All Forum Posts by: Michael Gansberg

@Stephen Jones - if you're struggling to wrap your arms around an 8 unit in a B location(and it sounds like you are,) I'd say you're looking at approximately 10X the difficulties in a 43 unit(which needs work that you know of and therefore likely needs work that you don't know of) in a C location. I'm getting the 10X figure from 5X the number of units and a factor of 2X for the step-down in location. 

You have a baby in your profile pic(congrats, btw!) Do something which lets your baby spend more time with his dad- sell the 8 unit that's giving you problems, and upscale into an A location with fewer units. You may find that a theoretically lower cash flow can, in practice, translate to a higher cash flow. Best of luck with your decision.

@Daniel Benyamin - you mention that you're avoiding multifamily, but it sounds like you're keeping the door open for a condo(for affordability reasons.) Why not start with the condo? One of the downsides of a condo is that you're not steering your own ship(demolition/construction/dramatic altering of floorplans may be challenging or impossible in certain condo situations,) but one of the upsides is that you're not steering your own ship(problems with the roof? Facade? Well, the condo association will handle it and bill people according to their ownership share.) Also, landscaping, snow removal, all that jazz is typically handled by the HOA. Certain HOAs can be challenging to deal with- that's a possible downside.

It's true that you might take a hit on yield when buying a condo- but I've done well with the few I've done, and I view them as reasonable alternatives to multifamily.

Not long ago, I remember the pundits talking about the impact of Blackstone's private REIT, known as "BREIT," on the commercial real estate market. The smart money(whatever that means) was flowing into BREIT at a breakneck pace of about $3 billion per month, essentially forcing BREIT(which I believe paid/continues to pay about a 4% yield on invested funds) to buy commercial properties hand over fist. I suppose people felt the incoming funds belonged to the hallowed "smart money set" because you have to be pretty well-off to invest in BREIT.

Now, the "smart money" is charging for the exits like a bull in a China shop, breaking BREIT's redemption limits and causing what looks like a run on the bank. By necessity, this will cause Blackstone to sell assets to fund the redemption requests(this is already happening- see the MGM deal for instance.)  As Blackstone sells properties, the buying pressure they once exerted will turn to selling pressure. The cap rates bought down by BREIT may now be sold up(meaning- sales pressure may result in lower prices/higher cap rates.)

Has BREIT, once known as the gorilla in the room, turned into the canary in the coal mine?  

@Brian Beck - congrats on starting out. Be careful of Fool's Gold- in real estate, that's a very high yield. Higher yield usually equals higher headaches. That sort of thing is especially costly if you have a high paying job that requires focus. Many new investors focus on number of doors- I suggest quality over quantity. It's vastly preferable to have one door netting you $1000/month vs. 20 doors netting you $2000 per month. 

During retirement- which sounds like it's about 10-20 years off for you(just guessing) - you'll want to replace low-headache properties with no-headache properties. That's a task for the future, but something you'll want to start learning about now. If you want to replace your income, or most of it, assume you'll need about 20X your income in net assets. It's conservative, but that's not a bad thing. 

As far as BRRR(or however many Rs there are,) at my not-so-advanced age I can't imagine living with my tenants. Probably because I've had tenants for 20 years and know what it's like when things go south. And no matter how nice you are, one day, things will go south between you and a tenant. I don't think it's worth the risk, so just drop whichever 'R' corresponds to living with your tenants.

Turnkey- don't get me started. Turnkey providers are faux fiduciaries, telling you that you should overpay for one of their properties because of the low maintenance in the future when they can only promise the former, not the latter. Get a really nicely functioning house(and pay market value) and a good manager, skip the turnkey. Good luck, I hope you enjoy the ride as much as I have.

@Account Closed - I've entered into these arrangements several times(before giving up on them entirely.) They always fail. Here are a few examples:

1. Tenant said he'd mow the lawn for a discount. Other tenant started to complain about how the loan never got mowed and the grass was too high. I then had to pester the tenant to get him to do what he promised. 

2. Tenant offered to rent my garage, and in exchange, he'd put down new flooring in part of the garage in exchange for a year of rent. He stayed a year, then left, along with the new flooring which he took with him.

3. Tenant claimed to have bedbugs, offered to exterminate for 2 months free rent. I sent my exterminator instead, who said there were no bedbugs.

Tell your tenant to enjoy his new digs and go with a professional.

