Having a hard time growing.. Looking for ideas

24 Replies

Hey all, 

I've been in the real estate game for a good many years, and I will say I've learned more from my failures than my successes.  I originally started with 2 and 3 family homes, which I purchased with cash.  Then I purchased one rehab in a good area, but been fighting with the city government on approvals for the last year.  And I purchased so far one multi-family in a good area, which is doing fine.  The others are in C areas and I own them outright.  I tended to buy the small buildings because I can buy them for cash and not have to worry about a mortgage.  Since most of these tenants are, well, low income, section 8/dss or blue collar, we've had a few evictions over the year.  It's annoying enough having to evict and turn over the unit, but it's even more annoying and stressful if I had to also pay for a mortgage.  I am thinking maybe I should shoot for larger 1.25 million dollar properties or higher so I can take advantage of the Freddie Mac Small Balance Loan program.  I do not seem to be growing with this small units.  I believe it's partly because over the past two years I had to rehab two buildings completely and redo and rebuild a commercial space.  I am still fighting the city on a downtown building, which is taking forever to get approved (they approved the work, but not the materials if you can believe this).  I can sell the building vacant and unfinished, but since I dumped 200k into the building (after completions, the building will be worth over 600k. Paid 35k for it), I think these three buildings have been taking a lot of my profits to get them completed.  Two out of three are now complete, so things should be hopefully smoother.  However, me and my team seem to always have to run after a handful of tenants to pay their rent.

So, in terms of DRTL, should I look into slowly selling off these small buildings (I'd profit 30%+ on each) and look for more expensive ones so I can grow?  I just do not feel like I am growing anymore.

@Mike A. the way to grow is to do more volume am or larger deals. I prefer the bigger deals. They are easier and do not require much more effort than small deals. Sometimes even less.

Scaling is all about systems and efficiency. Making the and doing the most with the least amount of time energy and effort.

I am happy to help. Feel feee to reach out if you would like to discuss your situation and strategy.

@Mike A. that sounds frustrating. I think the biggest "scaling" moment for me wasn't focusing on purchasing as many units as possible, but instead focusing on the best value units. In my situation that was focusing on B and C class tenants in desirable areas. 

I think the answer to your question depends on where you want to be in real estate investing. If it were me, i'd sell the properties and roll that money into something like commercial syndication. That's a big way to scale, but you can afford the better tenant base and professional property management. 

Agree with @Lucas Miller and @Greg Dickerson , systems and larger properties. You could 1031 into larger B and C class properties in good or gentrifying areas and get rid of the “chasing tenants for rents” inefficiency.  Can’t really speak to the commercial spaces but it would seem that just staying on top of the city folks to get your approvals so you can finish is key, get it stabilized and move on.

@Mike A.   It sounds like scaling into larger deals (in good areas) would be the best route based on your original post.  Maybe you could hold onto the deals that aren't requiring as much of your time and are producing decent returns while selling off the other ones in order to focus on larger deals?  

Some people will also look at the ROI/ROE for the properties that have been purchased with cash since they are likely to be giving pretty low percentage returns. Looking at the properties from ROI/ROE and a time point of view may help you make the decision.

Originally posted by @Greg Dickerson :

@Mike A. the way to grow is to do more volume am or larger deals. I prefer the bigger deals. They are easier and do not require much more effort than small deals. Sometimes even less.

Scaling is all about systems and efficiency. Making the and doing the most with the least amount of time energy and effort.

I am happy to help. Feel feee to reach out if you would like to discuss your situation and strategy.

Always looking to improve my strategy.  PM sent.  Thank you for the offer!

Originally posted by @Lucas Miller :

@Mike A. that sounds frustrating. I think the biggest "scaling" moment for me wasn't focusing on purchasing as many units as possible, but instead focusing on the best value units. In my situation that was focusing on B and C class tenants in desirable areas. 

