All Forum Posts by: Douglas Gratz

Hello BiggerPockets Friends,

I am sitting at my computer bored and figured I would start this thread to see what other people's experiences have been with section 8, mainly because I see alot of people on here give new comers, horror stories, where as I believe its the best way to rent!

My thoughts are:

1. Tenants will more often than not, not be the best tenants ,however; this is why when you buy a property you plan to section 8, you either use cheap material or unbreakable and easy to clean expensive material. I usually go with the former. Section 8 tenants are not keen or mindful about keeping the place nice.

2. That said, the most important piece of the section 8 puzzle is very strict tenant screening, and there is big demand for section 8 so you should be able to have a pool of people to choose from.  They will never have good credit, so you need to call previous landlords and sit down and have a conversation with them, feel them out.

3. I find that happy section 8 tenants do their best so I like to send large gift baskets on major holidays, offer discounts during Christmas, etc etc. Section 8 tenants are used to slum lords and I believe that no matter who you are, you deserve a good caring landlord and that goes a long way in how they treat you and your home. It also makes them want to stay. 

4. If doing section 8, I prefer to do it in cities that have quick eviction times. Where I am its only 30 days until they are forced out where as Philadelphia takes 6-8 months.  Thats a lot of losses income and if you have mortgage this could really hurt.

5. I LOVE SECTION 8. ITS RECESSION PROOF (more prospective tenants in times like that, so bigger pool to find good tenants) the GOVERNMENT sends me a direct deposit into my bank account! Not having to worry about collection rent is a huge plus as I feel this is one of the most stressful parts of being a landlord. If I compared section 8 to my none section 8 tenants , 99% of the time , at some point I need to evict my non-section 8 tenants in C to D class neighborhoods.

Overall, if you are thinking of going this route, I strongly encourage it! Choose tenants wisely, try and buy duplex's to protect yourself against vacancy (I never have had both units vacant, so this way I will get enough rent to at least pay my mortgage) BE STRICT WITH YOUR TENANTS RIGHT OFF THE BAT. Do not be nice, be a business person. If they are late on their portion of rent or anything, give one chance, "if I do not have your portion of rent in 1 week I will evict" and do it. Let them know this the day they sign, that you will be the best landlord you can be, but if they stray you will evict. I usually say this to my new tenants , "I want to give you a nice house to live in, I want to be great landlord to you, but I expect the same in return. I take rent and anything you pay monthly (water) very serious and will evict you in a heart beat. It will be best if we both do our best toward one another, I respect you, you respect me, its as simple as that, I want to give you a nice clean, bug free place to live, and in return I expect everything on time, I will NEVER EVER let late payments or DESTRUCTION of my house, so do those things and you will be gone in 30 days" Lay the law down along with good tenant screening, and you wont get the horror stories you so often hear. And recession proof, you cant beat it, I like feeling safe with my investment.

@John Williams. in Clarksville TN what are the ARV values for SFH and duplex's?

@Robert Ruschak

First off I do not think there is a quick way to scale unless your sitting on a big pile of cash, syndicate large deals, or find a grand slam deal which are few and far between

I was able to go from zero doors to 20 doors in 5 years by doing the following:

1. Buying duplex's and higher at auction, but first I got to know my marker so I can figure out the ARV's of the multi-fams I wanted to buy and rent out.

2. I would do my best to see how much work will need to be done on a house at auction that I am looking to buy so that I could know how high I could bid. For example in the market area I like, duplex's get appraised for 250-275k. So I would only buy properties where , I would be all in for $100,000. I would buy cash, rent it, and depending on the institution you use (mine required me to have the home for 6 months before I could refinance) and 6 months later, it would appraise for 250-275k and the bank would give me 175k cash and I would have a 1200 dollar mortgage. So with this strategy, in the end, I would end up with 75k in net profit, 75k in equity, and a rental property netting around 12-15k a year. RINSE, WASH, REPEAT! Once you are generating enough yearly income from your rentals, it will become easier to get loans.

