All Forum Posts by: Max Drizin

If you are connected to brokers around the area, you can always talk to them about starting a management company with them. Share the profits, use their name and position and nothing else. If you can pitch it to them as something viable, and get accounts on your own, it might be worth it to look into.

One pitch I might try, since I'm doing this with my own brokerage, is that you offer property management as a service to anyone they have buy through them. It creates long-term customers who are almost chained in to a broker, at least mentally.

Granted, there are probably plenty of objections they will have, but it's worth a shot if you have the connections to get accounts and the connections to brokers.

Our company is named Peloton Investors, because I think it puts more focus on who we are really marketing to. To me, the business isn't about buying property, our product is not real estate, and our clients aren't the tenants.

I see it as a service. We provide investment solutions to people who have the money, and that's what we model the company around. Tenants and real estate are simply a means to an end. If the investment was classic cars or technology, it wouldn't matter. To me, real estate, the way we work, is the best way to insure what people see as something like a retirement fund or a steady cash flow.

The Peloton part is a personal thing, since me and my partner are both cyclists. If you aren't aware, the peloton is the big group in a bike race, drafting off of each other and working together, even if they aren't on the same team. The dynamics of things like drafting and passing lend to creating a very fast pack of riders who stick together because they have to. It's mutually beneficial, and it all works, even if everyone isn't necessarily working towards the goals of the other.

For me, I see myself, the seller, the tenants, the investors, and the bank all as part of the pack. We all want different things, but we work together and the more we do the better we are.

Tax increases are the way to go. From a simple macroeconomic sense, there is absolutely no question about it.

If we look at the fiscal policies available for a government, there are two ways to change the economy: spending and taxing.

In the sense of correcting a recessionary gap (what we have right now), you are supposed to either decrease taxes or increase spending. When you increase spending, you increase the amount of money circulating, which is the multiplier effect. For instance, if the government increases spending by $100bn, it increases the GDP by some multiplier of that, because the people who get that money save some of it, spend the rest, and then those people save and spend, and so on.

There's a number known as the marginal propensity to spend, which is basically how much you would spend if you received a $100 bill. Naturally, you spend some of it and you save the rest. If we made the blanket assumption that you would spend $75 of that $100, your propensity to spend is .75.

The calculation for the multiplier effect is 1/(1-(marginal propensity to spend)), which is 1/(1-.75), or 1/.25, or 4. So, if the government spends $100bn, and the multiplier is 4, the GDP theoretically increases by $400bn. More on the theoretically in a bit.

Taxes, however, in short, don't change the GDP as much. In fact, the tax multiplier is the spending multiplier minus one. So, if the spending multiplier is 4, the tax multiplier is 3. Therefore, lowering taxes by $100bn only increases the GDP by $300bn.

However, that is for fixing a recessionary gap. We are currently in a recessionary gap, but we have to enact austerity measures (for the purpose of this discussion) in a way that least affects the current recessionary gap. The idea is that we don't want to exacerbate the current situation, since we would be doing exactly the opposite of what is macroeconomically correct in the situation.

If we look at these multipliers in the other way, you can reason that we should raise taxes, since those would affect the GDP less than lowering spending. This is a simple concept, but we have to remember that we are thinking theoretically. The issue comes in with time and affect lags, as well as crowding out.

One issue is that there are so many areas between the idea and the action that it reduces the effect. First, we have to know that there is a problem, which takes about six months for economists to come out and say. Then, a bill has to be drafted, votes have to happen, there's 30 to 40 revisions of it, lots of partisan politics, the talking heads on FOX and MSNBC have their take, and then the bill ends up on the President's desk. If it's taxes, those taxes don't get noticed until April. Spending changes are "immediate" but they happen over the course of the year's budget. Taxes that people pay affect their spending throughout an entire year, not just at one time. This whole process can be two years long, and that's another major issue.

