All Forum Posts by: Michael Gansberg

@Brent Fisher, congratulations on your journey. I'm a staunch environmentalist, and I so often find that environmentalism aligning perfectly with my staunch capitalism. And then, of course, on occasion those two isms will war with one another! But I kindly pat each one of them on the head, and remind them that life is too short, and that they should make love, not war. I also suggest to them that dancing is more productive than fighting, notwithstanding our recent political debacle. And those isms have grown up so fast! They used to listen to me with bated breath, hanging on my every word...then they hit their terrible twos, and oh, the humanity...now they're adolescents, and I'm afraid they're going to take the "make love, not war" thing a bit too seriously! *sigh*

But back to you and your post. First, I'd suggest that there is no box. Well, of course there are "boxes," per se, but none that would constrain you from doing what you wish to do. Why not do a proof of concept? Maybe a single house or two with the systems you referenced? Achieving economies of scale may best be attained through volume, but learning how to do it on a small scale will pay generous dividends later; pitching the concept to investors will be much easier when you can show concrete results, and extrapolate from those results instead of being forced to rely solely on projections from a concept. Happy investing and good luck!

MG   

Hi @Gen Young,

I think the average poster on a thread of this nature tends to recommend whatever investment type they're engaged in. Multifamily investors recommending multifamily investing, DST investors recommending DST investing(and this is the first I've ever heard of that investment type,) and so on. So I think a question of this nature becomes more of a survey of who is investing in what, with a bias towards hearing from those who are more enthusiastic about what they're doing, than anything which you should consider to be "actionable" advice.

I'll recommend- as have some of the earlier posters- a different approach. Buy an ice cream cone. Also pick up a few good books about real estate and financial planning, and read them carefully. You'll need the ice cream cone because some sugar will help you get through those books, they can be fabulously tedious. Patiently figure out what you want to do with your capital, and what you would be happy doing. Because if you're happy with what you're doing, you'll be more effective than if it's total drudgery. Maybe test it out before allocating large quantities of capital. Ok, you want a specific recommendation? Here's one- brandied black cherry ice cream, which has become way too hard to find lately.

MG

@James E., why go all the way to Ohio for lousy multifamily properties when you can find them in your backyard? Banks might be more comfortable if you were within driving distance. That said, I looked in New Britain, CT and Springfield, MA(both of which are under two hours by car from Boston,) and pretty easily found some six-unit properties trading around $250 to $300k+.  The markets around New Britain and Springfield are probably similar- I noticed some 6 unit properties trading under $200k, bring your toolbelt to those though. Or a wrecking ball. 

I agree with @Ben W. - managing a difficult property in Ohio from Boston could be quite tough, especially if this is your first rodeo. Early on, you'll want to keep your eyes on things occasionally, just to keep management honest. You'll want to do that later on as well.

@Jeff Burdick, that's interesting info- listen up, Chicago-ites, Rahm is pulling a fast one on you and charging the upper limit of normal usage. @Art Maydan, I'd check the showerheads anyway- if you're over 2 gpm, it's the cheapest and easiest fix. If Jeff is accurate in his assessment, you'll probably save way more than I suggested in my earlier post by simply combining metering and efficiency. FREE MONEY!!!

@Art Maydan, I love the theory of separating the water, but in practice, it sucks. You tell the tenants that they now have to pay for their own water, the tenants tell you, "Great! How much does my rent go down by?" So I expect your return on investment will be dramatically lower than you expect. Like "checking account" low. Upfront costs? For serious plumbing work- ohh yess, it hurts soo good.

Why not just force the issue by using less water? Most toilets are 1.6 gallons per flush- there's one at Home Depot called the Niagara Stealth that uses only .8 gpf, I've linked it here. The average showerhead uses 2.1 gallons per minute- I put a 1.75 gpm version in my rentals, and haven't had a complaint. It's $11, I save on the water usage, and my residents save on the hot water usage(I don't recommend going down to 1.5 gpm- that low, and you'll get complaints.) Try this one, though there are plenty of similar ones that'll do the job.

For faucets, I recommend using anything with the Watersense label, or putting in aerators. Aerators usually cost a few dollars(literally- like $3 or $4 each at the hardware store, or less on Amazon,) but can reduce faucet usage pretty dramatically. If you make all of those changes, your usage should drop by over 30%, with a similar reduction in your bill(not one-one, because there's probably a fixed fee for the connection and then usage charges after that.) Think about it- all of the stuff I listed- for a duplex- should be about $250-$300 per apartment in materials, something similar in labor...And you'll save maybe 30% of $1800/year, about $540. That's money, baby.

@Brenna Sullivan, your mom is so nice, if all of my residents were like her, I'd be happy as a clam. But on to your problem- it seems you're concerned about legal action by the owner against your mom. I'm not a lawyer, so take this with a grain of salt(and don't consider it "legal advice",) but I wouldn't worry about it. It seems you have evidence that the owner went into a property which was occupied and took possessions from it(this is clearly against the law.) I assume even the interpersonal-relationships-challenged owner is aware of that- if he/she attempted legal action against your mom, your mom would have a great counterclaim. The owner, being aware of all of this, would be very stupid indeed to attempt legal action, as the owner is now clearly in the wrong. 

