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Thread: Investment/Rental Properties - Megathread

  1. #1
    scientia potentia est Cad's Avatar
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    Investment/Rental Properties - Megathread

    So lets say you buy a $150k house with 20% down in an average neighborhood. What are your costs going to be? PITI + management/upkeep.

    PITI is around $904/mo with a 4.5% interest rate (not owner-occupied, rate is a little higher than market), $2300/yr property taxes and $1200/yr homeowners insurance. I'm estimating the homeowners insurance based on my own insurance, it might be a little higher? Not sure on that.

    I don't know what expenses for upkeep will be, lets call it $3k/yr for carpets and odd appliance failures and shit like that. Could probably get a better feel for this when we own a lot more properties.

    So thats $13,848 a year to own this property. Break-even rent would be $1,154. To make 10%/yr on the 30k invested, we'd have to rent it for $1,404/mo and keep it rented most of the time.

    The question is, can we do that? Can we minimize the time we spend on each one to make 10%? If I could make 10% on $30k by investing it this way I'd buy 30 of these properties tomorrow, and I have the cash to do it.

    Going to do a test run of 5 properties and let it ride for a year, and see how it goes. Do I only rent to white people? Only females? Have credit requirements that would make Sanders blush? Would make it harder to rent out but probably higher quality tenants. Need to do some testing and figure it out.

    This is also discounting appreciation and equity, those are kinda bonuses in my book and shouldn't really be budgeted.

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    Registered User Rangoth's Avatar
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    I'm no slum lord but I have rented before. Officially speaking, and I'm sure you know this, most states have anti-discrimination laws when it comes to race/religion/etc. However you can do background checks which mostly useless but you make the renter pay anyway so why not. All it will reveal are 18+ official criminal charges. It's not like you are hiring some private eye to dig up dirt. I've also done credit checks on people and I highly recommend doing that.

    Overall I did make money, but nothing to brag about. I think when it comes to real estate, and this is where I just am guessing a little based on experience, you either own lots of it or big commercial complexes(malls/office buildings). My experience is that owning just a few properties which make so-so profit is more hassle than it's worth. But consider that I have a different full time job. I suppose if I tripled the units I own and quit my job it might equivalent, but that's just not what I want to do with my life, even if the "sell them all and be rich in retirement" is better than my 401k and private investments now.

    Anyway, stories aside, I probably make 15% annually. Obviously what you can charge is completely dependent on where you own.

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    The Retarder lendarios's Avatar
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    I am going to start been a slumlord by putting my small condo to rent.

    In terms of tenant, I think couples who both work are the ideal tenants. Lots of single people out there. I did stayed away from single females, as I'm guessing they would call for every single thing to get fixed.

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    Notorious ruse master Picasso's Avatar
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    Single 50 year old male with 2 cats is my golden tenant

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    scientia potentia est Cad's Avatar
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    Quote Originally Posted by Rangoth View Post
    I'm no slum lord but I have rented before. Officially speaking, and I'm sure you know this, most states have anti-discrimination laws when it comes to race/religion/etc. However you can do background checks which mostly useless but you make the renter pay anyway so why not. All it will reveal are 18+ official criminal charges. It's not like you are hiring some private eye to dig up dirt. I've also done credit checks on people and I highly recommend doing that.

    Overall I did make money, but nothing to brag about. I think when it comes to real estate, and this is where I just am guessing a little based on experience, you either own lots of it or big commercial complexes(malls/office buildings). My experience is that owning just a few properties which make so-so profit is more hassle than it's worth. But consider that I have a different full time job. I suppose if I tripled the units I own and quit my job it might equivalent, but that's just not what I want to do with my life, even if the "sell them all and be rich in retirement" is better than my 401k and private investments now.

    Anyway, stories aside, I probably make 15% annually. Obviously what you can charge is completely dependent on where you own.
    Wonder how many units I would need, if I did that full time, to make my current income? And how would that offset just investing the principal I'd use to buy the units in VTI and keep working?

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    Coat-hanger Dick Khane's Avatar
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    Quote Originally Posted by Picasso View Post
    Single 50 year old male with 2 cats is my golden tenant
    Single 50 year old male with a full set of tools and 2 outdoor only cats.

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    Registered User OUAriakas's Avatar
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    Khane, do you have experience with commercial investment properties? What type are you suggesting in place of residential? Warehouse? Strip Mall? Something other than that?
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    Registered User OUAriakas's Avatar
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    Quote Originally Posted by Cad View Post
    Wonder how many units I would need, if I did that full time, to make my current income? And how would that offset just investing the principal I'd use to buy the units in VTI and keep working?
    Every residential rental owner I know says that you should target 1% of purchase price as your monthly rent. Assuming a $100k house is 25k initial investment (25% down) you'd want to rent it for at least $1000 per month. If you make 15% annually that is $1800. Your ROR on initial investment is about 14% year on year but you'd have to have 56 rentals to break $100k in net income per year. You do have the added benefit of building equity free of charge over time but it is hard to calculate that into additional income per year.

    This is napkin math so feel free to poke holes.
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    scientia potentia est Cad's Avatar
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    Quote Originally Posted by OUAriakas View Post
    Every residential rental owner I know says that you should target 1% of purchase price as your monthly rent. Assuming a $100k house is 25k initial investment (25% down) you'd want to rent it for at least $1000 per month. If you make 15% annually that is $1800. Your ROR on initial investment is about 14% year on year but you'd have to have 56 rentals to break $100k in net income per year. You do have the added benefit of building equity free of charge over time but it is hard to calculate that into additional income per year.

    This is napkin math so feel free to poke holes.
    $25k * .14 = $3500/yr ROI

    100,000/3500 = 28.57 rentals (lets just say 29?) to hit $100k income. How'd you get 56?

    And 29 properties at $25k down each would be $725,000 initial investment. Thats actually not that bad, leveraged 3:1 that'd give you a property value of $2.9M.
    Last edited by Cad; 05-18-2016 at 07:38 PM.

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    Megistered Jooserockey Eomer's Avatar
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    Bro and I have been kicking around the idea of investing in a high rise tower project with a developer that we've done a few projects for. Their institutional investor backed out, because everyone's terrified of Alberta's economy right now with the oil downturn. To make a long story short, the developer is bringing land worth about 5 million in to the deal, and they're looking for investor groups to split another roughly 9 million in cash equity 4 ways equally. Then there's a roughly 50 million dollar first mortgage, and another 10 million mezzanine loan that may or may not insist on getting a cut of the overall deal in return for lower rates. The deal would be structured such that the developer and their partners who brought the land worth roughly 34% of the equity would get 50% of the cashflow and potential return on sale down the road, while the cash investors with 66% of the equity would get the other 50%. I don't know if that sort of a split is within a common range, I'd imagine that each of these deals is custom fit for the development and people involved. We don't necessarily have a huge concern with the split, as they've already done a lot of working in finding that piece of land, getting rezoning approved, and so on. At this point it's very, very turn key.

    The main reason that we're even looking at it from an investment side is that we'd also of course like to do the mechanical installation on the building construction. If we jump in to bed together, they've committed to sole source the mechanical. The exact details of how we come to a negotiated price on the mechanical scope is yet to be worked out, as the mechanical design itself is still being completed. If we weren't fucking desperate for work, we'd likely not be considering investing that kind of money in a single project. My cut would be somewhere around half of my current investable assets (not including my own property, and my equity in the business). So it's a very, very big pill to swallow. But having this project on the books for 2017 and 2018 will probably be the difference between breaking even for a couple years without having to do a massive number of layoffs for office staff or potentially losing a few hundred k a year even after laying off half the office.

