie-ins with Microsoft, Intel, Lego, NASA, and many others. The Atlanta Business Chronicle recognized the company as one of the fastest growing companies in Georgia for both 1999 and 2000. In 2001, Jim was selected as one of the “Forty under Forty” most influential citizens by Georgia Trend magazine. He sold the company in 2000 and joined Georgia State University teaching International Entrepreneurship. Jim’s first book, School for Startups, was published by McGraw-Hill in June 2011. He was featured in the Wall Street Journal (US and Indian editions), Entrepreneur, Fortune, Kiplinger, Wired, the NYT, NPR, MSNBC, CBS, and CNN. He has consulted and run educational programs for SunTrust, Wells Fargo, and Toshiba and has been a featured speaker around the US and in Egypt, Dubai, Japan, South Korea, Argentina, Brazil, and India. Jim completed 2 of 3 years of a Master’s of Architecture at Georgia Tech and was a residential construction worker for 2 years. He is qualified in all areas of construction except electrical.

FAR 008 Marty from Dayton OH: I'm looking at 4 or 5 possible deals that I can buy for less than $20,000 each. I can buy two of them. All of them are in the same area - it's not a great area, but it's not a war zone either. The realtor tells me they will rent well and the return will be pretty good. My concern is the value of the property isn't going to increase much over the years. What are your thoughts?

1. Begin by reviewing your personal goals. If it is long term relatively passive cash flow, these may be a good option.
2. One good question I've learned to ask myself over the years is this: "How could this property kick me in the fanny?" Your answer to that question may guide you. In many cities there is an ebb and flow to neighborhood quality. They are either improving or declining. This is less often the case in suburbs or small towns. Look at the larger trends in the area.
3. A similar question is to consider the upside. What are the potential rewards? Barnesville, GA, 2009, $8000. $650/month rent.
4. Unless you buy a distressed property or a temporarily distressed location, real estate isn't typically going to appreciate much beyond the rate of inflation. In high growth areas you will see an exception, but everything has cycles. High growth areas are good places to buy now, but even they will eventually level off.

Edward from Columbus GA contacted me with this question: Looking at land deal. Owner Financing Land is $325,000 for all. $65 - $85 / sf. 8 houses can fit. Sell for 200,000 each. Patrick from Lancaster, PA. I have 25,000. I can put 4-5 hours a week into this. What should I do first? Sherwin from Jacksonville, AL. I am retired from the military. I have a pension, I have some savings. But mostly what I have is time. What can I do to get started? I would like to do this right here in the Jacksonville / Anniston area.

FAR 008 Marty from Dayton OH: I’m looking at 4 or 5 possible deals that I can buy for less than $20,000 each. I can buy two of them. All of them are in the same area - it’s not a great area, but it’s not a war zone either. The realtor tells me they will rent well and the return will be pretty good. My concern is the value of the property isn’t going to increase much over the years. What are your thoughts?

1. Begin by reviewing your personal goals. If it is long term relatively passive cash flow, these may be a good option.
2. One good question I’ve learned to ask myself over the years is this: “How could this property kick me in the fanny?” Your answer to that question may guide you. In many cities there is an ebb and flow to neighborhood quality. They are either improving or declining. This is less often the case in suburbs or small towns. Look at the larger trends in the area.
3. A similar question is to consider the upside. What are the potential rewards? Barnesville, GA, 2009, $8000. $650/month rent.
4. Unless you buy a distressed property or a temporarily distressed location, real estate isn’t typically going to appreciate much beyond the rate of inflation. In high growth areas you will see an exception, but everything has cycles. High growth areas are good places to buy now, but even they will eventually level off.

Edward from Columbus GA contacted me with this question: Looking at land deal. Owner Financing Land is $325,000 for all. $65 - $85 / sf. 8 houses can fit. Sell for 200,000 each. Patrick from Lancaster, PA. I have 25,000. I can put 4-5 hours a week into this. What should I do first? Sherwin from Jacksonville, AL. I am retired from the military. I have a pension, I have some savings. But mostly what I have is time. What can I do to get started? I would like to do this right here in the Jacksonville / Anniston area.

