All Forum Posts by: Michael Gansberg

@Jakob Mykytyn - congrats on your first purchase. A warning about the 'leave-on-for-landlord' program. A risk is that your tenant will stop paying the utilities. In that case, National Grid can backdate use and bill it to you. You might get a bill for $1k for a few month's heat usage. And good luck collecting from your tenants. 

I actually prefer the risk of frozen pipes- if a tenant's living there and Nat Grid shuts off the utilities, they usually figure out a way to get back in Nat Grid's good graces damn quickly!

I'd like to propose a new definition for turnkey.

Old Definition: Buy it and receive guaranteed rent, do nothing except sit on your rump and deposit the rent checks! 

New Definition: Pay more for an asset than it's worth from someone promising something they can't deliver(a.k.a. 'a liar') who will point to a fraction of their past successes but in the fine print mention that they can't guarantee you'll have the same level of success, after which the buyer will soon realize that 'turnkey' really means 'I just overpaid and now I'm dealing with a dishonest property manager siphoning money off the property which he/she doesn't deserve." 

@Account Closed -  many(most? tough to say) 'turnkey' buyers end up disenchanted and they post their experiences here. You've gone into a business relationship with someone who can make way more money selling properties over market value and subsequently being fired from their management role as quickly as possible. Fire them and find someone who manages well- test your new management on this property, then when you're comfortable with their performance, work with them to acquire more well-priced assets.   

Hi @Roger Von Urff - I've done buy-and-hold since 2004 in the Capital District, and I'm also active as a Licensed Real Estate Broker in the area. I'm originally from Long Island and now live in NYC.

My concentration is highest is Troy, but I also own and operate in Albany, Mechanicville, Waterford, and areas outside of the Capital District as well. 

Welcome to the party- I hope the area is as good to you as it's been to me. I'd love to drop by if you have a meetup in NYC.

Michael

@Georgui Kasaev - sounds like you're on the right track. Here are a few of my experiences, I hope you find this helpful.

I started as an investor in '03, and continue doing that today. In 2014, I obtained my Real Estate Broker's License(I skipped over the agent's license, taking my agent test and broker's test the same week- if you have enough experience in NY, you can do that, and my investment portfolio gave me more than enough points(by a factor of 10, I believe.) My initial idea was to function as my own buyer's broker, thus saving approximately half of the commission on my own investments. This idea did not work out- it turns out brokers on the other side were so opposed to what I was doing that it undercut several deals and I abandoned this model.

Hoping to salvage all that time I put in, I thought I'd act as a buyer's agent for other investors for deals that weren't quite right for me. It turns out brokering was harder than I thought- I found plenty of properties, but didn't have the clientele. I know how to acquire and operate real estate very well- but I've never been able to market myself! I'm still pretty lousy at that.

Then I wrote a book and was interviewed by @Joe Fairless on his podcast(Hi Joe! Still a fan and listener,) and the book and the podcast interview turned out to be very helpful. At the end of 2015, I had no clients and I was considering not renewing my broker's license when it expired in March of 2016.  By March 2016, I'd acted as a buyer's broker on one deal, and had two more in the pipeline which closed in April and May. 

So I still consider myself an investor first, second, and third- but I do an increasingly brisk business as a buyer's agent. Now, my challenge is no longer finding clients(I have those,) but it's finding reasonably priced real estate in my target markets. It has gotten much harder to do that over the past year. 

It's great to have multiple income streams when one dries up- I recommend staying active in the brokerage business, and expanding into other areas as a hedge in the future.

Michael

@Kevin Co - it depends on which area you’re in, and there are things behind licensure which need to be considered. 

For instance, in Buffalo, if you own a multifamily(anything 2 or more units, I believe,) you need a local property manager whose number is on file with the code Dept. Local for them means within a 15-30 minute drive to the property, or something to that effect.

Hudson, NY, has similar requirements. Troy, NY is enacting those requirements, I believe. 

For NY State, if you’re showing a rental property, the owner is legally allowed to do apartment showings, and in certain cases their maintenance staff can too(you might need to check with a real estate lawyer on this point.) For instance, if you’re a Licensed Real Estate Broker, and you have a property manager who works only for you, he/she can show apartments. If you’re not a licensed broker- then I’m not sure if it’s legal to have someone working for you do showings.

If the property is held in an LLC, then you don't qualify as the owner in many circumstances, even if it's a single-member LLC. For example- if you want to do an eviction, an LLC must be attorney-represented in court. So if you have properties in LLCs, you'll need a lawyer for anything requiring a court appearance.

Good luck with NY investing, I hope it’s as good to you as it’s been to me.

@Steven Gesis - I recommend updating every light bulb within the residents' apartments with LED(careful with the color temp- 2700 K is safe everywhere, you can go to 3000 K in kitchens if you want.) This will make residents' electric bills cheaper, and LED bulbs last for 20+ years, so it'll reduce your maintenance costs during turnovers. And the last thing you want is residents on chairs/ladders replacing bulbs. If you install large quantities of LEDs, make sure that the power factor of the bulbs is at least 0.90.

I'd also go with 1.75 gpm showerheads- decent ones can be $15-$25 apiece, that'll reduce ownership's water bills, and residents' water heating bills. I'd also recommend low water use toilets(there's one from Niagara called the Stealth that only uses .8 gpf) and Watersense faucets or aerators.

If you really want to go crazy, put in a solar array to reduce your common area electricity expenses- and put it somewhere visible. Allowing it to operate in 'island mode' in the event of power outages can really be amazing- your residents could have a place to charge phones/computers etc. in the event of an extended outage.

And if you have enough acreage, why not plant a few apple trees or other fruit trees that will flourish in your specific climate(Cleveland?) Or give the residents a gardening area with each one getting a certain plot for locally grown fruits and vegetables. This might be the latent hippie in me speaking.

