All Forum Posts by: Serge S.

@Michael S. would you mind providing your contact information at First Key? I've been trying to reach them and none of the public numbers get through to a person and they do not reply to emails or messages. Would be greatly appreciated.

Also - how did your loan go with them? Were you able to close?

@Ben Leybovich sorry about your Ohio flooding. While I agree with some of the comments that this could happen to any home I think your broad point is being missed. There is no line item in an investors proforma that reads basement flood $4,000. This is a good 5 years of cash flow (if there was any to begin with) literally down the sewage drain. While you hold over the next 5 years trying to regain that profit, there will be many other disasters. It is a perpetual cycle. And with no chance at appreciation, you have no exit, no strategy, no ROI. Your just stuck. This is what I see time and time again with this asset class. This is just another example.

I have many SFRs and I love them all. I agree with @Wendell De Guzman and am actually surprised he has no SFRs left. I do not buy SFRs with a cash flow exit strategy but the cash flow does feed my family. I buy them for appreciation. I buy them with appreciation built in day 1. I buy them in clean B class neighborhoods, 1980s-2000s stock and get good long term tenants. When I have vacancy, the HVAC and copper do not get stolen. I plow excess cash into this asset class as a piggy bank. Then when a large multifamily comes along (rare today), I quickly sell a few houses and 1031 into the long term cash flow asset that I really want and know will cash flow with consistency. 

I also have no problems with @Sharad M. model. Buying mid range local homes where boots on the ground are his competitive advantage. Once you can buy a lot of these you know what to look for and which type of homes will be consistent performers. The key here is that you really need to have a lot of them and you have to always buy for .50 on the $1.00. In this case you can budget and absorb these kind of capex/repair shocks.

@Ben Leybovich yes that is the project. To your credit you called it a pig from 3000 miles away! I think I already mentioned that you are a genius. Where do I send my $295. 

Originally posted by @Mark Neiger:

@Serge S.

So 5 of the tenants (of 8) have been here for 10, 14, and 23 years. That tells me one of two things. Either they are really comfortable and want to stay or they are skipping paying their rent and like the discount. These same tenants are under section 8 vouchers. They're all paying well above $500 rents. Actually $600-700. It's a tougher neighborhood but not one I'd be afraid to drive in at night. I'd like to provide them with a stable and safe place to continue to live. Having said all that, is this still a crappy deal? Again, my plan right now is to get nto something, even if it's not a fantastic deal, to be able to establish a track record. I'd look to refi or get out of this building and use my now gained experience to move up to better properties. I mean, you have to start somewhere, right? I'm sure you had a rough start. Just give me some encouragement and let me know that I can get in this game now. If it's a bad time then please tell me to hold off until the market is more favorable.

 Mark - I can't tell you if this is the right deal for you. I can tell you that buying real estate to establish credibility with anyone is not a very good reason.

You are paying roughly $40k per unit. For that price I would want over $650 closer to $700 rents and a B class complex. Now that may not be realistic in most markets but what I look for. Even then, I know that my margins would be tight and as such I would want to know that my rents had the possibility of approaching $800 in the short term thus driving my exit strategy.

If I were you I would concentrate on two things that will help you arrive at your answer:

1. How will you manage this project. If your plan is to keep the resident manager and use a property manager then I can almost guarantee that there is no cash flow in this deal. With only 8 units and your numbers, you simply can't afford a property manager and resident manager. Do you manage your own portfolio? Are you good at it? Have you managed section 8 D class tenants? Believe me that this is a tenant class that property managers do not exceed in. 

2. What is your exit strategy? Buy and hold for cash flow? When your utility bills start coming in and your water bill eats your cash flow month after month you will see how this strategy is doomed. Whats left after carrying your debt? Maybe $800? In an old building this will get eaten alive every month by capex. Simply not enough margin to carry an old decaying assets and tenants that don't care. You can spend $10k per door and fix up the complex but that will likely drive your basis to a point that chokes off your exit. 

Now if you had a cluster of similar assets in the neighborhood and a proven management system that is a bit of a different story. If the complex doesn't have any specific redeeming features that will help you drive rents than your competitive advantage needs to be YOU. If your plan is to buy it and hand it over to a PM then I would strongly recommend looking towards a different asset class and project.

Originally posted by @Ben Leybovich:

First, all of us get the junk that @Brian Burke takes a pass on. Secondly - if it's the last thing I do, I will find my way to Brian Burke's door eventually. I've been fortunate that as I've grown, both as a person and an investor, there have always been role models and mentors along the way. Brian Burke has impacted my thinking in very dramatic ways, Serge - you are benefiting from a lot of this as you and I talk almost every day. Burke, in my opinion, is a visionary in his sport - I am watching him hit targets that most people don't even see or know of their existence... 

