Buying and Renting Townhomes

[scottneedsadvice]

Hi all, I am brand new to this board and I intend to pick your brains about
Real Estate investing.

First off I'd like to mention that buying rental properties has been a dream of mine for many years but for what ever reason I was unable to really sit down and take a look at this venture until now.

I've noticed around my area that townhomes are usually for sale between $90,000 up to $130,000. What I'd like to do is start with one that I can really learn the in's and out's of this business with. From there I'd like to begin purchasing as many properties as I can and renting them all out. I know that in the beginning I'm not going to make very much $$$ off 1 or 2 houses but as I am able to purchase more and more I really think I can begin to make a pretty good profit on a month to month basis.

As I grow my business I will probably look into things like multiplex's and small apartment buildings. From there I'd like to possibly buy into commercial Units that I can rent out to business. Hopefully I can find a good deal sooner then later.

I'm also interested in things like buying Tax Sale Properties and buying fixer uppers to resell after upgrading, but with these two ideas I have almost no information on what to do with the Tax Sale Properties or how I can make a fixer upper into a profitable resale.

Anyway, these are my goals and I'd like as much info as I can get on how to get started. Believe me the motivation is here!!!!!!
The only thing that is holding me back right now is a line of Credit debt that I have to repay as I was not working for a few months and had to use a HUGE amount of money off the line of credit to get by.

I'm hoping to have this payed off long before the spring of 2005 and begin putting cash away for downpayments. During the time I'm paying off my debt I'd like to learn as much as I can and get as much advice as I can from the people who are actually doing what it is I want to be doing.

So I hope you can all give me some advice and point me in the right direction.

Thanks for all your help in advance.

Scott

[Dan Auito]

Welcome Scott, you've come to the right place! You can certainly begin to get the needed education and insights here on the boards. Before we get rolling with you, I would like to get you to read a few of the stories in the the free gifts area up and in the right corner of this page. Click on that free gifts tab and have a look at what is there.

Also the getting started tutorial at the lower section of the home page is also a good starter read.

I myself actually have to go flying in about ten minutes, so I'm not going to be able to address specifics but reading up before we get rolling can really help the process.

If you would like to zero in on further specifics in your reply we can focus on what is most important to you at this time. Dan

[Aldo]

Being the first responder, I guess I'm elected to offer a reality check. Your dreams/goals are commendable. No question there. My question would be why you'd want to begin with a townhouse.
Ideally a new investor should begin with a small multi. A duplex is preferred. You have to realize that if your townhome goes vacant, you have zero income and you'd have a mortgage payment to consider plus you'd have to eat the cost or prepping a vacant unit and advertising expenses. Oh, did I mention that I recently had a unit vacant for 7 months?
If you are in a financial position that allows for those kinds of losses, I'd still suggest a duplex or maybe even a fourplex (no larger) just to get a good handle on landlording. From the outside landlording looks beautiful. You (supposedly) get a check on the 1st of the month, pay the mortgage lender, and look for ways to spend the difference. What many fail to recongnize are the maintenance (and often other) issues. If an out-of-warranty water heater or furnace goes south, that will cost you a whole bunch of steak dinners.
Okay, time for someone else to offer an opinion. I don't mean to scare you away. I just want you to understand that landldording isn't always what it appears to be from the outside. I do wish you well and hope that you proceed with due caution.

[OKRICHLAND]

Hello Scott, OKRICHLAND here.
I do say that I have to agree with Aldo.
If you are making a mortgage payment on a $130,000 town home,
let's say at 7%, that's almost $800.00 per month. Multiply that by
the number of units.
I prefer single family dwellings myself.
I just figure that a house is going to be more appealing to a long term
resident than a small clustered community.
There is also a matter of re-sale.
If ever needed money Quickly,
I can sell a house in a matter of days were as it might take months or even years to get rid of a multi family dwelling.
In addition, to sell a house, I must rehab one house.
to sell a multi family, I must rehab a small community.
Remember: Don't rush into anything on impulse.
Take your time, relax and don't purchase until you FULLY UNDERSTAND ALL
of the pro's and con's.
There are plenty of great deals out there and there always will be.
Start off with a moderate pace until you have the knowledge, cash/equity
and UNDERSTANDING to do these deals with your eyes closed.
Good Luck in your new venture. :thumbsup:

[scottneedsadvice]

The reason I suppose I am interested in doing townhomes is mostly because
they are cheaper around here then a single family dwelling. Also, I wonder what happens if you have a single family dwelling that you can't rent out right away or if someone moves out and you can get a new tenat by the first of the next month? You'll lose some cash right there.

