All Forum Posts by: Marcus Auerbach

@Joshua Martin sounds like you are on the right track. I am not familiar with Berkshire's interal legal infrastructur, you may or may not have a fully competent advisor. And some are just willing to take the risk until they get sued. Good luck!

Hi @Account Closed - thank you for reading my post and for the feedback: could you explain your point a little bit more? BP is all about learning and sharing what works and I am constantly looking for ways do improve. Would you recommend to invest in markets where property values are higher? You are not referring to investing in Hawaii, right? 

I will argue with you on the flips - flipping is a job, at least for me. 20% of the work is finding a deal, 80% is planning, managing, staging and marketing the product. You can argue that 80% of the value comes from 20% of the work - which is finding the deal. But it's still active work. There is no income once you stop working. Just like wholesaling is a job and not an investment. Unless you are talking about a slow flip - when you buy something in the 70's (like you did) and then sell in the 90's, but in that case I assume you are holding cash flowing asset. The broader definition casually used includes all these aspects under "real estate investing", but I would argue that an investment should involve a ongoing stream of more or less passive income. 

Cash flow is absolutely vital to me, I'll be the first to admit that. It allowed me to quit my well paid corporate job and do what I enjoy. Most of my cash flow feeds back into my business and keeps my portfolio growing. I would not be able to do any of this without cash flow.  Most of my investor clients also rely on cash flow, either to grow their portfolio or even as their ultimate goal for retirement. You have done very well for yourself and I guess once you own a $40B portfolio a single family rental property does not look very attractive. I imagine it's not that easy to find investments that are suitable for that kind of money. It's the Warren Buffet problem - how do you buy SFRs on a large scale? You can't. For most of us here it's about paying our bills, having the time and the money to travel a bit and feel safe and secure for retirement.

You have almost 40 years of experience on me - I'd appreciate your insights!

@William S. I think you are on the right track with looking for schools, definitley a good startegy, especially long term. I see a clear difference in tenant socio demographics, turn over rates and rental rates between my properties in MPS districts and properties in better areas. I believe attracive areas are not tied to one particular school, but to a number choices covering elementary, middle and high schools. 

I was just reading another interesting discussion about cash flow vs. appreciation and the Midwest vs. the West coast and I want to make a case for a balanced approach, and I think my backyard -  Milwaukee - is a perfect example.

I think we are really blessed here with a very unique situation: the ratio between market rents and (SF) home prices is very favorable here. For an investor that means number one positive cash flow and number two a lower entry threshold to get started. Good rental properties can be bought in the greater Milwaukee area anywhere from 60k to 200k (yes, also for less, but don't get me started on 30k homes).

With a 80% loan to value mortgages for investors getting started is relatively easy compared to many high priced markets out on the coasts. Part of the equity should be come with the property in form of a discount (that's the whole point of finding good deals), the rest can be made up with cash or forced appreciation (improvements, rehab, BRRRR). Either way it does not take a fortune to get started.

Positive cash flow should be a non negotiable for any RE investment. Without positive cash flow the investment outcome hinges solely on appreciation, which makes it a bet and not an investment. However how much positive cash flow is necessary for a good investment depends very much on the strategy. Generally speaking $200 per door after PITI, vacancies and maintenance expenses should be the minimum. It's hard to build a good cash flow stream with less, it simply takes too many units.

The greater Milwaukee area offers a wide range of choices: the general rule of thumb is that higher cash flow (or cash on cash returns) come with more headaches - essentially the investor is earning the additional cash flow by dealing with more issues. Rent to property values are often 2% or better. While cash flow can be excellent in the inner city, equity build up is slow and property taxes consume often a very large portionof the expenses.

The surrounding markets and suburbs offer great investment opportunities as well and are generally more passive and less stressful. While cash flow is generally lower, a larger portion of the monthly expenses goes towards the principal. Milwaukee is often seen as very low appreciation potential, but that is not quite accurate. We have also seen good appreciation in most of these markets in the last years. Year over Year August 2016 the mediaa sale price went up 9.51% to now $194,375. That is not bad for appreciation, especially combined with the still low price tags compared to many of the costal markets.

According to 2016 GMAR data Milwaukee County is up 11% (driven by hot markets along the North Shore area like Shorewood, Glendale, Brown Deer etc who made up for the lower performing areas) the markets in Ozaukee County show even stronger appreciation with +13% ( driven by Mequon, Thiensville, Grafton, Cedarburg etc). At the same time property values are still relatively low (rent to value usually arround 1%) and come with much lower property taxes and higher rents compared to Milwaukee. The same can be said for Germantown and Menomonee Falls area. 

Milwaukee is often times misrepresented as an investment in low income housing and that is simply not the case when looking at the big picture. My own rental properties are mostly around the mid price point with a good balance of cash flow and appreciation potential, but I am gradually moving north and into lower property taxed areas with slightly lower cash flow but better appreciation potential.