I think the answer to your question depends on where you want to be in real estate investing. If it were me, i'd sell the properties and roll that money into something like commercial syndication. That's a big way to scale, but you can afford the better tenant base and professional property management. 

Not exactly sure what commercial syndication is.  Could you elaborate?  The smaller properties weren't exactly cheap, they're each worth about 120k - 150k each.  I bought them between 75k-90k and did some rehabs.  They throw off about 20%-25% gross, but with many of them, there's a lot of chasing with at least a third of the tenants. I liked that I didn't have to worry about a mortgage, as I do with my two complexes.  The complexes bring in more money because they are more units, but in a C area and the buildings are old and we're finding out the previous owner really didn't take care of them.  Roof issues, plumbing issues,etc.  All are headaches.  Should they be located in another part of town, they'd cost 5 times as much. I can sell them for a 22% return, but after repairs, I'll net around 75k.  So, in order to avoid the taxes and depreciation, I need to 1031 into another building.  It just seems growth is taking forever.

Originally posted by @Charles Soper :

Agree with @Lucas Miller and @Greg Dickerson , systems and larger properties. You could 1031 into larger B and C class properties in good or gentrifying areas and get rid of the “chasing tenants for rents” inefficiency.  Can’t really speak to the commercial spaces but it would seem that just staying on top of the city folks to get your approvals so you can finish is key, get it stabilized and move on.

Working on it. The city is not being helpful, nor are the politicians. It's a good way for them to deter me from investing in the city again.

Originally posted by @Chase Louderback :

@Mike A.  It sounds like scaling into larger deals (in good areas) would be the best route based on your original post.  Maybe you could hold onto the deals that aren't requiring as much of your time and are producing decent returns while selling off the other ones in order to focus on larger deals?  

Some people will also look at the ROI/ROE for the properties that have been purchased with cash since they are likely to be giving pretty low percentage returns. Looking at the properties from ROI/ROE and a time point of view may help you make the decision.

 I've gotten rid of the properties which were yielding low or no return.  However, I just find it difficult to obtain the 2 million dollar properties + since I'm not really growing from the small ones.  They throw around 15k off a month net.  Now, to be honest, I did three rehabs last year, so that may be the issue, but only time will tell on that.  The portfolio should be throwing off closer to 30k net.

@Mike A. syndication is just a fancy word for group investing. You can pool investor money together and purchase larger commercial sized buildings as a way to scale. Of course it gets much more complicated, but the foundation is simple. 

Why not fastest - value -growing class A property?   Close to largest cities  

Originally posted by @Lucas Miller :

@Mike A. syndication is just a fancy word for group investing. You can pool investor money together and purchase larger commercial sized buildings as a way to scale. Of course it gets much more complicated, but the foundation is simple. 

Was never a fan of partners.  Too many cooks in the kitchen.

Originally posted by @Ethan Smith:

Why not fastest - value -growing class A property?   Close to largest cities  

A class A property in Stamford or Greenwich would be 5m +. A bit too pricey for me right now. The net throw-off wouldn't be very good either. 4% ROI?

@Mike A. If you have access to millions (that's the impression I have from reading your previous post), then you should definitely consider value Add investing via forced appreciation. You would need the expertise to understand how to buy undervalue, increase NOI and exit/refinance.

If you structure the syndication right there won't be too many cooks in the kitchen.  The partners you raise capital from are passive investors so you still control the deal.  Multifamily is a team sport but you are still the coach.

Originally posted by @Henri Meli :

@Mike A. If you have access to millions (that's the impression I have from reading your previous post), then you should definitely consider value Add investing via forced appreciation. You would need the expertise to understand how to buy undervalue, increase NOI and exit/refinance.

Most is locked into the buildings as I bought them for cash during the correction. I would either have to sell them or get a mortgage. I've tried to get a LOC on them, but the banks I went to weren't too keen on giving me a LOC on any of them. I'd be able to gross profit off a sale from 20% - 60% per building should I sell. However, since most are in C areas, it's not been the easiest to sell. That's what I'm running into.

