All Forum Posts by: Henry Hsieh

@Henry Hsieh You are definitely in a good spot to be in for the future!

At this point, you have a few options but it sounds like your time is valuable and something you want to keep, based on being worried about the headache of managing multiple smaller properties vs a few bigger ones. 

In my opinion, like stocks I would be diversified between some mfh and sfh. Doesn't have to be all commercial either, small multifamily still does well out here in AZ. I think a good mix of your appreciating SFH's in good areas, mixed with MFH in appreciating neighborhoods is great, can even get undervalued MFH and SFH out here.

But overall your portfolio should match what you're wanting out of it. Do you want to be hands on managing them all the time, then self manage and keep buying MFH, if you want to consolidate you can, or trade into higher cash flowing SFH like STR's. There's not a right or wrong, but optimizing the portfolio to match your lifestyle is definitely key.

@Henry Hsieh I wouldn’t listen to a thing the gurus preach. They make it seem as if you can go from owning single family homes to large multi-family buildings using entirely OPM which is laughable but it at least a gets novice investors interested enough to sign up for their expensive courses. 

SFH's are going to be inefficient to manage and with that comes headaches. Rarely is it a sustainable long term strategy, particularly at scale. Those who are successful ride the wave to the main appreciation event and then sell. In the interim good operations and contract management can certainly help.

I don't personally invest in SFH's at the moment besides the occasional flip. Not that I wouldn't, but haven't found the neighborhood that offered the right fundamentals to provide for attainable scale and quick appreciation. If I find it, I would certainly replicate my model from 10 years ago, just exit better now knowing the asset class better. But owning SFH's for long periods of time speculatively waiting for the neighborhood to change doesn't excite me.

To your point, distance complicates real estate management. Particularly smaller properties such as SFH's. This applies to both construction management as well as as property management. If you can find a neighborhood that can sustain scale with strong fundamentals it can make investing a lot easier, particularly if close to where you live. It sounds like your properties are in multiple states.

All of my properties are in Philadelphia. When I was reliant on 3rd party construction management I was spread throughout the city but when I decided to bring construction and property management in house I conscientiously decided to focus on one neighborhood to streamline both. I happened to find a neighborhood that had diverse housing stock and allows me to develop a wide array of property. It works for me because I can build million dollar townhomes, 700k condos, convert shuttered schools into $1500 1 bedrooms for young professionals, redevelop mix use properties where I can add amenity commercial tenants and a host of other types of projects all within a 5 minute drive radius. I can achieve scale without developing redundant inventory. I’m sure there are similar neighborhoods across the country that offer the same qualities. 

@Henry Hsieh, Growth is such a nice problem to have isn't it! The answer you are referring to is what we call a consolidation exchange. A consolidation exchange is where you sell multiple investment properties to purchase a larger investment property.

I find this usually happens when an investor gets fed up with managing such a large portfolio, or is coming into retirement in the near future, they will use this tool to defer the tax and depreciation recapture, and minimize the hands-on aspect. Or in your case bumping up against allowable loans.

It's never really that simple when choosing the right direction for your future RE investing, when a lot of it has to correlate with your future goals as an investor. Does your vision focus on appreciation or cash flow? All while combating whatever the market conditions are that are most prevalent. You've already experienced the power of the 1031 exchange to upgrade your properties. Keep your eye on using that tool to maybe shift into a different sector or location of real estate as well.

@Henry Hsieh I am going to focus on point 1: SFH Portfolios. The short answer is this is cirucmstantial but you are also getting ahead of yourelf. Not all SFH portfolios are created equally and its important to idntify the type of SFH portfolio you have. Are these home in stagnant C/D neighborhoods where the equity is merely principal paydown in neighborhoods with low home ownership? Are these SFH's that were purchased in neighborhoods that transitiond and experinced appreciation due changes in the neighbohrood and now have higher home ownership? Or are these SFH's where the fundamentals exist but haven't experienced the primary appreciation event or transitionened to higher home ownership yet?

In changing markets theres normally a short window where a more significant appreciation event occurs and these neighborhods then tend to level off to more normalized appreciation. Catching that wave just right is often when SFH investors perform best and then transfer the equity into other assets.The biggest mistake is when investors sell prematurely not recognizing the fundamentals exist. Normally those investors are chasing cash flow and don't understand the asset class they are investing in. Those who buy in C/D stagnant neighborhoods are also usually chasing cash flow (or can't differentiate appraised equity that is realizable vs. paper equity). They rarely stand a chance which is why I put thm below those who buy in the correct markets but sell prematurely not understanding the investment they made. If you are in the stagnant market, I generally recommend selling. If there's any gain from buying these properties its normally experience and relationships. Understanding where your SFH portfolio falls will help dictate how you proceed. It may be a case of having homes in each of these categories.

I learned this first hand which is why I am vocal on these boards about SFH investing. To provide some context, when I began investing in 2013-2015 I acquired a portfolio of close to 30 SFH's in what was a C neighborhood at the time using the 'BRRRR METHOD' (even though I didn't know that term at the time). I purchased beleiving I was building a portfolio of cash flowing proprties. What I failed to realize was I was in the equity accumulation business. The correct neighborhood fundamentals were staring me in the face, but I didn't undrstand what I should be looking for. By 2016 I sold each of the homes, mainly to FHA buyers with 5- 6% seller assists or to other investors and each and every transactioin was an excruciating process (if you've sold to FHA homs in the lowest price points, you undrstand how painstaking of a procss it becomes). Most homs homes sold between $130K-$150K. My 2019 the same homes were re-selling selling for $275k with no new improvments made to them.

@Henry Hsieh typical penny-wise, dollar-foolish approach.

Investors make more money finding deals than they do pinching pennies doing DIY management.

Or, is your time not worth much?

Henry, if you are still looking to learn more about property management here in Arizona, I'm available, feel free to reach out. I can share the systems we use in case you want to manage yourself, or at least see how we manage properties for out of state owners like yourself.

Hi Henry - I’d love to connect.  I am a newer investor and live in Gilbert, AZ.  I currently have one long term rental that I am managing myself in the Arcadia area.  I’m looking to buy my next property in about a year, but in the meantime I was hoping to find a mentor.  In exchange, I’d be able to be sort of an intern or someone to help with boots on the ground here in AZ.  I don’t know the exact legality of what you need but maybe we can work something out.  I do have a background in real estate- residential sales, new home construction, and short term property management. I am looking for someone who can teach me/be a resource for estimating and conducting rehabs, partnerships, and evaluating deals in this market.  Feel free to connect if you’d like chat more! 

For me combination of 1 and 2 works out.
I let my PM handle the tenant placement, rent collection and, if needed, evictions. 

While on the other hand, I try to be hands-on on the maintenance - for the following reasons:

1. As an OOS investors I simply cannot manage by myself.

2. I have found that PM's contractors charge way more than the market rate.

3. PM's contractors have zero accountability with me. They'd simply keep sending me invoices for every visit instead of admitting their fault for not being able to fix something on the first visit.

4. As much as I need feedback on my tenants, I need feedback on my PM as well. At the end of the day if a tenant is not satisfied by the PMs services, they'd not renew the lease. Tenant turnovers eat cash flow.

YMMV. Whatever works for you.

@Henry Hsieh I have done 1 or 2.   Just giving you my experience on trying 3.