So I don't think the owner will do a thing, and I'd recommend putting DNA in front of their number on your cellphone(stands for "Do Not Answer" - let it go to voicemail in case you need it in court) and filtering their emails to a folder entitled "Saved emails for future legal tomfoolery." That way you don't even have to listen to them or read their silly words unless it ever hits the courts. As far as the security deposit I assume your mom has with them- it is probably a lost cause, and not worth the effort of retrieval. Your mom could certainly take them to small claims, but it is such a waste of time and energy. Sorry for the bad news.

@Melissa N., I agree with most of the posters above. Water heaters can fail catastrophically, or not catastrophically(but actually catastrophically.) I had a case of the latter in a ten-unit last week- I got a letter from the water utility indicating very high water consumption(and I treat those letters very seriously!) There was a leak from a heater that was serious enough to flood the basement, but not serious enough to cause the resident to not have hot water. Without that letter, it could've been weeks before we figured it out(more likely, it would've failed catastrophically not too long after springing the pin-hole leak.) So the water bill was about $600 more than expected, and the damage in the basement wasn't too bad- but you could end up much worse off than I did. I'd start swapping out the oldest ones immediately, as funds allow.

Hi @Kellen Driscoll, the ratio of purchase price to the annual rent certainly varies pretty dramatically depending on location. The higher the ratio, the harder it is to be cash flow positive. I think an important factor that influences the ratio is the percent of owner-occupied properties. Owner-occupants are not involved in the rental pool, and they often use bank financing to buy properties- that low cost of capital allows them to pay more for a home, which increases property prices(and the price/annual rent ratio.)

In an area characterized by higher rental demand and fewer owner-occupants, investors primarily own the homes, and of course we investors usually pay less for "rental" properties than owner occupants pay for their homes. This leads to a more favorable(to an investor) price/annual rent ratio.

Many people also seem to prefer areas with a high percentage of owner-occupied homes, under the theory that owners treat their properties better than renters, thus making their neighborhoods better places to live. As an investor, some of my best properties are tucked squarely away in such neighborhoods where a multifamily is a bit of an odd duck. It's fascinating- for the same square footage, a two family can be priced well below a single family right next door, yet the two family also has a higher total rental rate. Mahhvelous!!

MG

@Account Closed, I go through this pretty regularly; the first time(and second time maybe, but I'm not proud of it,) I freaked out too. First- stay calm, it is not going to be a huge deal. National Grid will come through and assess the situation. With lighting, it is very easy- they charge a certain amount for a certain wattage. For instance, if three 60 watt bulbs are shared, they ding you for $3.18/month of shared usage, and insist that you take that amount off of the resident's rent(I have it down to the penny, since this happened to me a few weeks ago. Of course I'd installed 8 watt LEDs in the hallway, but the inspector couldn't figure that out.)

I haven't had a shared heating complaint yet, that's a new one to me. They'll likely assess the amount of cost- though that's definitely harder to do with heating than with lighting- and then insist that you deduct that amount from your resident's monthly rent. Until you cry "Uncle!", they'll put the utilities in your name. After you agree, you have to have your resident sign off on the shared metering agreement, and agree to the amount of the rent reduction.

From your post, it seems you probably have a meter for some of the utilities(likely the hallway lighting?) in your name already- if they charge you an amount which you find unreasonable, you can install a small electric baseboard heater in the hallway, just enough to keep it 60 degrees or so on cold days, and close off the current vent- the usage would probably be fairly minimal, as the common hallway would be heated fairly well by the warmth from the apartments, even without a vent.

Michael

@Alina Trigub, it's great that you're on the path to increasing your real estate knowledge. Have you considered taking the $38k that you plan on spending on your class and putting it into an actual home purchase? Then renting that home out, and using that experience as your education?

Before doing that, it'd probably be good to spend $20-$30 on one or two good real estate books to learn the basics. Some people use(or even max out) credit cards to take these courses- and I doubt these classes offer much more than a good book on the subject. If you max out your consumer credit, and are paying the typical rate for consumer debt, it will make it much more challenging for you to obtain a loan when you're ready to move ahead with your real estate career. Think about it- you could be paying up to $10,000 per year in interest on a deal like that!! I can't imagine any value, any information, any thing that they could tell you to overcome the negatives to your balance sheet and cash flow that come with a thirty-eight thousand dollar hole and ten thousand per year in carrying costs. Also, maxed out cards are bad for your credit score, potentially impacting your future ability to obtain a loan(mortgage) on good terms.

Consider the alternative- a 20% down payment with that sort of coin could land you a house which sells for $150k. Or you could buy a really lousy foreclosure for $20k, and bootstrap with your last $18k to rehab it(or rehab one of the two units and get it rented.) Even if you did a lousy job in either of those circumstances, you'd probably be way better off than if you flushed $38k on one of those silly courses. I linked a thread about Fortune Builders below- it kind of sounds like what you're thinking about doing. These operations tend to be pretty boilerplate, I suspect- it's just real estate, after all, not rocket science. Good luck!

MG

Fortune Builders?