All Forum Posts by: Bart H.

Originally posted by @Cory Dean:

@Bart H. Thanks for the information!! I will be going to Colorado the 16th through the 20th for my wedding anniversary, so I will not be able to attend this meeting. However, I would love to catch the next one. Is there a place I can go to see when the next one is?

Thanks again!

 Yeah, no problem,   @Nick Hughes usually runs them.  He usually posts each month on BP's.  He also sends out an email each month, so I am copying him on this thread.

I haven’t taken their classes, nor do I have any affiliation with them, but when I looked into it there seemed to be a lot of favorable recommendations for champions. I likely will take the glass myself in 2018

Cory, a few of us meet up each month at the Gingerman in Dallas. The next one is on the 16th starting at 5pm, usually goes till 8 or so. No pitches, it’s free etc just some good folks talking about real estate.

Originally posted by @David Thompson:

Ben,

Good question.  You certainly want to start w/the market / submarket and be in the strongest ones that history proves falls the least and recovers the fastest.  Additionally, value add opportunities where even after renovations you are still under market compared to new construction in the area will insulate you further as new construction typically gets hit the hardest (most expensive). Folks have to live somewhere concept and if your rents are competitive it's too painful and costly for folks to move out of established areas for marginal savings.  You want to be conservative with your numbers, adequate reserves to weather downturns.  Non tangibles like improving tenant retention / morale through hosting resident gatherings and keeping the property looking sharp go a long way as turnover is costly.  

Dallas is a great example, weathered the downturn very well in 2008/2009.  It would be worthwhile if you are in syndications to ask for the sensitivity analysis to see how the property holds up against changes to rent and occupancy.  We had just acquired a property in one submarket there where we have 3rd party data from REIS showing avg occupancy at its worst was 85% in 2009 .  Our analysis shows that we  B/E break even at 75% and making 6% at 85%.  It's nice to know w/data how you can do during economic shocks.

 Interesting information, thank you for sharing. One question, if you don't mind me asking, do you have refinancing risk after 5 years?  or do you have a fully amortizing loan? In case the market turns down in the next 2-3 years.

Originally posted by @Rob Beardsley:

Hey Ben, in the 2008 financial crisis multifamily did really well because of the moderate leverage as well as ample cash flow to cover debt. Also, while home prices were losing over half of their value, rents only dropped slightly and even went up in some markets!

I think the problem with assuming the strategy from the last war is about the same as the French assuming they were safe behind the Maginot line.

What I mean by that, is the years leading up to 2008, there was a massive bubble, people were buying every SFH that was built. Remember there were lines at new subdivisions for the right to buy homes before they were built, and then people were flipping those unbuilt homes the minute they wee completed for tens of thousands if not hundreds of thousands of profit. It was unsustainable, especially with a bunch of no doc loans.

Now fast forward a decade, and the last I looked (granted a little while ago), we were at home building rates from the 50's or 60's when the US population was half of what it is today, and I believe we arent even keeping up the houses being torn down. So I disagree with is premise on their being a glut of SFH's as the baby boomers die. (at least in cities where the population isn't declining.)

Millennials have fought the last battle as well, where I grew up in an era of 15-20% inflation, homes always went way up in value, we learned to buy.  Todays millennials lived thru a housing bubble, and super low interest rates, with relatively low rental costs. They learned not to buy.

IF we get very high inflation, I think you will see a lot of people wishing they owned their own home.

As far as apartments, multi family units, everyone sings the praises of how that is where the money is made, and I am sure in general they are correct, but my sense is there are a lot of cranes building Class A apartments and a lot of value add syndications rehabbing older units. 

I think there is a real probability that high end apartments are getting overbuilt, and many of these deals are being penciled at really low cap rates, and that it could get ugly if a lot of these groups end up needing to refinance balloon payments in a downturn.  Especially if we finally see a return to 5-7% nominal rates, ie rates a little closer to historic averages.

I do think properties in the $1,200 price are obviously less susceptible to a downturn, but I think we may see millennials moving to SFH's as they start families in this next recession, vs when they were single and just moved to apartments.

In short I think we need to seriously consider the next war may be a quick strike, rates going higher recession vs a prolonged trench warfare of over priced homes.

Personally we are thinking about slowing down, maybe being a little more selective, holding firm until we find higher returns etc.

