All Forum Posts by: Alan Grobmeier

Unless you can find a better deal in the same area, I'd stay with it.  1st rule of Real Estate:  Location.

AG

@Matt R.  My model is not 'sexy enough'.  The returns are not big enough.  I've gone to enough of them and LMAO while people were 'buying' these programs left and right.

You have to offer 'pie in the sky' returns.  Life does NOT work that way.  I'm not a 'snake oil salesman', just a former engineer (now retired in part due to RE holdings).  I use math and mitigate risks.  I put in 100% tile floors in all my places so I can increase my income via pet deposits and fees.  Unless it's an elephant, it will probably not hurt my tile.  ;-)

AG

@Andrew Johnson.  I have done a lot of research on my own and came up with NC/SC as a location IF I was to invest out of state.  Texas, for example, has punishing property taxes.  OK, KS, IL, OH, PA, etc, look ok, but the demographic I want (AKA easy money) will still cost $200k or more.

My daughter is at UNCC (University NC @ Charlotte) and rents are high when compared to the price of buying.  Property taxes are on the high side of reasonable, but it APPEARS they cash flow well.

It is also not worth it to only buy ONE or change locations.  You will be globetrotting all over the United States.  You want to make sure that location #2 is some place you want to visit from time to time.

AG

@Matt R. I have 9 SFR's in AZ & CA. I spend more time on my TAXES than I do managing my properties. ;-) And I DO have a CPA. It's like 'mailbox money', but automated. LOL. My average stay is 3-5 YEARS. One of my tenants has been with me 9 years. I have had ONE late pay. Maintenance issues are dealt with via home warranties as a first line of defense. I could 'manage' these things from Mars. I have not even SEEN my CA property in 3 years.

The key for me is A-/B+ properties in good/great school districts.  The only time I show the property is during an 'open house'.  I have had up to 25 applications for a property.  I choose my tenants, they don't choose me.  

I came up with this 'business model' after becoming a 'reluctant landlord' via divorce, many years ago,  on a not so nice property.  After doing everything wrong, and still surviving, I came to realization that you get what you pay for.  If you pay for crap, you will get bad tenants.

In addition, I worked for Cisco Systems as an engineer during much of this time period.  My work required me to travel quite frequently.  Sometimes outside of the country.  Obviously I was unable to respond immediately to any of the needs of my tenants, so I bought home warranties.  One of the HUGE problems in land lording is not responding quickly to AC (for example) being broken in Arizona.  You could probably lose your tenant of end up in court for not providing a livable property.

As far as ROI/CAPs go, my best one is about 9.6% on a property I bought in AZ after the downturn. My worst is the property I inherited in California @ 4.9%. The only saving thing there is Prop 13 taxes. The property has been in my family since 1975. All of these places have appreicated significantly over the years.

Not 'sexy', but easy.  ;-)

I have a good friend (and former business partner on a 4-plex) that now has 29 doors.  He nets less than I do AND works his *** off.  Tenants, evictions, stuff breaking (he's a former Navy SeaBee).  We bowl together in leagues and share 'horror' stories.  Obviously mine are pretty calm when compared to his.

AG 

@Matt R.  I THINK you can 'kill it' in OOS markets.  You just need to do your due diligence.  Eyes wide open!   

The problem is that many of the 'coaster peeps' (people that live on the coasts) are looking ONLY at ROI. IMHO, greed gets the best of them. Many think they can just throw money at it and get a bunch back. There IS a reason the 'Rust Belt' has had nominal appreciation in the last 30 years.

They can easily fall into a trap of getting a crappy place/area, get ripped off by the property manager, have UNBELIEVABLE maintenance issues/costs, AND then get bad tenants.  It's like flushing money down the toilet.

Many of these ppl are first time investors.  And with THIS type of experience being their first, why would they EVER do it again?  In their minds, they would be better off taking a 40% pounding in the stock market.

AG  

I guess someone missed the 10% ROI he was seeking? I own a property in San Diego and it does NOT get 10% ROI.

I am not a fan of turnkey.  I explored a NUMBER of them and found that I could buy the SAME type of property in the same neighborhood for a LOT less.  I get they need to make a profit, but it looks to me like their profit is about 50% or more.  

I wasn't a fan of the locations as most of these properties were, at best, C neighborhoods (subjective).  The ONLY exit strategy is to HOPEFULLY find another investor as an owner/occupant will not happen.

OOS has a LOT of challenges.  If you are going to do OOS, you need to pick an area where you can have MORE than one property.  I am not a fan of property managers, I prefer to do my own management.  I can purchase a home warranty for a 1/3 of the cost of a property manager and save a TON of money on maintenance and management fees.  The home warranty is now my first line of defense.

My advice:  IF you are going to do OOS, you need to go for B+ to A- properties in good school districts.  Tenants will be less transient.  After all, turnover does cost money.  I would also want boots on the ground.  That could be a relative, old friend, SOMEONE that knows more about the area more than you do.  Yup, you won't get 'killer' ROIs, but they will be consistent.  

I think it is REALLY difficult to get a balance of cash flow and appreciation.  Many of these turnkey investment properties will NEVER appreciate.  And they will be few ways out of them if they go bad.

Buyer beware.  

AG

@Diane G.  I am sorry for your experience.  But I feel you are 100% correct.  Phoenix is too expensive, especially if you are planning on using significant leverage (which is 70%+ to me).  

I am STILL looking, but deals are difficult AND I believe you need 50% down in addition to a long term vision.  Even then, it may not 'save' you, but you should be able to weather the upcoming storm.  I believe location is paramount.  

I was in SoCal in 2004 and owned a property in Bakersfield.  When houses were selling for 350k+ to people who generally made $15 an hour, I sold my place.  I felt the numbers were not supporting the situation.  I lived in San Diego at the time.  The profit, although significant, would not buy me a 'dog house'.  So I understand what you are saying.  I ended up keeping the profit and paying tax on it.  :-(  But I didn't lose.  Which was fortunate.  I actually had to drop my price from $369k to $329K to sell it.  I l learned a lesson from the stock market (which I no longer 'play'):  Bulls make money, Bears make money, Pigs get slaughtered.  ;-)

AG

@Grant Smith, I mean MOVING to house #2 while renting house #1. For FHA/VA properties, where the interest is the least, you MUST plan on living in the house at least a year.

AG

@Jeff Schneider.  I find your numbers interesting, but there is at least ONE thing that is left out of your numbers:  AFFORDABILITY.  Most of the good paying jobs that were lost in the downturn were never recovered.  There are a number of people that I personally know where their salaries (if laid off between 2007-2012) have still not been made 'whole' by the economy.

As a landlord, I have been in AZ for 7 years (previously from SoCal).  I am seeing the same incomes chase my properties with the rents being $300+ more per month than they were 3-5 years ago.  Tenants are paying way too much (percentage wise) than they did 5-7 years ago.

IMHO, this can not end well.

AG 

@Grant Smith, let's start out where things are 'easy'.  Do you own your own place NOW?  If not, start with that.  You can get a decent interest rate and low down.  After a couple of years, 'trade up' without selling the last place.  Make sure you can make it cashflow somehow.  Then you will have 2 places with low interest loans.  

Never buy for 'appreciation', buy for cashflow or other tangibles (like location).  A BUNCH of ppl bought for appreciation prior to last downturn.  They got slaughtered.  

My .02