All right, it's 11 pm at night and I got through the nine pages of the thread to review. Here's my first takeaway.
Some of the people here are known quantities to me and I've been following them for quite some time. I know @Dennis M. pretty well here on BiggerPockets.com and follow him carefully, so what he's contributed hasn't been much of a surprise. Likewise with @Linda S., one of the best people for renovation advice here on the site. I know @Jill F. in Akron and her multifamily business model. @Matt P.'s work in Columbus is the same kind of thing. I believe all of these people are self-managing local investors running rentals in their neck of the woods, quietly working away on their growing portfolios. Most, especially Matt and Linda, do almost all of their own work, as I do, unless I'm mistaken. Dennis and Jill are primarily in multifamily.
I've seen some of @Randy E.'s posts in the past, but his contributions here have been a real eye-opener. I've been missing out. I would also say the same about @Jonathan R.
There's a pattern that's emerging here of people who work in this space. We have individual, local investors who routinely have issues refinancing. I'm right in there now with portfolio refinancing from my bank (Dollar Bank), which has financed every step of our development from the first rental in 2013 through home equity and personal loans to now. Not many developed comments here by long-distance investors making money in the $30K space. @Account Closed in Vegas, you still seem to be out of luck when it comes to practical advice to work with other than, "Have a rock-solid PM" (contributed by @Dave DeMarco) and have a "great team on the ground" (contributed by @Marisa R.). Good luck with that.
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Here's what I think is the most important thing I can talk about regarding what's been said here by believable sources:
One of the main criticisms we've seen about making money in the $30K space is that sooner or later, higher levels of capEx will kill you. Cheaper properties simply take more money to maintain and eat up money. Randy's taken a good strong ax to this argument, and I agree with everything he's said. A local investor who's handling his own rehabs can largely mitigate this.
(Apologies to people from Pittsburgh for activating your keyword searches and drawing you here, but hey, I've got to talk our area here to illustrate this point).
The Pittsburgh MSA is Allegheny County, where the City of Pittsburgh proper is located, and the surrounding counties. There are an additional 130 independent municipalities in Allegheny County besides the City. There are a number of communities in the five counties that surround AC. Within the MSA, the cheap houses are to be had in four distinct locations: within the urban slums of the actual city, within the urban and suburban slums of the surrounding municipalities of Allegheny County, the limits of Allegheny County, and finally, in the surrounding counties, excluding $$$ pockets with strong school districts and a few purpose-built tax-haven bedroom communities just over the Allegheny County line (Cranberry Township in Butler County, where my brother lives).
My target area for those $30K properties is just outside the southeastern limits of the city, which actually used to be very prosperous when the steelmills were running. After the steelmills left...these areas went downhill. I typically buy SFR, but I also have one duplex and would not be averse to investing in other 2-4 unit multifamilies given the right circumstances.
There are two building boom periods for these areas: 1890-1929, as Pittsburgh was being built, and 1945-1960, as a lot of new housing was built for returning GIs and their new families. All of our properties except one belong to these two building periods. ALL of them are solid masonry or brick veneered, one of my basic demands for new acquisitions. There are plenty of 1920-era properties in this target area that were built really well back in the day.
For instance, my duplex was built for an heiress of the West family in the 1920s. The Wests owned most of West Homestead, one of the boroughs I invest in. West Field in Munhall, the main sports arena. is named after them, and my duplex is right by West Street. The over-under duplex itself is 2 apartments of 1760 ft2 each with an additional 1850 ft2 in the basement that my wife currently uses as her studio. This thing is built like a truck. Seamed copper roof, brick veneer, quartersawn oak, what would be modern clear-grade oak floors. The duplex was built at a time when the population density of the Borough of Homestead down the street was approximately the same as modern-day Manhattan. What do 1760ft2 2/1 apartments with another 900 ft of storage space go for in Manhattan these days?
In 1945, the duplex was sold to an old Munhall family which extensively remodeled it then sold it to a dude marrying into the family. Over the next 60 years, that dude, his children, and his children's children ran that duplex into the ground, following the time-honored formula of doing no maintenance until the place falls down. When I bought it, the Section 8 tenant on the upstairs floor had just shattered her leg on the poorly repaired front steps and had had to go into managed care. The tenant on the downstairs floor had moved out the year before when his bathroom sink drainage piping sprang a leak and the landlord's response to his asking to have it fixed was to tell the tenant to put a bucket under the leak to catch the water.
Suffice it to say, the duplex had extensive deferred maintenance that had to be brought up to date, which is why I got it for $45K. But once that maintenance was done, this place is still almost as solid as it was when it was built. Prime location across from the borough building and police station and what used to be the local hospital, very good drainage, great views down the big Homestead Hill from the top apartment's balcony, lots of light through the 20+ windows per apartment.
My point in sharing all this is to point out that not all older residential housing structures with major deferred maintenance are at the end of their lifetime. A well-done renovation will often be able to get many more years of service out of them. This is not the only place like it in Munhall. My most recent acquisition is a 1300 ft2 brick home within walking distance from the duplex, which I believe was built circa 1929. In its heyday, it was next to the local high school, and just a little way down from the prestigious Carnegie of Homestead (a combination gym, theater hall, and library). You could walk down the street and get to the main HQ of the steelmill that was the main employer of the area, the Homestead Works.
Well, the Works closed down in the 1980s, the high school has been long bulldozed, the Carnegie went way downhill before it was taken firmly in hand, and this brick single-family home is now surrounded by low-income housing nearing the end of its operational life. I got it for $25K from the former long-term owner whose family had bought it when the steelmill was around, then watched the property's value dwindle over decades. The maintenance on this place was not neglected until maybe the last decade. I'm certain that with a 6-month rehab I'll be able to keep it running as an SFR for the rest of my time here in the Burgh (once again, I project 8 years) and the guy who buys it from me will make money on it for a very long time to come.
