# Lets talk rental properties



## Dustyrose (Feb 13, 2009)

Been there. Done that. Glad all my rentals are gone! 

STAY AWAY FROM PROPERTY MANAGEMENT COMPANIES!

If you are serious about getting into real estate investment-do your homework. 

Mrlandlord.com is a forum that has a lot to offer. See if there is a real estate investment assosiation in your area. 

Owning rental property is not about managing property, but managing people.


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## HusqyPro (Aug 3, 2009)

What's wrong with property management companies? I rather fancied the idea of hands off renting. What are the advantages to doing it myself? Personally I don't think I have the necessary experience or qualifications to be a property manager. I'd rather pay someone to do that. What negative experiences have you had with property management companies?


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## Metro M & L (Jun 3, 2009)

Like anything there are good and bad property managers. The bad ones will run your property into the ground. The good ones will leave the property in better condition than you found it.


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## Celtic (May 23, 2007)

HusqyPro said:


> I'm having a hard tme calculating ROI. Complex maths is not my strong suit. Can you use the numbers I posted to illustrate where I would be at with this house? An example would help. That way I can apply that example to other properties I look at.



I have an Excel spreadsheet I use to determine if a property is a worthy investment.
It's pretty bare bones...but it works :thumbsup:

It's not really set-up to include the cost of repairs/upgrades, but you could simply "fudge" the number someplace [purchase price, down payment, rent income, etc]

PM me tom'row...I'll try and find it [it's on an external drive someplace] and email it back to you.


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## dakzaag (Jan 6, 2009)

Bob,
I have considered the same thing, esp. with the economy in the dump and properties available all over the place. 

I have a good friend who had me do some minor in one of his rentals this past winter. He was in the process of completely redecorating and mild remodel since a tennant of 10+ years had recently moved out and he was going to sell the place.

His advice to me along with an offer of selling this property to me was you can't afford to put a dime into it, cause you will never see it back. (I was commenting on the poor quality of work being preformed inside.) I was telling him how the ceiling needed replaced instead of painted and the cabinets were shot etc. 

He just laughed and said "you looking to live here or rent it out?"

Bottom line is you will never make money on rental property if you put any more than the bare necesities into it. This particular house had a new furnace and AC unit, but other wise it was a $25,000, 3 bedroom house with no garage. I decided I would be plowing too much money into it making it right and livable to my standards and never see a decent return.

My friend had a tennant in this house for almost 13 years, basically paid for the property with rent and he was getting out cause it just wasn't worth the time and trouble.


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## Mike Finley (Apr 28, 2004)

HusqyPro said:


> What I'm thinking is do the rental property thing like I did my landscape biz. Start small.
> 
> It's $35,000. I'm thinking of making an offer of $28,000. It needs a total redo.


Good way to start.



HusqyPro said:


> Talking with a few property management companies (I plan on using one) I should be able to get $1,000 to $1,300 a month for this house after it's renovated.?


 
Big newbie mistake is to try to use a property management company. You started out on a good not - you wanted to start off small like you did with your landscape company, that's good. However you need to get into rentals the same way. Getting your hands dirty. Learn everything from the inside not let some property management company run your house into the ground with a string of loser tenants, vacancies and damages.

A property management company for your first house would be a huge mistake. You need to do this all yourself. A property management company comes later when you can afford them and when the numbers make sense and you already know your properties and the rental business better then they do so you can judge anything they say to you based on your knowledge.



HusqyPro said:


> The lot is big enough that we could add a bedroom and a bath. Turning this into a 3 bed 2 bath home.
> 
> I talked to a GC I know and trust. He figured the cost of renovation and addition at roughly $52,000. We could add a detached garage for an addtional $21,000.


I would never consider putting a major addition to a rental property. There are too many properties out there that you can puchase without needing to do anything like that to it. Stick to a property that is structurally and layout wise all there and just needs cosmetic interior and some remodeling work. Never try to make huge improvements to a rental property like what you are thinking. The numbers won't make sense for the return. 



