All Forum Posts by: Alex Forest

Highest percentage of bids with competition identified to be Richmond VA by redfin last month nationally. 80% of sales.

one third from out of town with most from DC region.

https://www.marketwatch.com/st...

@Matt Leber did you say you analyzed what the next three years might look like with these multis vs. single family in nicer neighborhood for a price you think you could get it at in your spreadsheet? How does that look and compare side by side? The last three years dont sound like they would repeat the next three, it sounds more stabilized with the changes made. Sounds like you had to deal with a lot there . The single would probably be less time intensive and a headache, which is something, sounds like you might be leaning toward that but maybe I'm reading into itttoo much

Originally posted by @Matt Leber:

Hello BP. I have been thinking about how I can improve my rental property portfolio consisting of 8 unit streams. I have been tracking returns on my properties with a spreadsheet I created for myself, and I have identified that 4 of the 8 units I own have been consistently underperforming the rest of the portfolio for 3 years now. I am tracking my returns based on cash flow numbers only (for conservatism reasons - I look at appreciation as icing on the cake).

A little background:

The underperforming units are all part of a small multifamily compound in a lower income neighborhood that I purchased in 2018 that looked great “on paper” but after tracking their performance for a few years, experienced less than expected returns due to one issue or another that has cropped up (more capex up front, tenant that I couldn’t evict for 10 months through covid, multiple vacancies causing turnover costs). They are older units (1960) so I will likely see other capex items sooner rather than later if I kept them for 30+ years. They have very little appreciation potential, which I don’t mind if cash flowing well. These properties have strengths of being very low mortgage cost, room to grow rents over time (they are almost 2% rule), and in a affordable rental class that seems to have a major shortage in today’s world. They still make enough cash flow to allow me to hold them if I choose.

So my questions are for experienced investors who do this sort of purge analysis on their rentals, how long do you typically give underperforming properties a chance to meet potential? Is my 3 year “leash” too short sighted if I decided to cut bait and 1031 exchange into something else newer build in a better neighborhood?

I see both pros and cons to keeping the properties in my portfolio, and I always envisioned keeping everything for 30 plus years, but I am now wondering if I should tweak my expectations. Thanks for your opinions and advice!

 The 10 months loss related to covid restrictions sounds like a bit of an anomaly and if lumped in with the overall performance assessment of these, would seem to really impact your results.  Does that seem likely to repeat again?  I wouldn't think it too likely.  The second thing that stands out to me is the 'multiple turnovers' in just three years and then taking 2 months to fill each time.  Why so many, even with a transient multi tenant base, still sounds like a lot.  In that type of neighborhood, there are still folks that would like to settle in for the long haul if it's a decent unit and fair affordable price point. Two months to fill is too long. Does your PM get paid when it's vacant, and get a fee each time it's filled?

Lastly, 2018, is your loan rate high? A cash out refi could recapture all your down payment and expenses and perhaps not even add much to your monthly if your rate is much higher

Originally posted by @Josh Helvie:

Some friends that live full time in Gatlinburg said the Wears Valley area is considering traffic “alternatives” due to congestion. Apparently the Smokey’s are on pace to shatter attendance records.  We believe in the area so much we’ve gone all in and don’t believe for one second we’ve seen the top.  Cash flow!  Exclusivecabins.com 

 This is what I wonder about the area, traffic. During my first visit, it feels full. I don't invest there but visit inlaws nearby (45 min away) during the holidays. I see it from a visitors perspective.  Everyone locally talks about how bad the traffic is in the Gatlinburg, PF area. We got stuck in it coming back from the Smokey's (stop and go on forest road for 45 min). Locals plan around it. Family friend said they are selling their place because they don't want to deal with it anymore (I'm sure at a good price after decades of ownership too). I was surprised to hear how it is the most visited park in the US.  I ask others that visit if it was difficult to find lodging or not when they travel there.  I heard no, there are plenty of hotels that are available. I'm curious about the region, primarily because of how many visitors the region gets and the potential str revenue.  I do wonder about the spike in appreciation and sustainability of a $1k/night stay though.  I would prefer a cabin on a visit if we needed a place to stay, but if the price becomes such a wide gap and can make a hotel work, I would think that is viable for a lot of folks. And I suppose they can always widen roads...(I would get annoyed as a vacationer paying so much and getting stuck in such traffic).  Just some initial observations, I hope to make a second visit to the area next time to feel it out more.