Originally posted by @Erik K. :

If you structure the syndication right there won't be too many cooks in the kitchen.  The partners you raise capital from are passive investors so you still control the deal.  Multifamily is a team sport but you are still the coach.

Always looking for more info on these syndication deals.

@Mike A. I know exactly how you feel. I too was in residential REI with SFH's and then "graduated" to multi-family many years ago. And I too learned many hard lessons along the way, the main one (because it hurt the most) was being on the verge of a financial collapse.

At my wife's consistent prodding & urging we turned our attention to Self Storage.  Beforehand it had never crossed my mind because, well, we were "sophisticated" investors.

Since then we've never looked back.  And did I mention there's no toilets, no tenants, no trash?  In fact, we now own only one house - the one we live in, but lots of rentable square footage around the country.

Anyhow, just a suggestion...

If you're interested PM me.

Thanks!

Scott

Originally posted by @Scott Krone :

@Mike A. -  What is your definition of grow?  You have increased the number of units, and types which is by definition growth.  Please elaborate.

Able to multiply properties faster so I can buy larger apartment buildings and complexes.  

Another problem I am facing is evaluating properties for mortgages. Since all my past purchases were cash, ROI was really good. The ones I am looking at now show an ROI of around 6% - 7% in Greenwich, CT and Stamford, CT mainly. If the mortgage is 6%, how does anyone make money? I must be missing something. I hope someone can clarify.

Originally posted by @Scott Meyers :

@Mike A. I know exactly how you feel. I too was in residential REI with SFH's and then "graduated" to multi-family many years ago. And I too learned many hard lessons along the way, the main one (because it hurt the most) was being on the verge of a financial collapse.

At my wife's consistent prodding & urging we turned our attention to Self Storage.  Beforehand it had never crossed my mind because, well, we were "sophisticated" investors.

Since then we've never looked back.  And did I mention there's no toilets, no tenants, no trash?  In fact, we now own only one house - the one we live in, but lots of rentable square footage around the country.

Anyhow, just a suggestion...

If you're interested PM me.

Thanks!

Scott

I get you. Yes, I would be interested in buying self-storage places, but the one's around Stamford are a fortune. Open to ideas, PM sent.  

@Mike A. - Thank you for replying to my question, and defining your goal. It appears your current path is to use Investment A to generate enough profit so you can get into Investment B. There is merit to that strategy, but as you are experiencing it may not be the "quickest" way. Quick may not mean better for you, as your strategy is based upon buying with all cash. Most commercial properties are not bought with all cash except large REIT's which need to place investment funds. On a smaller level or individual level, most are bought with a combination of debt and equity. Yes debt will impact cash flow, but you are also increasing the rate of return on the cash via the leveraged equity. So there are pluses and minuses to both strategies. The strategy you have implemented is the "safest" as you do not have the pressure of a mortgage payment, but your overall rate of returns are lower due to the lack of leverage.

So, in order to grow your faster, your strategy would require evaluation.  Either incorporating debt, equity partners, or both would allow you to grow faster.  You are also correct the current apartment market with the low cap rates is a challenge to find a deal strong enough economically to make it attractive for an investor.  That is why we sold our apartments.  Like Scott Meyers, we too have moved into other real estate markets like self storage.

You look at cash on cash when you use leverage and mortgages can be had around 5% with experienced partners.
Originally posted by @Mike A. :

Another problem I am facing is evaluating properties for mortgages. Since all my past purchases were cash, ROI was really good. The ones I am looking at now show an ROI of around 6% - 7% in Greenwich, CT and Stamford, CT mainly. If the mortgage is 6%, how does anyone make money? I must be missing something. I hope someone can clarify.

@Mike A. It's tough to scale here in Stamford/Greenwich as an individual investor, you may have to look somewhere else. That being said, if you're ever looking to sell the properties you have around here, I'd be glad to take a look at them.