HusqyPro said:


> I have some cash, but the majority of this would be financed through a home equity line of credit on the house I currently live in.


Home equity loans are a great way to get into real estate, but keep in mind when you buy an investment property for cash (which is what you are essentially doing) when you do want to get that money back to pay off the Heloc, you will need to place a mortgage on the rental property and that is what is known as a cash out refinance and those are a total *****, especially now. You'll be looking at high interest rates and ridiculous equity positions the banks will want. They basically will say they will loan you 70% of purchase price, (not 70% of appraised value), so if you buy a house for $28K, but 15K into it to fix it up and it's now worth 60K they will be looking to loan you only 70% of the 28K you paid for it leaving you with about 25K still in debt. 

If you do buy with a home equity loan also remember they won't even consider a cash out refinance for at least 12 months from purchase date. 

If you do it that way see if you bank will put a lein against the house in their name for the home equity loan, this might make a difference when you try to refinance, but may not.



HusqyPro said:


> Bearing in mind that I'm a newbie and know little to nothing (except theoretical) of investing in real estate long term. Is this a bad idea?
> 
> My goal is for this to be the first house of many. Use the income from this house to buy nicer ones. Maybe someday buy empty lots and build rental houses on them.
> 
> Is this a good house to start with or?


Rentals are the absolute no brainer for building wealth if you do them right. 

Here is the secrets for success - look at any potential rental property as a Product. Think of it as a product, now think about your buyer (renter) think about the product as your renter will, try to see it from a renters eyes. Is the location convenient? Is it safe? If its going to rent to families, how are the school systems? What would you want from a rental property if you were going to rent it?

After you find the right property (product) you have to bring it to market. Now is where you either screw yourself and hate rentals and vow never again or you do it right and understand how easy this is.

The right way is to create a product with a market interested in renting it.

You do this by making it nice and offering it for rent below the market rates.

99% of rental investors do this wrong. They get into properties with too little cash into them and have too high a mortgage and have to ask for too much rent. They end up with a small pool of candidates to choose from and have to compromise on who they take.

Now if you do it the other way which is the way that only 1% of rental investors do it, you put more cash down and are able to lower your rent to a bit below market. This will bring in 10 times the candidates and now you are able to pick and choose who you want to rent to. A much better alternative right?

Next is to get a big security deposit. This is extremely important. I always shoot for a minimum of 1.5 to 2 times the monthly rent. If you don't do this you will most likely be screwed at some point. Small security deposit equals renter who doesn't make the last months rent and all you can do is swallow a tiny securty deposit. Then if there are damages you are out all those too.

So 2 things - offer below market rent, get large security deposit. 

That is the secret to not coming back here and posting horror stories of how being a landlord sucks.

Always do a 1 year lease never rent month to month. Ever.

After the 2nd year I then dangle the 2 year bait. When the 1st year comes to an end and they have been a good tenant we offer them an A or B option lease. Basically they can release for 12 months for a $50 rental increase a month or a 24 month lease for a $25 a month lease. 

Guess which one they all take. Now you've got a good tenant who you have known for a year in your property for 2 more years. 2 more years of trouble free renter. What landlord wouldn't want that?

Anyways there is lots more, but good luck getting started. The 1st one is the hardest, the rest get easier.

But take what I say as the gospel. I've been there and done it. My rentals are zero problems, I don't use a rental company and I never have any problems. Just get checks in the mail every month. :thumbsup:


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## Mike Finley (Apr 28, 2004)

If you want to know how to rehab the property I can tell you that too. There is one right way to do it and only 1 way.


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## HusqyPro (Aug 3, 2009)

Mike Finley said:


> If you want to know how to rehab the property I can tell you that too. There is one right way to do it and only 1 way.


Hit me Mike. The way I'm doing it is hiring a knowledgeable, trustworthy GC and taking his advice. If there's a better way I'm all ears. 