3. With the 100k I just got back, I would use that to buy another rental, and hold onto the 75k net profit to try and grow my capital so that I could eventually afford quadplex's and higher that I would have to buy rather than get at auction. With the quadplex, I would fix it up, add coin operated washer/dryer and in doing so increase its value and then refi.  Most institutions only allow you to have 10 mortgages before you have to get a portfolio loan which is a loan that the lender keeps on their balance sheet as opposed to a regular mortgage where the issuing institution usually sells it on the secondary market. Another Pro to a portfolio loan is that the lender is making the general requirements, so they could be okay with a less than favorable debt/income ration, could be okay with lower credit scores, etc etc...In return you will probably have higher interest rates which is one the cons but by the time you have to get a portfolio loan in order to scale, you should be making enough to afford it.

Rates are around 6% give or take right now, so when they go down, if it makes sense , you can refi at a lower rate. 15 years down the road, 30 years down the road, these mortgages will be paid off and not only will you be generating profits from rent, but you will no longer owe money on the homes and have 100% equity in them. If you start young enough, by age 55-60 you will be making double net profits than you were when you had mortgages on the homes or you can refi them again and get alot of cash in your pocket to reinvest to retire and be set!

 I dont know about that, in 2015 I never did American Ninja warrior obstacle's and my first time at a gym with a real course , I did very well, I would say better than good. I am 5'3, I even got up the wall on my first try! 

 7/22-8/9/2022

THINGS GOT TOUGH! BUT IT WORKED OUT

I Have not posted recently on here because I have been not stop trying to fix a big problem, my original funding fell thru on 7/22/2022.  I realized at this point , after going to other lenders, that with no new constructions experience, rising rates, and economic uncertainty , I was not going to get a loan on my own.  So I have been working with my loan officer, who frankly, got me into this mess, and he found a bank and I stress the word BANK because before I was using hard money lenders. He found a bank who wants a presence in Philadelphia and really likes the project, so he got me the loan at 6%! Much lower than the 10%, and that really adds up. So GREAT NEWS , but I still needed that partner.  I told myself I would not give up and sell the land unless I tried everything I could. I reached out to family and friends . Last but not least I said to my builder "why dont you just come in with me, put up the money we need to close on the loan and we can split it 70/30 my way.  Mind you this verbal commitment was just made yesterday on 8/8/2022, lawyers are drawing things up now, but from 7/22/2022 It was a grind, not just as work, a mental grind to keep trying.  I would still make out okay flipping the land, in fact it would be my best flip to date , but I really wanted to build this. So now I wait yet again......and are these waits (underwriting, permits, plans) new construction takes a lot just to get off the ground.  And I am sure there will be a whole new set of problems to solve, mainly trying to do it under budget. Until next time.....We are almost there, hope to break ground within 3-4 weeks, I will keep you posted. Have a great day friends!

@Chris Turek Congrats on starting your I hope it yields what you put in. However I graduated Summa Cum Laude 4.0 GPA from La Salle University, Granted it was not one of the harder schools. But still in new construction I am just starting college lol.....That is a good idea to value Egineer. I had done that with one of the builders I almost hired. I should get me and my builder and new partner together and do that because our siding is so expensive . And from an easy stand point, thats something good to thing about too, THANKS! I am grateful....Spending to much time , if that can be avoided with a simpler X....This will be hard though, I am building Luxury homes with an ARV of 2.2 Million Dollars. So I can only value Egineer what works and thanks to you I am going to find all that out tomorrow. I will look for your journal. Where are you from?

@Mike Smith I will and I was having trouble with my funding. All for a good reason as it seems, I found a lender ay 6% instead of 11%.  The bank insisted I have 400k into the project and was short 250k, at last, builder decided to invest so experience wise, I think all is well.  He has done some very large builds and one during covid. We know what needs to be ordered earlier than normal, and if all goes as plan with the loan we should be breaking ground in 3 weeks. I will keep everyone posted. 