    This isn't some guy that we met on the street putting this together. The project we're looking at investing in is a 30 story, 220 unit, institutional-class apartment project basically directly beside the provincial legislature and in the middle of the government office district. The project itself is a slam dunk. Their projections for rents, vacancies, etc are all pretty realistic from what we can see. And we just met with the construction manager this morning, who we've also had a long relationship with, and they're one of the other investing parties, and by all appearances the construction budget is very doable. At this point they're actually about a million dollars ahead having locked up about 35-40% of the construction costs. The same developer we just finished a 207 unit apartment project for earlier this year that was a forward sale to some German family. They're also building a 30 story, 600,000 square foot, AAA office building that's nearly complete. On that one they partnered with a hedge fund from down East. So these guys know what they're doing. And my family's relationship with one of the partners goes back nearly 20 years through various business associations etc.

    So long story short, these aren't guys who are going to set out to fuck us. But! They are smart guys, who are professionals at negotiating deals like this, and they're going to do as well for themselves as they reasonably can. My brother and I have only ever gone in for a few hundred K on a couple other, much smaller projects where the deals were a lot more simple. Our dad in his day did get involved in some development as well, but never anything nearly this big. We're meeting with him this afternoon to see if he's interested in participating, and to pick his brain a bit. But otherwise, where should we turn to for advice? Would our accountant or lawyer be worthwhile talking to? A business broker or financial advisor?

    I have a pretty good feeling about the investment, overall. If they were just asking for a couple hundred k from each of my brother and I and doing the project wasn't a consideration, we'd probably invest. Best case scenario is a 10-15 year investment with a 12-15% IRR, maybe higher depending on the real estate market and timing. A realistic worst case is that we get all or most of our original investment back 10 years later, but no return other than doing the job and keeping people employed. Obviously the absolute worst case is that we lose our entire investment and the mortgage company comes after our other assets, but that just isn't going to happen.

    Fuck I wish I had some finance and business education!

  11. #11
    scientia potentia est Cad's Avatar
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    Quote Originally Posted by Eomer View Post
    Bro and I have been kicking around
    This seems like a lot more of a sophisticated real estate developer type project, I wouldn't even know how to evaluate that project, or whether the terms they are giving you are fair. And if you don't know if what they are doing is fair, it probably isn't.

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    Megistered Jooserockey Eomer's Avatar
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    The presentation package we were given to review the project, financials and that kind of thing was drawn up with an institutional investor in mind (pension or hedge fund), they admitted as much when we met with them the other day. They've changed their strategy to pursue private investors instead because of the fear of Alberta's economy with the oil downturn. As far as fairness goes, that's all in the eye of the beholder I guess. There's no cut and dried way to value the risk that they took on buying the land, rezoning and so on. They've definitely put more work in to this point and assumed said risk, but with the way the deal is structured they don't have to put any more skin in the game and are nearly risk-free from here on out.

    Oh and at this point there are no terms. No legal agreements or anything like that have been drawn up. That won't happen till they've got their 4 cash investors lined up, at which point they'll start setting the official agreements up.

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    scientia potentia est Cad's Avatar
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    Quote Originally Posted by Eomer View Post
    The presentation package we were given to review the project, financials and that kind of thing was drawn up with an institutional investor in mind (pension or hedge fund), they admitted as much when we met with them the other day. They've changed their strategy to pursue private investors instead because of the fear of Alberta's economy with the oil downturn. As far as fairness goes, that's all in the eye of the beholder I guess. There's no cut and dried way to value the risk that they took on buying the land, rezoning and so on. They've definitely put more work in to this point and assumed said risk, but with the way the deal is structured they don't have to put any more skin in the game and are nearly risk-free from here on out.

    Oh and at this point there are no terms. No legal agreements or anything like that have been drawn up. That won't happen till they've got their 4 cash investors lined up, at which point they'll start setting the official agreements up.
    That kind of thing really needs someone who knows what they are doing and what questions to ask. What happens when they take your money, shut down the project and fuck off? Etc. Lots of legal protections need to be in place. Completion guarantees, debt structure, etc. I know you're saying they have a professional presentation, and thats great, but that doesn't mean anything in terms of how your investment is protected.

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    Megistered Jooserockey Eomer's Avatar
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    Oh yeah, that side of things we'll simply have to let our lawyers worry about when the time comes. Not a fucking chance that either my brother or I can evaluate any of the fine print. We're more concerned with how the rough structure of the deal stacks up. We're with Denton's, not Saul, so I have every confidence that they'll cover our asses. And that we'll pay through the nose for it.

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    Registered User Lyrical's Avatar
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    Quote Originally Posted by Cad View Post
    Going to do a test run of 5 properties and let it ride for a year, and see how it goes. Do I only rent to white people?
    Really? Every white person I've interviewed in the last month had a history of drugs, or was on them at the time of the interview. One guy we called for a follow up interview, and his old lady said he was in rehab. One guy emailed us stating that he was in drug court, but needed a break.

    Every businessperson that I know that is doing well at rental property looks for college educated as a renter, as well as credit rating and occupation.

    edit: Actually, there was one white guy that had his head together. But he wanted to make more money a day that I pay myself.
    Last edited by Lyrical; 05-19-2016 at 12:20 AM.
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    No, his super power is super preparedness. So basicly the. Best gay date of your life, cooks your favourite meal, has your favourite song in the back ground, playing your favorite game while drinking your favourite scotch. He knows what you like and it sets the mood, also Lots of lube and just enough forplay. He is batman he is ready for YOU as he has dedicated his life to being ready to do the things others can't and wont.

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    Coat-hanger Dick Khane's Avatar
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    Quote Originally Posted by OUAriakas View Post
    Khane, do you have experience with commercial investment properties? What type are you suggesting in place of residential? Warehouse? Strip Mall? Something other than that?
    I have no personal experience with commercial real estate. The only knowledge I have comes from a few guys I golf with that are big players in the commercial real estate business. They all prefer warehouses when it's a good building with a good lease because there is just way less maintenance and overhead on a warehouse but typically storefront properties are more lucrative even with the extra headaches (HVAC seems to be the biggest issue they have with buildings, in most bigger building it's nonstop maintenance on the systems apparently). Two of them only deal with major retail chains. They buy property, then shop it out to major chains like CVS, Walgreens, Dunkin Donuts, etc. The types of business that very rarely fail in any location and pay good money. They do entirely new builds. In fact the fuckers have been doing one right next to my damn house for the past 6 months. Nothing like constant noise from a lot being cleared then a building going up starting at 7AM every damn day.

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    Notorious ruse master Picasso's Avatar
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    Lol. Cad you disgust me.

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    Registered User OUAriakas's Avatar
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    Quote Originally Posted by Cad View Post
    $25k * .14 = $3500/yr ROI

    100,000/3500 = 28.57 rentals (lets just say 29?) to hit $100k income. How'd you get 56?

    And 29 properties at $25k down each would be $725,000 initial investment. Thats actually not that bad, leveraged 3:1 that'd give you a property value of $2.9M.
    Sorry, I was preparing for a VP meeting when I was doing the math.

    $1000 per month x 12 months is $12,000 gross. If you net 15% after all expenses then you would make $1800 per year per house. That is where I got 56 houses to make $100,000/year net. I messed up ROI but you're looking at $1800 a year per $25,000 invested which is actually only 7.2% a year. I believe that still beats most stocks and mutual funds.
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    Registered User OUAriakas's Avatar
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    Quote Originally Posted by Lyrical View Post
    Really? Every white person I've interviewed in the last month had a history of drugs, or was on them at the time of the interview. One guy we called for a follow up interview, and his old lady said he was in rehab. One guy emailed us stating that he was in drug court, but needed a break.