I guess my original idea isn't so smart then. Since 3 bed 2 bath houses are hot in the rental market I though renovating this one would be a good way to go. Especially since I can renovate this one cheaper than I can buy a 3 bed 2 bath house in the same neighborhood to rent. I'll set my sights a little higher.

On paper buying this for $28K, renovating it for $52K, and adding central heat and air for $15K would put me at roughly $95K total invested. But I guess with the possibility of construction cost over runs, delays, etc. it won't work out in the real world. The better option is to just buy a 3 bed 2 bath house in that neighborhood for $100K to $120K and hit the ground running with something that doesn't need rehabing.

I guess I will refocus my search on 3 bed 2 bath homes that don't need any work done. Blame those house flipping and renovating shows for my naivete.

This forum is great for learning from others mistakes. You guys probably saved me a fortune. Not to mention heart ache and grief.

Maybe instead of a property management company I will have my lawyer do the screeing and renting paperwork. It will cost a hell of a lot more than a property management company, but you get what you pay for. I'm just not comfortable doing it myself (the laws are really complex) and I could see me getting myself into a bind. I'm smart enough to know my own limitations. Handling background checks, money, the legal liabilities, the paperwork, taxes, it's all too much. Some things are best left to professionals. Also I'm too nice. Tenants would walk all over me. I can do this, I want to do this, but I know I'll need help from a pro to pull it off. I understand that and am willing to pay for it.


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## jomama (Oct 25, 2008)

HusqyPro said:


> Maybe instead of a property management company I will have my lawyer do the screeing and renting paperwork. It will cost a hell of a lot more than a property management company, but you get what you pay for. I'm just not comfortable doing it myself (the laws are really complex) and I could see me getting myself into a bind. I'm smart enough to know my own limitations. Handling background checks, money, the legal liabilities, the paperwork, taxes, it's all too much. Some things are best left to professionals. *Also I'm too nice. Tenants would walk all over me.* I can do this, I want to do this, but I know I'll need help from a pro to pull it off. I understand that and am willing to pay for it.


Bob, you may be seeing the light. A ton of good experiances & info are listed above, but if YOU don't personally have what it takes to be a landlord, you'll probably fail.

My wife & I got into a 6 family about a year ago, so I have a little experiance. This is nothing like running a successfull const. business, at least IMO. If your honest, thrive for quality, care about your reputation, & accustommed to a quality cliantell, you don't stand much chance in this field. The most successfull (that's why you want to venture into this, right?) landlords in my experience are some of the shrewdest induviduals you can possibly meet. No room for feelings, being nice, & especially lawn irrigation.

My numbers are far different from yours, but I don't see how you could envision a venture like this as a profit for at least 15 years. View the transaction as a retirement plan & you'll be far more successful.

I bought our property from a family friend/customer who has done very well for himself as a realator/landlord/appraiser/auctioneer. He owns 100+ rental units alone. He warned me early on that this was a major step & committment. There is NO short term income from most rental properties. They finally make good money once they're paid off. Also, don't forget to factor in your down payment, property taxes every year, never ending ongoing maintainence & replacement when people move out, any utilities you are responsible for, legal fees, the list is endless.

In my experiance, I often push the crap off at the rental because my time is much better spent running my business, which has far more income potential. If I could go back a year, I wouldn't be a landlord.

As for the property manager, they're probably the only one (other than the bank) who's going to come out ahead in this deal. IMO, 10-12% is ridiculous money with your numbers. I was offered prop. management @ 5% from the old owners, but declined , as the numbers just wouldn't bear it. Plus you have far less control of what's going on with your money.

PS. Make sure not to use the same lawyer who represented you in your divorce or this deal will send you to the poor house for sure!


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## Mike Finley (Apr 28, 2004)

HusqyPro said:


> Hit me Mike. The way I'm doing it is hiring a knowledgeable, trustworthy GC and taking his advice. If there's a better way I'm all ears.
> 
> I guess my original idea isn't so smart then. Since 3 bed 2 bath houses are hot in the rental market I though renovating this one would be a good way to go. Especially since I can renovate this one cheaper than I can buy a 3 bed 2 bath house in the same neighborhood to rent. I'll set my sights a little higher.
> 
> ...


