All Forum Posts by: Matthew S.

Hi All,

Thanks for these these thoughts. Let me respond to each:

Russell – I will take a look at these areas you mention. I recently visited Frederick and its such a beautiful little town. That might be a place for me to look for deals to rehab and rent at some point. I generally agree with you about the DC economy. My sense of caution is also based on the world economy, which is so heavily based on debt/fossil fuel consumption and will have another serious downturn at some point; we just don't know when. That's why I don't want to have too much leverage for my dad.

Sean – Good questions. The money should continue for the rest of my dad's life, which will hopefully be at least a couple of decades. However, he is in quite poor physical health for a 60 year old man (very overweight), so I've emphasized to him that this area is even more important than having cashflow. Cashflow doesn't help you if you're 6 feet underground. My dad's financial situation is pretty good: he has a $1,000/mo small mortgage on his primary residence, owns everything else in cash with no other debts/loans, and also has a $10,000/month income from his work that will continue indefinitely as a pension of about $8,000/mo when he retires in two years. So he actually doesn't really need the income from these turnkey investments. But he (and I) think he should invest because otherwise he is wasting the opportunity to be even more secure. My dad does not spend much... he could probably be fine on $3000-4,000 a month in the DC area, including the primary residence mortgage. My dad and I also want to develop a family portfolio that will one day benefit me and my sister, who has serious physical illness challenges and could use an inheritance of income producing properties (but of course I want my dad to live as long as possible, and don't want to inherit right away!). Also... about other investments, no my dad doesn't have many stocks/bonds etc. He and I are very skeptical of the stock market and greatly prefer real estate, for a number of reasons.

Chris – you are right that there are some quads in DC or very nearby. I forgot about that. I think now the DC market is much more inflated price-wise. Philly is a great market and we are going to buy more houses there, but probably through ABC Capital because my dad doesn't want to go and seek out deals there himself.

Alex – good idea re: 50% or less cash out refinances. Somehow I had not thought of this. It does make it a lot less risky. You are right that in the hands of someone who doesn't have other assets or doesn't know what they're doing, inheriting highly leveraged real estate can become a timebomb.

Yes, managing property is a pain a lot of the time. I sometimes get tired even with just the two properties I have here in DC. I am thinking of investing in turnkeys or getting property management myself so that I can be relieved of the burden and just have more time to do what I want.

Lastly, if anyone reading this knows a good Indianapolis turnkey company, please name it here.

Chris, thanks for thinking of this. In Chicago and Philadelphia there are duplexes and triplexes that we will be looking at. I had this thought, that having fewer properties would be simpler.

As for properties 45 mins out from the Beltway, like I asked the other commenters, perhaps you could suggest areas near to DC where quadplexes like this exist? I have never seen a quad in Northern Virginia.

Interesting, Russell, thanks. We primarily looked in the areas surrounding Washington DC by about a 15-20 minute radius, and not surprisingly didn't find much. We are based in Vienna, VA, and McLean, VA for our own properties, so we know Northern Virginia quite well. I did think of outlying suburbs as a possibility, but never followed through. Do you have specific suburbs in mind in MD or VA? I had thought of investigating areas like Quantico, Leesburg, Lorton, etc but never did it. I was a bit worried by how far outside of the city these areas are and whether they would remain rentable and commutable if the government contracts and the local economy worsens.

I'm guessing the areas you have in mind would be at least 45 minutes or so out... as you know, traffic here is a nightmare. But as noted, my dad really doesn't want to manage properties, so investing here would likely involve property management too.

On the other hand, investing in DC is only one more city, and having all his properties here would not be very diversified.

On the other other hand, I am interested in acquiring another local property myself, and would look at outlying suburbs if you have any leads or suggestions. I do manage my own properties, but for various reasons I prefer not to do this for a family member.

Hi All,

I'm a 30-year old man with two rental properties in the Washington, DC area.

As of last year, I've also started helping my father, also based in DC, make real estate investments. He is 60, had about $400,000 of investible cash saved from a long career, and also had just inherited a second home from relatives worth $600,000 approximately. Amazingly, he had been keeping the $400,000 in cash uninvested in the bank for almost a decade, and so after finally finding this out I was eager to help him get some return so that his money won't run out.

My father is quite backward when it comes to using technology (e.g. email, internet), and also somewhat ignorant about real estate and rentals, and so my help in researching and transacting property purchases is crucial. We looked at local properties for him in DC but quickly decided they were too expensive and the returns too low. Then we read about turnkey companies on BiggerPockets and decided we would visit some providers... over the last year we have made in person visits to take tours in Memphis (), Chicago (, ), and Philadelphia ().

We liked each of these companies, none of which I am affiliated with, and my dad decided to make the following investments, which are already done:

House #1 - $145,000, 4 BR/2BA single family house in Memphis through Memphis Invest bought in cash late last year. Rented currently for $1300/mo.

House #2 - $130,000, 3BR/2BA SFH in Dallas through Memphis Invest bought in cash early this year. Rented for $1250/mo.

House #3 - $90,000, 3BR/2BA SFH in Philadelphia through ABC Capital bought in cash; my dad is about to close this deal. It is not yet rented; but projections are it will rent for around $1,000/mo.

I am aware that the first two are retail cost and not the best return one can get through other approaches. However, my dad simply lacks the desire at this point to learn deal-hunting, to renovate and/or manage his own properties, etc. He has other priorities and wants something easy, and turnkey investments yielding about 7-9% returns per year seem to fit the bill. We also are stuck in Washington DC where opportunities for truly good non-turnkey deals are quite limited compared to less expensive cities.

