All Forum Posts by: Leo R.

...there's probably no "right" answer, and of course nobody knows what the markets (stocks or real estate) will do in the future...but, here are a few considerations:

-what's the grade of the property/neighborhood?  ...if it's an A/B property in an A/B area, I'd be more hesitant to sell it. If it's C or lower, I'd be more motivated to sell.

-what's the property's appreciation history, and what's the forecast for future appreciation? (based on factors such as neighborhood, local employment outlook, population, current & future supply vs. demand, etc., etc.)

-what types of tenants does the property attract, how easy is it to find tenants, and how much hassle is it to manage? ...these factors would affect my decision...

-you didn't mention specific cashflow data, but it sounds like it's not cashflowing well...if that's the case, I'd be more motivated to sell... but if it is cashflowing well, then obv. I'd be more hesitant to sell..

-There's a good chance that we'll be in a pretty rough market to sell a property by Spring (in fact, we're already in a much poorer seller's market than we were 6-10 months ago)...although trying to "time the market" is often a fool's errand, I'd be hesitant to sell a property that's cashflowing well in this market...

-You'll want to outline and quantify all of the returns the property provides (or doesn't provide) other than just appreciation and cashflow.  For instance, tax benefits, opportunity to force appreciation via value add, etc...

-You mentioned you started buying properties 15 years ago...which makes me assume you bought when rates were at historical lows...which makes me wonder why you used 15 yr mortgages? If you had gone with 30 yr mortgages, that might have completely changed the cashflow picture...regardless of what you decide to do, are there any useful lessons there regarding debt/cashflow?  

-speaking of lessons learned, 15 years of real estate investing & property management no doubt taught you many valuable lessons--presumably you can use that knowledge to get good returns in more real estate deals, but that knowledge is of little or no use to your ability to succeed with stocks (i.e.; your knowledge of how to screen tenants won't help you in the S&P).  ...personally, I focus more of my investing efforts in real estate than stocks because I have a much better understanding of real estate than stocks--this is because I have far more experience in real estate than stocks (plus, I think the basics of RE are just easier to understand for most people than stocks)...

-One of the most fundamental rules of investing is diversification--if you're currently 100% in RE, then perhaps diversifying some of that into stocks would be a good move...

...hopefully that helps.

Good luck out there!

@Ramsey Scott how about house hacking a single fam or small multifam property?

In my opinion, house hacking is the single best way for people to get started in real estate investing.

Why? Because, house hacking can produce great financial returns, it teaches you essential RE investing skills, but (compared to more advanced strategies like BRRR'ing or wholesaling), it is comparatively lower risk, simple and beginner-friendly (and therefore has the highest likelihood of success).

More specifically:

1. A HH can produce great financial returns. A HH can substantially lower your living expenses, while creating cashflow, appreciation, mortgage pay down, and tax benefits. A HH can also involve opportunities to force appreciation and/or rent (e.g.; by adding an extra bedroom in a previously under-utilized space). When executed correctly and repeatedly, house hacking can be very lucrative, and there are multi-millionaires who built their fortunes on repetitive house hacking! Although it's a strategy that's good for beginners, there are plenty of very experienced RE investors who continue to HH, because it's such a powerful strategy.

2. A house hack will teach you the essential skills you'll need to succeed in RE investing. With a HH, you can learn how to analyze properties & markets, how to find an investor-friendly agent, how to spot value-add opportunities at properties, how to engage in a strong due diligence process, how to screen tenants, how to manage the property, how to build a network of contractors, plumbers, electricians and other pros, how to manage the book keeping of the property, etc., etc., etc. If you want to succeed in RE investing, getting this experience will be critical! In my experience, a HH can provide incredibly valuable lessons that no mentor, real estate course, book or podcast could ever teach (though, I'd still highly recommend reading up on relevant RE resources, listening to podcasts, etc.).

Plus, if you decide to do one of the other strategies in the future (such as BRRR'ing or out of state investing), you'll be much more prepared to do it if you have a few HH's under your belt--a ton of the lessons you'll learn from a HH can be used to succeed in other areas of real estate ...in fact, I'd say that a HH should be a necessary prerequisite to the more advanced strategies (like flipping) for most folks!


