All Forum Posts by: Robert C.

@Erik Haugen, I say this without judgement. I think you're either in this business or you're not in this business. Let me try to explain my view cause it may be a little different than the hardcore capitalists. 

If you view removing 8 tenants all at once as crossing a moral line, then what's the difference between that and just removing 1 person to remodel one unit? It's really no different. If this is the kind of stuff that is going to give you sleepless nights, then I don't recommend being in the business of landlording. It also means that you already crossed some sort of a personal line the moment you bought your first rental apartment. Everything else after that is just a rationalization so you don't feel bad about yourself. Especially with a market like this where prices are higher, your limits are going to be tested because you will likely at some point need to raise rents or increase value in order to support the price you paid. 

To me, it doesn't mean that you should be uncaring as a landlord, but in my book it's less about "morality" and more about "principle". All these random lines that people are drawing between raising rent slowly versus fast, or evicting one versus many, or passing on one deal versus buying another, are really just about making yourself feel better at the end of the day. If you're hoping for a pat on the back from tenants, I guarantee you that you will get the same complaints whether the rent is raised 10% or 20%, or whether you do it now or 6 months from now. "Principle" to me means treating people fairly and being up front about things like why I need to evict, or when they're going to see rent increases, and not lying when a resident is asking if the property's for sale - that sort of stuff. It's having a code of conduct, and it includes good customer service and fixing things that need to be fixed; taking responsibility.

Other than that, I think it's the small kindnesses that allow me to continue to enjoy property management. I get to know all the different people who live in my buildings. And if there's someone who I know is hardworking and normally pays on time, it's not such a bad thing to cut them a break if they slip up at some point. Does that make me a morally better person? No. But at least it's something - at the right moment - for the right person.

@Diane G., I have a friend who tried what you're asking. They thought they got a great deal on a building in Noe Valley and could convert the commercial space into residential. 2+ years later, they gave up and sold at a small loss. Not every property will be the same, but just a word of caution. 

Also, I think the softening in small multifamily is at least partially due to the softening in condos. More supply of condos means less interest in TIC and thus less investors/buyers in that arena. What are your thoughts?

@Mike Koprowski, I've had a problem with using darker color grouts where the end product ends up having a whitish film on top that's really hard to remove. One explanation I was given was that the current grout you find in stores is a different mixture than it used to be. The grout was professionally installed (not by me). I eventually found an oil based sealer that was able to bring the intended color back out, but it seems to me that step shouldn't have been necessary. Any thoughts on how it happened, and how to avoid it in future projects?

@Joshua Wild, @Matt K., When I first came on BP, it was the first time I heard all the funny things people were saying about Californians. I would joke with my friends that Californians to the rest of America are seen the same as China is to Californians! Lots of money to spend, lots of cash offers, and driving up prices for the local buyers. Even though I find the analogy hilarious, I take it as a cautionary lesson not to be the "dumb money" if I ever go OOS.

I have to admit to being jealous sometimes of the bigger cash-flow people see in other parts of the country, or even out of my local area. But I think it's a lot harder to learn a new market than people give credit, cause at the end of the day, you won't really know what it's like until you buy your first property there. Cash is king, but so is CONFIDENCE. Knowledge of your markets creates huge advantages and you have to weigh those agains the time and mistakes you'll make trying something totally new. 

In my opinion, this also may be the worst timing to try and learn a new market (because many markets are topping out), IF you already have something good going in familiar territory.

@David Song

This discussion thread should be re-titled "Everything that's wrong with the Internet". I'm impressed by everyone's stamina, though. @Chris May, @Joe Splitrock

For the record, I read every post from start to finish.

I'll just add a couple "common sense" observations: 

1.) Banks aren't so dumb that they would create a product that could undermine one of their other products (i.e. a HELOC that could undercut a traditional mortgage). Maybe you get lucky and find a borrowing vehicle with a lower interest rate, but that's not generally the case.

