Creative Financing and Opportunity for Apartment Investors
In addition to serving as April's guest speaker, John helped found the Wake County Apartment Owners Association more than 20 years ago. He attributes his investing success over the past 25+ years to accumulating properties wisely. He has bought rental houses and duplexes up to larger apartment complexes. As John puts it, "Every property must stand on its own ground without drawing additional cash on an on-going basis. The property must pay for itself."
John recalled the first rental house he ever bought. "I didn't know what I was doing. This guy I knew owned five houses—I couldn't imagine that! He taught me about how sellers would sometimes carry paper, or loan you the money to buy their properties." John saw an ad for a house listed by this realtor. The house was only two years old, but was already pretty run down. "It had high weeds and was beat up." John was able to track down the owner and talk to him about assuming the VA loan on the house, thereby helping him avoid foreclosure. The fellow was amiable to the idea, so John contacted the lender. The lender said that the man was behind five payments. If John could make the five payments, he could assume the loan. "Well, he signed the deed, and it was mine." John had a regular job, so he fixed it up at night. By the time he was done, John had $2,000 invested in that house. But, he had created $8,000 in equity just by putting it back in shape.
"Remember," John says, "lenders don't want to foreclose." John talked about how he made money when the economy turned bad. "In the 80's, I found some Savings & Loans that had made bad deals with a failed builder on 18 or 19 townhouses. One wasn't even finished. The lender had just stepped in and said, 'Put down the hammers.' I had shown that I knew what I was doing and got 100% financing. There was some negative cash flow at first. But, lenders will get flexible to prevent foreclosures." John instructed those in attendance who were concerned that the economy might be trending down, "Rents and construction flow in cycles."
In the late 70's, John found a listing on a house in the Hayes Barton area that had been converted into 7 apartments. It needed some cosmetic upgrades and quite a bit of paint. It was listed at $53,000—a price that John knew to be low. The opportunity rested in the fact that the sellers were young and had just inherited the property. To them, the building was found money. John stepped in, offered them full price, but negotiated eight months of interest-only payments while he made repairs. Upon completion, John had it appraised. To John's surprise, the appraisal came back very high. In fact, so high that it scared the lender off the deal thinking something fishy had happened. John's eight month clock was running out. He said, "I was afraid I had cut it too close." But, just inside the eight months, John got the building reappraised—at a slightly lower value this time—and obtained an 80% loan from a new lender, paying off the $53,000. Whew!
John has tried to look at all angles for opportunity. He found a house with what had once been a basement apartment. The basement flooded frequently, and the seller was selling it under the premise of one rentable unit. John nabbed it, spent $3,000 to correct the flooding problem, and rented the basement out at $400 per month. Now that's an investment on top of an investment!
At times, John has taken the "high-flying" route to real estate investment. He found this NC State area duplex that had been destroyed by a tenant. John assumed the first mortgage, took out a second mortgage with the bank, and did some seller financing as a third. John borrowed a total of 108% and walked away from the closing table with a sizeable check. He used the cash to fix the place up and "feed" the cash flow until he could get the rents up. In another similar deal,John bought a 7-unit conversion from an IBM'er. He assumed the fellow's first mortgage which had about 5 years left on it, plus a second from the previous seller, and took a third from the current seller with negative amortization. Negative amortization is when the payment are graduated, or increased, over time. In the beginning, the payments are small and often don't even cover all the interest. As John put it, "That property was tight, but it all worked out." John admonishes that investors had better know what they're doing before they go quite that far.
Traditional opportunity can be found in properties where the seller hasn't kept pace with the rents typical for the neighborhood. "One time, I sat in Steve Deaton's car and made an offer on 12 units that were under-rented by $100 each. Many landlords are afraid of raising rents each year by fair amounts." While some would complain that such landlords are just hurting the market, John knew that this was opportunity pure and simple. He bought the property with an 80% loan, raised the rents from $360 to $450 staying "inside the market." The deal was a solid performer.
Making good contacts has paid off for John, also. Through an appraiser he had come to know, John learned of some young people who had inherited two duplexes. The appraiser told him that they wanted the cash badly. John was able to buy them out at 90% of current appraisal with seller financing. He negotiated a long amortization, but with a 5-year call. He then took out a second mortgage and cashed out all but $1,000 of his down payment. How often do you find that kind of motivation?
