All Forum Posts by: Michael Gansberg

Sorry for the double post, @Patrick Ng - it reminds me of a situation ten years ago when I was self-managing one of my properties(really lending a hand to the manager.) The rent on a cruddy studio was $500 or so, and a prospect called me and said she'd like to see the place, but she could only afford to pay $400. I said, "If you can't afford the apartment, why are you calling about it?" She mumbled something, and that was that.

I suspect she expected a different response from me. I'm not much of a haggler, I guess.

@Patrick Ng - if the ad she responded to showed the rent as $50 less than you're expecting, that's a management error. You can explain it to her, but she basically self-screened and told you that she can't afford the rent. I think you got lucky- if $50 is make or break for her, she probably isn't in a stable situation. It's my experience that when you have problems before the lease begins, you'll have problems for the duration.

I'd give her the deposit back and find another resident.

Hi @Account Closed - I’d draw a circle from NYC with a radius of 2 hours of travel time and see which areas that includes. It gets you most of Long Island to the east, up to Duchess/Columbia County/Greene County(and a quite few others) to the north, quite a bit of NJ to the west and south, and Philly to the west. I believe the cash flow/yield in many of those areas(maybe all of them) would be better than in NYC.

You can expand your search into the less commutable areas, but if you can stay a little closer to home, there’s value for those occasional property visits you might choose to make.

@William Huston - it depends what your goals are. It sounds like you might gain economies of scale if you consolidated, but if you put all your properties in a single geographic region, you face risk by being too concentrated. But there might be a happy medium.

Back to the main question- self-manage or not? Self-management will gain you some money in exchange for your time in the near-term. Long-term, if your desire is to keep scaling up, at some point, you won’t be able to do it all on your own. So if your goal is to support yourself and create a nice retirement, self-landlording might be fine. If you wish to create wealth for the next generation or two, and have a totally slammin’ retirement where you can continue to invest in real estate, it probably isn’t the best path.

@Joshua Feit - hard pass. Flood insurance has tended to increase sharply on an annual basis. For modeling purposes, I'd plug in 18% annual increases on your flood insurance. Plus all that Capex over the past two years? It's tempting to call those "one-time" expenses, but if you have 8 units, one+ water tank should fail each year. You'll have to patch the roof occasionally. Eight heating systems means a failure every 2 to 3 years(unless they're all brand-spanking new.) One fridge will die every year.

Plus, you know this place is a headache, and any manager will know it too. Which good manager, in their right mind, would take this place on for $8k/yr of commissions? I'd go for a well-maintained single family or two family with much higher rents per unit and much lower headaches. Even though the theoretical cash flow will be lower, the actual cash flow will probably be higher. You'll only have one or two tenants to communicate with, one or two hot water tanks, and so on.

@Frank Boet - knowing that Toll and KB are going much lower puts you in an enviable position. You can buy puts and profit off their declines- I'm assuming you've done so? 

You may also have fallen prey to a common human foible, which is thinking patterns exist when they don't. A concrete example: I read Stocks for The Long Run by Jeremy Siegel many years ago. He noted that if stock investors bought stocks at local minimums and simply held them, they did extremely well over the years(obviously.) What was less obvious was investors who bought stocks at local peaks also did extremely well(I can't recall how he defined 'local peaks,' but we can hand-wave a bit here.) By extremely well, Jeremy Siegel meant that investors beat the long-term treasury by big margins.

So if people buying at only local peaks did well too- who is left to lose in the stock market? It's the people who trade. Most investors sell at exactly the wrong time...looking at this statistic or that statistic to try to bolster their already-existing opinions of what's going to happen in the future. Those are the investors who get clobbered.

You've chosen housing starts, and suggested that because of something or other with housing starts, you know what's going to happen with Toll Brothers- you don't. Between adopting a buy-and-hold approach in real estate and selling everything when you get nervous, the former strategy will tend to do better for the vast majority of investors.

Great points, @Dean Letfus - no matter how frequently the experienced investors discuss it, newer investors will always buy class D properties(which should hearten some older investors who wanna dump that junk!)

As a new investor, I was guilty of it- I thought, “Why would I want to buy a 7-cap property when that one across town is a 15-cap?” But the 15-cap is usually fool’s gold. Above average cap rates usually mean above average problems, which translates to: “You’ll never get that 15% cap rate, sucka!” 

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@Thomas D. - I doubt this scheme would work. Appraisers would just look at those purchases as outliers, made by a foolish investor who'd been taken for a ride. The purchases wouldn't be arm's length. And after you gave the apartments back to your uncle for free- he will have effectively stolen two apartments from you.

You've made a 50% gain on your condos. Stick to your knitting.

Hi @Josh Lyons - I've created a schematic to help you choose vehicles along your journey as a new investor. Hope this helps! 

MG

@John Allred - do you have any updates regarding your post? Thanks,

Mike