All Forum Posts by: Stuart Udis

No I don't have access to unlimited amounts of cash to invest like you may think but I was fortunate to work as an asset manager and then as an attorney for two organizations where I was surrounded by some of the most briliant real estate finance minds and learned real estate finance on an extremely high level. I made decent money for someone my age at both stops but I started buying $100K homes like most and from there built $350K duplexes and over time built a track record, formed banking relationships and continued to scale into more complexed and larger projects but it was the foundation that I learnd at those first two stops that greatly influenced the trajectory of my career.

Ironically its the equity you seem to think is chasing me that's actually my achilles heel. I operate in a space that's too small for true equity outside of friends and family and those relationships don't grow on trees so I make due with the relationships I have (which are comparable to most) and rely on my financing fundamentals and my knoweldge of zoning and land use to create imputed equity to compensate. Very different than the picture you tried to paint of me. 

You do not need my background to apply the same approach of focusing on quality over quantity. Instead of accumulating a bunch of doors in crappy neighborhooods, buy fewer quality properties. Perhaps you can't BRRRR every deal and perhaps the spreadsheet cashflow isn't as strong but market fundamentals win out and layer onto the market fundamentals easier absorption of cap ex and operational expenses and real estate is not the rocket science most make it out to be. Most real estate investors work harder not smarter and this applies to owning in lower tier neighbohroods that lack the fundamentals more than any other property type.

Do you have a $9M loan on a $10M building that's appreciating 2% a year or do you have a 100K loan on a $1.1M property that happens to have additonal development potential because of an over sized parcel that has zoning ripe for development. Context matters. I would still take the $1M cash as I can leverage it and make far more than a $1M in equity can afford me.

@Lucas Thomas You completely missed the point of my initial side by side analysis. The lone point I was trying to get across was the disporoprotionate costs of operating real estate in lower tier neighborhoods and used two similar size housing units in the same market in different level neighborhoods to demonstrate this. You still can't seem to grap the concept. There are costs to owning real estate beyond duct tape repairs. Tax prep costs the same, a million dollars of liabilty insurance costs the same within the same market, many costs associated with buying and financing real estate cost the same or pretty darn close to it regardless if its a $150K or $450K house in a given market such as doc prep, appraisal, recording fees etc. Common area utilties don't cost more in an A  vs. C location within the same neighborhood.  You sound like a "I own 10 cap propery investor" translated as:

rent minus insurance, taxes and duct tape repairs =NOI/property value

I don't have to worry about being in a landlord friendly state with the types of real estate I own and how I operate my business. I am not worried about tenants playing games and taking advantage of what you deem tenant friendly laws. It seems like you can only operate in your fashion in certain parts of the country. To each their own, but not a business I care to be in.

@Lucas Thomas 

1. Anyone who relies on the 1% rule needs to be educated 

2. This was a 10 condo ground up project I developed. I sold 7 units and retained the A1,B1 and C1 units. Paid off the construction loan in full and exited my LP investors with the first 7 sales and then took on new low levered debt on the three units I kept. I believe my current loan balance is $915,000 across all three units.  The two similar line units that I sold traded for $480,000 & $490,000 respectively and the neighborhood has appreciated since March/April 2022 when those untis sold. I also retained seven surplus parking spaces that have separate tax ID's. I am preparing to break ground on two townhoms across the street at 22 E Durham and each will recieve two deeded spaces. The remaining three parking spaces will be deeded to the A1, B1, C1 units when I choose to sell and each will get 2 deeded parking spaces. That should push those sales well over $500k.  The 2 line units have roofdecks and sell for about $50K more historically.

3. In Philadelphia there is a tax abatement to incentivize new construction. The legislation has changed but my 23 Durham condo units qualify under the former legislation. My tax bills are under $2k/year per unit. 

4. You are looking at assessed values not  my cost as I explained above.  Almost hitting your arbitrary 1% rule. :)

5. You are just looking at the A1 unit.  I just re-leased the B1 unit after the previous tenant was there since February of 2022. MY C1 unit similarly has been leased by the same tenant since February of 2022 and remains.   Turnover consists of touch up paint and cleaning. In and out, no cap ex because these are 3 year old units.

5. Are you really going to double down on cap ex and operational costs not disproprotionately impacting lower cost real estate? 

6. Are you saying that if you by lousy real estate in non "landlord friendly states" as you put it there's no responsbility to address cap ex or operations? At best you are just putting duct tape on issues. You sound like a wonderful landlord any tenant would love to have...

You can keep chasing your 1% cash flow in crappy neighborhoods with ductape repairs.  I will take quality of life, take pride in ownership in the assets I own and know the  equity I've accumulated can easily convert to cash whenever I want.

The best outcome would be to negotiate with the seller to deliver the building vacant. It's not an easy ask, and is usually best served for instances where the building is in extremely poor condition. In those instances you may take the position that its a liability to assume tenants in such poor conditions. 

Next best thing to do before taking any action is to  carefuly review the existing lease to ensure there's no ambiguity that can be interpretd in the tenants favor. So many leases transition to month to month but elsewhere in the lease still refer to "another term". This is the type of ambiguous language that can be used against the landlord and see it all the time. Also, failing to have all appropriate licenses in place can be used by a savvy tenant to delay lease terminations. Understand the local laws and procedurs and identify ambiguitis in th lease early on. 

