Fun Time to be buying real estate - what are you buying and what kind of results are you seeking/getting?

Question

I love real estate investing as most of us do.  There are different models working all across the US and it would be fun to network and compare models/results.

I'm in metro Atlanta, I've been here for over 20 years and have always been a very active investor/contractor.  For most of my Atlanta years, I focused almost exclusively on single family rentals.  In recent years, I have switched everything to shared housing which is a headache to rent/manage but the results are worth it.  When I factored in vacancy, repairs & legal expenses, my old single family rentals were lucky to product 5 to 8 percent annually and that was with us handling the management & rentals.  We created a shared housing model that is now producing 10% to 16% returns on the back-end and almost obscene returns for our front end partners.

What is everyone else doing?  Happy Investing!

Andy Luick · Answer

A rooming house or boarding house is a type of shared housing.  It's typically where the renter is just renting a room and has no other privileges in the house...often with zero bathroom use.  It conjures up images of the American Depression where many people rented rooms in their homes in order to keep them.  Like people, they come in all shapes & sizes.  Rooming houses usually require specific operating licenses in most cities and sometimes special zoning depending on occupancy levels.  There usually is no screening process and unscrupulous owners or slumlords just slam bodies into rooms..often renting by the week.  Many jurisdictions limit the number of unrelated people living in a home to 4 to avoid some of the problems associated with the lowest forms of shared housing like rooming houses.

With the tougher economic climate, we created [...] to assist homeowners to screen, find & select suitable housemates.  We might help rent a basement, terrace apartment, private room with bath or private room with shared bath.  All of our rooms come with shared usage of the common areas:  kitchen, dining, laundry, decks, etc.  They also usually include all utilities.  We have had a everything in the program from a $350/month unit to a $2,500 a month unit in an exclusive gated neighborhood...and everything in between.  We thoroughly vet every candidate...both renters and owners...and match renters based on lifestyle and personalities.  It's taken us years to develop the model but what we do works.  Most of our renters are professional people either looking to save money, stay flexible or recover from divorces, job losses or health issues.  We were recently filmed for a forthcoming tv documentary on shared housing and how it works.

We've since taken the [...] concept and applied to our investment properties with stellar results.  It isn't the easiest thing to establish in a 3 or 4 bedroom home where you will have multiple personalities sharing a home but the results are worth the efforts.  Units we have either acquired or taken over are cashflowing a net 10% to 16% consistently.  We minimize vacancies, repairs, repaints and most of the costs of holding investment residential real estate.  At the same time, shared housing maximizes the rents with higher rates with less turn-over.  While most associate shared housing with lower income groups, we have many white-collar professionals in our homes.  We're also beginning to see more older, 65+ applicants who are being forced to cut expenses to live comfortably.

Part of the key to success with shared housing is presently a property that feels like home and is comfortable for those who live there.  We partner some with cash investors to buy distressed homes which we then turn into shared housing.  When we do, we wait to see what kinds of furnishings our tenants will have and then we supplement with furnishings or decorations of our own.  It's a unique model but one that is timely and profitable in most markets.  We are just now working on an inner-city unit to see what kinds of tenants we attract.  If it works, we will be able to develop the model for other cities besides metro Atlanta.

Andy Luick · Answer

The fun thing about real estate is that there are so many options & approaches...what works for one might not work for another or even be appealing.  Like many, I have here to learn and share.  There are some phenomenal people here to network & share with.  My approach here was to see & share what others are doing....my responses have been in reply to what others asked.

@Eric Michaels - this is absolutely a great approach to turning around under performing rental units.  We've been doing that for quite a few metro atlanta investors stuck with properties they bought "rent-ready."  I've been around this business for a good many years and a 10% to 16% net return is very strong for a passive investor holding a renovated & rented property.  At least on everything that I do, I offer a 10% net guaranty for 18 months.  You're absolutely right...you can get better returns doing deals differently.  My front-end JV partners earn 10% plus half the profits on the sale and they control the property.  For these partners, their returns are in the neighborhood of 20% to 30% in 6 to 12 months with some running as high as 40% or 60%, depending on what we bought and how well it rented out.

You're certainly right, there are risks to everything.  That's sadly why we have lawyers and insurance.  I hope we never have such an incident in one of our properties.  We have no interest in creating a scalable model...that isn't our niche.  This is a very personalized model and it's effective because of all of the effort we put into it.  I started doing shared housing in college and have been doing it approaching on 25 years now.  It was profitable then and it certainly is profitable now.

