All Forum Posts by: Randy E.

Randy E. has started 18 posts and replied 1279 times.

Originally posted by @Dennis M.:

@Randy E.

It’s old nug hugger Levi’s with holes , worn out nikes and a beatup sweatshirt with bleach stains .

I laughed out loud. I'm still laughing.

I'll probably be laughing tomorrow when I think of it again.

0 Votes

@Dan H.,

I appreciate the response.

One last thing. I think you (and others in your situation) probably don't work in this segment for the simple reason that your experiences with the tenant base may not be to your liking. That's no crime or insult. But, if an investor finds it easier to talk to people who are very similar to themselves, that can make a big difference in how they remember the experience.

I had a discussion with a landlord who had a disagreement with a tenant. This was not a low-income tenant, but it was a tenant who had come up from a low-income childhood, and it was a landlord who had no significant real-world experience with that segment of society. It should have been a simple discussion, easily overcome and moved past.

The tenant had a legitimate complaint, the landlord had an unavoidable delay in addressing the complaint, the tenant voiced frustration, they landlord felt uncomfortable, the situation escalated and the landlord ended up evicting a long-term never late tenant over a non-issue. It caused the tenant and his family distress. It ended up costing the landlord thousands of dollars in turnover costs and left him with a bad taste in his mouth over the entire experience. This was a good house in a well-respected middle class neighborhood. He as much as said he wants to leave the B- segment for a more expensive segment because (he didn't say this outright, but his meaning was clear) he wanted to deal only with tenants who were like himself in socio-economic-educational background.

That sort of experience can happen often in the low-cost cost segment when the landlord has no real-world experience with people similar to the tenant base.

Investor, know thyself.

6 Votes

Originally posted by :
@Lisa
What investors SHOULD say is that "Im not into this price range, but you should learn from people who are doing it successfully" and that level of thoughtfulness doesn't come through when I read these comments.

Exactly.

3 Votes

Originally posted by @Dan H.:

I have gotten mixed responses in your active level. In one post you indicate you take a passive role and in this post you indicate you are a “hands-on investor”. I continue to believe “Hands-on investors” can succeed in these markets for the reasons you listed.

I am "hands-on". I don't use a PM.

However, managing my rentals myself doesn't mean I spend so many hours a week doing this that it is like an onerous "job", which is how you have tried to describe this scenario. Once my units are rented, I spend very little time managing them. There are very few unexpected repairs that pop up, because my properties are not time bombs.

Yet, during a rehab, being hands-on means being around the project and dealing with contractors. That does take time. But, I'm not a flipper, so it's not like I always have rehabs in progress. Most of the time, there is nothing for me to do when it comes to managing the properties except collect the rent.

Once again, though, Dan, I don't want to give the impression that I'm trying to convince you that this route is a good idea for you or any other specific investor. My sole goal is to dispel any inadvertent bad advice some people who don't have real first-hand experience in this segment are spreading. I try not to speak about how to run syndication deals because I know nothing about managing syndication arrangements, and I know my information would likely be wrong and look foolish. But people who have no real experience managing low-cost properties for working class tenants always seem to rush to warn investors away from the segment with unintentional halftruths and mistruths.

The reason an OOS investor (or any investor) has difficulty succeeding in this sector may be because they don't have the requisite experience. Not because it is an impossible venture. Please consider that possibility. Or the possibility that many PM companies and Turnkey operators may have their own best interests in mind ahead of any investors'

Ashley, Linda, Jim K, and others have chimed in here to give their experiences. There are others here on BP that have done it. These investors are smart at what they do, diligent, motivated, and honest. It's very unfair for anyone to try to erase the work they are doing by implying they have been lucky. The simple fact is they have been SMART. And others maybe aren't smart enough when it comes to this particular sector.

1 Vote

Originally posted by : @Dan H.

My opinion is, without an active role, the cap expense will eventually consume too much of the cash flow. How many years have you been investing in this category of RE? How many units? If it is 15 years or more with a fair number of units then great and I admit someone on this site has been able to succeed at least 15 years in the $30k RE which would surprise me. If it is 10 years or more then still very good as I suspect there to be very few OOS investors that have chosen to stay in the $30k RE for as long as 10 years.

Have you tried to calculate projected cap expenses by looking at expected lifespan and your projected cost in a non-active role? I expect the results will show that the 50% rule is way too optimistic on these properties. It will provide a best estimate at the expected long term cash flow and I expect it to reveal that the cash flow is minimal for non-active investors in the $30k RE.

