All Forum Posts by: Greg Scott

It seems like "appreciation market" is the name that has been given to any market that doesn't have cashflow.  In reality appreciation is nearly impossible to predict.  As evidence, about three years ago I was in a heated forum debate on this topic and Austin Texas was the focus.  Since Austin was an "appreciation market" with lots of tech jobs, many predicted prices would go to the sky.  My opinion was that appreciation was not predictable.  Fast forward to now, prices have gone down in Austin since then.

Meanwhile, Indianapolis, a market I am familiar with, was known as a cashflow market because you can buy with high leverage and still have cashflow.  Properties in this city have continued to see strong price growth even though it was not an "appreciation market".

That said, focusing myopically on cashflow is a fool's errand that results in buying cheap properties in high-crime areas.  In my opinion, a good investor will buy properties that have cash flow that are also in areas with strong fundamentals that might deliver good appreciation.

Haven't heard of them, but know that people do this.

You may want to check that your insurance allows this.  I would also insist this organization have a pretty significant liability coverage and you and your property is added as additionally insured.

I don't think the local government can force you to hire an attorney, I paid an attorney to draw up a quit claim deed once and then used that quit claim deed as a template when I needed to transfer another property later.  

The reason they may be recommending you use a lawyer is because if you mess up the paperwork, it could create more problems and a larger legal bill to unwind the mistakes later.

In any event, that shouldn't be an expensive legal bill, so it may be worth ensuring it is done correctly.

Do you have a mortgage?

People usually freak out about the due-on-sale clause, however, I've never heard of that really being a problem. 

The bigger issue is one that most people don't talk about. If the mortgage is in your personal name but the property is owned by the LLC, have you pierced the corporate veil? Would your LLC survive a legal challenge?

Raising money is much harder now than it was 3 years ago because so many syndications have gone belly-up.  While you may have a good track record, if this is your first money-raise, you will still need excellent marketing and a compelling pitch.  Columbus is a great market so that helps, but can you sell yourself and your deal?

It is worth noting that, there are numerous people, some of them here on BP, that could raise $3M for the right venture with a few phone calls and emails.  Something to think about.

FWIW, I'm not selling myself here.  I've raised a lot more than $3M, but never for development.  It is not my expertise.  But, those people exist.

@Sean Graham

I believe my post is 100% in agreement with what you just wrote. Please read my second paragraph.

In my first paragraph, I was trying to correct the thinking of the original post. It was unclear whether they thought they could get a good price or there was some strange tax benefit to having a fully-depreciated property.  I probably could have worded that second sentence better, because if that is all you read, it would appear I don't understand depreciation.

Lori:

Why did you not test for Radon or Asbestos? 

Those are dangerous things, arguably worse than lead based paint, and your property probably has them.  If you were going to test for something, those would likely be higher priorities.  Because you did not test for those, does it mean you do not care about your residents safety?

I'm not asking that because I believe you should do the testing, but to make you think about the answer.

I'm going to give you a reason to not have a wait list. 

In the apartment space, you shouldn't need a wait list unless your property is 100% occupied.  A property that is 100% occupied is usually a sign of laziness or fatigue.  Those landlord will keep rents well below market so they don't have to deal with unit turns.

To maximize your business, if you are getting close to 100% occupancy it simply means your rent is too low.

As a follow-up post, the one thing I would test for in a house is Radon.  That is one carcinogen that is a common health hazard.  It is also easily mitigated which is why you don't hear much about it.

If you want to go deeper into what the media and trial lawyers would have you believe are dangerous, you should test for mold.  It exists everywhere, so you will find some.  You can also test for formaldehyde, Volatile Organic Compounds (VoCs), arsenic in the water, DFAS, gas stove fumes, microplastics, fecal contamination, and so on and so on.

It is worth summarizing it this way.  In many respects, you shot yourself in the foot by testing for lead.  You hurt yourself without providing any real safety for your tenants.

Lori:

I don't want to be snarky.  I was trying to be gentle with my first post.  Now I am simply trying to point out the realities of your situation.

Given the age of your house, lead based paint is not the scariest chemical.  You should definitely test for asbestos.  (Side note: 100 years ago, owners got a discount on insurance the more asbestos they had in the house because the insurance companies thought it was safer.  That is why there was a ton of it in a 100 year old house.)  Chances are nearly 100% you would find asbestos in several parts of the home, and there is a pretty good you would find lead water pipes.

By digging up all the skeletons, you now have to disclose them.  With all that wonderful knowledge, the value of your property will drop to near zero.  Because of the disclosures required, nobody will ever rent it.  Even though it was a serviceable rental property before with an exceptionally low risk of harming anyone, you would have destroyed the value of the property for yourself, the community, and those seeking a place to live. 

If you had maintained the property well, it could have been a safe, comfortable home for a family.   Now, your property goes vacant and rents in the area go up, making renting less affordable for working class people.

That is the reality of being a landlord today.