My point is that these places still have amazing value for their age as rental properties. Because while neighborhoods decline, sometimes it's not forever. And this is the case in the target area I'm investing in. I specifically chose the target area back in 2013 because I knew that the tax-increment financing deal to build the Waterfront, a gigantic shopping and entertainment complex erected on the site of the former Homestead Works, would run out in 2018 and the municipalities I've mentioned, West Homestead, Homestead, Munhall, and the school district of the area, Steel Valley, would all receive massive bumps in their funding. Most local Pittsburgh investors didn't really pay attention to this, and now in the Homestead/Munhall area of Greater Pittsburgh, we're seeing completely predictable developments that anyone could have seen coming if they had been paying attention, and the many Johnny-come-latelies are struggling to find anything decent to buy that isn't falling apart, which really makes
What are the chances that OOS investors would be able to see this coming if the locals couldn't manage it? Absolutely minimal.
Over in BPs Pittsburgh forum, I just posted a thread about Rankin, another municipality in the area. Rankin is a slum. Practically half the municipalities population is in the three major housing projects in the area. Ah, but it is also the site of the defunct Carrie Furnace, one of the last large open lots on the river, with excellent road and bus access to the rest of Pittsburgh and Allegheny County owns that site outright. The Carrie site was one of the three sites held open for Jeff Bezos in Pittsburgh's Amazon HQ2 bid. Once Pgh's bid failed, the property was released and proposals for development were requested. This was back in September 2018. The proposal submission process ends at the end of April.
Do you know how many local Pittsburgh residential investors here on BP knew that? Zero. Do you know how many of the local residential Pgh people I know off BP know that? Two. That's it. So what are the chances of an OOS investor becoming privy to this important knowledge? Rankin has plenty of the same high-quality old brick builds Homestead and Munhall have, places that can be remodeled into good moneymaking, highly-functional SFR . They can be had in Rankin right now for $15-$20K. Who's buying them right now for peanuts? Nobody. What's going to happen when the Carrie site is sold to a developer? They'll all be scrambling.
The generalized capex argument is kind of silly when measured against the capabilities of a local investor who can do most of the work on his own properties and knows what to buy, what will last, what can be brought back and how much it will cost to bring it back. Not all builds are of equal quality or longevity, especially in the small multifamily and single-family space. This also goes for condo developments, as I can also bear witness to.
I currently live in a 1970s-era tract-built townhouse condo in a development that's falling apart. It's in a tony neighborhood next to a newly redeveloped pedestrian mall and across the street from the toniest pedestrian mall bar none of western Pennsylvania. Any this tony townhouse has got maybe forty more years in it before it will need to be bulldozed, and the people that built it knew exactly what kind of short-lived garbage they were building and what kind of short-sighted idiots would be mismanaging it. My 90+ year old duplex is going to outlast this 40-year-old joke of a house by almost a century, by my rough calculations.
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Something else that makes sense that I paid attention to was the importance stressed by multiple parties about tenant relations in these $30K properties. I really like a term I lifted a while ago from @Steve Vaughan, "deal belly to belly with these people." Much like Dennis, much of my childhood was spent in upstate New York (about 150 miles away from him, I'd guess?) in a $400/mo. rental on food stamps with no health insurance and the phone ringing off the hook by people looking for their money out of my dad. Yeah, we moved the car around to avoid it being repossessed. Yeah, in desperation, my father started a small business in the rental and hid it from the landlord. Yeah, when I was in college, my parents paid for some of their bills with my credit card and didn't tell me. I'm not a stranger to what poverty does to people.
But still, I have some trouble relating to my tenants. I recently got into a discussion with one of my tenants about the sewer payment. Currently, the way it's set up, I pay the sewer on her SFR, and the sewer bill is tied to her water bill. The borough, or rather the service that sends out the bills, has been on me to switch the bill to the tenant as is customary for this area. So that's what I'm going to do, and give the tenant a rent cut so she can pay for it.
I tried to explain this twice to the tenant and never seemed to get anyway. It wasn't until I realized what was wrong and stated what I needed to state firmly and clearly that I finally made headway, "We am not trying to sneak an undercover rent increase by you. This is going to be cost neutral, I can promise you."
The problem here was that I have not lived in a low-cost rental property for many years now, and I couldn't see how she was seeing it, from the perspective of having spent all her life in this kind of housing out here in western PA, where I've seen a lot more crappy landlords than I have crappy tenants. In her world and social circle, any landlord, regardless of any past behavior, can turn on you at any moment, and this is even more true of landlords who live far away and only communicate through a property management company and certified mail. Picking up the phone and calling the landlord and having him show up quickly, let alone show up WITH TOOLS, is an incredible luxury.
My tenants call me when something needs to be taken care of. They call me when they see my investments are in trouble. I am there routinely with furnace filters and batteries for the CO2 detectors and smoke alarms. They know me. They know I'm committed to the area. They know I have the construction knowledge to understand that many minor issues are not their fault, and I'm not always trying to pass the blame and expense to them. Holy smokes, I remember this guy here in the BO forums a few months ago asking about passing the expense to a tenant for replacing a mirror in the bathroom that had been damaged because "the tenant's showers are just too long."
You've got to be able to work with tenants openly and fairly and speak to them in the language they best understand, and local investors can simply do more of that better than long-distance investors, most especially if they can understand where these people are coming from through their own personal backgrounds.