If you do all these things, you'd be able to advertise your building(s) as water and energy efficient. The eco-friendly set may pay a premium for these things- and low electricity costs keep all residents happy.

Interesting perspectives, @Thomas S. and @John Underwood. 

On the particular property I described, it’s probably a B-/C+ building in a C/C- neighborhood(but the neighborhood is improving.) I’m working on getting the building to a solid ‘B.’ I don’t think I’d be able to attract the best tenants in the area due to the neighborhood- so I’m looking to get the best tenants I can. These tenants are interested in my ‘A’ buildings, but their paychecks are not sufficient for that kind of rent.

I’ve never tried to be below market with rental rates until now, and only with this property. For color- our average asking rent will go from $750 to $650. If that boosts occupancy substantially and reduces turnover(each turnover there costs about $3k-$4k in legal, cleaning, painting, lost rent, etc, and that’s excluding the 2 months that the deadbeat got in free rent- so it’s probably closer to $4k-$5k) then I’ll have made a very wise decision. I’ll keep you posted.

I agree with @Jonathan Twombly - there are certainly opportunities in the Capital District. Schenectady has been a challenging place to invest for quite awhile- with GE paring down further, I don't know that I'd make a bet on it- and were casinos a panacea, Atlantic City would look quite different than it does.

Troy has been very good to me- it's a bedroom community to Albany, and its downtown is pretty happening in its own right. Waterford is similar- a bedroom community and a quiet place where reasonable returns are possible. I've brokered some deals in Watervliet(though I don't own anything there,) my clients who've bought there are happy that they did.

You could look at Cohoes as well, but the local government is a little challenging. Amsterdam, I've heard through the grapevine, has an odd problem with their water system- it tends to erode certain parts of plumbing systems and leads to weird and catastrophic failures. Plus if you buy a building with a vacant unit, the local government can try to make that a permanent vacancy(shrink your unit count.) Such heavy-handed tactics are very bad for property values. Hope this helped, @Auria Moore.

Hi @Ben Smith - my views on this have been evolving over the past few months. But I think you're asking the wrong question. Why would you want to manage a C-Class property? The best practice is not to manage one at all.

What I mean is this- if you have a C-Class property, it should be within your power to turn it into a B-class property(at least.) Then, many of the problems attendant with C-class ownership will tend to vanish. I've begun this process with one of my most problematic properties- an 11-unit. I knew it would be a difficult investment going in, but I underestimated the level of difficulty. After several years of a high eviction rate and a low occupancy rate, I've changed my approach dramatically. First, I normally let management dictate the direction of my properties. Management was not succeeding with this building, so I am now dictating direction and being much more hands-on than usual.

Here are my initial actions:

1. Serve 3-day notices and collect all rent in arrears. Whomever can't pay promptly and in full will be moved out(in process.)
2. Reduce rents for new tenants to make sure they're affordable- and to make sure that the new tenants realize they have such a good deal that they won't be able to find anything like it upon leaving.
3. Implement more stringent screening strategies and confer with management on all new tenants. (remember- management benefits from turnover and repairs, but the owner loses, so reducing turnover by proper screening must be undertaken to be certain that management's goals are aligned with the owner's goals.)
4. Upgrade the H-E-double-hockeysticks out of the building so nobody views it as a C-property. My initial strategies have been good paint jobs and going from carpeting to hardwood flooring(laminate, really, but it's almost as good.) I've also begun to upgrade the tenant lighting to LED to reduce their electric bills(if you do this- make sure your lighting color is 2700 K. Anything over 3000 K usually appears too industrial.)
5. By reducing the rent rates, I've really gotten my pick of tenants. I think management had over 100 inquiries by text within the first few hours of listing the first two apartments under which I'm taking my new approach.
6. Take a list of people who missed out because you can't rent to everybody. Then tell them that you'll email them when your next listing becomes available, and before you list it widely on the web(if you're using a broker, this may violate some rules/laws. Check your state laws about pocket listings.) This gives a feeling of exclusivity, and that's a good thing. Imagine having a waiting list for when your apartments go vacant..
7. One challenge with this building was partial rent payments. It drove management nuts- having to visit 3 times for a single month of rent broken into three pieces, for instance. Insist on no partial rent payments, no exceptions. If they want a personal visit for rent collection, they will have the full amount. If they don't have the full amount by the date specified in the lease, they will pay a late fee(and if they don't pay the late fee, don't take the rent.) If they can't handle that, introduce them to your eviction attorney.

I've just begun to implement these strategies as of a few weeks ago. Early results look promising, but I expect to have a firm answer within a few months. I hope to go from collecting 70% of rents that were a bit too high to 90-95%(at least) of rents that are more in line, which will reduce turnover/evictions. We'll see.

By the way! If your question was really about a C-Class neighborhood, these methods won't be as effective- it's much harder to change a neighborhood than it is to change your own property. However- sprucing up your property can have a positive knock-on effect nearby- the Jones' will want to keep up, so if you make things nicer, hopefully they will too. 

Michael

I’ve enjoyed reading this thread for quite awhile- I think I weighed in somewhat early on. It’s pretty clear to me that MI is running a Ponzi scheme.

MI takes a house that’s worth pennies, sells it to some out-of-state sucker for $60k or so, then uses the difference between what MI paid and the sales price(their ‘profit?’) to pay out monthly rent to prior investors. Why should MI fix up these houses and get actual tenants? That would require SO much work!

😬🤫🤥

Ponzi schemes like this never end well. Eventually, the supply of essentially free house and/or suckers runs out, or law enforcement catches on, or some combination of those factors. This story will end no differently- with lengthy prison terms and multiple bankruptcies.

Happy Friday! Xo,

Michael