    Every businessperson that I know that is doing well at rental property looks for college educated as a renter, as well as credit rating and occupation.

    edit: Actually, there was one white guy that had his head together. But he wanted to make more money a day that I pay myself.
    We have rented to every race, gender, and education level with no discernible pattern of behavior. Our two best rental families were both black, one was military (top notch) the other had two parents with jobs. My worst rentals were both single white guys who would get drunk/high and break stuff. We had to go through the entire eviction process with one of them. Most families fall in between those ranges but my default is to screen for stable work history and two parent families. TLDR; Lyrical is right and there are no magic bullets when looking for renters.
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    Registered User OUAriakas's Avatar
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    Quote Originally Posted by Khane View Post
    I have no personal experience with commercial real estate. The only knowledge I have comes from a few guys I golf with that are big players in the commercial real estate business. They all prefer warehouses when it's a good building with a good lease because there is just way less maintenance and overhead on a warehouse but typically storefront properties are more lucrative even with the extra headaches (HVAC seems to be the biggest issue they have with buildings, in most bigger building it's nonstop maintenance on the systems apparently). Two of them only deal with major retail chains. They buy property, then shop it out to major chains like CVS, Walgreens, Dunkin Donuts, etc. The types of business that very rarely fail in any location and pay good money. They do entirely new builds. In fact the fuckers have been doing one right next to my damn house for the past 6 months. Nothing like constant noise from a lot being cleared then a building going up starting at 7AM every damn day.
    We don't have enough liquid cash to jump right into storefronts; especially ground up new builds. There was someone in another thread that owned a warehouse and made great money off of it but I wouldn't even know how to evaluate warehouse property to see if I was in a desirable location.
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    Registered User Palum's Avatar
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    Personally I think the only way this works is either slum lord it (multi-fam houses, multi-unit buildings, etc.) or go nuts and make it a full time job.

    Most of the people I know who make money basically slum lord it. The ones who don't are largely just in it to gain equity and leverage unused credit to increase their retirement nest. I know several people who lived their life as primary +1 mortgage + renters in all prop owned outright. Market conditions, maintenance, loss of tenancy and the like means that part time you will be lucky to break even with expenses. Now, don't get me wrong for INVESTMENT that's actually a killer deal. But it isn't a path to consistent income unless you put so much in assets into it to begin with that the hassle makes no sense.

    The commercial side is so much more chaotic. A good location with good tenants I'm sure could be worth a lot but the wrong areas are just sooo bad on commercial. Housing is always in demand (even if it goes up and down) while shitty commercial space is just worthless because it has to provide specific value to a business.
    Last edited by Palum; 05-19-2016 at 03:13 AM.

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    Registered User Palum's Avatar
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    Also, I'll say the most successful person I know who did this wasn't afraid to sell. He did sell I think 3/14 or whatever over the course of his career - with low unit numbers you cannot rely on statistics and averages, you have to get heuristic and just call it once you know the place isn't going to generate consistent revenue.

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    MEDIOCRE! Big Phoenix's Avatar
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    From my poor persons perspective real restate always seemed like one of those things that was more about stroking egos than good investing. Buying stock seems like a much easier than the whole process of buying a house, listing it, vetting renters, responding to them when xyz breaks/leaks, possibly evicting them etc.

    Though 5 houses sounds a lot, especially if you already have a full time job. You going to be handle that yourself or would let some rental agency place take care of it?

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    scientia potentia est Cad's Avatar
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    Quote Originally Posted by Lyrical View Post
    Really? Every white person I've interviewed in the last month had a history of drugs, or was on them at the time of the interview. One guy we called for a follow up interview, and his old lady said he was in rehab. One guy emailed us stating that he was in drug court, but needed a break.

    Every businessperson that I know that is doing well at rental property looks for college educated as a renter, as well as credit rating and occupation.

    edit: Actually, there was one white guy that had his head together. But he wanted to make more money a day that I pay myself.
    That was semi-sarcasm Lyrical, I'm sure I'll rent based on age/income/education/credit. Calm your tits.

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    scientia potentia est Cad's Avatar
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    Quote Originally Posted by Big Phoenix View Post
    From my poor persons perspective real restate always seemed like one of those things that was more about stroking egos than good investing. Buying stock seems like a much easier than the whole process of buying a house, listing it, vetting renters, responding to them when xyz breaks/leaks, possibly evicting them etc.

    Though 5 houses sounds a lot, especially if you already have a full time job. You going to be handle that yourself or would let some rental agency place take care of it?
    Probably make the brother in law and wife do a lot of it.

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    Notorious ruse master Picasso's Avatar
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    Do you have a lot of acquaintances you can rent to? I think there is a sweet spot between stranger and family (friend of a friend type) to rent to where the have the burden of being vouched for without the closeness to ask for breaks..and having enough acquaintances so there's a steady recommendation for potential renters. I think it's a little mutually positive because it's tough to get involved with a terrible landlord too.

    The tenants make or break it. You get an old woman tat keeps it immaculate for 10 years and you're golden. May have to take in a few shit renters until it works out because being vacant is terrible.
    Last edited by Picasso; 05-19-2016 at 02:05 PM.

  27. #27
    scientia potentia est Cad's Avatar
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    Quote Originally Posted by Picasso View Post
    Do you have a lot of acquaintances you can rent to? I think there is a sweet spot between stranger and family (friend of a friend type) to rent to where the have the burden of being vouched for without the closeness to ask for breaks..and having enough acquaintances so there's a steady recommendation for potential renters. I think it's a little mutually positive because it's tough to get involved with a terrible landlord too
    Uhh, I would never do that because when I have to evict their sorry asses or raise the rent or come yell at them for being wankers then I'd feel bad. When it's strangers I can get their ass thrown in the street and not care.

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    Notorious ruse master Picasso's Avatar
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    Well the theory is you don't rent to people that need evicted.

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    scientia potentia est Cad's Avatar
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    Quote Originally Posted by Picasso View Post
    Well the theory is you don't rent to people that need evicted.
    Yea and maybe they'll all be supermodels and offer to blow me for $10 off the rent too.

  30. #30
    Coat-hanger Dick Khane's Avatar
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    Quote Originally Posted by Picasso View Post
    Do you have a lot of acquaintances you can rent to? I think there is a sweet spot between stranger and family (friend of a friend type) to rent to where the have the burden of being vouched for without the closeness to ask for breaks..and having enough acquaintances so there's a steady recommendation for potential renters. I think it's a little mutually positive because it's tough to get involved with a terrible landlord too.

    The tenants make or break it. You get an old woman tat keeps it immaculate for 10 years and you're golden. May have to take in a few shit renters until it works out because being vacant is terrible.
    Seems like a good idea on paper but almost never works out that way. This kind of thing can easily ruin your own relationships with whoever vouched for them if it doesn't work out. On the one hand you get more information about the person than you could through more traditional background and credit checks. On the other hand you never really know how someone lives until you've seen it so unless the people vouching for them have actually lived with them their opinion is kind of moot.

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    Notorious ruse master Picasso's Avatar
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    It's worked out fine for us thus far. It is a delicate dance and probably not for everyone. You have to evaluate the relationships involved but I prefer it to phoning and meeting complete strangers.

  32. #32
    Registered User Lyrical's Avatar
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    Quote Originally Posted by Cad View Post
    That was semi-sarcasm Lyrical, I'm sure I'll rent based on age/income/education/credit. Calm your tits.
    Given that you lead with that, I thought you were serious.
    Quote Originally Posted by Nester View Post
    No, his super power is super preparedness. So basicly the. Best gay date of your life, cooks your favourite meal, has your favourite song in the back ground, playing your favorite game while drinking your favourite scotch. He knows what you like and it sets the mood, also Lots of lube and just enough forplay. He is batman he is ready for YOU as he has dedicated his life to being ready to do the things others can't and wont.

  33. #33
    Registered User Lyrical's Avatar
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    Quote Originally Posted by Big Phoenix View Post
    From my poor persons perspective real restate always seemed like one of those things that was more about stroking egos than good investing. Buying stock seems like a much easier than the whole process of buying a house, listing it, vetting renters, responding to them when xyz breaks/leaks, possibly evicting them etc.

    Though 5 houses sounds a lot, especially if you already have a full time job. You going to be handle that yourself or would let some rental agency place take care of it?
    There are two types of landlords I've encountered. One type is the one that has lots of cash, and wants a passive income. The other type is the one that is willing to play the long game, and wait until the property is paid off before they make a profit. A customer of mine just bought a 100 apartment complex at the local college. He's not making a dime off of it right now. The hope is that when he retires, it will be paid off and provide him a nice income.

