All Forum Posts by: Nate R.

I'm looking at buying some SFH's in Houston, ones that haven't been damaged by flooding.

Most would need some kind of light rehab: carpet (or flooring), paint, blinds, etc. 

Is there anything I should know about getting rehab done now in Houston? I would imagine projects are taking longer. 

@Federico Gutierrez Thanks for sharing. I'm thinking of investing in the Cleveland area with some B-class properties, so I suppose I should be prepared for something like this. Glad to see it hasn't put you off investing.

Yikes, does this happen a lot in Cleveland?

I'm in two multi-family syndications that I got into by getting to know lead investors. I am not an accredited investor and have on a couple of occasions seen attractive deals I couldn't get into because the investors are only accepting accredited investors. In one case, it was because there was a tight timeline and he needed to market aggressively to people he didn't already know in order to quickly raise capital. So, it's definitely possible to get in, but it's not very easy due to SEC regs. That is changing, however, as I've noticed platforms like CrowdStreet have started loosening their requirements.

The best deals (value-add) are hard to get into, as there is a lot of capital chasing returns in multi-family. I'm not interested in any yield plays, which is mostly what's out there. Yield would be OK, but the yields are so low, it's not going to get me to my goals. 

 I'm also concerned about the risks in multi-family:

- Pro formas based on raising rents in a market with historically high rents

- Historically low cap rates 

- Interest rate risk / risk of default: Most of the debt in commercial multifamily is short term. What happens when you combine rising interest rates with softening rents as we're seeing in some metro areas and debt that expires in the next few years?

- Operator risk

- Loss of control: I can't decide when to sell or refinance. If it's sold, it's a taxable event and there's no way for me to 1031 exchange into another asset.

Right now, I'd rather build my own portfolio of SFH's, then eventually trade up to apartments as an IRO, than hand over funds to a manager. Maybe when the cycle turns I will be interested in passive MF investing again.

 Whoah, that should be interesting. Getting out the popcorn...

"Numbers dont look good at all."

There is compression in cap rates and multi-family rents are softening in many major metros.

"inevitable that todays buyers will lose equity"

In multifamily, much of the debt is short term (5 years or less). Having not been through a full cycle before, I'm not sure what happens when in 3-5 years when it's time to refinance and equity is lower. I guess if there is still some equity, no problem, but what happens if there is no equity? 

Everything moves in cycles. We're 7 or so years into a massive boom, so we're due for a correction.

This sounds like the Moorish Nation scam. They're squatters, and they may have attempted a fraudulent transfer of your property. Sorry, I have no advice, not sure what I'd do in this situation.

These people are probably sitting on tons of dead equity that they could safely move into more stable markets. They could protect their equity gains, but they believe that the cash flow they're getting is without opportunity cost.

Looking in my rear-view mirror, I recall California real estate got walloped big time in the financial crisis. Most economic activity contracted sharply and many people lost their homes and had their creditworthiness ruined. Prices in LA and SF went down significantly. I don't have the data in front of me right now, but I was living in West L.A. at the time and remember how quickly it happened and how sharp the decline was.

In the Bay area, some zip codes saw declines as much as 65% in price per sq. foot:

http://www.sfgate.com/bayarea/article/Home-prices-...

I moved here in 2010. In Austin, RE was slow until about 2012 or so, and then we had a big run-up in central areas, but overall RE remains more affordable. It didn't go down that much, and it also didn't run up as much.

If we were to get another crash, I think coastal markets would be great speculations. They are far more volatile than stable cash-flowing markets in the Midwest and South. They ran up much higher, but they also lost more value than places like Texas. I don't know what's going to happen, but with where we are in the cycle, I would be concerned with safety of principal. Putting capital into negatively cash-flowing property in the Bay Area seems borderline irresponsible to me (unless you were doing some kind of re-development or re-purposing, as you allude to). But, that's just me. I'm trying to be a long-term B&H investor and buy where it makes sense.

Nowhere else in the world is the local housing market tied to the fortunes of tech companies -- many of which are the object of a speculative mania, with PE's of 1000 or more -- as is the SF Bay Area. 

Buying junky homes in central neighborhoods and developing condos, or subdividing and building small houses on them is not uncommon in Austin.

I should add I sort of agree with the blogger, that just buying randomly anywhere through a TKP is a bad idea, but that goes without saying. Location, location, location.

I agree with him that cash-flow alone is not sufficient. If he's a dividend growth investor, he understands that we invest for total return. With rental properties done right, you get leverage and tax benefits (depreciation) that you cannot get with stocks of any kind. I think it's reasonable to expect 20-30% total return with a single family home in an appreciating area, with positive cash flow and 5-to-1 leverage (20% down). The best dividend stocks return around 10-12% per year - before tax.

He writes about his awful Midwest rentals, but he's happy to hold on to his Indy home, which is paid off and cash flowing nicely. If it was such a disappointment, why didn't he sell it?

Personally, I am interested in turnkey investing, but I haven't pulled the trigger on any turnkey deals. I'm looking at specific cities where there are strong demographics and job growth trends, but where the rent-to-value ratio is still high enough to make it work. 

His post is about investing right, not specifically about turnkey rental providers. What if you could buy a tier-1 property through a turnkey provider? He gets out the rear-view mirror and laments the fact that he didn't choose top areas to invest in, but there are opportunities today to invest through a TKP in markets with historically strong appreciation and good cash flows. 

I don't know much about this guy's blog, but he implies he made a lot of money in property ownership in the Bay Area. I was under the impression it's not possible to invest for cash flow in expensive coastal markets like this. Perhaps it was possible to pickup some property for a song in the last financial crisis, but if you were to buy today would you not have negative cash flow from day 1? That kind of investment doesn't make any sense to me.