My advice would be not venture into residential rental properties if you don't have the personality for it. Renters are a little like children and have to be taught early on how to act or the consequences. They will often test the land lord to see what they can get away with.

In my lease agreement there is no grace period for rent. A landlord friend of mine who is always whining about how much it sucks to be a landlord asked me one day about late rents, as in how do you deal with them all the time. My answer is I don't I don't have them. He asked well what's the grace period you are using? I said there is no grace period. The rent is due in our possession on the 1st. If you give them a 5 day grace period then that just means you're saying the rent is really due on the 5th. When a tenant is 1 day late with the rent, we send them a letter with the penalties and collect it without exception. This sets the tone that rent is due or be prepared to pay a penalty. 

Like I said these little tiny nuances are the difference between getting paid on time like clock work and chasing rents and hating being a landlord.

But Bob if you don't have the personality you'll slowly get eaten alive in residential. Everybody will be taking a piece of you.

My suggestion is not to get into residential rentals and instead save up more money and look into commercial. Storage and commercial warehouse space is much easier to manage. A nice 5000 sq foot building divided into 1600 sq foot units with 12 foot doors will rent out steadily all day long in most parts of the country and the headaches will be much fewer.


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## HusqyPro (Aug 3, 2009)

I honestly have to say I'm a little bit crushed and disappointed. I've been nurturing this idea for a few years, done some research, and thought I was ready. Only to find out that I don't have the personality for it and things aren't quite what I thought they were. 

Time to find a Plan B to grow some retirement wealth.

I had though about coin operated car washes and laundromats, but you guys don't need to tear that down tonight. Spare my feelings and wait til tomorrow.


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## ChainsawCharlie (Jan 16, 2008)

You like a well landscaped yard.

Tenants like well landscaped yards.

Tenants DO NOT want to "well kepot" the yard themselves. They expect it to be done for them. Even with a rent adjustment to let the tenants handle the landscaping, eventually, they will get the attitude "I pay rent, screw the yardwork".

A majority of my accounts are rental properties. I've seen tenants take over and it goes to hell. if you're doing it, you're not getting paid. Do you want to hire someone else to take care of it?

When it comes to rental properties, remember the KISS philosophy: *K*eep *I*t *S*imple, *S*tupid. Unless you are planning on high end rentals. 

Keep the landscaping simple and skip the irrigation. If you get a tenant with a green thumb, let them take liberties with the 'scaping. They'll appreciate it, and won't mind manual watering to make it a home THEY enjoy. It's a hobby for them. They will be living there. They will be paying to live there. Let them give it a look they like on their dime. Everyone will be happier for it.


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## ChainsawCharlie (Jan 16, 2008)

HusqyPro said:


> I honestly have to say I'm a little bit crushed and disappointed. I've been nurturing this idea for a few years, done some research, and thought I was ready. Only to find out that I don't have the personality for it and things aren't quite what I thought they were.
> 
> Time to find a Plan B to grow some retirement wealth.
> 
> I had though about coin operated car washes and laundromats, but you guys don't need to tear that down tonight. Spare my feelings and wait til tomorrow.



You don't need a specific personality fot it. That's what property managers are for. 

Don't let anyone piss on your parade. Especially someone with the initials *MF*:laughing:


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## HusqyPro (Aug 3, 2009)

ChainsawCharlie said:


> You don't need a specific personality fot it. That's what property managers are for.
> 
> Don't let anyone piss on your parade. Especially someone with the initials *MF*:laughing:


I guess I just feel... used. :sad:

This is something I've wanted to do for a while. So last winter I dropped $3,000 on a real estate seminar in Seattle. I thought they were teaching me the right things.

Buy a property in a good neighborhood.

Fix up the property to make more money and attract a better class of renters.

Use a reputable property management agency to screen the renters and handle the paperwork.

Pay off the properties as quickly as possible.