    I've seen lots of people lose money in rentals, and I can think of easier ways to make some money. Now if I had a million in cash sitting, and wanted to diversify my income, ask me that question again. The guy who I bought my business from had lots of rental properties, and he had to get out of them. He was renting to trash that did more damage to the home, than what he collected the entire time of the lease. I'm going to say he had at least 20 rental properties, and he sold every last one of them off, so he didn't have to deal with the aggravation. And like I said, he was renting to anyone that had a pulse, and that's what did him in.
    Last edited by Lyrical; 05-19-2016 at 07:46 PM.
    Quote Originally Posted by Nester View Post
    No, his super power is super preparedness. So basicly the. Best gay date of your life, cooks your favourite meal, has your favourite song in the back ground, playing your favorite game while drinking your favourite scotch. He knows what you like and it sets the mood, also Lots of lube and just enough forplay. He is batman he is ready for YOU as he has dedicated his life to being ready to do the things others can't and wont.

  34. #34
    scientia potentia est Cad's Avatar
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    Quote Originally Posted by Lyrical View Post
    And like I said, he was renting to anyone that had a pulse, and that's what did him in.
    TL;dr

    choose your tenants carefully

    Ok

  35. #35
    Coat-hanger Dick Khane's Avatar
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    Quote Originally Posted by Cad View Post
    TL;dr

    choose your tenants carefully

    Ok
    Yea but just know that's a lot easier said than done.

  36. #36
    Registered User OUAriakas's Avatar
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    Quote Originally Posted by Khane View Post
    Yea but just know that's a lot easier said than done.
    A good property management company not only reduces the tenant variance, but they can use their economies of scale to lower maintenance costs on top of it. I know it seems logical but it took us a while to pull the trigger on using a prop management company and now we wouldn't go back to renting them out ourselves.
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  37. #37
    Coat-hanger Dick Khane's Avatar
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    Kinda 6 on one hand a half dozen on the other. I know a few people (my grandparents included) who got completely screwed by prop management companies who weren't doing anything other than collecting a paycheck. My grandparents company didn't even enforce their strict no pets rule. One of their tenants had 6 dogs in their apartment. Six!

    So finding a good company is a lot like finding a good tenant but they can definitely take a lot of the stress out of the situation.

  38. #38
    Registered User OUAriakas's Avatar
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    OK, I just looked at the P&L statements for the 2 rentals that my wife and I have owned the longest. I will break them down below. The first house we thought we were going to pay off ASAP before we purchased another one which is why we put in a larger down payment. That has skewed our ROI on that house quite a bit. 2nd house had the worst renter in year 1 where it was purchased in April and we did not receive rent from Sep-Dec.

    House 1: 3 Bed, 1 Bath
    Purchase Price: $85,500
    Down Payment: $31,500
    2012 Net Income: $2,150 - 6.8% ROI
    2013 Net Income: $2,300 - 7.3% ROI
    2014 Net Income: $2,100 - 6.6% ROI
    2015 Net Income: $3,600 - 11.4% ROI
    Estimated profit if sold today: $45,000

    House 2: 3 Bed, 1.5 Bath
    Purchase Price: $82,000
    Down Payment: $20,500
    2012 Net Income: $322 - 1.5% ROI
    2013 Net Income: $2,300 - 11.2% ROI
    2014 Net Income: $2,100 - 10.2% ROI
    2015 Net Income: $3,800 - 18.5% ROI
    Estimated profit if sold today: $20,000
    Last edited by OUAriakas; 05-21-2016 at 02:53 PM.
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  39. #39
    Registered User Jysin's Avatar
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    Quote Originally Posted by Palum View Post
    Personally I think the only way this works is either slum lord it (multi-fam houses, multi-unit buildings, etc.) or go nuts and make it a full time job...
    Never been in the business, but had a colleague of mine that did. His advice (learned the hard way) was to steer clear of the low end market. For starters, the cheaper the property, typically the shittier the tenants. Why have 10 cheap units with constant tenant and (possibly) maintenance issues when you can go with 2-3 more upscale properties in better condition and better prospective tenants.

    Seems like a shit load of work for the ROI to me. I've made 12% and 9% in two separate short market investments this year alone. One was less than a day. Sure you can't always win, but it is a hell of a lot less work! Plus you've only got yourself to blame, not some chance a meth head literally torches your investment.

  40. #40
    Registered User Palum's Avatar
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    Quote Originally Posted by Jysin View Post
    Never been in the business, but had a colleague of mine that did. His advice (learned the hard way) was to steer clear of the low end market. For starters, the cheaper the property, typically the shittier the tenants. Why have 10 cheap units with constant tenant and (possibly) maintenance issues when you can go with 2-3 more upscale properties in better condition and better prospective tenants.

    Seems like a shit load of work for the ROI to me. I've made 12% and 9% in two separate short market investments this year alone. One was less than a day. Sure you can't always win, but it is a hell of a lot less work! Plus you've only got yourself to blame, not some chance a meth head literally torches your investment.
    Right, but it's a volume game. Higher price rentals may yield better renters but they also move slower on the rental market. Anyway, my point was more in the management style yielding ROI rather than strict tenancy guidelines.

  41. #41
    Registered User Kedwyn's Avatar
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    I've been doing this for a long time and I'll tell you now that you either embrace the low end units or you avoid them like the plague. I personally avoid them. I have no interest in being a slum lord or dealing with the shit that comes with it. The benefits of low end tend to be steady payment (section 8), the tenants tend to stay a long time (low turn over, here there aren't many options for them) but at the cost of your property going to shit and your difficult tenants can be huge problems.

    Location is key just like anything in real estate. If you have rentals in the nice area, you command nice rents and you get nice tenants. Turn over in desirable areas is generally NOT a problem. In fact, if you are smart with your lease times you can virtually guarantee a list of people begging for your place. Especially if you take care of it.

    Hard floors, nice kitchen, granite and molding / wainscoting are all relatively cheap things you can add that will place your unit over and above everything else. People tend to be cheap with their rentals. I have people fighting for mine and never have to replace carpet or other wear items because everything I have is quality. Tenants love to feel like they are in a home, so open concept and upgraded. You can command more rent and you'll have people throwing money at you when your unit comes up.

    If you can get setup near a level 1 trauma center and hook up with an agency service that is some great money and tenants. They tend to always have staff coming in and out of the area. These units must be furnished.

    I love colleges and University areas. Grad students make the best tenants.

    Older folks, widows and recently divorced woman also make excellent tenants. Woman tend to not bring their shit home with them as much as men. So even if they are a rebound bar whore they tend to sleep out more than sleep in. They also tend to not be as loud or rowdy in the younger brackets. You can get a pig in any group, that has been my experience.

    Single family units can work, I prefer multi unit buildings. Duplex or bigger in general. Condos in a well managed HOA can also work very well especially if they are established, have an excellent reserve fund, large community (low HOAs) and cover the exterior maintenance. Commercial property can be very profitable and can also be a nightmare. Every property is it's own beast with it's own set of numbers to crunch.

    There tend to be two types of investors:

    1. People that leverage themselves out the ass.

    2. People that have cash, invest it and tend to buy and hold

    You'll occasionally see a smart one using leverage to buy something and paying it off. Then repeating. That is rare though. Generally you see people going balls deep and getting a property, then within a year or two trying to get 3 more. I'm sure some people can make it work, but it is dangerous and most of the people I've watched try it are doing something else now.

    Generally speaking, if you get good units in a good area you want to hold them. Flipping is an entirely different business and I find that people that engage in that type of business generally have a fair bit of debt, are looking to upgrade and see the marginal gain they made on the flip as worth more than the rents they are getting. This is generally because their ROI is shit since they are paying the bank a ton of money in interest and principal.

    Also, many people tend to flip because they are piss poor at doing this and can't make the numbers work when the homes starts needing new roof, AC, water heaters, appliances etc. Again, generally people are leveraged up to their eye balls looking to take on as many properties as they can and adding new ones ASAP. I find this to be a recipe for disaster.

