Apartments as investments

I have been hearing a lot from the Gurus about buying rental properties as one of the best ways to gain long-term wealth. I am very interested, but was wondering a few things. I found one apartment building listed with 18 units. It states that 2 are 1 bedroom and the other 16 are EFF. What is EFF? I found one place online that said it was an EFFiciency unit, but what does that mean? Is it like a studio?

Has anyone purchased both apartments and houses for rent? What are pros/cons of one over the other.
And finally, does anyone have a document that they would like to share that they use to calculate cash flow? I just want to make sure that if I go this route, I'm not forgetting any expenses. i.e.

Gross Monthly Rent: $2,000
Tax: $100
Mortgage: $700.
Etc..
Net Cash Flow: ?????

Thanks

An investment opportunity I have never seen

Hello,
No matter how much this post sounds like an advertisement, believe me it is not. Also know that I will not get anything in return if you visit this site, or choose to do business with the person.

I have a relative who is a very successful real estate investor. His name is Al Lee and I believe that he only invests in rental properties. Recently, I contacted him to get some advice and discuss my plans. One of his websites has an opportunity for investors that I am curious about. Someday I may ask him more details, but I don't want to try to ask too much at once.

Basically, he builds new housing developments, then sells you a house for $119,000 with 20% down. He then turns around and leases it out for you and handles all of the management duties (so you could even be out of state). You receive a rent payment, that is higher than your mortgage payment and you will own the house.
I am wondering if you think it is a good deal and also where do you think he is making his money the most? I believe he is renting to section 8 tenants, so I guess maybe he is getting more from the government, and then paying you less, so that both you and he are having positive cash flows.

The website is: http://buyrenthouse.net/GarReturn.htm

Check it out and please let me know what you think about it. Feel free to help out my family. Who knows, maybe if I do send some business his way, he'll give me a cut!

Tax Sale Auctions - Info and Advice?

I recently discovered that my county (and probably every county) holds tax sales to auction off houses which have back taxes owed on them. The list of properties shows the address, and the delinquent years and the amount of back taxes owed. From what I understand, the county auctions these houses with a starting bid of the amount of taxes owed (generally $2,000 - $5,000).

The part that I'm not sure about, is what happens to any liens that are on that property? If the person who owned the house had an unpaid mortgage, will that become your responsibility? Does the county take care of the loan with the mortgage company before auctioning, or is the mortgage company just screwed?

It seems like an awesome opportunity, if I understand it properly. In my case, they will be auctioning off over 300 properties on one day with starting bids at the amount of tax due. If anyone else has ever purchased at one of these sales, please let me know.

Thanks

Reason above Reality

I am finishing up reading "Rich Dad, Poor Dad". Near the end, Robert Kiyosaki states that you need to have a Reason to do what you're doing above the reality of what the world gives you. In essence, your reason for doing what you do will need to be strong enough to get you through the times when reality sets in. He is really talking about our "Why". Why are we doing real estate. He says to make a list of the things that you don't want in your life, and that will help generate al ist of wants in your life. Here is what I quickly jotted down.
Don't Wants

• To neglect my wife
• To miss my children's lives
• To become anti-social, absorbed in work, etc.
• To work for the rest of my life
• To live for each paycheck
• To go to work when I'm told to
• To do what I'm told to do
• To set a bad example for my children
• To have a mid-life crisis because I didn't do anything of worth

Wants

• To spend as much time as I can with family and friends
• To have the means and opportunities to give gifts and opportunities to family and friends
• To choose my daily activities
• To set myself up so that in a few years, "work" will not be necessary
• To never have to wonder if I can pay the bills
• To never have to wonder if my parents can afford their retirement
• To leave my children a great example and a secure financial future
• To have freedom to travel at will
• To have the ability and means to help meet the needs of suffering around the world

Make your first flip your own

This is strictly my opinion, but I think it makes sense. When deciding to start rehabbing homes, I suggest that you make the first one a home for yourself. This can be a great learning experience.
My Reasons:

• No rush
• No need to worry about carrying cost
• No risk of losing money
• After fixing it up, you can get an appraisal to see how you did. If you did well enough, maybe it's time to move

