All Forum Posts by: Victor Menasce

In my experience, deals tend to chase money. So I started positioning myself as the money several years ago. Even if I'm raising capital, I control the money. Over time, I developed a reputation for getting projects done. 

So today, people send me deals, daily. Only a subset are good enough to meet our criteria, and even then we can only do so many projects at a time. 

We've developed teams of experts on the ground in different geographies. They're responsible for the execution of the projects.  These people too have become an amazing source of opportunities. So the short answer....

1) Sent to me.

2) Sent to me.

3) Sent to me....

You get the idea.

We install security cameras in our properties. We often have them facing out of a building so we see what is going on approaching a building. 

Last year we had two buildings under construction that were across the street from each other. An employee of the concrete company saw that plumbing was being installed across the street. He came to the second property on the weekend and helped himself to all the copper in the building. On Monday morning we came to the property to discover that all the copper had been stolen.

The video footage from the first building provided enough evidence for us to take action. The dude was still wearing his sweatshirt with the concrete company's logo on it. When we approached the concrete company and showed the video, they paid for the replacement copper in the building. Never heard what happened to the employee. 

Welcome to student housing. You can often get rents of $500-600 per bedroom. But you can usually do better than the numbers you're quoting close to a bigger university. 

You want to be in an area where you can get parental guarantees on the rent. You also want to make sure the leases are signed for the entire apartment, and not for individual rooms. Otherwise the lender will treat the property like a rooming house and financing may be impossible to get. 

You should also assess the supply/demand situation for students within walking distance of campus. I find that larger units (4BR) make the numbers look better, but they're harder to rent. Some universities have a surplus of student rentals in the 4BR category, and a shortage in the 1BR and 2BR category. For example, I have some 3BR units in Philadelphia that I'm currently renting for $1,500 per month with 3 students. I have a single student renting one of those 3BR units at $1350 per month and using it like a 1BR because she simply can't find any 1BR units. Spend the time to understand the dynamics of the market. 

If you're seeing a party atmosphere in the area, then you're maintenance numbers are low. Students can be a high maintenance tenant with a lot of breakage, and repair of equipment.   

Hope that helps.

I think the biggest problem is that the rents are low. Any time you have rents below $1000, the maintenance costs will eventually result in negative cashflow. Depending on the age of the property, you may need to reserve large amounts for maintenance. Materials and labor cost the same, regardless of how much rent you charge. An air conditioner costs $3500 to replace whether you charge $500 a month in rent or $2000 rent. A roof replacement will cost, say, $7000. Even if you have 5 years left on the roof, you need to reserve $116 per month for the next 5 years to save up the $7000 to replace the roof. I hope you're getting the idea. When you add these reserves into your budget, cashflow goes negative.

I would not buy this property for that reason. I own many units, and my best performing units are the highest value ones with the highest rents.

The voice of experience. Hope that helps.

1.  Building a successful RE business requires several elements. If you don't have investment capital, then you'll need to learn how to raise capital. In order to do that successfully, you need 5 things. If any one of them is missing, it won't work.
   1) Relationship
   2) Trust
   3) Results
   4) Compelling Opportunities
   5) Alignment of goals
   
   Let’s dig a little deeper.
   
   

   1)Relationship – Most people won’t invest with someone they don’t know. So the key is to build relationships with high net worth people who are looking to put money to work. They emphasis is on relationship. People with high net worth are very sensitive to the idea that people want something from them. They don’t want to be used, any more than you or I want to be used. So it has to be a genuine relationship.

   2) Trust - A complex psychological contract. It has many layers. There’s much more than “Are you an honest person?”
   
   The astute funding partner wants to know:
   
   
   • Can I trust you to ask the right questions about a project?
   • Can I trust you to put together a good plan?
   • Can I trust you to execute that plan?
   • Can I trust you to evaluate and manage risk appropriately?
   • Can I trust you to communicate in an open and transparent way?
   • Can I trust you to communicate when there is a problem?
   • Can I trust you with my money?
   • Can I trust you to hire good people?
   
   If the answer is “no” to any of these questions, then the funding relationship will run into difficulty.
   
   3) Results
   What results can you show? Show me a track record of success. Show me what you’ve done, mistakes and all. Past results can often be a predictor of future results, but not always. Will you invest with someone who has lost money on eight out of their last ten projects? I wouldn’t!
   
   Reputation in business is part of that all-important foundation of trust. Some new investors see a dilemma in what I’m proposing. “How can I raise capital without a track record? How can I develop a track record if I can’t raise any capital?” My response to that is simple. First of all, investors prefer to invest in businesses, not the self-employed. Business is a team sport. If you’re not part of an investment business and you’re just starting, then join an established business with a track record of success. Work in that business for a period of time. You can then legitimately borrow some of their credibility and track record. While you don’t own that track record yourself, you can show that you have played a key role in successful projects. This is often enough to show a funding partner that you know what you’re doing.
   