As a transactional lender, yours is probably the most profitable operation of all.  Like mine, it almost makes owning real estate silly.  So aside from your lending business, what type of residential investment deals are you doing and what types of numbers are you seeing or producing?  In some markets, like Chicago, there's still a very robust flipper market and that may well be what you are doing.  Great numbers in that too, if it's in the right market, which is honestly true for all of this.  It's all about sharing & networking.  Most residential investors in our market are very lucky to see 2% to 3% annual returns by the time they account for repairs, evictions, taxes and insurance....plus vacancy & commissions.  Quite a few of the investor properties we've taken over and turned into shared housing were empty for over a year.  Now they are back producing and at a better net rent with less vacancy.

Eric M. · Answer

Sounds to me like this approach might be useful in turning around a poor rental unit.  But 10-16% are good but not at all incredible numbers.  Those numbers are easily achieved in many markets renting SFH or typical multi family properties or flipping.  I achieve much better than those numbers with zero work through JV's with rehabbers and developers.  I think many of us here achieve better than those numbers.

I don't get why you need to try to create a whole new niche and deals with a multiple number of tenants without getting a commensurate return.  And on top of it, it isn't easily scalable I wouldn't think.

Glad it works for you and that you have been able to promote your business with this post.

Ultimately, the killer (pun intended) for this type of structure is landlord liability.  You are screening and putting people together who are unknown to each other.  I don't know what your lease looks like but since you are vetting the tenants you certainly have some liability.  The first time one of your tenants kills or rapes another you are going to be in one fun legal mess.  They are going after you for putting the person in danger.  Putting someone in the unit next door is one thing and well tested...but putting someone in the same unit???  Wow, untested legally and risky as hell IMO.

Andy Luick · Answer

@Kizzy Robb - it's not a shift in the market....just recognition of a niche that we are suited to fill.  Most would thing that the tenants are marginal or low class and that isn't the case at all.  We get renters from every cross section of life.  We have some who could well afford an expensive home but prefer to share one.  Some of our home shares are million dollar homes in gated communities....they run the range from $300/mo to $2,500 and everything in between...some furnished some not.  I love this model because I get better net rents on the houses for my investor partners (not all of our homes are investors products as we work with homeowners are well).  We took over an investor property recently that had languished for a few years and tripled the net rent in about 90 days.

BP is an awesome place to share and exchange ideas...leaving many of the better for the experience.  I was at a meeting recently and got laughed out of the place when I explained my model a bit.  In the back of the room, unbeknownst to me sat one of my joint venture partners...the laughing stopped when he stood up and said he made over 40% in 6 months on one of our deals.  He basically said...I'm the one who is laughing now.  Fun stuff really.  There are so many ways to make money in real estate....but probably more ways to lose it!

@rachel leonard - shared housing at our level has been around for a bit but mostly out of necessity in very expensive housing markets like NYC, LA and the sort where even couch crashing can be expensive.  I think you will see this evolve to address senior housing as well where seniors might have a private room or two and share the rest of the home.  Necessity is the mother of invention.  I like that our partners can earn good by doing good...affordable housing is a blessing for those who receive it and provides great returns to those who invest in it.

Kizzy Robb · Answer

Hi All,

This does sound interesting (shared housing).  I'm surprised to learn it works well in Atlanta.  @Andy Luck  what is driving the switch in the market.  Are prices for rent increasing?

Rodney Walker · Answer

That's an interesting concept.  @Rachel  Leonard had a good point about the types of tenants that seem to be desiring that type of arrangement.  Although, I do see that as a concept that is taking place in Florida with seniors.  I wish you well with that.

Rachel Leonard · Answer

Hi @Andy Luck . I'd be interested to hear about your shared housing experiences in Atlanta. I have shared housing in London which works really well because rents are high in good locations and young professionals are happy to share an apartment/ house with other like-minded people. I have thought about whether this would work in the Atlanta market but I'm wary because shared housing here seems to be associated with lower income and not so good areas.

Tom Yung · Answer

Hello Andy:

I'm also interested to find out what you meant by shared Housing. Do you mean rooming House?

I am targeting buy & hold in GA for cash flow.

I also do tax deed for flips or wholesale

Rodney Walker · Answer

Can you elaborate on shared housing?  I want to make sure your definition and mine are the same as well as learn about your business model.