Time will tell, and I understand how people may thing taking on such a large project for my first new construction is not the right thing to do, however I disagree, and I disagree because I am good at what I do and have prepared as much as one can for such an undertaking.  Personally I think it is easier than flipping a house.  Most of my flips have been full guts and re-framing the inside in a way that totally changed it around, so I feel this to much easier in that I do not have to work around whats already built, crooked floors, foundation that have set crooked, etc etc.  Ground up, I just need to following the blue prints , order material on time, set a schedule for each step and stay within that schedule, same for the budget. 

Whether I am building a home worth 500k and one worth 2 million, the only difference is going to be the finish's . I wish you knew Philly well. Look up Northern Liberties Philadelphia and the comps. It is probably in the top 3 sought out places to live near center city. Rent for a 3500sqft home is $8,000 a month. Look up 613 N 3rd St Philadelphia PA 19123. I am building on the 800 block of N 4th st

 @Kyle Titus Its not that I do not care, its that their advice is off base. For example one guy is saying it will cost $400/sqft to build. Maybe where he is from, but after thorough research and a lot of bid, the largest number a GC gave me was $205/sqft. So to say $400/sqft is flat out not right. Not only are people giving advice that may be right where they are from but they are discouraging and some are flat out saying I am in over my head. Who are they to say I am in over my head when they do not know my skill set and the people I am working with? So yeah to some I dont care, but others make sense, like @Bruce Woodruff and @Caroline Gerardo and who said "

Great floor plans and style. I'm not seeing you getting them done for $170 s.f. though. Materials costs are pretty close everywhere, and have doubled if not tripled on lumber. Has the builder done a take off on a program like Xactimate or ? that actually prices out materials? The good news is, even if you go over, it appears there's a healthy profit margin that can be reduced and still not be underwater. I'd wait until you're doing finish work to actually price and list them, and know for certain what costs are. You can still market and have a website for them to generate leads, but hold off on pricing, just generate buzz. I'll be looking forward to seeing the progress. Best of luck."

For example my builder has gotten all the take offs back for exact prices on the materials based on the stamped construction set. We know our budget is on point because we have exact prices for just about everything . So when people tell me $400/sqft....its bogus. I have even contacted the supplier and when down the all the line items to see what is back ordered so I know what I need to order ahead of time, like windows and appliances (which are a year out for wolf) Then we have people on here telling me sell it and run, but like Karen explained my profit margin is healthy. I am at 37% ROI. IF PRICE DROPPED 40% I would still be in the green and I dont see a 40% drop in housing prices happening.

@Mike Smith also had alot of good advice. So Kyle, with all due respect lol
 

 @Dave Skow  I actually got a bank on board at 6% , thank god..Did not want to use hard money.  And yes I have a consultant to make sure all is kosher and I know what I need to know

@Nick Richards @Isaac S.

Also fellas, my lender would not be lending me over 1.1 million dollars if my budget did not make sense to them. My lender, the owner of the company actually lives in Northern Liberties, where I am building, so if anything was off he would not be lending.  Along with that, I would not have offers between 1 and 1.2 million to buy the lots (about 6 offers so far and I have not even listed it)

 @Nick Richards and My budget is based off of complete take offs from a big supply company, there are very few guesstimates in the budget. As for my builder, we have a 15% contingency in the contract, but he is a seasoned builder and just finished a large 15 home project in packer park during covid (so he knows what things cost ).  Our contract states that anything over our 15% contignency is on him and there is money is escrow for it. So with all due respect, you are a construction worker, you dont know jack, you work for people like me . On the other hand many people who have commented and given advice are experienced GC and builders, and I take all their advice into consideration, research the subject, talk to everyone on my team to see if its valid or not. Prices and situations are different in different area's , so in Texas X might cost this much but in PA X cost something else