    Owning free and clear real estate is an amazing investment. You get a great ROI which rivals aggressive growth stocks, you have excellent asset preservation and if you buy in an in demand area you will see appreciation. You can't get anything like that anywhere else. The real players in this buy and hold their investments. Leverage is fine but a free and clear property is worth 3x+ a leveraged one. No reason to be greedy, if the cash flow is really that good that you can add 2 more you can pay the first one off fast enough that you can wait on the others and be in much better position financially.

  42. #42
    Notorious ruse master Picasso's Avatar
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    Came close to setting up autopay to roll the $600/mo I clear on mine into principal and having it paid off in 7 years. Then i figured i'm paying 2.625% and I could use that money to fix it up (with my labor) or get another place, so i didn't.

    I probably spend most of it on cigars, shoes, and eating out though. Poor people gonna be poor.

    Great post, Ked.

  43. #43
    Creative Title Blazin's Avatar
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    Still not a fan of residential over commercial/industrial, unless you simply don't have the capital to do anything else.

    I rent a warehouse to a large national bakery, property cost me $208k and have a triple net lease for $33.6k/yr.

    Have another Class A office that I rent to a Dr's practice that I paid $180k for and rent out for $38,787/yr after taxes, condo fee and insurance nets me just over $28,000/yr. and another office that I rent to an office supply company for $16,800/yr that only cost me $70k.

    I believe my current cap rate on portfolio is 12-13%

    It would take an awful lot of housing rentals to generate that level of income and about 50x the headache. I don't hear a peep from them they send me checks without issue every month. I find there is less buyer competition in commercial, I have low balled the fuck out of every offer. I have bid on far more properties then I own but when you win a good one it pays off in spades. I worked for 15 years running my own industrial contracting business which certainly helps with my confidence when buying these type of properties but I was also a licensed real estate agent and still quite familiar with residential and I just don't see that it pays in the long run. A home needs a lot more maintenance then a concrete tilt up or steel frame warehouse.

    If you have to start in residential that's fine but after a few properties I'd take my cash and buy a decent industrial property and start signing 7+yr leases.

  44. #44
    Notorious ruse master Picasso's Avatar
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    ^ There's an old warehouse here i've been pining to buy for a while but yeah, it takes a fuck ton more cash to get in the game and some commercial properties I see go vacant and stay like that for years. Getting a major client and kicking back seems like the dream though.

  45. #45
    Creative Title Blazin's Avatar
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    On the east coast there are a lot of old warehouse buildings that are often within city boundaries that are awful for truck traffic (I would avoid these). I focus on proximity to an interstate stay under 10,000 sq ft and if you have enough dock doors consider partitioning the space up. Ceiling height is another biggie 13' (30 is best with nice premium to value) would be bare minimum, stacked pallet height is a large part of how the tenant will be able to make the property financially viable. Commercial has the big boys and the 1 million square feet warehouses sitting right off the interchanges, you can't compete with them you have to try to fill a less served niche on the smaller end. Dock doors and 5,000 sq ft can be rare but there are smaller supply companies and contractors who need that type space.

    Leverage must be kept low so vacancy periods don't sink you. I keep a line of credit against my whole portfolio as an emergency back up but I carry no debt on my properties.

  46. #46
    scientia potentia est Cad's Avatar
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    Great info in the last few posts, thanks guys. I'm digesting and considering. Not doing anything spur of the moment. The commercial idea is intriguing.

  47. #47
    Registered User Kedwyn's Avatar
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    When commercial is full, commercial is amazing. When it goes empty, commercial is shit. If you can buy property with a great / stable anchor or have a long term tenants that are stable it's great money with little issues.

    Starting with a new businesses at a new location or a location with high turn over can be difficult. Mom and pop shops opening and closing looking for rent subsidies as you weigh the "should I keep them at half rent for 6 months and hope it improves or boot them and hope I can fill their spot and the others that are empty" can really weigh on you and your returns if you get caught in a cycle like that.

    Desirable areas with good traffic and low vacancy are money in the bank. This area here has strip malls every 5k feet and many of them have a fair percentage of sq/ft vacant. Not so good. As i said earlier, every property and every location is a different beast. What is good in my area might suck for you and vice versa.

    The key to success is being realistic with your budgets, expectations and not being over leveraged. Know your market.
    Last edited by Kedwyn; 05-25-2016 at 02:21 AM.

  48. #48
    Registered User Borzak's Avatar
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    I know a few people who are in the rental game. 5% of the time they are telling you how much money they are making, the other 95% of the time they are telling you about how big of a pain in the ass it is.

  49. #49
    Coat-hanger Dick Khane's Avatar
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    The Marriage thread just reminded me of something I am seriously considering as my next venture in Real Estate. Wedding/Event hall.

    I live in CT and quite literally all I need to do is buy a beat up old barn in an allergy ridden field, put a rope swing on a tree and a random trellised bridge somewhere on the property and I can charge a premium.

    I can even make people bring their own tables/chairs and decorations. None of that shit is provided. Just pay me $4500 to rent it for the day. Oh and there's no HVAC system either. I'm not kidding when I say a large majority of weddings I've been to in this state are exactly that.
    Last edited by Khane; 05-25-2016 at 03:50 PM.

  50. #50
    Hard Truths Cut Both Ways AladainAF's Avatar
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    Quote Originally Posted by Kedwyn View Post
    Hard floors, nice kitchen, granite and molding / wainscoting are all relatively cheap things you can add that will place your unit over and above everything else. People tend to be cheap with their rentals. I have people fighting for mine and never have to replace carpet or other wear items because everything I have is quality. Tenants love to feel like they are in a home, so open concept and upgraded. You can command more rent and you'll have people throwing money at you when your unit comes up.
    Overall, a great post, Kedwyn, but this above is probably one of the most important things, and most overlooked things ever. Most people get a rental and go cheapy on EVERYTHING. Even my property manager, who does a fantastic job for me, initially advised me on getting houses ready and just to get crap, basically, because renters don't care. This is true, they don't care. However, when you have a nice house in a decent area of town and a renter walks into a kitchen with nice tile backsplashes, granite countertops, stainless steel appliances, and either really nice vinyl or nice tiled floors.. very soft, plush carpet, and really nice light fixtures (as opposed to the $5 home depot light fixtures) they will not only appreciate it more and want to fight for your rental, but you can EASILY make it back in higher rents and they overall tend to treat it much nicer because they do appreciate it. Protip: Silver/Brushed Nickel door handles on everything! FUCK GOLD. Silver on everything. That alone = $$$$. We have four rental houses across the Austin area, and all four are furnished far better than any of the normal houses in the area, I guarantee, and I've never had a single tenant break or destroy anything other than one unrelated incident... we furnish all our lighting fixtures in our houses with premium LED lights (great selling point for a rental), and we had one tenant steal them when they left, which was fine, they just didn't get their security depo back and we overpriced them on the lights heh. You can also get a higher security deposit up front when you have a really nice house, we generally ask for 1.5x rent + 1 month rent up front (which we use for their last months rent upon lease termination).

    Single family units can work, I prefer multi unit buildings. Duplex or bigger in general. Condos in a well managed HOA can also work very well especially if they are established, have an excellent reserve fund, large community (low HOAs) and cover the exterior maintenance. Commercial property can be very profitable and can also be a nightmare. Every property is it's own beast with it's own set of numbers to crunch.
    We have all single family units for our investments, though I want to get some multi-units but those never ever go on sale here, it seems. Austin doesn't have very many duplexes anyway. We also are getting into commercial property full steam, but still looking for something to come up on the radar.

    You'll occasionally see a smart one using leverage to buy something and paying it off. Then repeating. That is rare though. Generally you see people going balls deep and getting a property, then within a year or two trying to get 3 more. I'm sure some people can make it work, but it is dangerous and most of the people I've watched try it are doing something else now.
    This is me, but it's mainly because location. The occupancy rate in the Austin area is very high. I've always had a new tenant lease signed within 1 week of a house going up for rent. We put 25% down on all our properties, and have 15 year notes on 3 of the 4 (4th paid off). Even with 15 year notes, and 25% down the cash flow is huge. Mortgage payments are $700, $615, and $540. The rents are $1,650, $1,600, and $1,525 respectively. Every house is 50% LTV or less at this point, and the paid off house is the premium of the bunch. So we are carrying around some debt (Total about 200k worth) but its nothing we can't manage by any measure, and the sale of our paid off house would sell for more than our debt anyway.