2.) If it doesn't matter whether you use a HELOC or a checking account, etc., then who really cares how you do it. The arguable gains that you make doing it David's way vs just paying down your mortgage directly aren't really worth debating over. And any investor that is spending more time trying to figure out whether this "strategy" works or not as opposed to focusing on revenue-generating activities, really needs to look at their priorities.

Speaking of which, I just spent FAR too long reading this thing instead of working on my business....

@Nancy Roth, I'm actually really surprised more people aren't suggesting you remove the tenants like @Deanna McCormick and @Bob B.. Maybe I'm spoiled as far as being able to fill vacancies easily. Is the neighborhood that bad that every prospective tenant has "something off"?

I self manage my properties, and here are some of my take aways:

1.) No matter how long you do it, you still can never tell who the good/bad ones are just by talking to them.

2.) Stick to your qualification standards no matter what.

3.) Anyone who breaks the rules will continue the pattern no matter what you say to them 99% of the time. Sometimes it's intentional and a lot of times they have bad habits that they just can't/don't care to fix.

4.) Better to evict a bad/untruthful tenant and move on, cause it's less painful in the long run. Complaints from the neighbors and every other negative incident is going to mess with your psyche, and thus the rest of your business activities just as much, if not more than managing your property yourself. I say replace the tenants and keep going until you get good ones in there with a better PM.

@Ruben Medina, If you've lived in the condo for 2 out of the last 5 years, then I would sell and take the capital gains tax free. Then there's no pressure to 1031 Exchange and you can find a better cash-flow investment at your own pace. I also think condos are topping out in California because of all the new construction hitting the market (at least that's true in the Bay Area, so possible true down near you). If you haven't lived there in the last 5 years, then it's more of a toss up. If you've got a good W-2 or other income, and the HOA isn't driving you mad, then I'd consider refinancing while the interest rates are still low and putting the cash-out to work for better cash-flow. When I talk to guys who've been in real estate a long time (like 30+ years), they say the wealthiest folks they know never sold anything if they could help it.

@Jason Monroe, Honestly, Jason, I think you're just a kinder person than the rest of us. You're basically putting yourself in the shoes of the tenant - I get it (not being sarcastic or anything here). I don't know Oakland, but I do know SF, and the landlord-tenant relationship there is so bad that if you offer $100k, the residents think that you're low-balling them. In fact, any number you offer in SF is looked at with deep suspicion. It's become part of the culture because of the way rent control is and how the housing shortage has affected everyone over a long period of time. And if it's not that way currently in Oakland, I'm sure it will get there if the market keeps going the way it is. 

Anyway, I like the idea of what your saying for a win-win where everyone leaves happy. I really hope you don't meet that one tenant that ruins it for everyone.

@Sarah Brown, How are you in a rent controlled house in San Mateo? To my knowledge, San Mateo does not have rent control. There was a measure on the last ballot but it didn't pass, and I don't know of any city in the Bay Area that rent controls single family residences. 

If you're hoping to invest somewhere else in order to afford a house locally, I would definitely focus on getting some really great cash flow. Or, maybe churn through some flips in order to increase your net worth. If you're banking on straight appreciation, I'm not sure if you'll be able to beat local appreciation, and you're going to have to manage the investment property from afar. I also wouldn't necessarily discount the power of locking in a low interest rate now on a primary. If you try to re-enter the market in 2-3 years, you may be looking at 6% instead of 4%. Just food for thought - there's never a 100% right answer to these questions, only a choice between opportunities. 

@David Song, I totally agree with you about 2018. I was a little nervous towards the end of 2016 (or at least didn't have an answer to the crystal ball question), but 2017 proved that anything below ~$1.5 million SFR was still super hot, and also new construction SFR. Luxury and condos are definitely turning, though.

What sort of interest rate are you getting on 10-year?

I have a completely unsubstantiated theory that there won't be a psychological break on interest rates until it hits 5.5%-6%ish. I think people here buy into the idea that interest rates are still historically low even as they are rising. And there's enough money/demand as long as tech is booming to offset the folks who do get priced down/out as the rates are gradually increased. That's just for SFR of course.