For rent signs have often indicated opportunity for John as well. This property management company wasn't looking after this 7 unit building owned by a State Senator. Three of the seven were empty. When he contacted the Senator, it became obvious that the politician wanted out.John assumed his first, took out a second, and made a small down payment. Within 5 years, John was able to fix it up, rent it up, refinance, and cash out.
Another theme obvious to John's history is staying liquid. Cashing out or keeping the cash in deals low has meant he could keep accumulating. On one old house near State that John bought, he paid $32,000 and had the seller carry all but $2,000 in paper. John received the deed and handed out evictions at the same time. Again, John fixed it up, rented it up, and cashed out with an 80% loan after a couple of years.
John defines luck as "opportunity meets preparedness." There was this old house next to a rental he owned. The older fellow wanted to sell, but hadn't sunk a nickel into his property in many, many years. John explained that he didn't want the house, but the old man insisted that he only wanted "a little cash." Probably just to get the old man to leave him alone as much as anything, John bought the 5 bedroom. He gutted it, cleaned out the junk, and fixed it up. He then turned around and sold it in one day making big cash. John cautions investors who get excited about "flipping" properties like that. "They'll eat up your time, and the labor will kill you."
Finally, John asserted some great tips for real estate investors... "Avoid emotional involvement when making offers on investment properties. Know your cap. There's no shame in walking away. Don't be afraid to lose a property. Wait until it sits for 6 months. Then, make a low offer." On the other hand, John advised those considering negotiating for seller financing, "Don't be greedy. Don't be afraid to offer a higher price—maybe even slightly higher than the market rate to get that seller's attention and convince him to agree to seller financing."
2501 Blue Ridge Road, Suite 150 Raleigh, North Carolina 27607 Phone: 919.863.4305
Making the Most of Tenant Law
William K. Brownlee is the owner of Brownlee Law Firm, PLLC, a four-attorney firm based in Raleigh, N.C. He obtained his undergraduate degree from The Citadel, The Military College of South Carolina, and his law degree from North Carolina Central School of Law. Mr. Brownlee and the members of his firm have broad experience in the area of landlord-tenant law, representing clients throughout North Carolina in over 6,000 summary ejectment (eviction) cases per year, as well as representing clients in fair housing disputes, regulatory compliance, and corporate litigation.
When 47 people cram into a room designed to hold two dozen, you know that the speaker has something that people want--in this case, free legal advice. Will walked WCAA members through the entire eviction process, from the decision to evict through repossession, the possibilities of appeal, and the process for dealing with seemingly tenant-abandoned personal property. He discussed common mistakes that landlords make when filing their paperwork. Also, he answered questions about peripheral legal issues like occupancy standards.
Will was generous with his time and his expertise. His firm, has an outstanding reputation in the service of landlords. For a very reasonable fee, he frequently handles evictions and legal matters for landlords who prefer to stay out of the procedural morass.
For the two most common forms needed, click on Civil Magistrate Forms (Small Claims). Choose: Magistrate Summons & Complaint in Summary Ejectment.
If you are suing for money only, choose: Complaint for Money Owed.
If you need a Writ of Possession, click on Civil Forms (includes Domestic and Child Support), then Writs, then choose: Writ of Possession--Real Property.
You need Adobe Acrobat Reader (a free program) to use these forms. There is a link on the forms website to download Acrobat Reader for free. Fill in the blanks, then print four copies (one for your files, three for the Clerk).
Bassett & Associates 3701 Lake Boone Trail, Suite 201 Raleigh, NC 27607 Phone: 919.303.1049 www.bassettcpas.com
Tax Advantages of Real Estate Investing
Kevin is a real estate investor and owner of Bassett & Associates, PA, a full service CPA firm that focuses on the real estate and construction industries. Their clients range from individual real estate investors to companies with large commercial real estate portfolios. Kevin assists his real estate clients with deal analysis, entity structuring, financing, tax planning and tax return preparation.