Currently, we have also finished renovating and are selling my dad's inherited 2nd property, which is right now under contract for over $600k; he will get almost all of this money as there is no loan on the property and no other significant taxes on the sale; the property is being sold in a country in Europe with no major estate/inheritance or transfer taxes. My dad will then transfer the money here. We have been wondering what might be a good idea for how to diversify this money into different properties. I have suggested to him the following:

• over the next year, using the 600k cash, buy 2 houses in Chicago, 2 more houses in Philadelphia, and perhaps 1 house in Indianapolis through turnkey companies. I like these markets as they seem to have many houses in the 90-130k price range with decent returns, managed by some pretty decent turnkey companies. I think owning houses in 4-5 major but diverse cities is a good way of diversifying while still remaining within one asset class (do other commenters agree?)

Among other considerations, I've strongly encouraged my father to keep a significant cash reserve and to apply for a HELOC – to be kept as an emergency line of credit, not used, of course. He is doing these things. My dad is a very conservative investor and person, and so I need to keep this in mind when helping him. He also does not live a lavish lifestyle and does not need to profit to the max, so therefore leverage is less attractive to him. Having said this, he does see the advantage of having loans on a limited number of the properties to allow investments in other additional properties.

The biggest question right now is should my father take out loans on some of these houses? Within the next year I expect he'll own 7-8 houses in cash, each worth around or a little over 100k, and each earning about $1000-1300/mo gross rent. I see no reason for him to take too much risk by getting heavily leveraged. Even if he got no loans, he could add another house every year or two just from the returns on the existing houses. My initial suggestion to him was to get conventional loans on two of the houses – this is something he can easily do, as he has very little other debt, and still has a good conventional income. That way if the economy turns bad in one or more of the cities, he will not struggle.

What do others think about the number of loans? I think it is better to be conservative and only have loans on half or less of the properties. But I don't know for sure. We are working on the 75% cash out refinance first loan against the Memphis property right now with SNMC Capital / Team Bighaus () out of Washington State, a company that specializes in making conventional loans to RE investors.

Would appreciate any criticism or suggestion you have of this “lazy” strategy of turnkey investing for my dad... what do you think about the leverage... what about the number / spread of different cities to be invested in... what about other types of real estate or other asset class investments... what about how much money to keep on reserve?

I realize that no one is giving financial advice and the risk is all mine/my dad's. Please just share how you might think if you were in my shoes helping your father. I appreciate any thoughts you have positive or negative.

Thanks,

Matt

Greg, I've already done more with these tenants than most landlords would; we can't all live up to ideal landlord standards.

Matthew, you must be very imaginative indeed. But I highly doubt you'll be getting a call from me to retain you.

Guys, thanks for your advice and time but I'm going to let this thread go at this point. I appreciate all who commented.

Greg,

I think you are misunderstanding the issue slightly.

I have issued formal letters stating that I believe they are in violation of the statutes and asking them to cure the problem if so. They have come back with saying that the 6th person living there is related to two of the others, and have provided valid IDs (and if so, this would indeed be legal and not in violation of our laws). I don't have absolutely proof that what they're saying is false; the mail for the other guy could be for someone who no longer lives there.

At this point, I can't definitively prove that they're lying. To prove anything about who the actual 6th person is who's living there currently, I'd have to set up video surveillance or someone watching the house in the mornings, or make an unannounced visit. Why would I do that with 3 months left on the lease... or why anyway?

It's easy to say what someone else should do; not always so easy in practice.

Fair enough Doug :) But it is not something we are used to here.

Dawn, of course they know; they are probably lying about who is now living in the house, and I cannot absolutely prove what they are doing, so with 3 months left on the lease I am letting it go. In other words, they have recently admitted that 6 people are living there, but have also said that 3 out of 6 tenants are related by blood, which is legal in the county - and provided a new name and ID of a related person I am pretty sure is not actually living at the property, rather than the person whose name was on mail left easily visible on the floor when I visited - even though I'm almost certain this is false. This stuff is hard to prove or disprove. At this point it doesn't matter because no one is being seriously hurt by this situation with a few months left. I have done what I can and frankly I'm not motivated to do anything more with these tenants. I will move on and try to do better at managing future tenants.

To Sue, what repair I was conducting was my own business. But leaving mail lying on the floor right at the entrance of the house with the 6th illegal tenant's name (and the house address in question) written on it, and then more such mail at the entrance to their bedroom, is not the smartest way to conceal their presence from the landlord, let's just say. So it looks like you were SERIOUSLY wrong about my snooping, since it was all left there for anyone to stumble over. It is my job to try to keep the house in line with regulations, although with these tenants, I've just about had enough.

The zoning enforcement Strike TEam must not be living up to their name then, because I know several people in different houses in Northern Virginia whose groups are violating the occupancy regulations. And no, I'm not going to tell the county about those groups; these are my friends who are trying to survive.

And about my situation, I have dealt with it in a way that protects my investment partner and I from liability, and I'm not going to say much more. Whether or not the extra tenant is still there (which I don't know for sure), it is too late now for the "Strike Team" to do anything about it anyway. My partner and I know how to challenge a ruling in court and drag out the process of appeals so that it doesn't affect the current lease. This situation is not our fault anyway.

It does bother me; it's just a question of how bad will the consequences be if I don't do anything. And the answer is, probably not very. And that is why I agree with several people above who suggested letting it go considering the short time left on the lease.

I'm not afraid to manage people. I have managed about 20 different tenants and am usually quite direct and clear about things. It's just that in this case I don't want to deal with the hassle if it's only a few months left on the lease.