Of course, all of this completely disregards monetary policy, which is equally important, if not moreso given the power of the Fed today and the relative gridlock thanks to partisan politics and general idiocy within the legislature.

I would say that it's just my two cents, but I wrote enough to say about $12 trillion worth.

Oh, frat houses. They are a good investment, if you want to think about it that way.

As a student at Indiana University and a member of a Greek organization, I can talk quite a good amount about the subject.

Frat houses are crazy places. They are almost always dirty, they need a staff, they need everything taken care of for them. Besides the normal things, there's cleaning staff, a chef, groundskeepers, and so on. You need to keep up with the University's policies for building if you choose to build, you usually need to buy land on a Greek area, and it's expensive.

Finding "tenants" usually isn't difficult. At IU, there are plenty of fraternities who would love to have a house. The university itself is working on buying all of the Greek houses on one street and relocating them to a newer area, and is paying a premium for the properties.

There are plenty of off-campus fraternities that are looking for houses. If the fraternity that is living in your house gets kicked off campus by the University for hazing, drugs, etc (it will happen), you can find a new group to get your house back.

Rents, whatever they are, are almost always assured by the alumni boards and national organizations, and there is quite a lot of money within the organizations. Whether it's a smaller fraternity getting up to the size where they are sustainable, or a fraternity getting back on campus, they will be able to afford your rent.

At the same time, there's a lot you really don't want to deal with. They will trash your house. Think of the following situations: highlighter parties, paint parties, foam parties, pudding parties, luaus, and the normal "get drunk and be wild" kind of parties.

These kids are destructive. They break lights, stain carpets with God-knows-what, and everything else. Don't expect a security deposit.

There are fraternities that will actually burn the house down. Several years back, there was a fraternity that got kicked off campus for hazing. They lost the house, but instead of letting someone else rent it, and go through that perceived "shame," they burnt it to the ground.

As an interesting note, they are starting construction on their new house this year, and it will be ready for them to live in next year.

You definitely will generate above-market rents, and college-town rentals are already above market. There's a good amount of money to be made.

You have to understand Greek life in your area, though. SEC schools have large Greek communities, and status is an important factor. If it's new construction, you will have to have a beautiful mansion. They don't call them "frat-castles" for nothing.

There are plenty of places that don't have Greek organizations nearly as large as these, also, and be sure that you are in an area with a strong Greek community, since that means that you'll be able to security an organization.

At Indiana, we have a very large Greek community, about 20% of the university is Greek. There's a huge amount of factors you have to consider, and it's not a simple investment. However, if you choose to go that way, you probably can make yourself a good amount of money if you try.

As far as Facebook advertising goes against other advertising, like AdSense or another system, it's the most targeted, and thus the best.

I have a background in tech, and I've helped people spend untold thousands upon thousands of dollars in internet advertising. The main issue is how to target the people you want to target.

It's the same way that you can get very targeted mailing lists, down to specific areas. Places like Google can target a perceived specific group of people based on the content of a web page. If you invest in real estate keywords, your ads will show up on places that have those words or related content, the same way that searches are ranked.

However, you are still only guessing. You can't actually know that the people you are advertising to are X-Y age, Z gender, and so on. At most, you are approximating.

With Facebook, however, you know exactly who these people are, because they have volunteered that information. You can target people who are 25-35 because Facebook knows everyone's birthday. You can target men because they know their age.

You can target people who listen to a certain kind of music, people who have "real estate" listed as a job or an interest, who are involved in real estate Facebook pages, and so on.

There is so much information that we provide to Facebook that it's almost scary, but that is what makes advertising with them such a lucrative business. There are half a billion people who have volunteered such an incredible amount of personal information that the advertising that goes on will be the most successful possible advertising you can get on the web.

That being said, there are also high-traffic sites that, instead of using something like Google AdSense, do deals directly with people who want to advertise. These are also lucrative resources, but you end up paying a good amount more.

Originally posted by Joel Owens:

So I watch the shows on TV where they bid on the rental storage units.

