All Forum Posts by: Michael Gansberg

@Son D. - very sorry to hear about your trials and tribulations. As a long-time investor, I can state unequivocally that bad management is worse than no management at all. You've been caught up in a Ponzi scheme; the good thing is that you're clearly aware of it. So you have three headwinds right now:

• you've undoubtedly overpaid for a house.
• your "management company" has folded(or is about to, or who knows what's going to happen? Any of those is not exactly reassuring.) After sticking would-be investors with the tab, the fly-by-night company will pop up again with some name evocative of nature, or goodness, or something which the company isn't. 
• you're without good management.

The first problem is likely beyond repair, as it seems this Ponzi scheme is growing long in the tooth. This is partially because the Ponzi scheme is receiving attention(from social media and other sources,) which will crimp the quantity of future funds available to pay off prior investors. The prior investors- who are unfortunately large in number- are also learning of MI's perfidy, creating a rush for the exits(and an avalanche of redemption requests which will go unanswered.) I believe MI is at risk of imminent collapse due to likely reduced new funds coming in paired with increased scrutiny from the law(though when something has already collapsed, can it collapse further?)

The MI investor today is akin to the voter in 2016 who expected certain things from their vote and now refuses to believe that they've been completely hoodwinked. The voter from 2016 is kind of stuck with it, but you're not. The longer you hope MI will make things right, the more money you'll lose. That's the bad news.

The good news is that you're a real estate investor now. You haven't sunk $20k into one of those useless guru classes, but you've sunk approximately double that into a troubled asset. Now you can really learn about real estate firsthand. Go look at the property with your own two eyes. Get the tenant's contact info. Let them know that you care about making sure their apartment works for them. Get a copy of the lease. Meet a few property managers and hire the one you like best(check referrals first! There are plenty on BP who are rescuing MI investors I'm sure.)

I'm pulling for you. These MI stories are really hard to read, but there will always be unscrupulous operators in markets as long as they can find willing supporters.

Hi @Kimberly Klaas,

Sorry to hear that you purchased from Morris Invest, the reviews on BP are pretty horrifying- the only positive reviews I've heard were from the paid shills on their podcasts, which I've listened to a few times for entertainment. 

The people who are most effective at getting their money back are usually the ones who take videos and post them on YouTube with "Morris Invest" in the headline. So I recommend going to your property and making sure that someone will be there to meet you to give you access(have a backup plan or two if they stand you up- knock to see if there's a tenant, and if it's obvious that there is no tenant, bring proof of ownership, call a locksmith, and get in there to take some video.)

If you decide to stick it out, I'd promptly fire Morris Invest and hire another manager. Plenty of managers pop up while looking through the other MI horror threads. 

@James Bailey - if you decide to convert the stove to electric, I recommend taking a look at induction stove tops. It's ritzier than electric coil ranges(which look so bad they make you wanna barf, not a good thing when you're about to make dinner.)

The induction ranges cook food faster, and I believe they're safer. They're also likely more expensive, and they look better. Here's Consumer Reports weighing in on the pros and cons:

https://www.consumerreports.org/electric-induction...

If you're trying to remove gas altogether(which should save the resident a nice chunk of change each month,) I'd consider a hot water tank that uses an electric heat pump. It'll remove heat from the air in the house to heat the water- so it'll function somewhat like an air-conditioner/dehumidifier, something that will be welcomed in about 9 months out of 12 in Florida, and it uses less electricity than an electric resistance heated water tank.

I'm not sure whether or not you'll be able to recoup the added expense in a flip- the stove is very visible, so likely more important than a heat pump on a hot water heater. 

MG

Hi @Account Closed noted, those are only asking prices, which is at least a step removed from what's actually going on with sales prices. 

I'd recommend the Case Shiller index- I've linked it for you. You can check national prices, or prices in certain cities. I've also linked a story stating that prices in the 20 cities tracked rose by a bit over 6% in the last year(2nd link.) The first link has a very nice graph showing that prices have mostly risen since 2009. 

I think the housing rally has gotten long in the tooth, but I weathered 2007-2009(and started buying hand over fist in 2009-2013,) I'm not gonna dump income-generating assets on some fear of a correction or crash. If I could survive 2008, I'm sure I can survive anything else that's thrown at me! But I have certainly slowed my asset purchases in the last few years(that's my bearish stance.) 

Michael

https://us.spindices.com/indices/real-estate/sp-co...

https://www.spice-indices.com/idpfiles/spice-asset...