   4) Compelling Deals – When a project is strong enough to generate more than 30% annualized returns, it becomes a safe project. There’s enough buffer to withstand a few mistakes, and there’s enough profit to go around and make all the partners happy.
   
   5) Alignment of Goals. - All money has an agenda attached to it. If the agenda for the money and the goals for the project don’t align, then don’t take the money. It won’t work in the long term.
   
   Let me give two examples. I have two funding partners with vastly different goals.
   
   • 1.One of them wants to make high rates of return on a short-term basis. They’d like to recycle their money into a different project every 90 to 120 days.
   • 2.I have another funding partner who believes that short-term projects can make high returns, but that money will sit on the sidelines between projects earning zero. He prefers to make a more modest return, but wants his money working for him in longer-term projects. His philosophy is that he will make more money and have lower risk by keeping his money at work.
   
   I can’t say that one is right, and the other is wrong. They’re just different. I’m not going to try and convince a short-term investor to make a long-term investment, and I’m not going to convince a long term investor to do a short term transaction. It wouldn’t make any sense. Always take care to align the goals with the agenda associated with the money.
   
2. So you're right, you need more than just passion and motivation. Hope that helps. 

The rules for Rent to Own vary widely by state. So check your local regulations. I've done several rent to own deals. They've all worked out OK. But I'm not doing them any more. 

I have two main reasons:

1) Only about 50% of buyers will actually buy the property. So in the end, half the time you've got to find a new tenant/buyer or you're holding a rental property, or you're selling it on the open market and hoping to get your number.

2) Your option contract is predicting a future value of the property. But if it doesn't appraise at that value, then it won't matter what the contract says. The buyer won't qualify for financing at that price. So in the end, you're speculating on the future value. I don't like to speculate.

I like deals where I can make money today, with today's value. If my success depends on market appreciation which I don't control, then I'm not in control of the outcome and my exit strategy is weak.

The only way that makes sense it to buy the property at a deep discount to the current market, and write the option price near today's market value. Then you're pretty safe. On the other hand, you would probably make more money just selling it in today's market.

Hope that helps. The voice of experience....

One additional item to check in your due diligence are any additional liens on title. 

IRS liens and water liens will survive the tax sale. 

@Caleb Brown The marketplace is filled with opportunity and land mines. My advice is to figure out who is successful and trust-worthy to learn from, and go work with them (as an employee) for a period of time. This will accelerate your learning without putting any capital at risk. 

Business is a team sport. This exposure will give you an idea about the different roles required to conduct the business. Real Estate investing is a business like any other. It's success depends on the quality of the team. A good deal, badly managed is no deal. So it always comes down to the quality of the team you're working with.

There are lots of people out there looking to take advantage of rookies and profit from their inexperience. No trying to scare you. It's just reality. I love investing in real estate, and it's what I do each and every day in multiple cities across the country. 

Probably a different answer than you were expecting. Hope that helps.

Welcome Dustin,

I live in Ottawa and currently invest in Chicago, Philadelphia, Phoenix, Florida, Louisiana, and North Carolina. I'm also the author of "The Great Canadian TakeOver" and president of the Ottawa Real Estate Investors Organization. I've been investing in the US for 5 years. The vast majority of our projects are new construction, mostly apartment buildings.

My General Manager actually lives in Victoria, and I have a few friends who live in Vancouver who invest in the US. Once of them just started a rehab project in Indianapolis. 

If you have specific questions, I'd be happy to connect with you. 

Regards,

Victor.

Where is the property? 

Depending on the location, even if you purchase the property through a tax sale, the heirs may have a right of redemption. I would suggest you contact a local attorney who specializes in tax sales and probate. If the rightful owner was not served notice of the tax sale, the right of redemption after the tax sale can be quite long in some jurisdictions (21 years). So you need to do your legal homework. Talk to your title company as well. They will tell you if they will insure title. 

If you can't find the rightful owner, then you may be able to still buy the property and go through a legal process of quieting title. This process can take 6-12 months, at the end of which, you will be able to get title insurance.

And yes, once all that is done, you may have a property that is worth building on, if the values in the area are high enough. If you can build for, say, $110 per square foot, and sell for $220 per square foot or better, then you can make some money. But don't forget to account for all the soft costs (design, permits, engineering, holding costs, interest expense, insurance, RE Commissions, etc). 

You'll need to match the design of the new home to the market demand. Don't build too much, and not too little.