All Forum Posts by: Michael Gansberg

Welcome to being a landlord, @Andrew DeB. It sounds like your tenants fall into what I'd term the "financially stressed" category, a category which an unfortunately high percentage of Americans fall into. Even after 13 years as an owner, I run into this problem pretty often. There is exactly one solution, and I'm going to detail it below- just for you.

Buy Class A residential and only rent to residents with the highest credit and income.

There- now you know. Of course, if you do that, your yield will drop precipitously- in fact, if you tried it in my hometown(New York City,) you'd have a negative cash flow, as the rent rate wouldn't cover the mortgage expenses and taxes.

What you've chosen to do, and please correct me if I'm wrong, is purchase B and C residential, and rent to those who are frequently unable to buy a home of their own. They rent from you, and pay a higher rate for that real estate than they would if they were able to buy it on their own, and you're benefiting from that spread- and making a positive cash flow. When they get into a pinch, they'll sometimes stiff you for a few hundred bucks. So what are your options now?

You can sue them, as some people suggest.  Lemme tell you something about that- if I had a dollar for every thousand dollar judgment I had against someone, I'd be a rich man. In fact, those big judgments would be more valuable as toilet paper. They don't have the money to pay you in the first place, so why bother suing them unless you think they're lying about it and sitting on some big stash of cash? Spoiler alert- they're not. I've given judgments to collections agencies- I estimate about a two percent recovery rate. I've stopped doing that altogether, it's such a waste of time and resources.

If you value your time and money, you won't use either in court, 'cause you're not gonna get 'em back. It is justifiable to start an eviction proceeding occasionally-  specifically when you think a tenant is not going to move out, but is just trying to snag a free month off you. 

Bottom line? Enjoy your cash flow, and stay out of court for such piddling little things- focus on portfolio optimization. Things like property improvements, energy efficiency, tax reductions, various economies of scale, reducing insurance premiums...and if you've done all those things? Focus on sipping margaritas on the beach.

My pleasure. I checked out the renderings for 329 Pleasant Ave, very interesting- modern and cool.

Your current involvement in the neighborhood gives you a huge advantage- I think you're going to crush it. Nevertheless, NYC real estate is about as complicated as real estate gets, so I suggest vetting your team(broker, closing attorney, even financing- smart money is good here) very carefully.

Hi @Alexander Loyer Hughes AIA,

Glad to see you're jumping into the market. As a Harlem dweller since '08, I think there are still some areas in Harlem that are ripe for acquisition and still offer excellent potential. I bought my apartment in South Harlem(on what the brokers, of whom I am one, now call "Restaurant Row." Nobody called it anything when I bought there.)

For data on NYC Real Estate, I think there's nothing better than Streeteasy.com and Marcus and Millichap. M & M is the way to go for commercial projects, I favor Streeteasy when it relates to residential, but there's certainly some overlap.

If I were you, I'd strongly consider East Harlem, both before it becomes a named neighborhood like South Harlem(now "SoHa") and before the 2nd avenue subway's terminus pops up there. Once those two things have occurred, I suspect the easy money will have been made. 

Enjoy,

Michael

Hi Robert,

It's against the law to discriminate based on familial status as Pam mentioned. You're on the wrong side of this one- the fine for that sort of thing can be something like $5k, I think. You'll probably luck out, as most tenants don't know the law as well as most landlords. If you'll be managing your own building, I'd strongly suggest taking a class on Fair Housing- it'll take two or three hours, and will help you steer clear of these problems in the future. 

As an FYI, your local building code department may limit the number of people in an apartment based on factors like square footage, number of bedrooms, or some combination thereof- so for instance, in a two bedroom apartment with 1000 square feet, you may be limited to renting to a family of no more than four people(just a hypothetical number.) So if a family of five tried to rent that apartment, you could turn them down due to the rules imposed by your local code department. Interestingly, in our country's housing laws, children under a certain age don't count as people- so if your code department limits an apartment to four people and the expecting mother in a family of four adults has a baby, this family would still be considered four people. 

See how nuanced this stuff can be? Good luck with the rental,

Mike

Here's a link to an 89 unit property in your neighborhood- it sounds somewhat similar to what you're discussing, but this listing is about 8 years old, I believe. This should give you a rough idea of the income and expenses common to Utica- you mention that the complex under discussion is new, so hopefully the utilities and maintenance will be less expensive. It's tough to extrapolate current prices(for real estate, maintenance, utilities, etc.) from an 8 year old listing, but hey, it's a nice data point. Enjoy. 

http://masseyknakal.com/listingimages/anotherdoc/pdf/633506784607187500_AnotherDoc.pdf

@Scott Trench,

I respect what you're trying to do. Spam mitigation is pivotal when running any site- any site that hopes to attract a readership, anyway. But doesn't BP want authors of RE books- and those who write blogs- and those who are successful in real estate- to post here freely? A signature line of small dimensions- perhaps a line or two indicating a book, blog, or podcast- shouldn't appear as spam in the context of a large and informative post, and it may lend credence to the poster. Lending credence to BP's posters should be something that BP strives to do, not something BP strives to inhibit.