Between managing family-owned properties and later my own, I've been landlording in this segment for over 25 years. The guy I mentioned is a second-generation landlord, has over 50 doors, and he's been doing it for over 35 years, and his father for probably 30 years before him.

The CapEx isn't that big of a deal. As at least one other response in this thread said, for a knowledgeable hands-on investor, it will not cost the same to hire workers as it may for you in SoCal. I've had guys replumb an entire house for $1000 labor, and that includes kitchen bath and exterior spigots. In SoCal, that's probably a $8K job I guess. I've had a roof installed for $1000 labor, some beer, and some fast food. That roof is then good for 20-25 years. No need to worry about it for the rest of my investment years.

I just had an entire house tiled, and the labor was basically a throw-in for the guy who was doing a lot of the other work for me. Not the best job in the world, but good enough for my purposes. It wasn't really free, but it was less than the $4-$9/sqft some floor contractors want to charge. And I got the tile on sale at Lowes for like $.50/sqft.

I had a guy for a while who would clean houses at turnover for $50 and it looked brand frickin' new -- he once had a job at an apartment complex doing just that, so he knew exactly what needed to be done, better than I knew. Now, none of this is the case for an OOS investor who is using a PM who likely is adding extra management fees on top of each repair because ... well because they can.

After years of doing this, I know which tenants to avoid and which to embrace. I know (generally) which houses to buy, which neighborhoods to avoid, which excuses (from tenants and contractors) to accept and which to reject. I know when a quote/promise/offer sounds too good to be true. I'm no magical genius. Every semi-successful investor in this segment can do these things. But it's not some easy common knowledge shared by every soul in the world.

4 Votes

Originally posted by @Dan H.:

Originally posted by @Jonathan R.:

Originally posted by @Dan H.:

Originally posted by @Account Closed:

@Account Closed I'm way into this club. Especially if you're purchasing at well below market, the property is near rent ready condition, and the neighborhood supplies plenty of tenant demand + low operating expenses and landlord friendly laws. As long as we're accurately estimating future cap ex expenses based on present condition and replacement cost of each component & the previous rules apply this works out.

Maybe all of the investors that tell us not to do it are trying to keep all of the best opportunities for themselves ;)

Here's a mind-blower: I just picked up a 3plex that was fully rehabbed but vacant, owned by an older gentleman who was simply done with the enterprising stage of his life and wanted to rest. Bought it for (far below market val) 25k. Rented it for gross 2100 in less than 30 days after purchase with 1k invested in misc. unit preparation. Taxes are 900$/yr... water bill is 35$ a month. Would love to see someone tell me not to buy that sucker again. If I could, I would liquidate my all of assets and purchase it 50 times over for gross rents of 105k/month LMAO.

There are good deals left everyone!

I would pass on having such a property as a buy n hold. Maybe I would flip it.

Why would I pass as a buy n hold? The $700/unit is significantly below my minimum rent threshold. A large cap ex item can consume too many months of the "cash flow". I do not know what you projected the cash flow at but each tenant of these smaller unit count units takes time. Three separate tenants at a rent of $700/unit, no thanks.

Today I have a fairly high cost maintenance/cap expense due to a water leak. The plumber has been at the unit 1.5 hours already and has not determined the source of the leak. At least one BR rug is ruined. A second BR rug is saturated and possibly ruined. Walls have been opened up that will need to be repaired. Granted this is not an every month event, but it does not have to be to be a significant impact on the cash flow.

I would not consider any small unit count property with $700/month per unit rent a good buy n hold RE.

I understand and respect your position, but the reason I think you think capex will eat up all the cashflow on a $700 a month property is because you don’t realize how cheap labor is in these areas. For the issue you mentioned, on the plumbing leak for example, that would be minimal for me. A case of beer, a pack of cigarettes, and maybe $150 to my contractor. He’ll replumb an entire house with pex for a couple hundred bucks. I had a break between the water meter and the house and had to excavate from the street all the way to the house (20 feet), have a new line run and a shut off valve installed-$1600 total. If something needs to be fixed, I can get someone over there for $20 because he’s working on my next project. If I didn’t have that, maybe $100, but it would have to be a pretty big issue. I can have sewer lines cleaned out for $125. Labor is cheap here. Like others have said, you do the work upfront, electrical, plumbing and hvac. I try to target around 30k after the rehab, 19k purchase with a 10k rehab, somewhere in there. I’ve done better, I’ve done a little worse. I am local. A no slumlord here. Everything is Section 8. We put in several nice features (lower mid grade durable materials) that look like what is going on on HGTV

I do believe locals can make these properties work for exactly the reasons you listed but it takes work and is not passive. Ashley Hamilton is succeeding in Detroit and likely doing better than she could at a W2 job and likely has more freedom.

