All Forum Posts by: Marcus Auerbach

Yes, Bob I agree and I think it's a natural progression for most investors. The ones that start out poor but smart will progress from being cash flow focused to looking more for appreciation. The ones that start with a pool of money and maybe not so smart are sometimes the ones that crash and burn. I believe in a balanced between cash flow and appreciation potential 

Cashflow pays for diapers first, then it pays for a new car, a nice home or for for travelling the world. Cash flow pays for the bills and it provides freedom for 9-5. Cashflow also pays for mistakes made, and I have made a few (and hopefully learned from them). But cashflow does not create wealth: the numbers are simply too small. Only appreciation has the compounding effect that creates wealth over time.

However, appreciation does not come with the high degree of certainty that comes with cash flow and an investor has be prepared for appreciation simply to not happen or for property values to decrease.

@Mario F. agreed that the world has huge problems on unpresidented scale, but we also have access to tools and solutions we never had before. The next 10 years will not be like the last 10, thats for sure, but they never were. Things are going to change and the next crash will not be the last crash. And we have to be prepared for that. However, don't let this be your excuse to do nothing and just sit on the sidelines. You become what you do on a daily basis, so what does this make you? The real question is what can you do today that makes sense in your mind with or without a crash? 

@Mario F. we are seeing first signs of a shift in the market. We still have low inventory, but we see more DOM and more counter offers than we used to last summer. So far it's more pronounced on the on the coasts and in markets like Las Vegas than it is in Midwest markets and eventually it will become visible in all markets. Personally I don't think we will see a crash like we had in 2008, it will probably look like a correction on the stock market after a period of strong gains.

What does that mean for you buying a rental property? Number one concern has to be cashflow. As long as you are not planning to sell the property it does not really matter that much what the housing market is doing. We have seen the one of the strongest rental market in history emerge out of the 2008 crisis and the reason is simple: buyers become sceptical or even scared and shy away from buying a home. They still have to live somewhere so they default to either live in their parents basement or they rent. Be conservative about your cash flow estimates, buy in attractive areas and you should not have to worry too much about a temporary down turn. 

Number two consideration (and maybe most important) is to take action and get started. My only regret is that I did not start sooner and buy more properties faster. The first one is always the hardest and it will teach you the best lessons, give you hands on experience and the confidence to keep growing. Don't try to make all your money on the first deal, better deals will follow, the most important thing is that you get started. 

Having the HOA change the bylaws to make renting more difficult or impossible is a substanial risk without possible mitigation. You have no control over your destinty. If the board rules out renting, because they had an incident with a tenant your single source of income just got terminated. At that point your exit strategy is to sell the condo, which is potentially ok as long as you bought it low enough that you can reasonably expect to find a buyer before it eats you alive. That is of course the worst case scenario; most likely your situation is more like what Dawn describes and you have to get just really good in working with the people in the office.

Having the HOA change the bylaws to make renting more difficult or impossible is a substanial risk without possible mitigation. You have no control over your destinty. If the board rules out renting, because they had an incident with a tenant your single source of income just got terminated. At that point your exit strategy is to sell the condo, which is potentially ok as long as you bought it low enough that you can reasonably expect to find a buyer before it eats you alive. That is of course the worst case scenario; most likely your situation is more like what Dawn describes and you have to get just really good in working with the people in the office.

@Ashley Norris I wish we had more time to chat! I could not agree more with you: there are so many different ways to do this and all of them can be successful. I know that I am over-rehabbing: finishing a basement is expensive and does not get me much more rent, maybe $50 extra. I do it anyway, because it makes the home so much more livable. It may be a poor ROI looking at the monthly rent, but I do it anyway and it's working well for me. If you need a second opinion on something just call me - it's always fun to discuss ideas.

@Michael Crane great to hear you ramble and it's good stuff. I am a huge fan of duplex house hacking - I was telling a good friend about it two years ago over a beer and I did not think it would go anywhere. She worked as a hops chemist at Miller and made good money, yet she was renting and had a room mate to save money and pay down her college loan faster. Much to my surprise not only she was listening very careful, but also ended up buying a huge duplex on the east side. It needed work, but she fixed it up very nice and rented out the lower while living in the upper. The rent paid for her mortgage and she was living for free now in a huge place without room mate and haveing more money left  each month to pay off sudent loans. In the mean time she has moved out of state and is renting both halfs and is looking for another one to buy as an investment. Its a great way to test the waters and see if landlording is right for you. 

On the two percent: the comission for both selling and buying agent is governed by the listing agreement at the time the property is listed by a broker. If the buyer does not have a broker and is using the listing agent to make the offer the listing agent will actually get both sides of the comission. This makes no difference to the seller, as he already has seen his net proceeds sheet which considers full comission. You can try to stipulate that in your offer, but it makes the whole deal a very unique and it will not be looked at very favorably by the listing agent, who acts as an advisor to the seller. Not having an (experienced) agent on the other side in a transaction is always a challenge for an agent, because it often means extra work, headaches, issues and worst case the deal could crater during escrow, inspection etc. I think there are better strategies to score a great investment: purchase price is certainly a big one (think instant equity), but rentability (vacancy rates), capex (long term cost of ownership), choice of finishes (how to tenant-proof an apartment), contractors to choose etc etc will effect your cash flow, your ROI and your overall ownership experience.

I agree with Tim and it pays to do the research. We are just about done with a SFR rehab in Brown Deer and the future tennant is currently paying $2435 on the east side for a town house. The owner is one of the large corporate players and quite frankly touring the place it hardly seems worth it (well, I guess that's why they are moving out). Check out rents and offerings from the big players, they do a lot of research and are a great benchmark when you are setting your own rent.

Hi everyone,

I just wanted to thank you for stopping by - frankly, I was not sure what to expect, but it turned out to be a great event and I personally really enjoyed the discussions and your company! Thanks for the messages - @Brian Head, @Nicholas W., @Dave Carpenter, @Ashley Norris @Matt Paluchniak and the great feedback! (And a big applogee to @Drew Markert, who has been given an address with a typo by me! IOU for that!) But we will definitley do something like this again. Let me know if you have specific questions or topics you would like to cover. How did everyone feel about the open format? I am very happy to organize another "investor open"! Dave actually offered one of his places for the next event.. stay tuned!

@Drew Markert

@Tony Santos I face the same challange and have gotten mixed results from attending our local REIA. For me it's always interesting to take a look at other investor's startegy, business model and properties, so I thought maybe I'll do just that and open up my own playbook to other investors and clients and hope they'll do the same for me: so tomorrow night I will be hosting an Investor Open House in one of my almost rental ready rehabs for people to see how I do things, talk shop and have some wine. I have a good number of RSVP's so far, but ask me tomorrow I will let you know how things turned out.