@Jesus Moreno - if you can bill them for water use(because that’s separately metered,) you definitely should. @Lesley Resnick makes a great point- a solar electric(solar PV) system might make sense here.

I wouldn’t get down to specifying how bulbs are changed- that’s way too micro. LEDs last over 10 years(some over 20-30 yrs) in household usage, so if 1 randomly burns out, you’ll notice it at turnover and the cost for a few month’s usage won’t be worth mentioning.

Michael

@Eric Cozby - I invest in Albany(and the Capital District in general) from New York City. It's similar to out of state investing for me, as I only go up there about once every two years. I've had generally good experiences. High cap rates, but watch for the fool's gold(a listing with an outlandishly high cap rate, for instance- on those, you'd be lucky to attain half the cap rate.)

If you're not planning on having your boots on the ground, I'd say don't start with a property needing tons of rehab- better to start with a high-quality and high-functioning property, build your team, and then go for a rehab if that's what your goal is. Rehabs are only smart when you have people you can trust(and still you'll have to verify) or if you're there to keep an eye on it and make sure nobody is robbing you blind. 

It's totally doable. 

Michael

I think it's a bad idea. I've dealt with Section 8 for years, and finally this year I threw my hands up and completely refuse to take it. Section 8 requires the owner to deal with two parties- the tenant, who may pay some portion of the rent, and Section 8. Plus, I've never had a Section 8 inspection that passed a first inspection(yet those same units have always passed code dept inspections.) That suggests to me that the Section 8 inspectors must find a violation(or three) to justify their jobs. 

If Cuomo passes that law, maybe I'll talk to my attorney about challenging it. Why not, it might be worth it.

@Jesus Moreno - I'd keep it simple and just list the place with all utilities included. The tenants will expect to pay more for it. I'd swap out all the bulbs with LED bulbs(use 2700 K, or 3000 K at the most, anything higher tends to be too blue for residential.) This will keep the bills lower, as LED bulbs use about 80% less energy than halogen/incandescent, and about 30-40% less than fluorescent. 

If you haven't put in appliances yet, go with energy star. While you're at it, put low-flow toilets in(Niagara Stealth from Home Depot uses 50% less water than a standard toilet,) and use Water Sense faucets and shower heads.

Then put a clause in the leases allowing you to end the lease with 30 days written notice. If you see someone running the AC with the windows open, end their lease and tell them why. But hey, if you do efficiency upgrades, you could end up profiting more by including utilities- if you charge $100 more per month for all utilities but the utility bill if only $50/unit, you're doing pretty well.

Michael

@Alex Alleva - the limits on that deduction are for homeowners, not investors. The recent tax bill was written with the real estate investor in mind(wonder why??? 🤔🤔🤔) Check with your accountant, of course. 

I think it'll be a high hurdle to sell and reinvest- you'll pay fees coming and going, and will probably have some taxable consequences as well. If there's a good deal of equity in the house, maybe consider a HELOC to pull some equity out and recycle that into another property or two in an area which hits your metrics more effectively.

Awesome podcast. Really loved it- I think much of Bryce's success comes from his can-do and upbeat attitude, something we should all pay attention to. 

One point I disagree with- he mentioned a building with heating costs of $3,000/yr(I think it was oil baseboard, and the owner paid the heating bill.) He ripped out the heating system and put in electric baseboard, putting the burden of the heating payments on the residents. He spent $5,000 doing that, and suggests a return of $3000/$5000 = 60% annually.

This sounds like a great idea- but in practice, I think it would fail miserably. Generally, electric baseboard is much more expensive than oil heat(see link below which allows input of various prices for electricity and oil.) With the default inputs below, electric baseboard is 87% more expensive than oil. If it's lower than that- call it 80% - then the residents would shoulder a burden of $5400/year in heating costs instead of ownership paying $3000/year.  That's not a lossless proposition! 

In my experience, when residents have unexpectedly high heating bills, they gripe about it, their ability to pay rent is reduced(leading to a higher eviction rate,) and they tend to leave the apartment at the end of their lease, dramatically increasing turnover. Turnover is expensive- repainting, cleaning, possibly a month or two of vacancy, paying an agent to rent it(or spending your own time showing it,) and so on.

It's also important to note that an owner can charge more if heating is included. Installing electric baseboard and putting the heat bill on the residents will result in lower rent rates. So I believe the actual return on ripping out the oil and installing electric baseboard is actually negative. 

Loved everything else in the podcast. Michael

https://www.efficiencymaine.com/at-home/home-energy-savings-program/heating-cost-comparison/