Originally posted by @John Park:

I am currently trying to lease a property for the first time in Arlington, Texas and am experiencing frustration in finding a QUALIFIED tenant for my SFH. I feel that the rent, security deposit and other qualification requirements are all in line with the surrounding market, and there has been quite a lot of interest in the house. I've had many showings and even more phone calls. The biggest problem that I realized that these 'prospectives' had was with my credit score requirement (at least 640). These are my current requirements:

- $1395/month rent (average for the market)

-$1500 security deposit

-$50 application fee

-$250 non-refundable pet deposit (max 2 pets)

-minimum 640 credit score (the killer as it seems)

I have even tried offering those with lower credit scores the opportunity to lease with a higher monthly rent and/or higher security deposit but can't get anyone to even turn in an application (wasting lots of paper at this time).

I would be concerned as opposed to frustrated if there was no interest, but with the activity the past month (I've been trying for a month), I know that there are renters out there.

As I have indicated, I think the credit score issue is the speed hump, but I could be wrong. The house is not in any way a dump, it is a very nice 80's build 3/2/2 in a nice quiet neighborhood. Just can't figure out what I need to do to reel a tenant in! Any advice or feedback will be appreciated as this is the first time having to find a tenant (my first house was an inherited tenant).

 Its always easier to find a tenant in the Spring.  We typically can rent for 5-10%/month more with spring rentals.

Personally I wouldnt get desperate and change your rental criteria.  I would rather drop the price $50-100/month than to lower the credit scores and end up with the cost of a couple of months of no rent at all, the cost of a lawyer and court costs and eviction...oh and then find out your place was damaged.

I would look closely at the rent and drop it until its rented, or sit on it until you find the right tenant.  Its short term pain, but honestly every time my wife and I have settled on a tenant we didnt feel good about, we have gotten burned.  Be patient.

Originally posted by @Account Closed:

@Kevin Hays  I think something like 

3222 Shelia Ln, Dallas, TX 75220.

 Thats a good suggestion, I would recommend to the south of LUV field down to about Wycliff.  Although I suspect that lots may be hard to find atm.

I would see about the cost to get another meter or to investigate some of the non utility sub metering options that are available, you may find the House is wired in a way that makes it impossible to sub meter. Either way, when the leases come due, renew them on your own paper, reset the whole expectations. I would not do arbitrary things like first 200 then split it.

Originally posted by @Thad Hayes:

I want to get my foot in the door into an untapped hot market but I just don’t know where or how to begin. Before diving, how do I determine what cap rates or areas should I scout for especially for a market that I’m not as familiar. Below are the two main questions I need answered before pursuing this lucrative endeavor.

What resources or data items should an I obtain to determine and calculate the current cap rate, the realistic cap and the trend of the market?

Is it possible that SFR (single-family rental) cap rates may have substantial differences between counties or subdivision within the city perimeter versus outer city perimeter, i.e Atlanta, Charlotte, Dallas or Tampa which have high competition, high value of homes sold but low rents?

 Of course.  a cap rate is essentially a PE ratio or a dividend yield with stocks.  Its snap shot in time of a ratio.

Cap rate is just the Net operating income/Current Market value.

The Current Maret value on a rental (or any investment) is valued on the current value of the discounted value of future dividends/earnings.  (very simplified version for those finance nerds who will take exception to my simplifications).  Ie add up the rent you expect to get for the next thousand years, and discount it by the time value of money.  (ie would you rather have $1000 today or $1000 in the future?)

The NOI is the current net operating income.

If you are in an area growing Really fast in population, rents and property values, then the price you will pay will look very expensive with incredibly low cap rates. because people will pay more now knowing that net operating income will grow very fast.

 If you are in an area where people are leaving in droves, that cap rate will all other things being equal be really low.  Because the future income will be flat to declining.

Think about the stock market, Tesla and Amazon are growth stocks, they will trade at a very high PE ratios.  Because investors expect that growth to eventually provide really high earnings.  A company like a utility will trade at a comparatively low PE ratio because the expectation is that the utility will grow future earnings slowly over time.  So those earnings streams are worth less in the future.

Cap rates are a good way to compare properties in similar areas because for the most part a metro area will trade similar to itself, ie its growing at the same pace.  But between areas of the country, you will see wildly different cap rates.  

The market telling you there are differences in future expected earnings.

Originally posted by @Bobby Eastman:

I am looking to set up a lunch, dinner or drinks with other investors in the area.  I am going to be purchasing a 4plex here in the next 6 months. I would love to talk to others about what I should and shouldn't do, hear others experiences and create some new contacts.

Direct Message me if you'd be interested in joining a small meet-up like this. It'd be awesome to get the community together. 

I will be out of town for the next few weeks but would love to get together after that.

Quick notes about me:

From California have been here for almost 6 years

Firefighter

Thought about this for a long time and looking to take the first few steps then start running. Hopefully with others.

Bobby

 There is a group that meets at the Gingerman once a month.  You should check out the group.

@Nick Hughes usually sends out an invite.

There is also another group that meets up that the Fox and Hound in Richardson.