@Leah VandenAkker - the turnkey model adds a conflict of interest not generally present in most investor purchases. Specifically, the TK provider "warrants"(ok, "warrants" is too strong a word. Suggests? Hopes?) that the property is no- or low-maintenance, and for that hopefully lower maintenance, a buyer should pay more for the property than it's worth. Yes, you read that correctly- if you bought a TK property then tried to sell it a month later(for whatever reason,) you'd be so deep in the red it'd feel like a crime scene. If you've done your due diligence, you'd find a reputable turnkey company and then you'd have solely overpaid for an asset. If you haven't done your due diligence, you might end up with Morris Invest(btw- I heard a Morris Invest advertisement on CNBC the other day, will wonders never cease. I wonder if Clayton has come back to the good 'ole USA?)

Owning a TK property is just like owning a non-TK property- when something goes wrong, you pay for it, regardless of whatever guarantee some unscrupulous TK operator makes. And how can they guarantee stuff anyway? Their knowledge of the future is no better than yours- witness the deep freeze in TX in 2021. Imagine a TK operator there who runs 100 properties, all with frozen pipes and no electricity. Are they gonna guarantee those repairs? 

If you're going to do your due diligence, and you want a property that's in top shape and is low maintenance, why not just buy one and pay the market rate? Do an extra bit of due diligence and get good management. That way, you can invest without paying over market. Hey, if you really don't want to get your hands dirty, buy shares in a REIT(or Reits.) You'll never get pictures like I got today from management(see below) from an apartment I just took back after a protracted eviction. At least now I know where the rent was going!

@George P. - the only reason they wouldn't want to put down a security deposit now is because they don't have it. If they're living paycheck to paycheck, they probably won't be good tenants. Additionally- my management has sometimes taken this deal from prospective tenants("sure, we'll hold it for you for no money!") and I've always told them not to do it because most of the time, that money never comes. 

These days, if someone asks us to hold the apartment for some future date, we assume they're poor money managers and reject them. It's a data point we use to qualify prospects.

@Brian Badolato - there's working hard, there's working smart(pardon the poor grammar,) and of course there's doing both. What you're doing right now, IMHO, is in the first category. I took a year off from college and did some odd jobs, some involving cold-calling and in-person sales, worked hard like you, and learned some valuable skills which are still with me today.

But I think what you're doing is getting your feet wet, I don't think there's a real future for you at this company. If you love the real estate game, pick an aspect of it and specialize in that aspect. The fewer people who can do what you're doing(be it construction management, real estate law(of which there are tons of specialties,) being a commercial electrician or plumber, etc.,) the more you can charge for your skills. And if you want to be a real estate investor, it's nice to have a high income to start that journey and help you weather the inevitable tough times that come along. 

Following the wisdom of the masses will get you the same returns of the masses. I remember about 25 years ago, when I was just out of college, I considered buying condos in Panama City, FL and/or St. Thomas. I thought waterfront condos for $60k that rented pretty well had to be a smart investment...right? Well, all my "smarter" friends and family members told me not to do it, Panama City is not nice, neon lights, etc., St. Thomas had too much crime, etc., so I listened to them. I would've made an absolute killing on those investments.

A few years later, when I thought of investing in Hudson, NY, friends and family said the same thing. This time I ignored them and went ahead with it, and I've been ignoring them ever since. If the zeitgeist is to avoid buying real estate, then it's probably a pretty good time to buy real estate. Buying and managing well, over time, tends to overcome any small errors in timing and/or errors in paying a bit too much.

@Jim Piety - sorry to be a downer, but it appears that repairs are not included in the calculation of cash flow. Repairs can be more than you expect(especially if you expect them to be zero.) If the vacancy rate is 8%, then you'll likely be looking for a new tenant every year or so. Which means turning the place over annually(clean, paint, maybe carpets/flooring, etc.) So I think your cashflow picture is optimistic. 

Selling the place carries more expense than you may be thinking- paying a realtor, closing costs, attorney's fees, taxes(I don't know what that stuff runs in TX, but it's non-negligible in NY.) So I don't think you'll walk with nearly as much capital as you're hoping to walk with. 

Trading stocks is much lower friction than trading real estate. Selling one stock to buy another can be OK if you're only a little right. If you want to pull your capital out of this deal with the idea of favoring another deal/location, you have to be very right. Even in the best of circumstances, it's difficult to know that area X will appreciate slowly(or not at all,) and area Y will appreciate rapidly. I know I haven't given you much advice, but hopefully I've given you some food for thought. Hope it works out,

Michael