You could certainly do the same thing in Kansas.

I was indicating the difficulty of succeeding in the $30k RE for the OOS investor that cannot do the items that you can do that can allow you to succeed. They typically need to use a PM, they typically cannot do any of the work themselves, they typically cannot hire someone for a case of beer. Their labor costs are not the same as the non-passive, local RE investor

I do believe local investors can succeed on these properties but they need to realize it requires effort, basically a job that often has a bit more freedom. Because of the effort involved, it does not scale easily but can provide the local investor the leaning opportunity and the opportunity to pivot to something that scales better. I hope you have a ton of success.

I think it unlikely the OOS investor can succeed on these RE. Elliott was from OOS (Sacramento). As an OOS investor, I would not have considered his purchase, without a value add, due to the low rent per unit as well as the historical non-existent appreciation; the ROI (in this case I include effort in the Investment) is not enough.

I question in any OOS investor buying these $30k RE has used this approach for 15 years? 10 years? I suspect 0 investors on BP at 15 years. Very few, maybe 0, at 10 years. There is a reason they have pivotted away from the $30k RE. Again, I am referring only to non-local investors in these properties.

Hi Dan,

Not to nitpick your thoughtful response, but little things stand out. Like: "but they need to realize it requires effort, basically a job that often has a bit more freedom. Because of the effort involved, it does not scale easily but can provide the local investor the leaning opportunity and the opportunity to pivot to something that scales better."

When I read that, I get the feeling you think all landlords in this segment are spending 20-30 hours a week managing their properties. Some of the responses from landlords experienced in this segment indicate that, but not all. For instance, if all my units are rented, I usually spend less than three hours total a month managing my properties. I spend a lot of time during the purchase/reno cycle because I'm very hand-on (managing, not working because I have no skills there ;) )

But post reno, besides placing tenants, it's an easy endeavor. Most of my tenants stay more than a year. In fact, none of my current tenants have been in place less than a year. I have a vacancy in a property I bought a while ago and haven't put the first tenant in yet, and I have another property that has an 18-month tenant that is leaving soon. I can go months without any service-related calls. I've had one clogged plumbing line in the last few years, one light fixture go bad in years ... I know there has to be something else, but i can't think of anything right now.

And I'm not the only one. This doesn't have to be the doom-and-gloom scenario and/or success-only-if-it-is-a grinding-job-of-an-investment like some people are making it out to be. There is a scenario where investors in this segment can be successful and not give their entire lives over to the management of the investments, just as with other segments of REI.

Does it take a certain education/knowledge/skillset? Certainly! But every worthwhile endeavor does.

If you have vast first-hand experience where you've attempted this and failed multiple times, please share. I agree that this segment is probably not for hand-off passive investing OOS investors. But not because it requires more work than other hands-on investing. Rather because it requires a specific type of knowledge and education. I would hate for anyone to be misled and think this is impossible ... just as I would hate for anyone to be misled and think any idiot can make money doing this.

Oh, and it can scale very well. The only thing keeping me from scaling faster is financing. If only I had a six-figure w2!!!! A guy in an investment group I'm in owns dozens of these types of properties, and he doesn't spend long hours every week managing his investments. He owns stores and other businesses and travels frequently -- he travels probably 4-6 months a year. That's not the picture of someone busting his arse managing impossibly difficult low-cost investment properties. He has a woman who works in a small office 2 days a week for about 3 hours each of those days -- otherwise, no one is regularly in that office. That's pretty doggone passive if you ask me. But, he has a wealth of knowledge of how to invest in this segment. That's how he succeeds. Not by working 30 hours a week on it, but by knowing how to succeed at it. Just like any other successful investor.

Cheers and good fortune, my friend.

1 Vote

Originally posted by @Jonathan R.:

Originally posted by @Dan H.:

Originally posted by @Account Closed:

Maybe all of the investors that tell us not to do it are trying to keep all of the best opportunities for themselves ;)

There are good deals left everyone!