You can live there a few years, build some appreciation, avoid taxes and move up to a bigger and better house
It may not be for everyone, but it worked out for me. We bought a small 2 bedroom house for $57,000 4 years ago. It's not in the most desirable part of Kansas City, but it's still a nice neighborhood. We spent several months remodeling most of the house, but kept the expenses very reasonable. We recently got an appraisal at $108,000. We're moving up to a house in the 200K range that needs just as much if not more work. I estimate it to be worth around $250,000 in a couple of years after our rehab. Since we will already have about $50,000 in equity from our first house sale, plus our new house will be up $50,000, we can move up again if we choose to.
Of course there are always cons as well:

• No rush. Without the pressure, it will probably take 4 times as long to accomplish what you want.
• Just like with any rehab project, there could be unexpected repairs.
• Inconvenience of living in a house that you are working on
• You may fall in love with it an not want to let it go (but that's not a bad thing).
  
  

The dreaded flood plain

Here's a little story of a recent event in my life. This isn't directly related to real estate investement in this case, but easily could be related to any house purchase.
My wife and I recently purchased a home for ourselves to live in that was being sold as-is with no disclosures. We knew the place was in pretty rough shape, but the price was around 20% below the market value once we fix it up. Here are the things we knew about or discovered in the inspection.

• Needed new paint and general cosmetic work
• Needed squeaky floors repaired, new flooring, etc.
• Updating in kitchen, baths.
• Needed a shake shingle roof removed and replaced.
• Signs of termite damage.

These were planned expenses. It was not until after we negotiated with the seller to pay for termite treatment and most of our closing costs, that we received an appraisal that the lender had ordered. The lender told us that the house was located in what FEMA calls a SFHA (Special Flood Hazard Area) and that they could not give us the loan unless we obtained flood insurance. I contacted my insurance agent and was told that flood insurance was generally about the same price as the homeowners policy (in our case probably 700-900 a year). Also we would have to have an engineer measure our elevation for the insurance company (who knows how much that would cost). We were already near the top of our budget and did not expect the extra expense here on a monthly basis. We were trying to decide whether or not to try to get out of the contract, when I decided to spend a day on the phone researching this.

I discovered that the only way to get out of having the insurance was if you could prove that the FEMA maps are wrong and that your house is not in the flood plain. The only way to do that is to hire a professional who can survey your land and submit a LOMA (Letter of Map Amendment) and then FEMA will no longer require you to have insurance. The odds are that your house really should be in the flood plain though and you'll just be out the money for the survey.

I started calling around, trying to get information on my houses elevation and eventually ended up talking to an engineer at the city where my house is. I was informed, that actually the city had done their own study recently and determined that many houses listed by FEMA in the SFHA should not have been. They said that they were submitting these to FEMA and a new map would likely be released within the next year. This left me with the expectation that at worst, I should only need flood insurance for the first year. Still I hadn't expected the extra wasted $700-900.

They actually gave me the phone number of the engineers who did the study and I gave them a call. They let me know that for $250 they would submit their findings to FEMA for me so that I could get an exception for my house right now and avoid insurance all together. Better still, my realtor (and investment partner) is going to get the seller to pay that fee as well. I am now very relieved, but thought I'd share this experience for others who might not have ever thought about these issues.

FYI - Here is the link to the FEMA site where you can check if a house is in a SFHA: http://www.floodsmart.gov/floodsmart/pages/riskassesment/findpropertyform.jsp

Taking it all in...

Originally Posted: Date: 02 08 2007, 12:42 pm

As I've mentioned before, I'm trying to learn all that I can about the business of rehabbing, but I'm still full of questions. If anyone can offer stories, advice, etc., I'll be happy to share my stories when we get started this summer. We should be meeting with a CPA later this month and hopefully they can answer a lot of our questions, but if they don't specialize in real estate, then who knows.

I understand that you can run an LLC as a partnership, where the company itself is not taxed, but the partners are taxed (as self employment) on what they withdraw. I've always been told (at least in Kansas) that if you sell a house that you haven't lived in for at least 2 years, then you will be taxed on that. Is that only for an individual, or would that apply to the LLC as well?

What financial programs do you use? I generally see QuickBooks listed as the only full-featured program to use, but which version works best for you? I was wondering if the contractor version would be good since it includes job costing.

As always, I appreciate any responses that I get.
Thanks