It seems to me that sometimes what appears as spam is actually content, and what appears as content is actually spam. A signature line which lends gravitas? That's more on the 'content' side and less on the 'spam' side. Far more insidious to BP's future is the poster who writes a few paragraphs, only for the reader to figure out at the end that it's a pitch for something of no value, and hasn't helped the reader in any way. Those are the posts that BP should attempt to control. A successful RE entrepreneur will add depth to BP and will keep readers hooked, but successful entrepreneurs seldom go where they feel unwelcome, and removing a small signature line does feel like the 'welcome' mat has been removed.

Not to give unsolicited business advice, but I think the problem of the signature line being too spammy was not a problem at all; in removing it, BP will likely experience a short-term revenue bump, as some convert to the Pro package, but that revenue bump will be temporary, as the quality of the content declines along with readership.

Moderation will always be necessary, and spammers will spam; it's what they do. If spam is what BP is concerned about, one possible method of control would be the insertion of a "report spam" button as some sites have done, and when a poster gets too many spam reports, they lose the ability to post for a certain time period. Or their posts become subject to moderation, or some combination of those two.

Paradoxically, by driving away more qualified posters, BP's attempt to control spam may have exactly the opposite effect- more neophytes posting and fewer old hands. Unintended consequences can be especially challenging to predict, that's just my two cents(which is approximately the amount of money I made in book sales for each informative post I used to write- those posts often took me five to ten minutes of thought and writing.) 

Good luck BP- I'm rooting for you, I hope you'll do the right thing, as I did enjoy giving advice freely followed by my differentiating signature line,

Michael (Just plain Michael)

@Brandon Hall and @Michael Boyer, I completely agree with each of your perspectives.

I've truly enjoyed Bigger Pockets over the last few months, and as a multifamily investor who has accumulated over 100 units in less than 10 years on essentially a teacher's salary, I thought my input would be of benefit to the readers of BP. And I wrote a book about it(not to be named here, don't worry!) Linking my book lent credibility to my posts, as it meant I've clearly put much thought and effort into my RE endeavors. 

I believe that the quality of the posts will decline as users like me lose the ability to gain a small bit of reciprocity from posting here(without paying for that ability- let's face it, most people in my situation do not need to spend the money to gain clients or sell a few more books, and the people who upgrade to the pro account are more likely to have those needs, thus the content provided by the average pro user might be less valuable than the content provided by the above-average free user.)

I did bring this to the attention of the BP administration.  I think BP erred in scrubbing the signature line from people's prior posts. Think of it this way- I posted with the understanding that possibly a few people might gain from my knowledge and buy my book, and BP gained what I hope was quality content. BP has kept the content I provided, but scrubbed the signature lines from prior posts. 

It is akin to a journalist writing an article for a newspaper and being told they'd be paid $500. The newspaper prints the article(they now have their content,) but decides to pay the journalist little or nothing, breaking their initial agreement. 

I hope BP changes their policy on this, but I fully expect this post to be deleted.

Merry Christmas to all!

Michael 

Hi Clive,

I think you're spot on as it relates to the Bronx being the next spot to gentrify. Where else can rental properties be purchased at such high cap rates, yet residents are a short 4-5-6 to the Upper East/midtown, or 2-B-D to Upper West/midtown? You're at the leading edge- I expect that in 10 years or so, you'll be patting yourself on the back and hauling greenbacks to the bank as rental rates climb.

Michael

Hi Burt,

Instead of getting involved in this deal, I'd like to suggest a few easier ways to make money.

Easier way #1. Become a contortionist, then travel the world selling your services at carnivals. 

Easier way #2. Learn Swahili, then try to be paid for teaching Swahili to first graders in an Alaskan high school while commuting from your home in Colorado. (yes, sharp readers- high schools do not include first grade.)

Easier way #3. Become a typewriter repairman, but insist that your clientele charter private jets for your traveling pleasure.

Easier way #4. Do any other real estate deal besides the one you listed above.

Run away! Run away!!!

Michael

I'd suggest a vaporizer to your toking tenant. As compared to joints(the most common method of smoking ganja,) vaporizers generally emit less smoke, so there's less smell.

The challenge in starting eviction proceedings is primarily in proving that they're doing it. You said it's a multi-unit- I'll guess we're talking about an 8 unit, though it doesn't matter. Imagine showing up in court- it could go like this:

Judge: "You have 8 apartments, and one of the residents smelled some pot, and thinks it came from the adjacent apartment, and you want to uproot this family based on that?"

You: "Um...yes?"

Judge: "Tenant X, have you ever smoked pot in this building?

Tenant X: "No way, dude."

Judge:  "Dismissed. And McCaskey, pay your tenant's legal fees."

I can't even imagine how you'd prove it- a picture of your tenant with red eyes and Cheetos-stained fingers? A receipt in your tenant's name for the purchase of a large number of Cheech and Chong movies? 

I'll tell you this, Mr. McCaskey- if this is your biggest problem, you're running a very tight ship. Look into the vaporizer, that's the most practical advice I have on this,

Michael