3. Compared to other strategies (like flipping, wholesaling, etc.), HH is relatively simple and lower-risk, and therefore has a higher chance of success. I always use this analogy: would you tell a beginner skier who has zero experience to ski a double black diamond (the most advanced terrain) for their first run? (obviously, no; a beginner could easily get themselves killed on double black diamond terrain!). Beginners should start off on beginner terrain, where they actually have a chance to learn and succeed. A house hack is like that beginner run (but BRRR'ing, wholesaling, and out-of-state investing are more like double black diamonds).

The fact of the matter is: real estate is often a high-stakes endeavor, and the more advanced strategies (like BRRR'ing, wholesaling, flipping, out of state investing, etc.) can easily bankrupt a beginner when they're executed poorly.

Plus, HH'ing is an ideal strategy while you're young...when you're in your 20s/early 30s, it's pretty common to live with housemates (or to live in a duplex next to your tenants), but this arrangement becomes much less feasible once you get further into your 30s/40s (especially if you start a family).

Now, having said all that, house hacking is not necessarily easy (if it were, everyone would do it!)...it's just easier than the more advanced strategies...House hacking still takes significant due diligence, skill in analyzing the market and the property, time and effort to learn about tenant screening and property management, the ability to anticipate appreciation/depreciation trends, etc., etc., etc....and even with lots of skill and preparation, things will still go wrong (vacancy, plumbing leaks, bad tenants, etc.)--but that's the nature of the game. As James Brown sang: you gotta pay the cost to be the boss.

Good luck out there!

@Evan Alexakos  I'd suggest first figuring out what your goals are, and what type of RE investment strategy matches those goals.  THEN, you'll have a much better idea of what books/resources to focus on.

For instance, if you decide you want to house hack (which, I'm a big proponent of--especially for beginners), then focus on books/podcasts/articles/resources covering house hacking... There's not much point in reading an entire book on flipping if you don't plan to flip a house... etc., etc.

Also--keep in mind that you can read a thousand books on how to swim (and, by all means--you definitely should study up before getting in the pool), but at the end of the day, the only way to learn to swim is to get in the pool!

Good luck out there!

@Manco Snead if you haven't already, I'd suggest studying up on all the resources related to tenant screening, and how to find and manage a PM (there are lots of articles, BP resources, podcasts, youtube vids, forum posts etc. on these topics)....studying up on these resources might help you figure out how to improve tenant screening and/or PM management...these resources can also help you figure out how to approach the PM about improving tenant screening...

At the end of the day, getting a PM to do anything usually requires proper incentives  ...is the PM incentivized to thoroughly vet applicants, or are they incentivized to get anyone they can to sign the lease asap?  ...if it's the latter, what can you do to change the incentives so that the PM is incentivized to thoroughly vet applicants?

...this is probably one of the most fundamental challenges to managing a PM--the incentives of the PM are rarely aligned with the incentives/goals of the owner (and often, the incentives of the PM are in direct opposition to the goals of an owner!)...for instance, the PM is often incentivized to expend minimal effort toward fixing problems that cost the owner money....  unfortunately, I don't have a good solution for this...

Another option: take over some or all of the tenant screening process yourself...much of the tenant screening process can be handled remotely...do a zoom call with prospective tenants, the background check is online, have them sign the lease and pay online, etc.

...I self-manage all my own properties (which are local), but really, when I think about my own properties, there are very few (if any) aspects of management that absolutely require my physical presence...if I really wanted to, I could coordinate most of the management remotely--and this is esp. true for many aspects of tenant screening. ...and I know that I'd have a higher standard of tenant screening than most PMs would have...Plus, since you have experience managing your local property, you probably already have a solid understanding of how to screen tenants...

Good luck!

@Manco Snead  it sounds like your numbers are pretty good...when the numbers are good, obviously there's a lot more incentive to keep the property (esp. since you have a low rate that you presumably can't replicate at another property)....

you didn't mention how much you put down, but you did say you put 20k into rehab...look at how much total you have in the property, and calculate your returns (both with cashflow, and also with appreciation), and that will give you a better idea of how to proceed (it's also worth calculating ROE).

