All Forum Posts by: Mel Park

@Joel Owens

Very informative post, thanks. Like most - I love the idea of an NNN being an extremely passive investment and I'm only looking at names that I feel have history and proven success. I'd rather take a lower cap on something established, versus a higher cap on some new chain. You are 100% right - at cap rates of 5% - one needs 30 year amortizations for cash-on-cash...the 25 just isn't cutting it. Question - when you talk of a National Tenant - let's say, Wendy's. They are national BUT so many of the NNNs are owned by franchisees. I don't mean Johnny with one franchise - but if the QSR lease is with a company that has -- - 20,30,60+ franchises, does that also pass muster as a National Tenant, and get 30 year amorts?

A 30 year amortization and a good QSR brand - would truly fit what I need as an investment. I feel it would be higher ROI than rental homes. BUT my fear - and I ask your opinion on this: With NNN - I'm married to someone for 20 years, and sure - odds are that in 20 years, Wendy's, Taco Bell, etc will still be around. But my God - 20 years - in today's world, who really knows what's gonna be happening that far down the road. Also, IF the tenant were to break the lease - I keep thinking that a company that owns 50-60 restaurants - has more experience in breaking leases, than I have in enforcing them and I fear I'd be outgunned legally - versus rental homes, i't just me and one tenant - a fair fight if you will.

I've told myself that on an NNN QSR - I'm better off accepting slightly lower cap-rate, BUT. - having a location that has immediate neighboring QSRs and some retail - my guess being that should my NNN decide not to renew - maybe I'd have easier time getting a new tenant as it seems many QSRs want to be in proximity of others. Any thoughts would be appreciated.

I've owned (2) rental townhomes for 8 years - I've used a property manager and I've never once had any problems.   However - - now, this won't just be a 'side' investment, I am out of my lifelong business career - - and real estate investments will be a key part of what hopefully is my investment path from now on.     About me: I have NO knowledge in home maintenance. None, zero.   Eventually I am hoping to buy 4-5 units - could be townhomes, could be Single Family.  Metro areas.   Lately I've been wondering - could I do it without a property manager and I'm SURE there's things I'm not thinking of. My thought process:

*Advertising the rental. Learning how to take good pictures, and advertising on the proper sites. 

*Tenant screening: Credit report.  Landlord reference. (Preferably even a non current landlord. Skeptic in me worries if a current landlord would give a good reference to a bad tenant, just to get them off his books?)

(In my previous business - for 20 years I had a staff of 40. Hired people from all walks of life. Was involved with direct retail selling, every day and had to evaluate credit reports daily and at times, make judgement calls about selling to people - - and then getting them approved after the fact....rarely made a bad call. )

*Rent Collection:  Just make online payment a requirement?  I'd rather not knock on doors for rent.  

*Maintenance: Is it customary to put a deductible in - say $100 per incident?  Point is not to get calls for a light bulb going out. 

(For normal stuff - I've ALWAYS told my property manager to get it fixed, get it fast and right. Keep the people happy. I don't think twice about replacing a washing machine for instance. ). Point being - my property manager merely calls a plumber, electrician, whatever - he doesn't repair it himself -- - so why can I just cultivate relationships with handymen?

*Turnover:  I guess that involves collecting keys, changing locks, walk thru inspections - and then doing clean ups, carpets, paints as needed?

FEARS

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I plan to stick to somewhat nice areas, not too downscale. I'm fine with slightly less ROI if it means a better credit tenant who I sense won't be a problem or abuse the property. Point being - if I start out with a decent tenant, I"m responsive to maintenance problems and don't cut corners - I'm HOPING to avoid angry tenants - - hopefully that is realistic.

*EVICTIONS:  I can't imagine having to go kick someone out of their house. 

*TOUGH CUSTOMERS: From McDonald's to the Four Seasons - all businesses have them - people who just are never ever happy.  After selling my businesses, I'm sort of sick of that after 20 years :) .  Am I realistic thinking that most tenants, are fair minded as long as I do all I can to uphold my end?

*SAFETY:  These days, people are nutty.  Am I too paranoid thinking that if there's a problem collecting rent, and I have to tell people to leave....they'd come after me personally?    Think of all the  workplace violence - why would this be different?

I keep doing the math..... if I own 5 units@20,000 gross rent.    By the time my first kid starts college, I'd save $50,000 in property manager fees.    For a 46 year old who is sort of retired - - $50k is a nice bonus.

Any thoughts, positive or negative I'd really appreciate. Thanks.

Curious if anyone has knowledge of, or experience with rentals in Metro Philly.    I've heard Hatboro/Horsham is possibly growing and ditto Hatfield.     Any opinions I'd appreciate. Thanks

Thus far, I've only done a few condos with 2bed, and 3bed and for 8 years - nothing but a positive good experience.    Just now I noticed in the same complex: A 1 bed/1 bath unit is available. 

I just rented the 3bed/1.5 bath unit for $2,200 per month.  