I would pass on having such a property as a buy n hold. Maybe I would flip it.

I would not consider any small unit count property with $700/month per unit rent a good buy n hold RE.

Nail.Head.Perfect.

2 Votes

Originally posted by @Dan H.:

Originally posted by @Randy E.:

Originally posted by : @Dan H.

I think the OOS investors who think this can be a passive and lucrative investment will be in for a rude awakening. They will likely find it is not very passive. Eventually they will determine the "cash flow" is not so significant when the cap expenses consume years of "cash flow". A new roof, fixed/new foundation, new kitchen, slab leak, new plumbing, new hardscape, etc. are not cheap, They can consume years of a few hundred a month "cash flow".

I know where you're coming from, but I think that's a bit of an exaggeration. Any house can have those problems. It's up to the buyer to investigate PRIOR to purchase to discover those issues. It's not that hard to see a house has a foundation problem or needs a new roof.

And some of the other issues, at least in my case, are things I expect to reno. I usually always do all new electrical and plumbing, do new bathrooms and Kitchens, and flooring all over the house. Windows too. After a rehab like that, there are no capex surprises waiting around the next 10year corner.

I guess someone buying a house site unseen, trusting a turnkey provider they have never met, might end up with those problems. But if the buyers takes a few days and does the common sense thing and actually walks through a house before purchasing it, those issues can be avoided. Anyone who doesn't do that if likely a fool soon to be parted with his/her money. I suggest instead of throwing their money away, just donate it to me. I'll send a thank-you note every summer. I promise.

Your complete reno results in a cap expense at the start and starts the clock on the various item's life at zero.

...

The RE is $30K because is has had no appreciation. The rent and RE are unlikely to appreciate significantly. The "cash flow" will remain constant which in inflation adjusted dollars means that it will decrease over time.

That is the long-term likely reality of the $30K properties for OOS investors.

I hear you and agree that for OOS investors, a lot of what you say may likely be true. For local investors, maybe not so true. None of my $30K houses failed to appreciate. One in particular appreciated 500% over my total purchase+reno price in less than 4 years -- and this is not my estimate, but the valuation of an appraisal I (well, the bank) used to pull money out to reinvest. Other properties have appreciated at least 200% over the past few years.

That's another advantage that lazy OOS investors can't likely match. If an OOS investor isn't going to go through the trouble of actually visiting a market, actually researching trends in the market, if the OOS investor doesn't have the experience to walk a neighborhood and tell the difference between blue collar hard working neighborhood and an actual dangerous neighborhood, then yes, that OOS investor will probably get stuck with a non-appreciating, low-performing, soon-in-need-of-capex investment. Smart, savvy investors can avoid a lot of those problems, simply by doing the proper homework.

I want to clarify that I'm not saying all this to say EVERYONE should invest in low-cost high-return properties. It is not something every investor is capable of doing. Not all investors have the skillset necessary or the requisite knowledge to succeed in. In fact, it's better for me and all the existing low-cost high-return investors if the big-pocket OOS investors don't try to pursue this and chew up all the inventory. I'm just pointing out that the "problems" some people are repeating ad naseum aren't actually real-world problems for those of us that know what we're doing in this segment.

2 Votes

Originally posted by : @Dan H.

3 Votes

Originally posted by @Jay Hinrichs:

where this becomes HIGHLY risky is someone from CA who has no clue as to the tenant base and what needs to be done.. thinks they can do what YOU do.. They cant

I agree. Most people who have never spent time in such neighborhoods CAN NOT do this. Most high-income earners who think they can pick up 5 of these properties for the cost of a good downpayment on a Cali property and cashflow easy passive money CAN NOT do this.

On the other hand, if an investor knows his/herself as someone with the experience and talents needed, and is ready, this is a more or less, color-by-the-numbers, easy (yes, easy for the right people) enterprise.

3 Votes

← … 11 12 13 14 15 16 17 18 19 20 21 … →

All Forum Posts by: Randy E.

Randy E. has started 18 posts and replied 1279 times.

Post: The $30k rental club.......

Post: The $30k rental club.......

Post: The $30k rental club.......

Post: The $30k rental club.......

Post: The $30k rental club.......

Post: The $30k rental club.......

Post: The $30k rental club.......

Post: The $30k rental club.......

Post: The $30k rental club.......

Post: The $30k rental club.......