Kevin is the author of three real estate courses. He has also been a speaker at various real estate events across the United States. He resides with his wife and three children in Cary, North Carolina.
Vice President/Investments Stifel, Nicolaus & Company, Inc. 3605 Glenwood Avenue, STE 300 Raleigh, NC 27612 (919) 645-5910 likj@stifel.com www.linktoinvesting.com
Jeff provided our group a great perspective of our economy during the economic conditions of early 2009. Jeff is a well-respected financial planner and helped our members prepare for what might be around the corner.
The Importance and Advantage of Properly Screening Tenants
Brian Haymaker is a real estate investor and is president/owner of the National Tenant Network – MidAtlantic franchise offices. Mr. Haymaker obtained his Finance degree from West Virginia University, where he was introduced to real estate investing. With 8+ years experience in rehab and rental properties, he understands the value that NTN can bring to the table. NTN, a national tenant-screening agency, helps independent rental property owners to enterprise level managers make the best leasing decisions possible. The NTN – MidAtlantic office serves subscribers in Maryland, Washington DC, Virginia, West Virginia and North Carolina. A commitment to customer service and systems innovation has earned NTN a reputation as being a trusted and competent leader in the tenant screening industry. NTN provides their subscribers with access to credit, criminal, eviction and tenant performance histories plus they offer several advanced screening solutions such as NTN SecureLease and NTN DecisionPoint Plus.
Andy Meador is the president of Kiam Property Services, LLC. His career began with a large property management company in Raleigh and spans 20 years in the apartment industry. He has held various positions in the industry such as Maintenance Coordinator, Construction Coordinator and Maintenance Trainer. In 1991 he was awarded the Triangle Apartment Association’s service manager of the year and nominated again in 2005. He continued his career by obtaining his Certified Apartment Maintenance Technician certificate in 1992. He is a certified instructor for the National Swimming Pool Foundation’s Certified Pool Operator program and a HVAC educator for the Esco Institute. More recently, Andy became the newest member of the National Apartment Associations Education Institute’s faculty (NAAEI). Along with owning and operating his maintenance training and consulting company, Kiam Property Services, Andy instructs NAAEI designation courses such as CAM, CAPS, CAMT and other various training venues.
Andy spoke about many important aspects of property maintenance procedures, specifically preventative maintenance schedules and common maintenance issues.
John F. Wible – born December 27, 1963 in Pittsburgh, Pennsylvania; Graduated from Wake Forest University summa cum laude in 1986 (B.A. in Psychology with a minor in German); Received law degree from the University of North Carolina at Chapel Hill in 1989; Licensed to practice in North Carolina since 1989; Law Clerk to R.A. Hedrick, Chief Judge of the North Carolina Court of Appeals (August 1989 – August 1990); Associate Attorney with Wyrick, Robbins, Yates & Ponton LLP (August 1990 – July 1998); Partner with Kirkbride & Wible, P.A. (August 1998 – December 2003); Solo practitioner (January 2004 – present); Member of North Carolina and Wake County Bar Associations; On approved closing attorney list with all major lenders and title insurance companies doing business in the Research Triangle area.
John is recognized as an excellent closing attorney and shared steps to help ensure a smooth closing.
NWP has a proven track record within the multi-family industry. They provide submetering services, utility billing solutions and financial transaction processing to apartment owners and managers. These services can increase the profitability of operations, eliminate hassle for landlords and encourage conservation of our natural resources by tenants. For more information about their services visit www.mynwpsc.com.
Larry Maitin is an expert on the foreclosure process in North Carolina. He has processed thousands of foreclosures during his 13 years as an attorney and continues to focus his practice on residential real estate, foreclosures and collections. He has been an instructor on these topics at Wake Technical Community College and served as a speaker for the National Business Institute’s (NBI) Continuing Legal Education, Meredith College's Paralegal Program, Attorney's Title Continuing Paralegal Education, and the Raleigh Regional Association of Realtors. Mr. Maitin is also the author of NBI’s North Carolina Real Property Foreclosure Procedures, 2004.
Larry also handles Ladlord/Tenant law including evictions and other general suits. For more information you can contact Larry at www.maitinlawfirm.com.