With multi's if you can rent out the whole place (say a 4 plex) and 1 person moves out, you still have 3 other apartments rented so you will still have that income and you won't need to panic if you can't rent it out by the first of the month.

I intend to always have some extra cash in the bank incase of repairs and all that fun stuff. I have a line of credit if necesary, but I'd like to take the first years cash (other then the mortgage ofcourse) and put it aside for repairs so that I don't have to dip into a line of credit.

Also, I should mention. That I work so if i do have any trouble initally getting a place rented I can assume the mortgage myself for a short time. I rather NOT do this ofcourse but if neccesary........

Let me know what your thoughts are Thanks all...... :praise:

[Dan Auito]

I'm with the boys above Scott, Duplexes, tri's and quads make great sense. Knowone says you can't do the townhomes and condo's but you would do well to investigate them thoroughly to ensure that they are very desirable and easy to rent while also being run by their associations with very tight accounting and management operations.

You'll also want to buy them below market price if at all possible so you'll do well to find the motivated seller due to death, divorce, relocation or some other factor not directly related to say poor condition or location of unit for sale.

I did write that book of mine to explain in detail what your trying to do, I don't want to push the sale of it but it really would help you get the big picture on this one.

Otherwise keep hitting us up here and we'll be glad to take it one step at a time. Dan

[ownerwillcarry]

Hello,
There is another alternative for you to consider. I know that Section 8 is a taboo subject to a lot of property owners but I am sold on it. I’ve had a Section 8 tenant for the last 4 years and I haven’t had one single problem from either the tenant or the Section 8 program.

Sections 8 does yearly property inspections (free of charge to the owner) and the tenant is responsible to repair any problem that is deemed to be caused by the renting party. The tenet must also sign a contract agreeing that no illegal activities will take place on the property. If ANY illegal activates take place on the property at any time, the tenant risks being evicted. If the tenant is late beyond one month, they also risk eviction.

Even if you had a lousy tenant and had to initiate the eviction process, Section 8 takes care of the whole procedure at no cost to the owner. The Section 8 list here in Los Angeles County is so long that you can have another renter in the house within the same month with no problem at all.

As I said, I am sold on Section 8. I don’t think I will ever rent my properties by any other means. I recently sold the house I’m speaking of and it was in better condition after 4 years than it was in when I rented it to the tenant. I never had to put any pressure on the tenant because Section 8 was my “enforcer�

I know that the Program will probably vary from State to State, but it wouldn’t hurt to look into how the program works in your State.

Oh yeah, I almost forgot the most important point. 75-80% or your money is guaranteed by the State. The tenant pays the balance, so in the worst case scenario of getting stiffed by your tenant, you will still get most of your money.

Food for thought…
Greg

[scottneedsadvice]

Hmmm Good thoughts.

Dan, The biggest problem I have with buying Duplexes, tri's and quads right now, is not the lack of desire. Its mostly coming up with the down payment!!!! :icon_verw

I was hoping to start small and work my way up. I know you all are right with that suggestion. It makes sence to me also. But the downpayment is a lot bigger and coming up with that really seems difficult for me.

ownerwillcarry, When you say Section 8 do you mean Government housing???
You mentioned that there are inspections etc. I know we have that here but for the life of me I can't seem to remember what everyone calls it right now lol. I know they don't call it a section 8 though.

Lots of great info so far. I've already filled a page and half of notes :)

Thanks again
:praise:

[Dan Auito]

Scott, You might look into contacting Edward - Jones brokerages. They are hungry for the Mortgage market and are making 90-10 loans to investors which allow you to put virtually no money down on investment property on single family and duplex property (Non Owner occupied) If your credit is at 700 or better then your in! Also if you have assets to shift into their portfolios they will use those as collateral and let them continue to generate income without you actually having to liquidate them.

Some really neat mortgage products are coming out of Edward Jones for real estate. You might inquire within your local Ed Jones office! :SM025:

[ownerwillcarry]

Hello Scott,
Section 8 is another term for low-income housing. A Section 8 owner offers his or her home to the County to use as housing for the elderly and/or anyone else who qualifies as a low-income earner. The Govt subsidized the payments every month which are made to you, the owner. Each States program varies, but in LA County, the State pays roughly 75-80% and the tenant pays 25-30% of the rent amount.