I hope this post helps to look at the Greater Milwaukee Area a little more differentiated and puts things in perspective, as there is a true variety of great investment choices available in and arround Milwaukee.

I agree with Scott: bad idea. You are in violation of at least half a dozend rules plus there are moral and ethical issues. The fact that you are trying to hide behinde a multi-member LLC and had to switch brokers until you found a small flat fee outfit that does not have a compliance department that really understands the legal implications should be a red flag to yourself. Please understand I am supportive of wholesaleing, but once you become licensed you have to play by a different set of rules. No matter if you are an investor, landlord, agent or wholesaler - integrity, honesty and transparancy are core values and adhereing to them will serve you well in the long run.

@Kelly G. I am not sure if you actually needed a drain tile repair in the first place. I see so many properties in Milwaukee with all four walls braced and new drain tile all the way arround and in my mind I am congratulating the contractor for being a great sales guy, who sold a homeowner a lot more than needed. I have spent a lot of money on basement repairs over the years on my rental properties and looking back not all of it was necessary. There are a number of far less expensive options that we go through first before we call the guy with the jack hammer. Most times the root cause of the problem can be tracked down to something that is easily fixable, the trick is to push the right button. This spring we were rehabbing a property on Calumet adding a fully finished basement and we had a huge water issue. The sump pump would cycle every minute or so and water was just pouring in from the drain tile system. A power outage or failure of the sump pump would have flooded the finished area within half an hour or so. My plumber suggested two sump pumps and a backup battery system for power outages. The sump pump discharge looked fine and was dumping about 10ft off the walls. We were convinced we had a well under the house and ready to spend the money. On a whim I picked up a 30ft discharge hose for a few bucks and drained the sump pump all the way to the back of the yard. The result was unexpected - by the next morning we had a dry sump crock and it's been dry ever since, including last night on my final check up (it's rented as of today September 1st) and it was a $20 fix. My point is that it takes some experience and sometimes some experimenting to find the right button to push and the fix does not always involve a foundation repair. You have a mold issue and there are two basic steps to dealing with mold, you can read up on the EPA website: number one eliminate the growing conditions (#1 water and #2 food source) and the we use an Ozone generator to kill any spores alive. Based on your discription I am not sure what exactly is going on in your house, but feel free to PM me or give me a call.

@Kelly G. I am not sure if you actually needed a drain tile repair in the first place. I see so many properties in Milwaukee with all four walls braced and new drain tile all the way arround and in my mind I am congratulating the contractor for being a great sales guy, who sold a homeowner a lot more than needed. I have spent a lot of money on basement repairs over the years on my rental properties and looking back not all of it was necessary. There are a number of far less expensive options that we go through first before we call the guy with the jack hammer. Most times the root cause of the problem can be tracked down to something that is easily fixable, the trick is to push the right button. This spring we were rehabbing a property on Calumet adding a fully finished basement and we had a huge water issue. The sump pump would cycle every minute or so and water was just pouring in from the drain tile system. A power outage or failure of the sump pump would have flooded the finished area within half an hour or so. My plumber suggested two sump pumps and a backup battery system for power outages. The sump pump discharge looked fine and was dumping about 10ft off the walls. We were convinced we had a well under the house and ready to spend the money. On a whim I picked up a 30ft discharge hose for a few bucks and drained the sump pump all the way to the back of the yard. The result was unexpected - by the next morning we had a dry sump crock and it's been dry ever since, including last night on my final check up (it's rented as of today September 1st) and it was a $20 fix. My point is that it takes some experience and sometimes some experimenting to find the right button to push and the fix does not always involve a foundation repair. You have a mold issue and there are two basic steps to dealing with mold, you can read up on the EPA website: number one eliminate the growing conditions (#1 water and #2 food source) and the we use an Ozone generator to kill any spores alive. Based on your discription I am not sure what exactly is going on in your house, but feel free to PM me or give me a call.

Works great and I much prefer to use ozone over chemicals. O3 is very effective destroying organic compounds such as smells, the source of smells, mold etc - naturally it also attact cells in your raspatory system. Thats why the space treated needs to be vacant. After treatment be sure to open windows and doors and air the space thoroughly. O3 also breaks down into the more stable O2 within a couple of hours.   The nice thing is it gets into every nook and cranny - if air can get to it, then ozone will too. Often times the source of a smell is hard to reach, like inside an air duct and those areas are hard to clean with chemicals.

@William S. just came across your post and I am curious what your thoughts about Brown Deer were?

not a letter, but we put a bottle of champagne, some soda and if they have kids some icecream in the fridge. It's always a pleasant surprise for new tenants and starts the relationship off the right way. Cost is about $30.