All Forum Posts by: Michael Gansberg

Hey Sam,

If it's a 50% discount to a similar property in the neighborhood, I'd go for it. In my properties, I've had tenants pass away, a suicide, and a homicide on the street corner adjacent to one of my properties.    

It's been my experience that people's memories are short, and a 10%-20% discount to market rent shortens memory further yet(it practically induces amnesia!)

In fact, after about six months, nobody cared.

Good luck and be bold.

Dante, by that I mean that the manager may only show the property to several people, and not list it on the MLS or the popular sites.

Hi Dante,

In New York(not sure about other states,) a property manager does not have to have a real estate license if he/she works for only one owner.

As to how they get better deals? My absolutely BEST deals have come through my managers- they know plenty of other owners, and the other owners' managers. The owners often wish to avoid paying realtors, so they talk to their manager who will then talk to others. You'd be shocked- a transaction that never sees a wide range of buyers can sell WELL below market.

Michael

Hi Seth,

Finding a good no-money down investment requires tons of effort. And often, those deals run afoul of HETPA(Home Equity Theft Prevention Act) or of practicing real estate without a license in the case of wholesaling. I've bought two properties from wholesalers, and I know what they made in each instance- the first wholesaler(I'll call him "Bob," because that was his name,) made approximately $15k on a sale of $145k for a decrepit ten unit. I've since rehabbed the property, it's fully occupied with a net cash flow of about $40k-$50k per year, and is worth $400k- my inputs were only $100k. Bob told me the closing process was so difficult, he had panic attacks and heart palpitations. The second wholesaler made $5k on a lousy, decrepit, two family house that I couldn't resist picking up for $12k. That one's worth $100k today, has decent cash flow, and I put in about $60k to make it all work. Don't try the shortcuts some people recommend, you'd be much better off building your real estate investments in a sane and rational way- in other words, get rich slowly.

Add the time and the legal issues of wholesalers/no money down deals, and in my opinion, it is easier and more lucrative to skip the no-money down investments in exchange for the low-money down investments. 

If you're a first time home buyer, you may be eligible for a Fannie May or Freddie Mac loan(government loans,) which can require as little as three to five percent down. Buy a two family, for instance, with such a loan, live in one unit, rent out the other, and live there for as long as the mortgage requires- it might be a year or two- all the while saving up some cash to do it all over again. When you move out of your first property, rent the unit you've left behind. Buy another two family, rent out the second unit, and repeat the process until you're a real estate mogul.

Michael

I'd avoid electric baseboard heat. It's a very expensive way to heat, more costly than oil or gas. You'll shift the costs from yourself to the residents, but the residents will shift their residences from your building to someone else's building. The turnover alone will negate any gains.

Hi Greg,

Sounds like you have the right skill set- being able to do some of the work yourself on your early properties can be very helpful. I'd recommend reading a book or two on investing, even avoiding a mistake or two can save you many thousands of dollars.

If you're a first time investor, there are likely some government loan programs that apply to you- Fannie and Freddy offer 3% down mortgages to owner occupants, so maybe your first purchase could be a two-family you live in, and renting the second unit will help pay your mortgage and expenses. 

After the minimum stay required by the mortgage, you can move out and repeat the process, renting the unit you've left behind. 

Mike

Hi Max,

Most states allow lower temperatures during late night/early morning hours(usually from 10 PM-6 AM, while people sleep.) In NY, my stomping ground, the minimum indoor winter night time temperature is only 55 degrees! Of course, you don't want to turn your tenants into icicles. Check your local laws, and if your heating system has a timer, you may want to reduce the nighttime temperature by a few degrees, if your water pipes are not particularly susceptible to freezing. Every 1 degree reduction in the thermostat setting results in about a two to three percent reduction in heating costs. If you don't have a timer on your furnace, it may be worth it to install one. 

Hi Ryan,

It sounds like a great opportunity to me. If the rents are no different from similar units where tenants pay utilities, then it is quite safe to say that the units are under-rented. In most of my properties, tenants pay the bulk of the utilities, but on some I pay all of the utilities- in my experience, you don't quite recoup every penny when you're paying all of the utilities, but you should get most of your money back through higher rent.

Here's what I'd do in your position- use the low rent relative to expenses to get a lower purchase price, then as leases expire, raise the rent to market, explaining to your tenants why you're doing it. You'll undoubtedly lose a tenant(or three,) but after a year or two you should have all of the units at market rent.

Another thing you could do is replace all of the bulbs with LED bulbs- if they are currently incandescent, you can cut overall electric usage by 10-15%. Here's a 100 watt replacement bulb and a 60 watt replacement bulb, respectively- I use these in all my rental properties, they last for decades and save tons of money:

GE 15 watt replacement for 100 watt LED

FEIT 60 watt replacement (uses 9.5 watts)

After fixing the lighting, I'd work on insulation and the building envelope as units turn over, as well as installing water-efficient fixtures(1.2 gpf toilets, water-sense faucets.) If you can reduce your utility bill substantially, you can turn this building into a lovely asset. Good luck with it,

Michael

Hi John,

I'm a big fan of Dutchess county, haven't invested there yet but it's a place I'd like to live.

Troy and Albany are both very interesting- I'd find a great property manager first, and look at prospective investments with the manager. Both Troy and Albany may have challenging areas that a newer investor in the area may want to avoid. I also would cast my vote for Troy as being more investor-friendly than Albany, but I think you can do well in both areas, 

Michael

Hi Patrick,

You might have hit upon a very exciting opportunity. Without hearing about the asking price or what you think of the neighborhood, it is difficult to say how promising this investment could be. 

But if I were you, I'd start by checking out the vacancy rates in the neighborhood. The owner currently has 5 vacant apartments and a seasonal commercial rental(call it 5.75 vacancies?) out of 11 units. Any way you cut it, that's over 50% vacancy.

If the vacancy rate in the neighborhood is under 10%(or thereabouts,) then it would appear that the building is being run incorrectly. If you can get it for the right price(meaning some price which reasonably reflects its poor state of operations,) rehab it cost-effectively, and bring it to full occupancy, there may be substantial upside for you. Deals like this one have worked out very well for me.

On the other hand, if the vacancy rate of the neighborhood is around 50%, then the problem isn't the building, it's the neighborhood.

Good luck with it,

Michael