    Generally speaking, if you get good units in a good area you want to hold them. Flipping is an entirely different business and I find that people that engage in that type of business generally have a fair bit of debt, are looking to upgrade and see the marginal gain they made on the flip as worth more than the rents they are getting. This is generally because their ROI is shit since they are paying the bank a ton of money in interest and principal.
    I'm with you on flipping. I don't see how people make money on it unless maybe they get a great deal on the monthly auction at the courthouse steps heh. It's also funny so many people suck at it. When I'm looking for a new investment property, it's so easy to find which homes people are trying to flip. It's embarrassing.

    Owning free and clear real estate is an amazing investment. You get a great ROI which rivals aggressive growth stocks, you have excellent asset preservation and if you buy in an in demand area you will see appreciation. You can't get anything like that anywhere else. The real players in this buy and hold their investments. Leverage is fine but a free and clear property is worth 3x+ a leveraged one. No reason to be greedy, if the cash flow is really that good that you can add 2 more you can pay the first one off fast enough that you can wait on the others and be in much better position financially.
    YES!!!! This is mainly why we did 15 year notes. And again, you make excellent points that mirrored what we did ... we wanted to buy in solid, good areas with great growth potential and great outlooks, and amazing appreciation outlooks. We didn't buy our property for short-term rent and flips, or anything. It was a very strategic thing deciding where to buy to not just maximize your rent and get good tenants, but also for the longer term outlook.

    Fantastic post, Kedwyn!

    Quote Originally Posted by Borzak View Post
    I know a few people who are in the rental game. 5% of the time they are telling you how much money they are making, the other 95% of the time they are telling you about how big of a pain in the ass it is.
    Get a good property manager. I pay mine $70 flat a month per rental (~4-5% based on current rents which is a stellar rate for property management), and 80% of first month rent in a new lease (that's a hit, but he takes care of all the listing, staging, pictures, etc so it's understandable).

    I don't have to deal with shit.
    Last edited by AladainAF; 05-31-2016 at 03:31 PM.

  51. #51
    Hard Truths Cut Both Ways AladainAF's Avatar
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    Quote Originally Posted by Cad View Post
    Great info in the last few posts, thanks guys. I'm digesting and considering. Not doing anything spur of the moment. The commercial idea is intriguing.
    Cad, Mr. Lawyer - when you do rentals or real estate set up a Texas Series LLC to protect each property in it's own bubble. That's what we do.

    The Texas Series LLC - A Great Tool For Investors | Dallas Business Lawyer | Vela Wood

    Quote Originally Posted by Vela|Wood
    The Texas Series LLC is rapidly becoming a preferred vehicle for real estate investors, and series LLCs make a lot of sense for several classes of investors. The beauty of series LLCs is that they allow the individual forming them to create several distinct entities and receive all of the benefits of multiple Limited Liability Companies, with only one filing.
    The 81st legislature codified series LLCs in 2009 by adding Subchapter M, Sections 101.601 – 101.621 to the Texas Business Organizations Code. In essence, a Texas Series LLC is a type of limited liability company that provides liability protection and tax advantages across a series of LLCs, each which is protected from the liabilities arising from the other LLCs within the same series. This is analogous to a big corporation with several subsidiary entities underneath it, but with the ease and flexibility of a limited liability company. Each LLC within the series can have its own name, organizational structure, and assets legally separate from the others. All under one filing.

  52. #52
    Coat-hanger Dick Khane's Avatar
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    Man, Texas really loves to protect the wealthy. I should move there... ya know, since I'm a real estate magnate.

  53. #53
    Hard Truths Cut Both Ways AladainAF's Avatar
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    Quote Originally Posted by Khane View Post
    Man, Texas really loves to protect the wealthy. I should move there... ya know, since I'm a real estate magnate.
    Non-wealthy people get sued into oblivion every single day. This isn't a wealthy thing.

  54. #54
    Coat-hanger Dick Khane's Avatar
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    Quote Originally Posted by AladainAF View Post
    Overall, a great post, Kedwyn, but this above is probably one of the most important things, and most overlooked things ever. Most people get a rental and go cheapy on EVERYTHING. Even my property manager, who does a fantastic job for me, initially advised me on getting houses ready and just to get crap, basically, because renters don't care. This is true, they don't care. However, when you have a nice house in a decent area of town and a renter walks into a kitchen with nice tile backsplashes, granite countertops, stainless steel appliances, and either really nice vinyl or nice tiled floors.. very soft, plush carpet, and really nice light fixtures (as opposed to the $5 home depot light fixtures) they will not only appreciate it more and want to fight for your rental, but you can EASILY make it back in higher rents and they overall tend to treat it much nicer because they do appreciate it. Protip: Silver/Brushed Nickel door handles on everything! FUCK GOLD. Silver on everything. That alone = $$$$. We have four rental houses across the Austin area, and all four are furnished far better than any of the normal houses in the area, I guarantee, and I've never had a single tenant break or destroy anything other than one unrelated incident... we furnish all our lighting fixtures in our houses with premium LED lights (great selling point for a rental), and we had one tenant steal them when they left, which was fine, they just didn't get their security depo back and we overpriced them on the lights heh. You can also get a higher security deposit up front when you have a really nice house, we generally ask for 1.5x rent + 1 month rent up front (which we use for their last months rent upon lease termination).
    A lot of this is true but the fact that nothing has broken in any of your rentals speaks a little bit to where the property is and how appealing the inside is (attracting better tenants for the most part), and a little bit to luck.

    My rental was (key word here) on the higher end of the spectrum and I am able to charge a bit more for it as a result. But my tenant has destroyed the place. If he ever moves out I will need to redo a lot of the apartment. Every single appliance has been broken, he cleans the place only when I tell him I am going to do a walkthrough because I can smell the stink from the hallway when I walk up to my apartment, his garage door is completely busted, the list goes on. The bathroom was entirely new when he moved in, new tub and shower + fixtures, new vanity with granite countertops, new tile floor, new everything, and he's broken the sink and toilet and let mold and mildew build up in the shower.

    My property is set back off the road, has a detached 2 car garage, a ton of storage space in the basement, has all appliances included (and washer dryer), is on a fairly private 1.7 acre lot, has a big walk out deck for the first floor apartment and that apartment is also a fairly up to date 3 bedroom, 1500 sq ft unit. Some people are just lazy and have always lived in filth. It's just normal to them.

    But he pays on time every month, is probably never going to move out, and would be a pain in the ass to evict because he has small children. So it is what it is.

  55. #55
    Coat-hanger Dick Khane's Avatar
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    Quote Originally Posted by AladainAF View Post
    Non-wealthy people get sued into oblivion every single day. This isn't a wealthy thing.
    A non wealthy person would have no need for that series LLC. That's what I was getting at. That's the kind of thing that really would only ever protect the wealthy.

  56. #56
    Hard Truths Cut Both Ways AladainAF's Avatar
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    Quote Originally Posted by Khane View Post
    A non wealthy person would have no need for that series LLC. That's what I was getting at. That's the kind of thing that really would only ever protect the wealthy.
    Why so? It's no different than simply opening multiple LLCs which is IMO something you should do if you have multiple properties and are in a state that doesn't have a series style LLC. It's more of a convenience factor than anything else, in that it can be done in one filing.

    I suppose you can correlate having "multiple properties" with being "wealthy" but I wouldn't go that far.

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    Notorious ruse master Picasso's Avatar
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    We moved of out of our old houses and rented them and still have the same mortgages on them. I think an llc setup would be impossible, correct?

