All Forum Posts by: Scott Trench

@Greg Weik I am merely making fun of myself. I am clearly a pundit. I accept it. 

I look forward to meeting in person at some meetup around town! 

@Greg Weik

Your post just reminded me that I am now a pundit. D'oh!

Very common. Here's how I'd suggest proceeding: 

- Make it clear in the listing what your requirements are for Credit, Criminal, Credit, and Eviction. I require 650+ Credit, no violent crime or theft, 3X monthly income, and no prior evictions. What you can require legally changes depending on your location. 

- If you make the above clear in the listing, you will immediately get fewer applicants. This is a good thing. New landlords and listings that don't specify this get flooded with applications from tenant prospects who are fishing for a landlord desperate enough to not impose the above criteria. A large percentage of these folks will apply elsewhere if that is clear in the listing. 

- Even with this caveat, some tenants will attempt to go to the property. You will tell them during a showing about your criteria. They will smile and nod. 

- When you go to actually complete the application process and send them the link to complete their screening, another portion of applicants will evaporate. 

- Some of the qualified tenants will also just drop out because they found another place they liked better. It's a free market. 

- You will finally get a tenant. 

The best approach is to set clear, written criteria, and then price the property at a rate that gets you enough applicants that you can find a few who meet your criteria reasonably quickly. I'd also start the marketing process 30-45 days before current tenants move out in most cases - it just seems easier to re-let a place that is currenlty occupied than one that's been sitting empty for a while for some reason. 

I'd also encourage you to allow pets if you are having trouble. Allowing pets, including the dogs nobody wants (excluding pitbulls, unless your landlord policy specifically covers them), will give you access to qualified tenants that otherwise can't find places that allow them. 

Welcome! As you progress your bookkeeping business, you'll likely want to learn how to export statements from a variety of property management platforms, as investor books are housed in bank accounts, spreadsheets, and a variety of property management and accounting software!

In terms of using BP - I highly recommend setting up some "keywords" in your settings so that you can get alerted to discussions that talk about "CPA" "Bookkeeper" or "Bookkeeping" and related terms!

Leverage does not always win.

While you can build a ton of wealth, and your financial model will suggest that max leverage generates more wealth, the moment you go all in on real estate with max leverage, it can ruin you. 

I have some friends and colleagues who are learning this lesson very painfully. 

Some of them are, or will be, learning this very painful lesson very publicly. 

No point in arguing it, we'll just watch it unfold this year and next. 

I know that anytime Trump's name is mentioned, someone gets triggered. Either the post is too anti-Trump, or too Pro-Trump. 

Let me be clear - I do not condemn Trump's policies or necessarily know whether they will be positive in the long-term future or not for real estate investors. Further, "Downward Pressure" may be "bad" for investors, but it may also be "good" for renters - his policies, if I am correct, may negatively impact housing prices and rents, to the detriment of investors and to the benefit of renters, in the near-term. 

"Positive" or "Negative" impacts are relative. I write from the standpoint of a real estate investor, and I perceive Trump's actions to be threatening to near-term real estate investment returns, on the whole. I believe this because I think that on the whole, his first two weeks of actions are likely to: 

- Have zero no impact on near-term supply (deliveries for single family and multifamily homes 2025 are a result of actions put into motion several years ago)

- Put upward pressure on interest rates: Trump's demand that the Fed lower rates will have absolutely no effect, other than providing a cheap source of easy social media clicks and engagement for real estate pundits. However, the implementation of tariffs, or just the threat of tariffs, is likely to influence rates, by impacting inflation numbers, and this influence may come quickly if prices for many common goods and services and raw materials rise in anticipation of tariffs, or in response to their implementation. 

- Put downward pressure on demand: I personally believe it is unlikely that Trump actually deports millions of illegal immigrants who have settled in the United States. This, to me, seems impractical, and a PR nightmare. It's possible he carries it out, but I believe it unlikely. I believe it is far more likely, however, that the effect of his stance and actions materially lessens the flow of new illegal immigrants. This will slow new demand for rentals. In the event that any meaningful percentage of 10-15 million (estimates seem to vary widely depending on which news source you prefer) current illegal immigrants are deported, real estate investors will have a big problem as vacancies soar. It is likely that a huge percentage of that 10M-15M illegal immigrant population are renters. Regardless of whether investors currently rent to illegal immigrants, their competition in the market likely does.

