All Forum Posts by: Michael Gansberg

@Mitchell Pudelski - you could get a flapperless toilet. It's a new version of a toilet created by Niagara. Specifically the Niagara EcoLogic series. I've read that it only works well on level floors, so if you have some settling in your house, it may be problematic. It uses less water so you'll recoup some of the lost money that way(though make sure a low-flow situation is OK for you- there are cases where low-flow causes more problems that it's worth.)

Alternately, you could tell her that if this happens again, you'll replace her toilet with a composting toilet that uses no water and that requires manual "emptying" on a semi-regular basis. That might be too severe a solution. I'll leave it to you.

@Payson Scott - stay in school. You never know what life will throw at you- you could start investing, then a global pandemic could hit, then the government could tell you that your tenants don't have to pay anymore...I know it sounds farfetched, but strange things happen.

I spent 5 years in college(I couldn't get enough of it,) then stayed afterwards to teach chemistry as a teaching assistant and later as an adjunct. I also taught privately- all the while, I was buying investment properties using my admittedly small earnings. You could do something similar- and/or get a realtor's license while you're in school, and/or get a job with a real estate development company while you're in school, or something like that.

What if you find out you don't like real estate investing after you've plunged your college savings into it? That could be hard to reverse. Good luck, I think your future is bright.

@Alex Duarte - you've gotten a blessing in disguise. I've dealt with more Section 8 tenants than I care to admit, and frankly, for reasons of psychological health, I believe my mind has blocked it out. Renting to Section 8(in my experience, and I'm sure plenty of people will tell me I'm wrong, that's fine) is one of the fastest ways to become poor that I can think of. A faster, more entertaining way to become poor is to bet on horses, sporting events, or the like- if you go that route, you'll become poor but at least you'll have had fun getting there.

I recall a conversation with a Section 8 employee a few years ago- Section 8 was angling to make it illegal to refuse tenants based on the tenants' use of Section 8. I don't know how that panned out. You, however, have absolutely no concerns on that front. You can gleefully clap your hands and say, "Sorry, we can't take you because the rent is $2100 and Section 8 is capping the rent at $1800!" If you accept this side deal with the tenant, they will renege. They'll renege because it'll say in the lease that it's illegal for you to take side money, and as soon as something irritates the tenant, they'll threaten you because you broke the law. And you'll only be getting $1800/mo btw. And you'll have no recourse. Why would you put yourself in that situation? 

Don't look a gift horse in the mouth. Find a tenant who will pay what you're asking.

@Jacob Beg - go you. You have landlord spidey-senses, you'd be evicting this person for non-payment in month 2(or month 3 at best.) 

I have tenants who've been on Covid-rent vacation for over a year- they see the impending end of their rent vacation coming, and I see them applying to my other apartments in the area. It's pretty funny, actually, because my listings don't let them connect the dots(the dots that I'm their landlord, and they're applying for an apartment owned by a guy they've been stealing from for quite awhile.) I ask for a landlord reference before setting up a showing(because once they go to the showing, the cat would be out of the bag- they'd know my management by sight or phone number.) 

But when I ask for a landlord reference, they've all gone silent. I have to admit, I'm fantasizing about the day when one of these people I'm evicting gives me a phony landlord reference, and I can respond, "Oh, now I recognize your name, you're my tenant!" During these times, when the government has made evictions almost impossible(in NY State, anyway,) you have to screen as though your financial life depends on it. Because it does.

I'm challenging one eviction now- in NY, you can challenge a hardship declaration. My tenant posts her frequent vacations on her mostly public Facebook page. So I took screenshots of many of her vacations, can't wait for the court date next month. 

@Amy Raye Rogers - you'll likely get different answers from different people with different perspectives. I've invested primarily in multifamily for 18 years, but also have some single family. And some condos ;)

In my real estate dotage(I'm 47 and feel like I'm in my 20s, but as a real estate investor, I feel like I'm 80,) I prefer single family homes. When I was a real estate whippersnapper, I liked multifamily better. It's true that cap rates on multifamily properties in particular markets are generally higher than cap rates for single families- that cap rate spread is likely to persist forever. The buyer of a multifamily has to contend with tenant-tenant interactions, I believe that is the primary reason for the cap rate spread. In other words- you're paid to be a mediator and/or group psychologist. "The tenant plays his music too loudly? I'll talk to him." "Her dog barks too early? I'll talk to her." "They fight all the time and it irritates you so you're gonna stop paying rent? M'kay, my lawyer will be having a word with you shortly." After several years of this, it looks more like, "He slams his door every time he comes in? Jeez, I'm just gonna go buy a single family."

Of course management is supposed to handle this stuff. But newsflash- managers are people too. You have to invest in them, and they can get burnt out too. After 10 years of this, management may be ready for easier things also- and then you need to accommodate them, or bring someone else up who can handle the tenant-tenant interactions. 