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    Hard Truths Cut Both Ways AladainAF's Avatar
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    Quote Originally Posted by Picasso View Post
    We moved of out of our old houses and rented them and still have the same mortgages on them. I think an llc setup would be impossible, correct?
    Nope, all our mortgages are still in our personal names. We just pay them with the LLC. We did transfer title of the homes to the LLC and submitted it to the county clerks office, so the LLC *officially* owns the properties. It is very important that all documentation, and as much as possible be in the LLCs name in this case (eg: insurance should also be in the LLCs name and not personal name).

    But the mortgages are still in our personal names. In fact, I do think it's impossible for an LLC to actually get a mortgage. That, no, you can't change.

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    scientia potentia est Cad's Avatar
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    Quote Originally Posted by AladainAF View Post
    But the mortgages are still in our personal names. In fact, I do think it's impossible for an LLC to actually get a mortgage. That, no, you can't change.
    It's not impossible for an LLC to get a loan but the LLC would need to have assets/income that it could use as collateral and credit for the bank to price as risk. What you're doing is making yourself personally responsible for the LLC's debt, which is fine.

    FYI the "mortgage" is the security instrument the lender can use to foreclose on the property, the "note" is the actual debt instrument. So the LLC would get a loan/sign a note while the lender would get a mortgage to secure the property.

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    Hard Truths Cut Both Ways AladainAF's Avatar
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    Quote Originally Posted by Cad View Post
    It's not impossible for an LLC to get a loan but the LLC would need to have assets/income that it could use as collateral and credit for the bank to price as risk. What you're doing is making yourself personally responsible for the LLC's debt, which is fine.

    FYI the "mortgage" is the security instrument the lender can use to foreclose on the property, the "note" is the actual debt instrument. So the LLC would get a loan/sign a note while the lender would get a mortgage to secure the property.
    Understood, thanks for that. I haven't been able to find a bank anywhere that will loan me money under the LLC, despite having over 400k in home equity assets, including a paid off home. It seems odd, but just no luck. Maybe I'm seeing the wrong bankers.

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    Notorious ruse master Picasso's Avatar
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    So you keep all your rentals under 1 llc?

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    Registered User Kedwyn's Avatar
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    Quote Originally Posted by Picasso View Post
    So you keep all your rentals under 1 llc?
    You really want 1 property per LLC. You can use a holding company to join all the separate LLC's if you want. This is done for asset protection. If something happens that screws you on one property you don't want them to be able to go after the other assets in the entity so you keep things as separate as possible.

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    Notorious ruse master Picasso's Avatar
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    That's what I've heard, but it seems like he knows what's up and just has 1

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    Registered User Kedwyn's Avatar
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    Quote Originally Posted by Picasso View Post
    That's what I've heard, but it seems like he knows what's up and just has 1
    That is a special LLC in Texas and a few other states which allows more or less similar operation to mutli LLC with a single. Personally, unless there was a shit ton of established case law surviving appeals already showing it was solid, i'd spend the trivial amount to open another LLC and just keep it in line with every other state and not get fancy.

    Something like that could save you a couple hundred bucks a year or it could completely fuck you over. Not even close to worth it.

    I skimmed this but here are some examples of potential issues. I doubt this is an exhaustive list but when it comes to things like asset preservation you just don't take chances unless you're foolish especially when it is pretty trivial after the first one to file your own LLC and the fees are insignificant in many states.

    Business Law Today: Series LLCs: What Happens When One Series Fails? Key Considerations and Issues
    Last edited by Kedwyn; 06-01-2016 at 07:37 PM.

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    The Retarder lendarios's Avatar
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    So my first tenant is moving in next Monday. The amount of work needed to paint and prepare a condo after 8 years of living there is staggering. I spent all of memorial weekend painting and doing stuff on the condo.
    Regarding the LLC, is that something you can do if you haven't paid the house ?

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    Creative Title Blazin's Avatar
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    I had a commercial tenant call me yesterday because "a light flickered", so I guess even commercial tenants can be annoying at times

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    Registered User OUAriakas's Avatar
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    Quote Originally Posted by AladainAF View Post
    Overall, a great post, Kedwyn, but this above is probably one of the most important things, and most overlooked things ever. Most people get a rental and go cheapy on EVERYTHING. Even my property manager, who does a fantastic job for me, initially advised me on getting houses ready and just to get crap, basically, because renters don't care. This is true, they don't care. However, when you have a nice house in a decent area of town and a renter walks into a kitchen with nice tile backsplashes, granite countertops, stainless steel appliances, and either really nice vinyl or nice tiled floors.. very soft, plush carpet, and really nice light fixtures (as opposed to the $5 home depot light fixtures) they will not only appreciate it more and want to fight for your rental, but you can EASILY make it back in higher rents and they overall tend to treat it much nicer because they do appreciate it. Protip: Silver/Brushed Nickel door handles on everything! FUCK GOLD. Silver on everything. That alone = $$$$. We have four rental houses across the Austin area, and all four are furnished far better than any of the normal houses in the area, I guarantee, and I've never had a single tenant break or destroy anything other than one unrelated incident... we furnish all our lighting fixtures in our houses with premium LED lights (great selling point for a rental), and we had one tenant steal them when they left, which was fine, they just didn't get their security depo back and we overpriced them on the lights heh. You can also get a higher security deposit up front when you have a really nice house, we generally ask for 1.5x rent + 1 month rent up front (which we use for their last months rent upon lease termination).


    This is me, but it's mainly because location. The occupancy rate in the Austin area is very high. I've always had a new tenant lease signed within 1 week of a house going up for rent. We put 25% down on all our properties, and have 15 year notes on 3 of the 4 (4th paid off). Even with 15 year notes, and 25% down the cash flow is huge. Mortgage payments are $700, $615, and $540. The rents are $1,650, $1,600, and $1,525 respectively. Every house is 50% LTV or less at this point, and the paid off house is the premium of the bunch. So we are carrying around some debt (Total about 200k worth) but its nothing we can't manage by any measure, and the sale of our paid off house would sell for more than our debt anyway.


    YES!!!! This is mainly why we did 15 year notes. And again, you make excellent points that mirrored what we did ... we wanted to buy in solid, good areas with great growth potential and great outlooks, and amazing appreciation outlooks. We didn't buy our property for short-term rent and flips, or anything. It was a very strategic thing deciding where to buy to not just maximize your rent and get good tenants, but also for the longer term outlook.

    Get a good property manager. I pay mine $70 flat a month per rental (~4-5% based on current rents which is a stellar rate for property management), and 80% of first month rent in a new lease (that's a hit, but he takes care of all the listing, staging, pictures, etc so it's understandable).

    I don't have to deal with shit.
    Aladain, I need to pick your brain man. I have been hunting for some rentals in Houston that would match what you own but every time I do a P&L it seems like property taxes and the property management companies make it worse than what I posted a page back about my Oklahoma properties. I'd like to know more about your selection process and how you get such good rental rates on low mortgage payments. Do those payments include taxes and insurance? Does your management company happen to cover West Houston suburbs?
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    Hard Truths Cut Both Ways AladainAF's Avatar
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    Quote Originally Posted by Kedwyn View Post
    That is a special LLC in Texas and a few other states which allows more or less similar operation to mutli LLC with a single. Personally, unless there was a shit ton of established case law surviving appeals already showing it was solid, i'd spend the trivial amount to open another LLC and just keep it in line with every other state and not get fancy.

    Something like that could save you a couple hundred bucks a year or it could completely fuck you over. Not even close to worth it.

    I skimmed this but here are some examples of potential issues. I doubt this is an exhaustive list but when it comes to things like asset preservation you just don't take chances unless you're foolish especially when it is pretty trivial after the first one to file your own LLC and the fees are insignificant in many states.

    Business Law Today: Series LLCs: What Happens When One Series Fails? Key Considerations and Issues
    We have attorneys set all of it up and set our paperwork up to make sure its all solid. But I agree, if you're not going to get an atty for it, don't fuck it up. Just get 1 LLC per property.