To make a similar ROI on the 1bed - it'd have to rent for $1,900 per month. I'm thinking -- geez, for $300 less a month, would someone really take a unit that small? But then who knows, maybe there's single people, or someone with a roommate who precisely wants a 1bed, and is happy to save $300. Any thoughts? Thanks

@Jonathan R McLaughlin 

Thanks, that is in interesting idea. By "B", do you mean sound property, and creditworthy tenant, and if so I'd be assuming that there wouldn't be constant repairs, or trouble collecting rent?     As far as retainer for handyman - I guess that means just paying a guy a monthly fee, in return for him taking your calls first?  In that situation - do you just call a different person when you need plumbing or heating? Thanks

Hello, I am still deciding where to buy 3-5 rental homes and certainly there's a plethora of areas.    Cleveland has been experiencing growth, and I am wondering if anyone knows areas of Cleveland that have not blossomed fully yet, OR if not that - what are names of towns where renters want to live. Thanks!

Thanks for chiming  John.   I'm also hoping my 2.5% appreciation is a tad low. If I take out extremes --  such as the 2008 crash, or this Covid skyrocket..... it still seems that 3.5-5% was and is realistic.  I see millennials - despite what we were told wanting homes - seriously wanting homes wanting them.  I feel many will have student debt, other expenses, and homes under 300k are a great match for them.  Also I look at new people coming to America. I can say with 100% certainty - home ownership is high on their list.  That, plus population increases in areas like Atlanta...heck, 2.5% is basically inflation. I'd love to be surprised down the road in a good way.

I want to devote a tiny part of my portfolio to speculation - no different than stocks. I want to figure out - whether its Raleigh or Atlanta....areas where there's *nothing* ....but in 5-7 years, the development will start. My first company was in Woodbridge, VA in 1999 the town was known for pawn shops, body shops, 7-11s, graffiti. Now - there's a Wegmans, an Apple Store. Cripes, I can't even say 'Apple of Woodbridge' without grinning because I still remember how it used to be. Small houses were 80K in those days. Then - in 2010 I finally had money to invest - but I figured I missed the boat because those houses were at 200k. Well -- now those 200K'ers - are at 300K.

Houses are the first priority, my bread and butter if you will.  But I'd love find a promising area, and buy some residential lots or even commercial, and just know that those funds don't exist for me for awhile.

Yes, I'm sure people will offer that and I've seen similar listings on LoopNet, Crexi, etc and I guess it's either ignorance or cowardice on my part ----but I sort of don't believe it so I've never delved into it further. What you say makes sense.... those ROIs they offer....are probably with everything optimal, and everything going perfect, no property manager fee, etc. In business, I've never been the home-run hitter. Even at my apex- I liked doubles and triples....but consistent and realistic. I think that same trait is following me into this new phase of life. For me, the real estate would indeed be a source of income but not sole income. I like the hedge - in that it's bricks, not paper stocks. Also the depreciation - - part of my strategy is to have the real estate company legally earn zero profit ....lower my AGI, and that makes for favorable tax treatment in other arenas.

Hello, eventually I'd like to buy another 3-4 units - could be condo, could be single-family. The ROI I'm about to show, I feel is lower than what I see people talking about. Lower than the average yearly stock market return. Mind you, I'd still do it because I can't sleep having 100% of my nest-egg in the same asset class, especially when said asset class is paper stocks. Anyhow, was hoping folks would look at this and comment. Say it's a Metro Area that is forecasted to have strong growth in coming years, use Atlanta for this example, say - Kennesaw, GA, Single Family home, 3bed/2bath. Price assumes rehabs are priced in, OR the home was just about turn-key ready:

Purchase Price:  $235,000

Monthly rent: $1700 per mo, $20,400

Expenses:

*Property Manager: $2,040

*Property  Taxes: $2,000

*Insurance:         $1,500

*Yearly Repairs:   $1,400 (calling plumber, A/C  guy, etc)

*Maintenance Accruals: $3,000 (replacing carpets, doing paint, replacing appliances. I'm hoping $3k per year does it. This means I'd spend $15,000 in 5 years, or $30,000 in 10 years)

*Vacancy:           $1,700.      (New tenant every 2 years. I'd miss one month's rent, + $1700 broker fee)

*Miscellaneous:   $500          (Stuff I haven't thought of here)

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NET yearly rental income: $8,260 divided y $235k purchase price=  3.5%

Appreciation: Avg 2.5% per year so in a 5 year example: 

Selling price: $260,000 - $14,000 commissions and fees:  $244,000 net proceeds.  

=Total 6% net appreciation in 5 years, so avg ROI of. 1.2% per year.

3.5% rent + 1.2% appreciation =.     4.7% Yearly ROI if held for 5 years.

I look on this , and feel ROI is low.....but -line by line those are the expenses so maybe it's realistic?

I feel that 2.5% is a realistic appreciation rate - much lower than the last few decades and - by most accounts, areas like Atlanta, Raleigh, etc are still expecting influxes of people, and homes under $250k don't seem to be the builders' number one choice because there's not so much profit in it. 

Would really appreciate any comments or thoughts, thank you. 

Old thread I know - - as someone looking for an NNN certainly the DG cap rates are - stating the obvious- better than McDonald's. Even with today's (2021) low cap-rates, I pencil DG @6% cap rates and between positive cash flow on rent, plus principal pay down - the ROI is not great but it's "good enough" for what I'm trying to accomplish.

I just worry - - about such a property going dark because they are in less than desirable spots so it's not like they'll be a line of potential tenants the next day.    Anyone have experience or thoughts vis a vis DG locations flying away after the lease term is over?