 Even without ambiguities, its good practice to have the tenants sign an estoppel certificate confirming key terms to the lease such as rent, renewal terms, deposits that are held etc. You can even use this to clarify ambiguous terms in your favor. 

You personally guarantee business credit just as you do real estate loans so there is no true separation. If you default your credit score is impacted. Using credit to help advance construction so you're not entirely reliant on bank draws is one thing but you should have enough cash to cover the down payment with additional reserves on the sideline. Many use credit cards to fund their down payments which is extremely risky. What happens if the BRRRR can't be refinanced or the property can't be sold? Those teaser rates only last so long and before you know it you're over leveraged and drowning in high interest debt.

@Mark Cruse My position on lower tier real estate has been consistent. The real estate is disproprotionately impacted by expenses requiring a more hands on approach. For this reason its difficult to operate these properties sustainably over a long period of time. It becomes even more difficult to operate these properties when investing on small scale out of state reliant on 3rd party vendors which is how most on BiggerPockets become involved in owning these properties. 

Perhaps your understanding of the community and tenant gives you an upper hand but by your own admision you self manage. This is how you compensate for the disproportionate expenses. Your communication skills and understanding of the community do not take care of cap ex, pay for fixed operational costs etc. You also say its been smooth sailing yet in the same post aknowldged your approach has weared on your mentally which is why you are "upgrading"...presumably to better asset classes. 

The point I've been making all along is you can succeed in these neighborhoods, but its very difficult to do so without being incredibly hands on. You've had success operating these properties but your story is the playbook I've been preaching of how it can be done. Unfortunately its not the playbook most sign up for when they are purchasing these properties believing real estate can be passive (not that any real estate is truly passive, but this asset class in particular is one of the least passive to operate).

@Larry Dutton Yes wholesaling is difficult. Generally businesses with zero barries of entry are dificult because anyone can participate. Liability insurance is intended to protect consumers in th event claims arise involving bodily injuries and property damage resulting from your products, services or operations.  Why is this stupid? Why should you be expempt when just about every other business service provider carries insurance?

@Lucas Thomas Of course your property tax bill will be less becasue property taxes will be based on the assessed value and yes your debt service will be lower because the properties will have smaller mortgages but you are otherwise focused solely on buying cheaper materials. To take the stance "Everything is cheaper in on a low-income rental" is a laughable asssertion.

Here's a 3 Bedroom unit of mine I just listed in a B+ location and another similar sized 3 bedroom unit in a C location in same market. My rental is $2,950/m whereas the C location rental is $1600/m. 

https://www.zillow.com/homedetails/23-E-Durham-St-A1-Philade...

https://www.zillow.com/homedetails/5346-E-Roosevelt-Blvd-Phi...

Rental License Fees are based on unit count, costs the same for my $2,950/m rental as the $1,600/m rental

Required lead testing (when applicable) is charged by room, doesn't matter if its a $2,950/m rental or $1,600/m rental

And to continue.....

Snow removal costs the same, its based on the Sidewalk SF

A million dollars of general liability coverage costs the same 

Extermination services cost the same for similar sizes unit 

When I have to turn over my units, it costs the same to clean and paint the same size unit....actually less in my $2,950/m rental because my tenant's take far better care of the property

When I have a maintnance requsest, it doesn't cost m 2X to have a technician take care of the same task in my rental as the $1,600/m rental.

When my curb trap has to be replaced, it will cost the same etc. etc.

Then onto utilities. Not everything can be sub metered. How do you sub meter common area space in a multi-family building? Also water is rarely submetered in a multi-family unit. You can charge a flat water fee as part in your lease (I do). However water usage rates don't differ neighbohrood to neighborhood. It's the same throughout the city. It's a lot easier install a flat usage fee and collect 100% recapture in my $2,950/m rental than it is in  a $1,600/m rental.  Common electric is a rounding error in my buildings but it has an effect on cash flow if the buuilding consisted of  $1,600/m 3 Beds.

Unless you are onto some new guru scheme and way ahead of us all, please elaborate how everying is cheaper on a low income rental. 

@Mark Cruse As a landlord you can understand the tenant base, you can respect the tenant base, you can be a responsive. This can be met by a tenant who is responsible and respectful of the property where the live. Unfortunately even the perfect landlord and tenant can't solve dilemna of expenses disproportionately impacting lower valued real estate. For illustration purposes take my market, Philadelphia as an example and compare a duplex in North Philadelpiha (c/d neighborhood) to a duplex in Chestnut Hill (A neighborhood). Rental licensing and lead testing requirements cost the same, common utilites cost the same, snow removal costs the same, general libility insurance costs the same, tax prep costs the same and the list goes on. Also, rents may be 3X higher but the leaking sink doesn't cost 3x to repair, when the curb trap has to be repalced, it costs the same and similarly the list goes on. Yes I agree, there are many landlords who are scum and treat their low income tenants poorly but treating your tenants well alone does not translate to sustainably operating these properties. Most who oprate in this space succesfully are extremely hands on or reach scale to achieve efficiencies. Neither of which is the profile of 99.9% of the investors on BiggerPockets who purchase these lower valued property expecting to retire early off of their excel spreadsheet cashflow.