Multifamily operators are paid to deal with this sort of thing. For some of them, it's worth it. For me? Life's too short. If I could do it all over- I'd have started with single family homes. I'm course-correcting now.

@David Drew - thank you for bringing attention to this. Looks like “good cause” eviction rules haven’t passed statewide(and probably won’t? Who knows.) But they passed in the city of Albany last week. These legislators don’t understand the world. As real estate investors literally flee from Albany as though their hair is on fire, the legislators will think, “huh? We keep passing more and more laws to protect scofflaws, bad actors, and lazy people who don’t like to be “burdened” by rent so they can buy huge TVs, and people keep fleeing our cities and our neighborhoods are suffering from massive disinvestment! Maybe even more restrictive laws will solve the problem!” 🤦‍♂️

@Wesley W. - tell them their request is reasonable, and you'll give them the option of a $20/month raise in September or a $60/month raise in January, whichever they prefer, and let them know that the first option is well under the inflation rate, so it's effectively a decrease in their rent relative to what they paid a year ago, while the 2nd option is only a small increase relative to inflation. How's Florida treating you?

@Berry Starnes - in the A-class properties/locations, I think there is negligible pain, and tenants in those locations are paying as though nothing happened. In aggregate, the A/A+ tenants are more flush than they were pre-Covid, in my opinion. In the C-class locations/properties(and below,) the non-payment rate is likely around 20%-25% in areas which shut down due to Covid(I can't speak to this percentage in areas which didn't experience shut-downs, but I'd expect this percentage to be lower in those areas.) Of this percentage, many tenants(can't provide exact numbers, unfortunately) are skipping their rent payments because they can skip them, not because they have to. Investors in this property type are suffering for loss of income, but are flourishing due to higher property prices. 

If there are substantial evictions, the tenants being booted will often have dodged rent for a year or so, making them pretty liquid(unless they spent it all on stupid things! Always a possibility.) When vacancies arise in large quantities, I expect we'll see some rental rate inflation.

Bottom line- if you buy intelligently now, you will have nothing to worry about later. When you zoom out far enough, all this stuff just becomes noise.

@George Yu - congrats on building to Passive House standards. How did you address ventilation? Did you put an energy-recovery ventilation unit in each apartment? Or one per floor? 

Was your foundation built with a high R-value as well?

In general- did your GCs have any trouble meeting passive house standards? Thanks and congratulations again, it's great to hear from someone building to a higher standard.

@Robin Hines - and to the thread- I've decided to write a follow up post detailing my friend's experience with the scammer. No names to protect the innocent, guilty, and just plain stupid. Also will gloss over details because it's a pretty long story, this is condensed. Hope this helps you in some way, Robin.

I was called in an advisory role after my friend was promised essentially a 300% annualized return and it became evident that he was being scammed. First 'investment' was for $100k to own part of the LLC. Turns out the scammer forged the deed and some associated docs to make my friend believe there was nothing owed on the property(when in reality, he'd leveraged it to the hilt.) Scammer told my friend, "I can't sell it yet, ran into money problems, and the house needs a new roof. Send another $40k, or else it'll never get done." My friend complied(silence from the peanut gallery- we're not all sophisticated investors, m'kay?)

My friend ponies up another $40k. It's at this point I'm called in. My friend says, "Scammer said it's all done, but code dept won't give it a thumbs up because the kitchen counter is an inch too low." This didn't sound legit to me :)

I say, "Let's go look at the property. See what's what." We do that. There were no fixtures installed. No bathroom. No toilet. No kitchen. So the code dept line was a bit off, to say the least. But hey, at least the place had walls!

I said to my friend, "Ok. You're being scammed, just like all your friends and family told you would happen." My friend's like, "Well, what's the worst that can happen? Even in this condition, the house must be worth 4X what I have into it." At this point I laughed at him. "You think you're the only guy he scammed? There could be ten more of you out there!" We subsequently find that there are at least 3 more 'investors' plus a lender who is owed the full value of the house, roughly. Ruh-roh.

I said, "Dude, lawyer up. Find the nastiest lawyer you can and retain him." He does that. Lawyer gets creative. Sends 'notice and demand' to scammer, plus obtains a stop work order on the property and sends notification to interested parties. Order states that roof material belongs to his client, and his client will be removing roof material prior to the next large rainstorm and will then take video of water entering the house during the rainstorm. Anyone stepping on the property will be arrested for trespassing. A private security firm is hired to enforce this order. To release stop work order, client must be paid in full($140k.) My details here are a little fuzzy- I wasn't part of this phase.

Private lender panics- he's looking at a complete loss. He didn't know about the other ppl his borrower scammed. He forces scammer to pay the $140k by having scammer's family take a second loan on their primary home. In that way, my friend was paid off.

I don't believe the scammer went to prison for this. End of story.