Originally posted by @Steve Vaughan:

Originally posted by @Joe Splitrock:

Originally posted by @Steve Vaughan:

Originally posted by @Alan DeRossett:

short note Zillow class A was down from a  high of $110 three months ago an epoch on the internet to  $84.75 on October 18th when I bought it. today it's recovering and closed at $90.70 a lot of grandparents will buy it as gifts for grandkids watch it climb before Xmas.

 We'll see.  With a p/e in the 150s, they are valued like a high growth tech co yet seem to not be able to find their purpose.   I passed for now, waiting to see if support gets pierced. 

 I bought on the dip. Only 100 shares, so not life changing either way. Following the syndicators creed, I can now say "I own Zillow". 

The real reason / other shoe has dropped.  Oops! 

https://finance.yahoo.com/news...

Instead of just having labor shortage problems working on their flips, they are writing down as much as $569,000,000 and laying off 25% of their workforce.   

After an 11% stock haircut today, I foresee another one tomorrow and call VG $75.50.  What say you?

Wow, this sheds some additional light on the situation, huh?  Here is another article from someone I respect, Bill McBride.  He notes the impact on the market from this action is little to none for supply.  He basically notes the overpayments and how only 10% accepted Zillow offers, mostly those that were offered over market price.  It's interesting how he contrasts the vision of ZG vs Redfin leadership statements back in 2019.
https://calculatedrisk.substac...
I wonder if they will try again, but next time to surround the transactional process in the same way without actual capital purchase of the house.

About two years ago, we entered into an annual Lease agreement that set the rent for four years. The second had a bump (~2.5% increase) from the first year. The third and fourth fixed and same as the second.  The Lease is an auto renew, but for one year, so it can be non renewed by either party, but a rent schedule is included such that if it is renewed the amount is specified. Its going into the third year in early 2022.

A little background, The rent when they moved in was increased approximately 9% higher than the previous. There was an issue with the previous roommate tenants (dispute between themselves...also seemed like trouble in general which I hadn't foreseen during screening) so it was agreed they would move if a qualified tenant was secured. My mind frame at the time was to secure a quality tenant in a relatively short time and to get up to around market rent, if not slightly below. The new rental rate for the Townhome in early 2020 was about $350 above mortgage, HOA and utilities are not included. Also, this is on a 20 year mortgage about 9 years in, so really paydown with a low maintenance quality tenant was the focus. To try to secure/finalize it at the time, the rent schedule was offered because this had been expressed as a concern by some prospective candidates at the time.

Fast forward two years later, and they have been very good to date.  But, the rent is going to be very below market.  I haven't done a market rental rate analysis for the area, but Zillow pegs it at $2195 which is already $600 above what was market rate only 2 years ago.  Having some remorse over this self inflicted situation. While the coming year might be ok (though very annoying), the fourth, assuming conditions are similar to today, will be difficult to see through. My mind frame now has evolved from two years ago, and I now see the extra income as enabling greater security reserves, providing the ability to hire repair folks instead of DIY which saves personal time, and to improve the property more beyond the minimal.

Any suggestions on how to approach this beyond a 1) non renew or 2) wait until end of year 4?  Or am I stuck with this self inflicted gun shot through the foot?  I'm not sure a 'there will be an increase this coming year, or you can non renew' is a viable option either. It would be nice to work with these tenants, avoid turnover and a potential vacancy gap, etc.  Is there a tactful way to approach and communicate?  Thought I would throw this is out to the BP community. Thanks.

Originally posted by @Joe Splitrock:

@Steve Miklashevskiy it is basically guaranteed property values will rise over time. The question is how fast will it happen and how long will it take. Each market will see different pace of increase. I am seeing a little more inventory in my market, but only because prices have moved up so fast. Instead of houses selling the day they hit the market, they may sit a week or two. This is listings that hit the market at a premium. In general my market has a massive housing shortage and there are no indicators prices will not keep rising over the next year.

@Alex Forest having worked at a large corporation for years, I am always skeptical at the narrative a COO pushes to the public. Usually it is a spin and doesn't represent the truth behind a decision. It is no surprise that flipping represents half of their revenue because of the high selling price of a home. When they entered the business, they had a goal of 5000 houses per month at a margin of 2-3%. They expected to lose money as they established the business. They also planned to launch adjacent services to generate revenue like title, mortgage and warranty services. I am not sure any of that happened yet, but I think the goal was never huge margin on the house flipping, rather using it to sell all their solutions.