[scottneedsadvice]

Due to your post I just remember what it was called........

Subsidized housing LOL. I think I just might consider that. I will also let me help out ppl in need!!!!!

[scottneedsadvice]

For those of you who buy, upgrade then resell for a higher price

When your looking at a house to upgrade, what are the standard things you do to a house while working on it????

E.g Do you ALWAYS upgrade the windows or add a deck in the back if theres room.

I'm trying to figure out what exactly it is that increases a homes value.

Thanks all

[Dan Auito]

For those of you who buy, upgrade then resell for a higher price

When your looking at a house to upgrade, what are the standard things you do to a house while working on it????

E.g Do you ALWAYS upgrade the windows or add a deck in the back if theres room.

I'm trying to figure out what exactly it is that increases a homes value.

Thanks all

Scott go to the free gifts section and download the complete home rehab in 10 days article. This is your answer my man!

http://www.magicbullets.com/downloads.php :SM139:

[karlpie]

Dan,

Regarding your posting about contacting Edward-Jones, thank you. I hadn't thought to approach them and, to make things even better, I have an appointment to transfer my 401K funds as well as my personal savings account with Sharebuilder on the internet over to my local credit union on Friday of this week. Perhaps I'll look up the local Edward-Jones office instead. :SM092:

I don't have a credit score of over 700 and I'm not talking about alot of money here but it is in the $1,000s. Would that be enough to work something out with them?

Thanks again for the idea :poc:

[Dan Auito]

Dan,

Regarding your posting about contacting Edward-Jones, thank you. I hadn't thought to approach them and, to make things even better, I have an appointment to transfer my 401K funds as well as my personal savings account with Sharebuilder on the internet over to my local credit union on Friday of this week. Perhaps I'll look up the local Edward-Jones office instead. :SM092:


I don't have a credit score of over 700 and I'm not talking about alot of money here but it is in the $1,000s. Would that be enough to work something out with them?

Thanks again for the idea :poc:

The only way to know for sure is to contact them. I know they are hungry as so much money has ran from the stock market. They want in on the real estate game and are willing to do some fairly aggressive loans to step in and take some market share!

[Dan-Fl]

Hi Scott,
I'm 59 and just got into this business about 4-5 years ago. I am retired. My main investment plan is fixed income, stocks, cash, and some Real Estate.
The first part of my plan has worked but certainly has its ups and downs.
Real Estate has been better for me. My RE return is 10-15 per cent. I was able to build two SFH for 50+$/sq ft (60K each)and now these bring in about 10k each a year. Expenses are there but since I built on my basic property where my home is I didn't have this expense to deal with.
The down side of this is that I probably should not sell these without the main home in order to maintain the maximum property value.
You plan of townhomes requires close analysis of true expected rents, vacancies, expenses.
The amount you speak of paying may be more affordable than other investments in your area but what will the return be?
If you just had a problem with job and having to do a large loan even against your own property be very careful.
What is to say you will not have the same problem again regarding job, plus have vacancies of long duration???
It is important to me to have a way to hold properties in spite of long vacancies. Good times are acoming, but when???
We in the states have been thru a trying time for LandLords.
So, listen to the posters that have spoken, but be careful to have reserves adequate to carry you. My amount of reserves I think is much higher than many other LL.
Be careful, jump in at the right time, learn the business, and do well!

[Dan Auito]

Scott, you might check for this book at amazon.com "Make money with Condominiums and Townhomes" by Gary W. Eldred PHD. This man has wrote the book that you should read when considering this option. Order the book and gain volumes of insight by someone who has been there and done that!

[Dan Auito]

Scott, you might check for this book at amazon.com "Make money with Condominiums and Townhomes" by Gary W. Eldred PHD. This man has wrote the book that you should read when considering this option. Order the book and gain volumes of insight by someone who has been there and done that!

Here are a few articles that may be of interest as well!
http://www.docondos.com/newsletters/ :SM144:

[malaki]

I'm interested in getting into the real estate market, however, my credit isn't top notch credit. Is there anyone out there who can give some suggestions.

And I also was thinking of getting into the market with townhomes. Can anyone give advise on what i may need to do.