So if a tenant owes 200 in storage rent and their box is auctioned off for say 400 does the storage place keep the extra 200 or after your auction fees etc. have to give the remaining money to the tenant who didn't pay??

From what I can understand about that whole process, I don't believe so. I'm under the impression that if the tenant doesn't pay and doesn't remove his or her belongings, the property owner actually becomes the owner of the unit and everything inside of it.

I'm sure there is some sort of legal process for all of this, much like repo work where they sort of up-and-take cars without the owner knowing, report it successfully to the police, and then go about their business.

I hate saying it, but it all depends. California could be a great place, depending on what you are going for in the area.

I personally only do multi-units, and I don't think that California would be the best place. In cities like LA, I feel that there are larger corporations that can find the deals faster than I would be able to. However, here in Milwaukee, the city is big enough that there is a very strong rental market, but small enough that there isn't a large presence for a company that might swallow everything up before I could find it.

Honestly, you can make money wherever you go. It's about figuring out an area, finding your niche, and making good on the deals that you find. It takes some time to get to know your neighborhoods and your goals, but it is completely doable.

If you put in the time and effort, you can do well for yourself. You can find good properties, appreciating areas, and so on. You just have to be willing to put in the time and effort.

Jim Cramer's Mad Money on CNBC. In fact, CNBC in general is good to listen to. It isn't always about real estate, but it's always worth it to listen to during the day as well as the evening.

Tony,

With the repairs, even if it's rented, there might be need for real repairs. Things like common areas and the roof, siding, and so on could need repair. Also, long-term tenants have a habit of just putting up with things, but you might hear about the real issues when you become the landlord.

I'm assuming you have done a walk-through of every unit if you've already put it under contract. Assuming the expenses are half of the gross income, you'll be cash-flowing to the tune of ~$20,000 a year. That note is going to eat up more or less all of your income at the beginning, but it's completely worth it if you plan on holding this property for an extended period of time. You'll be making progress on your principal from the very beginning, and that's something to be happy about.

If Oracle's calculations are right, your break-even on vacancy is around 50%, which is good for what you are looking at. You've got a good deal on your hands if the work isn't too bad. It's a 10-cap at ~$200,000.

I'd be willing to put some work into it, especially if it means you might be able to raise the rents a little. I don't know what you plan on doing with tenant rents when you take ownership, but I'd advise against immediately raising rents or doing anything drastic. It sounds like it's already a good deal, and you want the current tenants to like you.

If you put some money into common areas or a new roof or something like that, you can justify higher rents a lot better than just walking in and saying "You guys aren't paying market, here's a 10% increase on your monthly payment."

Just make sure you don't make it too nice. Especially with studios and efficiency apartments, people don't want/need the best, especially if they don't want to pay for it.

Also, watch out for the built in 1925 part. Here in Milwaukee, it seems that things built before 1900 are built to last, but things after usually aren't. Make sure you check the foundation, the chimney if it has one, and so on. At least in my experience, things built in 1860 are usually in better shape than the places next door built in 1960. :P

All in all, it seems like you have a great deal on your hands. Especially for a first holding property, it almost sounds turnkey. Good luck with the deal, and I hope your inspections go well.

People always do worry about an area changing. If that's an issue with you and your partners, you should look into land use around the area, see what's happening, and so on.

Where I work, I do everything in up-and-coming areas. I look for coffee shops coming, artsy areas, and so on. After a rough neighborhood, I've found that the next step in the "succession" is the hipster, kind of young professional crowd. Starbucks pays the rents, I guess :P

But in all gravity, there are a lot of factors that go into what makes an area good or bad. In cities, you'll find little pockets that are bad, pockets that are good, some that are getting better, others getting worse, all right next to each other.

The best way to find out where a neighborhood is going is just to spend your time, do your research, and then make your decision. You are still speculating, but it's at least educated. I'd say that if you have families there and they seem comfortable with the area, you can be as well.