All Forum Posts by: Eric Gerakos

Don't invest there. Without appreciation you can't make the numbers work. Most houses need a full rehab every 30-40 years, without appreciation you only have cash flow to pay for that. Roof, windows, kitchen, bathroom, flooring.. 

Appreciation is the largest contributor to your financial success. You need at least 3% and that's below the long term historic averages. Run some numbers on the BP calculator and look where your profit is comming from after 10, 20 and 30 years. That's like ordering a steak dinner minus the steak. That's just salad and mashed potatos.

Disclaimer: appreciation is never guearanteed, you can't bank on it on a year by year basis, but over long periods of time real estate has always appreciated - it has to, at least at the rate of inflation.

I host lunch & learns for our local Rental Property Association and on the topic of how to make a million in RE a question came from an investor who has been in the game for 30 years. My point was that even with very, very coservative assumptions and a modest W2 you can very reasonable generate a million over 10 years with buy and hold - try it with the BP claculator.

So this investor bought low income housing in one of Milwaukee's worst neighborhoods over 30 years ago, he has been working his butt off, does all the handyman work himself, is 65 now and says he has nothing to show for. While we have seen prices almost double over the last ten years, his properties have not. And most of them need a lot of work, he actually refinanced a few just to pay for roofs. It was eye opening for me to walk through his numbers!

So don't do what he did! Find an area you can expect to appreciates at least on an average rate (nothing speculative!) and buy quality real estate, not cheap stuff just because it's cheap and nobody else wanted it.

I bought in Akron a long time ago. I've since sold all those properties and bought local. Buying in Akron was a mistake, but I learned some important lessons along the way. For that tenant class, the headaches are not worth it.

Fyi in my short 2 years owning properties there, I dealt with 4 evictions, dogs ******** on walls, cat piss along the whole wall and even the ceiling, and a tenant throwing all their kids toys into the wall vents. 

Yeah, avoid this area.

I can tell you how it'll end.

Tenant A paying $500/month can only afford $600/month.  Tenant pays $500 this month, $525 next, $550 following, to a point they find a new place to live when the rent reaches the $600 level. Landlord has to get new tenant and lost out on ~$1K in rent by allowing it to be rented below market for these months.

Tenant B paying $500/month can afford $750/month. They pay the $25/month increase until they get to market rent. Landlord lost out on ~$1500 in rent by taking this incremental approach.

Regardless of whether the current tenant can pay the market rent, the landlord loses. Rip off the Band-Aid and move it to market rent. Tenants either can or can't afford it. If they can, get them up there as fast as possible. If they can't, get them out as fast as possible.