Have at least 20 high quality rentals paid for before considering retirement.

Consider multi-unit rentals after you have 6 single family houses.

That was the plan. It sounded good to me. What do I know about renting properties? That's why I went to the damn seminar.

Then I find out that it doesn't really work like that in the real world. Property management companies don't actually look out for your interests or property. To be a landlord you have to do it all yourself and be a hardass.

That sucks. I'm so friggin pissed that I wasted the money on that stupid seminar! I can't believe I got suckered into that! I can't believe I just spent $800 to have a house inspected and remodeling blueprints drawn up!:furious:

At least I found out it was a scam before I actually carried out their BS plan.


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## W-Tinc (Feb 15, 2008)

+1 to what Mike says. Lots of good deals out there, you will be further ahead finding one that does not need a big rehab. He's exactly right about financing too..its a b!tch atm.

How will you sustain the buying and renting? I have some equity in my residence, and own a couple rentals. One is paid off and I have pretty good credit. I thought with prices being what they are I should be able refi as I go and buy several more properties. Great! I can be wealthy and retire in ten years all thanks to the current housing bust.

I could not make it work out, too hard to deal with the lenders. Once you use up your heloc you may be dead in the water..make sure you address that before you buy.

Another thing to consider..look at lots and lots of houses to get an idea of whats a great deal in your area. I will usually walk around 20-30 houses before finding a couple I want my realtor to show me. It takes time but I enjoy it..more of a hobby than work.


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## Mike Finley (Apr 28, 2004)

HusqyPro said:


> I guess I just feel... used. :sad:
> 
> This is something I've wanted to do for a while. So last winter I dropped $3,000 on a real estate seminar in Seattle. I thought they were teaching me the right things.
> 
> ...


If you're this easily discouraged then it's good for you now to pull the dirt over your head and give up, cause planning and talking about it for years and then posting about it on the internet is like being a virgin and thinking you have sex figured out before you've ever had any.

Better for you to be a quitter now if you're this quick to quit then to get involved and discover where the real work begins.

Now if you find your balls and decide you are in control of your own life, understand that nothing is easy, understand that most of what you hear or read about real estate is total bull sh*t. Most seminars are total bull sh*t, they are their to sell you something and of course its going to be a whole lot easier to sell something to somebody pumped up about it then after the speaker has spent 2 hours giving the honest, true picture of hard work and very slow return on your money. 

The thing you have to understand is that almost 100% of the real estate rental seminar business is built on an unsustainable model of people buying cheap properties. That's because those are easy to get started with. But the problem is once they sell you the books and seminars to get started they have your money and won't see any more of it so the only thing they care about is getting people started, whether it's the right start or not.

Success in rentals is about what I told you already - it's about thiking about your rental as a product.

Would a product be more successful if it is more desierable to people who have money and are responsible and will cause you less headaches or instead to people who will be the opposite.

On the two opposite ends are section 8 housing and a high end corporate rental. Which one is going to have the most problems? Which one are you going to be doing repairs, dealing with tenant issues, chasing rents?

This tells you the further up you get from section 8 the lower the hassles will be.

But few rental investors start off with an expensive, nice property that will rent to nice, responsible people.

That is why most people can't make rentals work long term, cause the seminars all say to get started with a sh*t hole but the burn out caused by the baggage that comes with it kills the land lord. 

Save and buy a nice property that has a long life to it. Think about your sh*t hole and the neighborhood it is in, the schools it has. Where is that neighborhood going to be in 20 years? Now think about the nice property, the schools and where is that neighborhood going to be in 20 years?

Nobody thinks this way and that is exactly how you should be thinking. Nobody thinks this way cause the seminars don't try to sell this, cause it's way too hard to buy these properties. These properties are not laying around a dime a dozen in foreclosure, these properties are keeping their value, which is the sign you want for your long term business of rentals. These properties rent to responsible people, they will appreciate in value, the rents will increase steadily while your mortgage stays the same. 