    Quote Originally Posted by OUAriakas View Post
    Aladain, I need to pick your brain man. I have been hunting for some rentals in Houston that would match what you own but every time I do a P&L it seems like property taxes and the property management companies make it worse than what I posted a page back about my Oklahoma properties. I'd like to know more about your selection process and how you get such good rental rates on low mortgage payments. Do those payments include taxes and insurance? Does your management company happen to cover West Houston suburbs?
    Well, do bear in mind that we put 25% down on each property which is a large chunk to start off with and we also get 15 year loans, and we do not escrow so no it doesn't include taxes and insurance. But our tax rates, even so are not too bad, other than the paid off property. I'll do the math on them...

    Paid off house: Mortgage $0, Taxes: $4,624.73 ($385.40/month), Insurance (basic rental rider with a lot of business liability coverage): $616 ($51.33/month), Property manager: $75 $1,625 Rent - $511.73 Expenses = $1,113.27 monthly assuming no repairs
    Mortgage 1: $541.85, Taxes: $2,958.65 ($248.80/month), Insurance: $585 ($48.75), Property Manager: $75 $1,525 Rent - $914.40 Expenses = $610.60 monthly assuming no repairs
    Mortgage 2: $701.90, Taxes: $3,344.51 ($278.71/month), Insurance: $782 ($65.16), Property Manager: $75 $1,650 Rent - $1120.77 Expenses = $529.23 monthly assuming no repairs
    Mortgage 3: $613.47, Taxes: $3,118.77 ($259.90/month), Insurance: $602 ($50.16), Property Manager: $75 $1,625 Rent - $998.53 Expenses = $626.47 monthly assuming no repairs

    Total income assuming no repairs: $2,879.57 (there's also HOA dues but these are generally trivial ~$15-$25 per home per month). I normally wouldn't buy the paid off house, but it was my primary residence before me and my wife moved to a new place and since it was paid off we decided to keep it. It's actually been a blessing, as we've had one tenant there since 2013, and she's a cleanliness nazi and hardly ever bitches about stuff. Also, these numbers are not totally accurate for the other houses, as my property manager does charge 80% of first month rent when he finds a new tenant.

    Sadly, in Texas, property taxes are going to eat up a huge amount on your investment. Ideally, people tend to get 30 year notes as opposed to 15 year, but investment loans are typically higher interest rate UNLESS you put 25% down. Even our 15 years are 3.75% and 4% respectively since they are investment loans and not homestead loans.

    When looking for a house don't do what my wife does often.. if you open up an MLS listing and say "oooh that's nice" skip it. Don't buy post-flips and don't buy nice ones. Buy ones that you feel you can do the work in (or have your property manager estimate it) for around $7,000 - $12,000 or so. The properties I bought (except one) were homes that needed a modest amount of work but nothing extreme but had little touches that gave the house some life. For example, one built in 1999 had a dated kitchen (linoleum peeling up / particle board and white/beige appliances), boring light fixtures, no tile backsplashes and generic metal blinds. 2 fans for the living room but only 1 was hung up. But, on the other hand, the guest bathroom as well as the master bathroom had walkin showers and tubs (big plus), and the master had dual sinks for him and her (big plus), and a front and backyard irrigation system built in. Look for the big pluses on really hard things like vanities attached, or things like walk in shower with a separate tub. Goes without saying, kitchen and bathroom are king. You can spend a reasonable amount fixing things like adding a nice tile backsplash to the kitchen, repainting, flooring, carpeting, etc. But like a complete bath remodel sucks. Look for two car garages at least, but no tandems. Go for nice nice things but not luxury. In other words, granite and stainless steel appliances in the kitchen goes a LONG way on a rental property. A REALLY long way. But at the same time level 1 granite installed for around $2,500 vs your level 8 African granite installed for $6,000 out of some exotic recently discovered cave isn't going to make a difference. Same thing with the stainless appliances. Get cheap, but respectable stainless appliances. But no need to get the european top model professional kitchen series stuff.

    For Fort Bend county, which is where I'll look for "west houston" areas, you can check fbcad for tax appraisals and, really.. just check the MLS. Tell your property manager too that you're looking (they are most likely realtors too, and you can talk his 3% commission down if you do business with them on the realty side too).

    Did a quick search here ... I'm just looking on a whim here to give you line of thinking of how I select. You can also take a gamble if paying cash and go to auctions at the courthouse, but even personally I'm not ready for that yet.

    9211 Bollingbrook Dr, Houston, TX 77083 - Home For Sale and Real Estate Listing - realtor.comĀ® - This home is a flip, it looks like, but could probably get you $1200 a month in rent like the ad says. Not something I would buy though, 99,700 is overpriced.

    15830 Alta Mesa Dr, Houston, TX 77083 - Home For Sale and Real Estate Listing - realtor.comĀ® - a short sale but this is what I'm talking about. 2000+ sq ft is usually a no no, but it's a 4 bedroom and on a nice sized lot (corner lot). Interior needs repaint. Kitchen is very small and needs re-done, it looks like the original kitchen from 1981. Pantry is fairly large (a nice plus). Some nice wooden flooring it looks like (might be vinyl but looks like wood) ALTHOUGH that is somewhat of a turn off because tenants will usually fuck up wood floor, but if its nice its fine to keep at least until its ruined (then charge the tenant to fix it but replace it with someone more durable). Double sinks in master, VERY solid schools for that price of a home. Looks like maybe granite already in master, which is a large plus. For $89,900 ($42/sq ft) this is a solid buy in my opinion.

  69. #69
    Notorious ruse master Picasso's Avatar
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    A four unit 2br 1 ba each in a good area, walking distance to a well rated elementary school has come up for 250k. I'm pretty sure i could easily get 800 a month out of the units. It's about a mile from my house so management would be a breeze.

    All i need is 250k.

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    The Retarder lendarios's Avatar
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    nice.

    Question. Any expense that happens on the rental houses, goes against my taxable income right?

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    Notorious ruse master Picasso's Avatar
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    Generally. There is a difference between repair and improvement. Repairs/maintenence are, improvements you should depreciate out over 27.5 years.

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    The Retarder lendarios's Avatar
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    My taxes next year are going to be sweet. Seven figures sweet.

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    Notorious ruse master Picasso's Avatar
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    It definitely helps with motivation to do some improvement projects

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    Hard Truths Cut Both Ways AladainAF's Avatar
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    Quote Originally Posted by Picasso View Post
    Generally. There is a difference between repair and improvement. Repairs/maintenence are, improvements you should depreciate out over 27.5 years.
    The easy way to think of this, you have your capital expenses, which you depreciate, and your non-capital (mainly repairs but not all). You can't capital expense everything, though.

    For example, a dishwasher going bad and needing to be replaced is a capital expense. A hot water heater. Air Conditioning unit. But other things are not, such as replacement of an air vent. Replacing lights in light fixtures. Repairing a foundation. Touch up paint. Repairing a broken valve in your dishwasher, etc.

    Use this to your advantage in some cases. For example, replacing a door knob is not a capital expense. However, replacing all the door knobs in the house for cosmetic appeal is. Things like that.

  75. #75
    Don't Infract Me Bro Burnesto's Avatar
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    Quote Originally Posted by AladainAF View Post
    The easy way to think of this, you have your capital expenses, which you depreciate, and your non-capital (mainly repairs but not all). You can't capital expense everything, though.

    For example, a dishwasher going bad and needing to be replaced is a capital expense. A hot water heater. Air Conditioning unit. But other things are not, such as replacement of an air vent. Replacing lights in light fixtures. Repairing a foundation. Touch up paint. Repairing a broken valve in your dishwasher, etc.

    Use this to your advantage in some cases. For example, replacing a door knob is not a capital expense. However, replacing all the door knobs in the house for cosmetic appeal is. Things like that.
    You can expense anything under $2,500 rather than capitalizing it.
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    Notorious ruse master Picasso's Avatar
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    I like that way of thinking about it. And anything over 2500 is going to get done in phases
    Last edited by Picasso; 06-13-2016 at 04:49 PM.

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    Registered User OUAriakas's Avatar
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    Draegan's bitch ass sold us out to MMORPG.com

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