- Put Upward pressure on real estate operating costs: Increased costs for raw materials and supplies, and the likely increased costs for labor involved in many real estate related CapEx and maintenance projects signal the risk of increase in costs for real estate operators.

If there is no impact on near-term supply, a modest slowing of inbound (illegal) migration, more reason to believe that the cost of many goods and services will increase, and real reason to believe that inflation triggered by something other than an increase in the money supply (namely the cost of specific goods and services that are NOT housing going up, which comprise the CPI) will force the Fed to raise rates, this, on the whole, is not good for real estate investment returns. 

No, I do not think that there will be a housing crash or a massive drop, nationwide, in rents and prices. Yes, there will be offsets (do Tariffs and slowing illegal immigration increase wages for some workers - likely yes). But, I believe that the actions of the first two weeks should give investors, on the whole, reason to incrementally revise down their expectations for growth in prices or rent growth in 2025. There may also be incrementally better probability of deals, as investors who are dependent on rates coming down may find their hopes disappointed. 

I think 2025 will be, by and large a buyer's market, and that the new administration's policies only, and again incrementally, make me more confident that this will be the case.

What do other investors think? Do you agree or disagree? 

 Agreed - my analysis incorporates this. 

If you want to build wealth and maximize IRR, lever up.

If you want to enjoy the ski slopes on Tuesday afternoon, pay it off.

I guess, in simpler terms: 

- Getting into real estate primarily from cash flow, is wrong, I agree. When one starts, the bet is on appreciation and long-term growth. 

- Staying in real estate for the long-run, for me at least, IS ALL ABOUT the cash flow. Or more specifically, cash flow that should pace very nicely in line with inflation for the duration of my life. 

I completely respect your approach to investing and completely disagree in this instance. 

I believe that real estate, including property values, rents, and property expenses, is likely to appreciate at 3.4% per year. 

A 6.6% cap rate building (your 200 month payback on cashflows alone implies a 6.25% Cap Rate, rounding up to make the math in the next sentence easier), that stays at a 6.6% cap rate, appreciating at 3.4% per year, generates a 10% return that is highly likely to continue to pace with inflation over the long-run. 

If I add debt at 7.25%, with the above assumptions, my returns actually decrease the more leverage I add, depending on the time horizon. This is because the interest rate on the debt is more expensive than the cap rate for properties of that type in the market. 

A 10% annualized yield, with no leverage, and a 6.6% cash on cash yield as a component of that, is very compelling to me. Imagine a $3M net worth household generating $66K in income by reallocating $1M from their index fund portfolio to a paid off property or two with this math. That's a huge deal. One parent can stay home through college. 

I think this is especially true in the context of current alternatives like the stock market, which trades at 30X price to earnings (a "3.3% Cap rate") or 1.6% dividend yield, bond yields which are far less tax efficient, and private businesses, which are far more active. 

Even if you argue that I should be finding better deals than a 6.6% cap rate, then I'd ask what I should do with the property once it has been put to it's highest and best use, and from there, trades at market cap rates? 

At some point, investors do not want to constantly be doing the work to maximize returns, and want the portfolio to generate reliable income, reasonably indexed to inflation. At least, this is what I want, personally. 

I did not set out as an investor to get to $100M in net worth. I do not have $1M per year hobbies. 

I set out to have a portfolio that generates a reliable stream of income that has a reasonable shot at being there for the rest of my life. A 200 month payback (6.25% Cap Rate, or a little higher to adjust for CapEx), is a great way to do that, and for me, a fine use of the tool of real estate.

Plus, if there ever is a huge spread between cap rates and interest rates (interest rates drop, for example), I always have the option to refinance and buy a bunch more real estate. 

Why is buying all cash foolish? I think that, right now, it offers excellent risk adjusted returns.