All Forum Posts by: Andrew Johnson

@Jack B. Yeah, the roof can always be a killer.  I misread your original post and thought the plumbing was "dead" and the roof, appliances, etc. were all going to be replaced soon.  If you have a ton of items that are approached end-of-life then I'd definitely sell.  If you have a job where you make $155K a year I can't imagine you have too much time to oversee a largish rehab project.  Might be time to take the money off the table and look for the next deal.  And you get to reset the depreciation timetable.  

@Sam Epstein Sounds like you're way ahead of me when it comes to Zillow.  It's a fun tool but more valuable when you can look up factual sales to back up Zillow's algorithm.  I do think, on average, Zillow overvalues properties (at least in my area).  Not by much but I think it definitely skews "optimistic".

@Bob Gillar Basically it's the trailing 12 months of expenses and income. So rather than relying on an estimate of vacancy, estimate of expenses, etc. a T12 will show you something definitive for the last 12 months. You can't 100% rely on it because some people (surprise, surprise) may doctor them to make the property look better than it really is. But if there's an external property management company it's less likely. I know if I was selling one of my properties and was asked for a T12 I could log into Appfolio and literally send a PDF that shows who paid rent when, itemized expenses, etc. T12s are MORE valuable in vacation rentals as occupancy is key. So you can then see if people are booking 7 day stays vs. 4 day stays in peak season (it makes a HUGE difference) and what happens in the off season (both in terms of occupancy and nightly rate). I hope this helps, PM me if you have more questions.

@Gary Miller Being married to a doctor we have found ourselves in a similar situation to you. We were willing to trade off ROI for relative ease and consistency. I still can't say that what we do is truly "passive" but we did a couple of things:

1.) To start we bought a 5 unit multifamily for cash.  We could be aggressive with the offer because commercial properties don't work for traditional residential mortgages, you can't "house hack" them so the investor pool is more limited, and because we went all cash our downside was "less income" rather than going cash-flow negative.  We bought a mid-2000's build so that we knew we weren't going to get a roof failure in the near term and likely not at HVAC failure either.  After a few years the biggest expense has been replacing a hot water heater.  We use a property manager and it was really a test for the market, PM, and to see how truly hands-off it can be.  Still, I do fly out a couple of times a year just to check on it (and now we have other properties in the area).  

2.) We subsequently purchased an additional large complex 20+ units in the same area (maybe .5 miles away).  Even newer than the first property and we were comfortable taking on a mortgage (and getting the benefits of paying mortgage interest, increase depreciation, etc.) after see the first property work out well for us.  It also really helps that we're seen how the property manager operates, communicates, keeps units filled, etc. 

I think your biggest risk (mobile home park or otherwise) is that you end up "going big" and just happen (despite all vetting) ending up with a sub-par property manager.  I still don't know of a way to predict with certainty who will be a good vs. bad one.  They all have solid references and if you ask enough people they all have stubbed their toe along the way.  The reason I'm at least putting the "go small before big" out there is if there are lessons to be learned it's far easier (emotionally, especially when time is a premium) to learn those on a property where your downside is "less income" rather than "cash-flow negative".  That being said, this strategy is not ideal for maximizing your returns.

PM me if you have any questions.

Edrin Shamtob Focus on the property manager and see if you can meet a few while you're out there. They will have the connections to contractors (so you don't have to build them) and will likely know realtors that work with non-local buyers. That's just my personal opinion as you have to "live with" the PM relationship the longest. Unless you're planning to move to Ohio and give up your legal career you're probably going to have to trust them in regard to things like repairs, vetting tenants, maintenance, and even getting bids if there's a larger cap-ex expenditure. In rare cases they could also know of a property owner they serve is looking to sell a property. For me face time, ensuring they have a real office, etc. were important.

Petr Stuchlik I think Victor Eng is right on the money. There are different types remediation and if it was encapsulated and then disturbed through a renovation/repair/etc. what was once considered "safe" may not be anymore. It sounds like you're right where you need to be regarding your due diligence.

James Rodgers Students are pretty solid in terms of paying, especially with parents are cosigners. The downside is turnover. If I were looking at the deal my concern would be turnover costs as a percentage of rent. Paint touch up, carpeting, figuring out a drain is clogged when they leave, etc. all costs money and it wouldn't cost twice as much if your unit was a 2bd/2ba. So, in essence, you do pay for getting things "rent ready" more often with students and it might turn out to be a good percentage of the monthly rent. I do have 1bd/1ba apartments (some of which I rent to students) but those rent for $600+ so the inspect is muted a little.

Chantal Kennedy Here in San Diego there are similar challenges when it comes to finding attractive cash-flow. I personally invest out of state but I think you have to have enough capital to make it worth the effort. If you have $50K to invest and plan on viewing a property before purchase and visit from time-to-time just to ensure everything "looks okay" it can kill your ROI. Once you look at round trip plane tickets, a hotel, renting a car, etc. you can get to between $1,500 and $2,000 a trip. Take two trips a year and that's $4,000 right off of the top of your cash-flow. Not to mention if you hate the state where your property is located those trips could become begrudging. Others may advocate leaving it all to a PM (I have one) or buying something turnkey property online but I'm just too paranoid (or conservative -- take your pick) not to check-in. If you have $500K to invest or you have other reasons to travel to the property location my points may be moot.

Sam Epstein Personal opinion here but I wouldn't put too much stake in what Zillow says. If it's a planned community with model matches it might be more accurate. I know it says my personal residence is worth $110K more than I think it actually is based on the most recent model-match sale (although I kinda wish it was right). If I was planning to bid I'd find a local broker and pay for a drive-by BPO so at least I had a better guess as to value and/or ARV.

Steve Rozenberg I always use depreciation in my pro-formas. As the accountants say, it's not what you make, it's what you keep! If you have a 3 story multifamily property on the same size lot as an SFR (unlikely, but just for a hypothetical) the percentage of purchase price will skew heavier towards improvements as opposed to land. Therefore I can (in this fictional example) have a greater tax write off and capture more post-tax income. That being said, depreciation is there for a reason. Roofs do need to be replaced, appliances break, etc. (hence different depreciation schedules) so it's not as though it's a free lunch. But if you ever look at the assessors office data for a random property in San Diego, CA vs. Lincoln, NB you'll see the stark differences in land vs. improvements and how it can impact a pro-forma even if the properties are at a similar purchase price.