Yes, it's true - I am struggling in my marketplace. Yes - I do think the essence of the marketplace is at least somewhat at fault. And yes - I am sure that my capacity to "see" is not where it needs to be...yet. And yes - I know what I want, and it has to be better than anything I've done before - My time will come :)

 True indeed. I have learned a lot analyzing larger deals with you guys and I do not take that for granted. As Ben knows, I recently underwrote a 40 unit that looked like a home run at first glance. I was able to look at it from a completely alternative view and walked on the deal which surely would have been a disaster. 

Originally posted by @Brian Burke:

@Ben Leybovich I never say publically that you make no sense, I only tell you that directly.  But, now that you've told everyone....  LOL. 

@Serge S. brings up a couple of good points.  First being Ben showing up on @Mark Neiger's doorstep...I've had nightmares about that happening to me, and he's asking for it!!!  Second good point from Serge is that Ben's underwriting dictates something that does not exist today...I've got to disagree with you on this one Serge.  Ben's underwriting is a simplified version of my own.  He also thinks that it doesn't work today and swore that I wouldn't find a property to buy.  But I'm buying almost 300 units using my underwriting right now so I'd argue that it isn't Ben's underwriting, but that this is a difficult market to interpret and he hasn't figured out how to read it yet.  His pessimism is getting the best of him!  I suppose that in his market it's warranted though so I can't fault him for it.

 I know it works for you Brian. The difference between you and Ben though is that you have deal flow and credibility. Ben has loopnet and a blog:) The deals that come along your desk are not the deals that I see (as you can attest to). I get the junk that you passed over. 

Well @Mark Neiger nobody will be able to feed you the right answer unfortunately. @Ben Leybovich just chewed me out claiming I hung him out to dry:) For full disclosure, Ben is a genius ... not necessarily a RE investor anymore but a genius. There, you happy Ben?

In all seriousness Mark, my advice is simple. Avoid C and D class. Avoid sub $500 rents.  I've been there, done it and had success. The key to my success? Buy at .10 on the dollar and sell at .90 at the dollar. Honestly, there is just about no real long term cash flow there. 

Many will argue and say I'm wrong but this game is ultimately about building wealth. You do that through accumulating and improving quality not by buying a spreadsheet cap rate and short term cash flow.

Look for quality. Start with the tenant. Define the tenant you want. They should be stable and WANT not need but want to live in your building. Ask your self why they would want to live in your building. The answer should not be because you have the lowest price. It should be because you have something that your competition doesn't. This is your competitive advantage. If you have no competitive advantage then you have no deal. Simple as that. These deals do exist today. They are much harder to find.

Finally, don't get down that brokers are not taking you seriously. In all honesty, the 5-20 unit asset class rarely is sold by the big MF broker players. Not worth their time as @Joel Owens will attest to. You really are in a pretty even playing field here. Focus on quality assets that have been mismanaged that have upsides in rents through strategic capex rather than the highest cap rate or GRM. Cap rate is really a useless measure as is GRM. I want to know what my cap rate will be in 5 years once I have completed my value add. This will give me an idea of my exit strategy and the equity I am adding to my balance sheet. I will be glad to buy a quality building with a real market competitive advantage at low cap rates.

HaHa @Mark Neiger be careful what you wish for. You will have the whole Leybovich clan at your doorstep before you know it. Ben will be at your front door playing the violin and trying to sell you a $295 course. 

Don't get too discouraged. Yes its a difficult time to source multifamily. Yes its better to have cash in the account than a bad deal. If you have experience in SFR and some success analyzing those deals then use what you have learned on small multifamily. Its not all that different until you get into the larger projects where city and metro macroeconomics make all the difference.

Also be careful who you listen to. I can pretty much guarantee you that any deal you show @Ben Leybovich he will turn up his nose and say its not worth it. His underwriting dictates something that generally does not exist today. I purchased a 56 unit multifamily a year ago and Ben's advice at the time was that I was overpaying and crazy to consider self managing such a project. I purchased anyway and have been able to create significant cash flow and equity. Doesn't mean Ben is an idiot but just because it doesn't work for him doesn't mean it can't work for you. 

Richard Dunlop is that covered under Obamacare? I think this is a pre-existing condition is it not? In all honesty I hate this kind of junk. There will be no less than 2-3 thefts during the remodel. The neighboring renters always seem to have a radar for vacant property. I have two homes left in this neighborhood and they have vandalism literally the day of move out. I'll be selling to the fresh faced investor as soon as I can. You know that investor - the one that will brag to his friends that he just baught a 25% TOI property.

Yeah @Ben Leybovich I keep my addiction to myself:) Actually its not so bad. Roof and HVAC look ok and the fire was small and contained to the front room. I'm not going to mess with that remodel. Passed along the deal to an associate investor with a phone call, made my $1000 "wholesale" fee and moved on to the next. So I guess wholesaling isn't dead:) Its a $70k ARV so there is still some room. I thought that sign on the front was classic 1-800 DISASTER. Might as well say hey Schmuck, you just bought a PIG.