FAR 010 News

• Commercial Markets are bullish on Trump. Article in bizjournals.com. In 2014, 100% of the brokers surveyed said they were uncertain with the federal government's policies and how they would affect markets. In their most recent survey that number is down to 37 percent feeling uncertain. I don't know what that means but the article states that this is a sign that the commercial real estate industry is generally bullish on President Trump. I don't know whether a decreased level of uncertainty is actually a measure of anything.
  • We all know or should know that much of the market is driven by consumer and investor confidence.
  • This article is an example of a survey with rather nebulous logic being used to try to create positive momentum. The rest of the article suggests a commercial building boom is in our near future. It concludes with an authoritative sounding quote from Mark Stapp, Executive Director of the W.P. Carey Master of Real Estate Development program. But his quote is basically his opinion, which by definition would be biased in favor of an optimistic view of the commercial market. He offers no supporting evidence whatsoever.
  • Hey, everyone is entitled to their opinion. I respect Mr. Stapp's opinion and would agree he is in a more informed position than I. I just don't think combining his opinion with a survey of the opinions of other commercial brokers makes a conclusive case. On the other hand, as part of a larger effort to create enthusiasm, I concede they will ultimately be correct, but only because consumer and investor confidence is picking up.
  • I have opinions too. I happen to believe that Trump's presidency will ultimately be good for the economy and as a part of that, commercial real estate. I am not going to use some semi-logical and quasi-authoritative article to substantiate that claim.
  • Am I being contradictory? No. I try to make a habit of sorting out the actual news from opinions. I consider the source for whatever I'm reading or hearing. I compare with other voices. I intentionally read the opinions of those with whom I fundamentally disagree. Why? Because if you always listen to people you know you agree with you are only learning how to repeat someone elses thoughts. If you consider other points of view, you arrive at your own opinion. You still might be wrong, but at least you own it.
  • So I agree that commercial real estate will soon be back on the rise. I just don't think this article proves anything other than some people agree with me.
• America's Real Estate is Booming, but is it a bubble?
  • No question it is hot.
    • Shortages everywhere
    • Builders scrambling to ramp up production, Four high rise projects within ¼ mile of me - all 25+ story buildings and all residential.
    • 26% surge in prices nationwide since the low in March 2012
  • In the next 12-24 months supply will begin to catch up to demand
  • The rate of increase will level off.
  • Hedge Funds are beginning to dump properties. Their models must be suggesting it is time.
    • Seattle times: Alexander Phillips, Twinrock Partners, "We view this as a trade, not as a business."
    • Larger hedge funds are buying smaller ones, but many properties are hitting the market
    • They have about 200,000 homes.
    • Blackstone has about 45,000.
  • According to www.thebalance.com, banks returned to selling mortgage backed securities on the secondary market in 2013, BUT
    • They are holding on to more of their own paper due to Fannie and Freddie fee increases. It's cheaper for them to hold on to the safer loans.
    • They are making more jumbo loans which are not insurable by Fannie and Freddie
    • Lending requirements are tighter, basically requiring the borrowers to demonstrate credit-worthiness. No more "liar loans."
    • When the housing market collapsed, these loans accounted for less than 20% of all loans made but caused 50% of the losses.
    • So far there are no Collateralized Debt Obligations being sold.
  • I think we might have learned some lessons and I do not believe we are about to repeat the cycle of 10 years ago.
  • Interest rates will continue to rise as the economy strengthens.
  • I predict we will see a flattening of the rate of cost increases of homes. In super-heated markets we might even back up a bit when supply begins to exceed demand.
  • What does all this mean to you as a real estate investor?
    • This is a good time to buy rentals if you can find distressed properties at below market rates.
      • Higher home prices mean more renters.
      • Be prepared to hold them awhile.
    • The Hedge Funds showed no mercy to competitors while paying too much for most of what they bought. Show them no mercy in buying what they are dumping. It's not revenge, it's just doing business to win.
    • Whatever the market conditions, there is opportunity out there. All you need to know is what you can sell it for and your costs of improvements, From those two numbers you can back into what you will pay for anything. Not all sellers will play ball. But some will. Keep asking, keep seeking, keep knocking.

Mail Scott from Greensboro, NC. I have a couple of rental properties in Greensboro, NC. I need to sell them. What do you suggest I do? List them! Put them on Craigslist. You're going to sell to an investor, so be prepared to accept what an investor will pay. Cash on Cash return. 10% ok, 12% will get it sold quickly. Brian from San Diego. I hear what you are saying about the desired returns on rental properties, but those numbers are just not possible here in San Diego. The average 3 bedroom home here in an area that is somewhat ok is around $600,000. It would rent for $3300, but that's far less than the numbers you talk about. What would you recommend? Lesson Let's Find a Deal! Drive Around Absentee Owners Letters and post cards Door Knocking campaign Biz Cards Flyers Foreclosure Auction Craigslist MLS