Usually, when people describe an OOS property with terrible tenants and a bad PM, the problems are occurring because it's a C or lower property/neighborhood...but you said it's a "clean" neighborhood...would you say it's an A or B neighborhood?  (if it is, then I'd be especially motivated to keep the property). ...if it's a C or lower area, I'd be leaning more toward getting rid of it...

The biggest question I'd be asking myself is:

"Are the problems I had with the PMs and tenants caused by things I can fix (e.g.; via improved tenant screening)?  OR are these un-fixable problems?"

...if it's an A or B area, it's a lot more likely you can fix these problems...if it's C (or especially D) or lower, it's a lot less likely you can fix the problems (unless the neighborhood improves dramatically).

One other consideration:

Do you have prior experience managing OOS PMs and managing a property?  If you have a lot of experience in these areas, then that might indicate these are more un-fixable problems...but if you have relatively little (or no) experience in these areas, then these might just be the growing pains of getting started (I definitely had my share of bad tenants when I was getting started).

Good luck out there! 

@Mike Schorah I've been self-managing my properties for a lot longer than 4 years...but, my properties are mostly A and B class, with pretty high-quality tenants--and of course, that exponentially lowers the workload, and makes my life much easier...  also, my properties perform pretty well (both in terms of cashflow and appreciation), which makes managing them much more enjoyable (the job would be pretty miserable if you're not making much money, or losing money).

I would assume you're correct -- that people who have C and lower properties (or properties that don't make much money) often drop out pretty quickly...managing a D property would be extremely stressful and difficult--not a job I'd want (not for any amount of cashflow)!

 I'd also add a "management not responsible for stolen items" sign, and perhaps a general "you use this space at your own risk, management not responsible for accidents in this space" -type sign...

@Meredith Mihm I'm not an expert in coin-op laundry, but presumably there's a lot of plumbing...and, in my experience as a landlord, plumbing inevitably springs leaks...and when tenants don't report those leaks fast, it equals big problems...

So, I'd have a clearly marked contact (e.g.; a plumber/maintenance person) for tenants to call in the event of a leak/flood, with a big sign that says "IN CASE OF LEAKS/FLOODS/OVERFLOWS, CONTACT: ..."... and maybe some other instructions for them to follow if there's a leak (like instructions to set up a "slippery / wet floor" sign if there's a leak)

Definitely let us know how it goes--I'd be interested to hear how it performs and what lessons you learn in the process once it's been up and running for a bit...

Good luck out there!

@Kevin N. so, the decision seems to be: do you take their offer to split the difference, or do you dig your heels in and say you're not paying over the appraisal?

For me, this would depend on a lot of factors you haven't mentioned, such as:

How much will it cashflow? (if it's a hundred or two, I'm less interested...but if it will cashflow $1k/mo, I'd be more likely to take their offer).

What's the grade of the area?  ...if it's an A or B+ area, I might take their offer, but personally I usually don't mess with C or lower areas--the cashflow is rarely worth the hassle.

How easy will it be to find tenants, and what type of tenants will they be? ...if there will be a line of top-tier tenants (e.g.; doctoral residents, nurses, etc.) wanting to rent the place, that's one thing...but, if it's a property that will attract unqualified tenants (or few tenants at all), I'm not interested... 

What's the forecast for appreciation?

Plus, the suggestions others have already provided are all excellent...

Good luck out there!

@Nathan Gesner I'm not involved in STRs, but I do casually pay attention to the STR market from the sidelines...

In my city, it's illegal to have a STR. However, I remember seeing a story a couple years ago about another law being passed that prevents any government entities from investigating who is operating a STR! ...so, it's illegal to do it, but it's also illegal for the gov. to investigate who's doing it... a very weird dynamic.

Needless to say, there are tons of STR listings, despite them being illegal.

...I've heard that the only time an STR gets shut down here is when the neighbors complain to the city...

...it will be interesting to see how the STR space evolves over the coming years...