@Chris London thanks for the real world data. Who does Zillow use to list the properties or are they "for sale by owner" on Zillow? Are they paying full buyers commission in your market to entice agents to work with them? Do you believe that Zillow overpaid for all of these, so even if you offered what Zillow paid, would it even make sense?

I hear you about the gross revenue being high as it's from the sale of homes, and the 2 to 3% margin target being low during buildup and establishment of the program. Their overall corporate profit margin is 3.7% and operating margin 8%. Not too much higher on the whole.  Half of their $4B revenue coming from this one segment, -$0.5B in negative cash flow with a trailing P/E of 145. As a snapshot of the finiancials, that doesn't sound particularly good in the present. That doesn't say anything about the long term prospects or as sales continue into the spring the effect it could have on the stock. 

I don't doubt they are trying to capture the entire transactional process and ancillary services surrounding the sale.  It seems this strategy affects those with a high volume of transactions more than the small investor with one transaction per year or every two years and holds. And to that end, why do they actually need to buy, why not just serve as the realtor, mortgage provider, closing company, warranty provider, insurance, etc etc without actually purchasing?

I had no idea they were doing so much of this.

Originally posted by @Joe S.:

Where are you buying your luxury vinyl tile? I am used to calling Vinyl planks, But I’m trying to sound more professional for all the experts. :-)

I have been buying mine from Lowe’s, but seeing where other people are buying theirs. If I can find a better place to buy them at a better price I am definitely interested. Lowe’s just recently discontinued some of the less expensive LVT. I am referring to the floating floor locking together vinyl tile. I’ve pretty much learned my lesson on any glue down vinyl tile. 

 Joe, what lesson was learned with the glue down?

Also, do you all generally install yourself? I have a LVP project now, but sub floors aren't as level and perfect as one would like so was thinking glue down with luan underneath would be more sturdy and hold up better in this case than floating locking style.

Originally posted by @Joe Splitrock:

Originally posted by @Scott Mac:

Looks like a nosedive over time vs a tumble--It's why stocks are a gamble (just like Roulette in Las Vegas).

Real Estate holds it's value over time, and you can "fix it up"--you have some control over it.

The US Government manipulates these stock prices, so maybe they just failed to pay off "The Correct" people or something (or maybe they did and it's way worse then we know).

https://www.businessinsider.com/does-the-government-actually-manipulate-the-stock-market-2010-2

No doubt, it has been down over time, but it dropped 9.5% yesterday. That is a pretty big single day loss and it was directly related to the house buying news. Stock market is emotional. I don't see how an inventory of houses makes Zillow a "sell" stock suddenly. Other headlines complain there isn't enough inventory. They just need to turn the inventory and figure out their long term business model. I agree the government manipulates stocks,  but the market is also manipulated by hedge funds, probably even more so.

Here are some quotes from Zillows Chief Operating Officer.
"We're operating within a labor- and supply-constrained economy inside a competitive real estate market, especially in the construction, renovation and closing spaces," Jeremy Wacksman, Zillow's chief operating officer,
"We have not been exempt from these market and capacity issues and we now have an operational backlog for renovations and closings," he added.

As far as why the stock tanked on the news, they said this flipping program accounted for HALF of Zillows revenue. So while they still have the inventory, they just acknowledged that the model is struggling (may have some of that anticipated future earnings and optimism already baked into the stock price) and they won't be able to sell homes in the anticipated timeframe, so short term quarterly earnings may be less.

There are some other big players listed on the stock market like American Homes 4 Rent, amongst a few others   They have something like 53,000 single family home buy and hold homes. I would think that type of publicly traded firm could have a bigger impact on long term small buy and hold REI, as they hold the inventory.  Zillow seems to be after a high volume of transactions.

@Mark BrennanHow do you all move the used fridge into the unit?  It sounds like a number of folks buy from a local used appliance store, so have them deliver inside?  There are a lot of used fridges listed on Cl or Fb, but moving them onto a trailer, off, then up stairs and through the door can be very challenging. Other appliances are less daunting, but fridges are tough.

ps- almost eerily as I was reading this post, my fridge went out!  Was just the breaker.