All Forum Posts by: Alan Grobmeier

@Jad Boudiab 

"You're gonna want to ask general PM questions to ensure they know what they're doing of course, but those come after the core 3 points above. These general PM questions are your basic screening criteria, eviction rate, lease renewals rate, maintenance charges, and PM fees types of questions."

Couldn't the above statement reflect the TYPES of properties the PM manages vs how good the PM is?

Thx,

AG

@Brian Ploszay, I guess what I meant was appreciate vs B/A properties.  If a class C does not appreciate much, it is somewhat difficult to increase rents to track inflation.  If that is the case, property tax increases & inflation will erode your future cashflow.

In a perfect investor world, we want cashflow & appreciation to increase year over year.

I definitely agree w you that OOS investors should not be buying class C properties.  

However, most turnkey companies have 'grade inflation'.  I recently saw a 1950's bungalow listed as class B.  In my world that would be class C at best.

Take the N out of TURNKEY & what do you have?  ;-) 

@Jad Boudiab, for an oos investor the ‘team’ is the most important (and expensive) aspect.  
But how do you pick your team?  Have you ever read all the bad reviews/posts about PM’s just on BP?  Some PM’s are bad, some horrible, some even fraudulent.  

@Steve Peterson, it really depends where in Ohio.  You profile says you are from Phx.  I’m surprised you don’t own/buy here vs Ohio.  Up until 2015ish things seemed pretty good here.  After that, I was kind of scared of the local market.  Prices are high, properties won’t cashflow w $20% down.  I’ve actually sold 3 of my places over the last couple of years.  They were the worst of my portfolio, mistakes while I was learning what I really wanted.

Now, back to Ohio. ;-) Properties might be ‘cheap', but the weather is brutal. And most properties are old when compared to the west/south. And although the prices might be ok, taxes are relatively high. Capex is obviously higher on a 50+ year property vs a 15 year old property in AZ. Sewer lines ain't cheap and can wipe out years of positive cashflow. If any of your properties are of that age, you need to at least get the sewer lines checked.

Although your buys appear to be good buys, I think you could have done better buying here in AZ.  Cashflow erosion being one reason.  

AZ rent gains, in the future, will generally outpace Ohio rent gains.  Ppl are LEAVING Ohio.  If you had bought here in 2014, you probably would have paid $175k-ish for a property worth $260k that rents for about $1400+ per month.  I would contend that the future is brighter in AZ vs. Ohio.

It obviously comes down to preferences and time you can spend on your portfolio. I like managing my own places.  I now have 6 places, rarely receive a call.  I spend more time with my cpa at the end of the year than I do ‘managing’ my places.  I can count my late pays on less than 1 hand, never done an eviction.  I send out pay requests at the end of the month, everyone pays prior to the 2nd.  I don’t chase rent, rent chases me.  ;-)

@Antonio A., I only have one in Cali right now. The rest of my portfolio is near the Phoenix area, where I live.

I did a 100k renovation on my Cali place last year.  I then raised the rent by 1K a month and equity stripped the place so I don’t have to pay Sacramento my profits.  ;-)  As far as rent control goes, it’s not applicable in my particular case.

I’m originally from SoCal.  Grew up in SD, but lived in Bakersfield & LA awhile.

Have you thought of looking in Ventura, Tehachapi, Palmdale or Victorville/Apple Valley?  You might be able to find better prices, close by, where you can self manage.

I owned a place in Bakersfield for almost 10 years while living in San Diego.  I bought in 1994, went thru a downturn, and then sold in 2005 when the prices when crazy last time.  My point is anywhere within a 2-4 hour drive can be done.

Thx,

AG

@Antonio A., if this is your first RE investment do NOT buy a C class property.  The returns look sexy, the hassles are not.  
Go for solid B/A sfr in a good school system.  You will have fewer headaches & you will actually come out ahead in the long run over a C property.

@Antonio A. My post was not designed to bring anybody down.  It was just a little of realism.  I am not a real estate ‘expert’, engineer by trade.  I’m just some guy that has had up to 10 properties at once.  I don’t have time to chase ‘deals’ as I have a good job/career.

The bottom line is that in most decent places you need 200k (or even $300k) to buy to get good tenants.  That is the most important thing.  Vacancy/eviction is the real estate investor enemy.  Now you look at the down and returns, and see that it sucks.  So you look elsewhere.  I get it.  I’ve done the same.

OOS is full of challenges.  I’m doing it.  I live in AZ, manage in Cali.  It can be done, but you need a good property and good tenants.  I don’t have a team.  I use home warranties as my maintenance & I pick/manage my tenants.  Been doing it 10 years.  I won’t sell what I have due to prop 13 grandfathering, but I’m not looking to go to Cali to buy more.  Not a chore, but is inconvenient.  I won’t be buying 10 doors in Boise (for example).

PM is expensive.  And many of them are horrible.  And some are fraudulent.  The best way to buy RE is to use leverage, but now I have to put more money down to cover PM costs.  After awhile it becomes ‘cheaper’ to buy a quality property close to home.

Hope my explanation helps.

AG

@Thomas Wang, you said it appraised for $245k.  245 x .7 = 171.  Plus closing is probably about $10k in it.

But you still need 100% occupancy to make any money. What is the historic vacancy rate & how do you plan to get around that?  $100 a door is awfully tight, don’t you agree?

@Brian Ploszay, I agree w your post completely!  There is another thing to note:  cashflow erosion.  If someone is going to Cleveland/Cincy, etc, and gets $400 positive cashflow, they may only get $450 in positive cashflow in 10 years.  In the meantime inflation has eroded the buying power of that cashflow.  :-(

I really find it difficult to believe a 1950’s ‘bungalow’ could ever be a B class property as @James Wise describes.  Houses of that age are going to have ALL kinds of problems.  Sewer line, foundations, etc.  Probably not the best schools in the area.  In my book they MIGHT be a C.  But ‘grade inflation’ has hit the turnkeys as well.  D=C, C=B, B=A.  The problem is that C to B property will NEVER perform like a B property.  The investor will be disenchanted with the problems and returns.

I go for places less than 30 years old, and prefer less than 15.  I am also looking for the best schools in the area for my places.  I want families that are going to want to stay a long time.  Little Johnny goes to a great school, and I can tell you that mom & dad are not going to move.  The only reason I lose a tenant is because they buy their own place or they move out of town.  My average stay is over 5 years.

I listened to Clayton Morris’ podcast years ago.  I thought I was really doing something wrong.  I had a property in Cali, that if I sold, could buy 10 of Claytons ‘high cash flow rental properties’.  I looked into it.  The problem was when you dug a little a little deeper, you found that these places were in the hood.  Trying to make money in the hood from long distance?  Not a good biz model if you ask me.

Many of the places listed are not growing or net losers with regards to move in/move out.  Those places won’t appreciate.  And although we do buy for cashflow, we do want to raise rents.  In some of these places you may not ever be able to raise rents.  Property taxes & inflation will erode your return.