Going to the next level

5 Replies

I am a real estate investor in Baltimore/Maryland. I have been investing for about 10 years. I currently have a portfolio of about 13 units. I am currently trying to grow my portfolio. I have been stuck for a while because I have had occupancy issues. I decided to work with different housing programs to have a dependable stream of income. The inspections for these programs can be costly. I am really trying to take my business to the next level to become a full time investor. Does anyone have any suggestions?

What do you mean by "occupancy issues"?

Do you have single-family homes only? Are they upper-end? Class A? 

There are too many unknowns to help. Maybe consider investing in multi-family B-class properties. That should reduce your vacancies and increase your rate of return.

@Donald Green If your properties are stabilized and it sounds like these are all SFH(?), then consider selling them either individually or as a portfolio and do 1031 exchange into MFH.

@Donald Green Based on your OP, I am guessing you're talking about lower-tier class C and maybe D props with Section 8 tenants? There are inspections that you must pass to qualify, and there is often a ton of red tape. If I am correct in my assumption, then my best advice would be to dump those and use a 1031 exchange to leapfrog into solid B/B+ cashflow properties, even if it means you have fewer doors. You will have less headache, no Section 8 bs, and generally more consistent occupancy, with longer leases, and fewer late payments. 

The issue with lower-end properties is that, by definition, the people that rent them are like one sick day away from missing rent. One flat tire, one sick kid, one broken leg. Obviously, these people still deserve safe housing, just like everyone else, but from an investment perspective, they are a higher risk pool. People get excited about the 'guaranteed rent' from Section 8 programs, but they don't realize that tenants can lose their voucher, there is a maximum amount the program will pay based on the Fair Market Rent for your area, and that you must have a yearly inspection, even if no tenant turnover has occurred, and that it's very common to fail these inspections, meaning you have to fix things and then be reinspected in order to continue to qualify. 

I am definitely pro-affordable housing, and I think it's great that properties that are clean, safe, and secure are made available to those with lower incomes. But from a purely objective investor perspective, you will have an easier time and more consistent cash flow with fewer doors in higher-end areas.