You can do it Bob, but you have to man up. Nobody gets handed anything in this life, you aren't handed or weren't handed anything to get your business where it is today, it won't be any different in rentals if you are to be successful at it.

There is no such thing as hands off rentals in the begining with a property management company handling 1 property for you. Do that in within less then a year you'll be selling your rental to the first person who makes you an offer.


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## Michaeljp86 (Apr 10, 2007)

paulie said:


> I posted this because in your model plan you left out the actual renting part as I did in my planning and the headache's it can cause. Good renters are out there but so are the ones that will make misery.


Thats true but I kindof found a loophole. My dad wanted to get into rentals a few years ago and also flipping houses. His idea was buy cheap houses and have rent cheap. He said you can always sell a cheap house and you can always rent a cheap place. I tried to talk some sense into him but you cant.

The problem is with flipping a cheap house you cant add enough money to the price to turn a decent profit. If you have a $20,000 house and add 50k for your profit now your trying to sell a dump for 70k, its not going to happen. If you have a $200,000 home and add 50k to it you didnt add a whole lot to the price. I read about some people in the florida keys who flip houses in the 20million range. They can add a few million to the price and nobody knows.

The problem with rening cheap like my dad does is anyone can come up with $200. Crack heads, illegal immigrants, prostitutes. They pay for about 2 months then stay as long as they can without paying rent. They also urinate on the floor, take door knobs off and throw them in the yard. They will rewire the apartment, steal anything and everything. The michigan laws is set up in favor of the renter so the landlord is screwed.

If you do anything its best to get into the higher end of things unless you get a good deal, like a $40,000 house for 10k.

My plan is to buy a nice dueplex, one that rents for $650. There is alot of those around here and Ive know people who lived in them. Most of the renters are there for 10+ years. Two or three bedroom rental houses next to a good public school are usualy good income. Id like to get into vacation rentals, Ive seen them here on lake michigan rent for $3000 a week.


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## cleveman (Dec 28, 2007)

I've had four rental homes over the years. Still have two. They've been good for me.

If you let me build that garage for you for $21,000 and throw in another $3000 like you spent on the seminar, I will walk you through the whole procedure.

It's not too big of a deal. If you think it is a good deal, do it. I don't know what you want for a return. I have $100K in two townhomes and they gross me $18 per year. My property taxes are up to $3200 and my insurance should be about $600. You should also figure one month per year vacancy. This gives me a return of 12.7%. Every now and again there will be an appliance which needs repaired or replaced, and I'll have some labor in cleaning and general maintenance.

You may be happy with an 8% return, I don't know. If you can show me some way to make over 10% return year in and year out, I'm interested.


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## Mellison (Aug 3, 2008)

HusqyPro said:


> I would use a property management company. They set the rental rate, screen renters, and handle all the legalities and paperwork. The going rate is 10% to 12%. I know enough about landlord tenant law to know that I would want an expert handling that aspect so I don't get burned. Basically they would send me a check every month. I'd never have to meet with or interact with the tenants.


That is what I do. Except I pay 18% in SW Florida.
Best advice I received was don't expect 12 months of rent a year.
Turned out to be 100% acurate due to move outs, rental agent commission, repairs etc.
I happen to love the whole idea of owning and renting real estate (truth be told I only own one property now). I could see how it would become a real pain in the ass if you didn't have a real love for it.
Good luck,
Mike


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## barnbuilder1 (Dec 6, 2008)

I just got my renters to move out after 7 and 1/2 years. Made out ok, I did it hands off and didn't keep up property. Now I have to spend 4 solid weeks getting property ready to show, It was a mess. Get a 3 month rent for security deposit, if rent is not paid by midnite of the first, stick a letter on door give me the money or use of property. Save up and pay cash for a house. Just paint and spruce up and make weekly inspections, just say I will be by fri. at 5pm. You have to treat like BUSINESS. You must know how to fix anything. Do not use a property management. I like 6 month leases. Must be a people person but firm and honest. I would buy a plain jane house, simple construction. Remember these renters are renting for a reason.


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