All Forum Posts by: Trevor Ewen

@William Collins 

There is a great article on the topic: here.

I have three opinions on the AirBnB market. Granted, I have never personally owned a property in that market, but I stay in many. I also live in an area where it's hotly debated.

1) Choose a location where the regulatory environment is not going to shut you down. Some friends in NYC bought/held two leases on condos to do this, now they don't have that option.

2) Conventional wisdom has suggested that you can't have your cake and eat it, too. If you want a vacation home for yourself, you usually have to buy it for that purpose. If it's for guests, you usually have to buy it for that purpose. The main reason is mindset switch. If it happens to be open a few off weekends of the year, you can obviously stay. But I would run and manage for maximum guest occupancy.

3) AirBnB has become fairly ubiquitous in many areas. As a result, supply has grown, and prices have fallen. We recently got a great place to ourselves in Center City, Philadelphia for $60/night. You want to find a place where demand is high but supply is still small.

@Liz Faircloth 

Last time we were there to do business, met up with @Andresa Guidelli have the experience to move on larger commercial properties, which I have still seen in rough shape in those neighborhoods.

Kensington & Port Richmond would be my targets for re-investment in the near future.

@Ryan Dossey 

Whenever I head to the casino for a weekend gathering, I always decide how much I am willing to spend before I get there.

While I don't encourage anyone here to spend their time at a casino, I think bidding on a property is essentially the same process. What's your max? Can you inch up there? Most importantly, is the max justified by numbers?

@Nathan J. 

I struggle with this question often. 

With stocks and bonds, the answer is easy: always diversify. When it comes to a locality, I think it gets much harder.

I would pivot the decision on whether or not you live/have a close connection with the area. As an out of state investor, I have no more personal claim to Memphis than Atlanta. As a result, I would choose to diversify between the two, giving me the best in remote management.

If I lived/worked in Atlanta, that would give me huge incentive to focus heavily there (I would always max out at 80%). My network would be strong, and growing faster. My ability to move quick on deals would be the same way.

That's my two cents, but I'd be eager to hear what others may say. 

@Alan S. 

@Pavel Reyes Valdes 

I have heard nothing but praise-worthy admiration of Louisville from my hip friends in the city. For instance: check out this video.

I do think that in the next 3-5 years we will see a great migration of Brooklyn-esque types who can no longer afford Brooklyn, and are closing in on their 3rd child. 

While this would not suggest that cap rates or rent/value ratios are in good shape, I would say Louisville is a good bet for young growth, and that often comes with appreciation and rising rent prices.

I don't make decisions based on 'Castles in the Sky' appreciation, but if it's an area I believe will grow vs. something that's stable alone, I go with the growth.

@Nicholas Lisauskas 

Welcome. Always glad to see folks from my home state on the forums.

My first bit of advice depends on what you are planning to do for a career. If you are planning to have office-type/non-REI day job, then you are in a good position to learn, network, earn money, and eventually get started funding your own deals. This is what I do. It's very respectable, and often moves at a reasonable pace, because the money comes from outside of the real estate market.

If, on the other hand, you are planning to work in REI full-time, then you can choose daily practices and occupations that will enable you to learn and be put in front of great deals.

If I was deciding where to start in REI, I would definitely choose property management. If you went this route, you would want to network and learn from local property managers. Ideally you could work for one of them for about a year, before developing some of your own clients in a nearby area (so as not to sour that relationship). As a property manager, you will be in the trenches. You will learn what's good and what's bad: tenant-wise, neighborhood-wise, and rent-value wise. You will usually know early when your owners want to sell, and some will want to sell to you.

Other tracks: Wholesaling (very popular here), Broker Licensing, Contracting, Flipping

@Jason J. 

You struggle with the same problem that everyone in over-priced urban areas seems to. I live in NYC, LA, SF, Boston, Seattle, and DC tend to struggle with the same issues.

I personally have decided to get my money out of NYC, primarily because I can't find numbers that I like. The key to your statement is that you are renting for $1700 / mo but you want to buy a place in the $250 - $400k range. On the good side (250k), monthly rent will be .68% of your purchase price, on the bad (400k) .425%. Granted the monthly rent will fluctuate in there, but both will still hit below 1% of the purchase price.

Some people on the forums have beef with the 1% rule, but you can't beat it as a method for quick evaluation. Basically, I aim for all my rents to be at 1% or greater than the purchase price. If not, the deal better have some major additional upside, but usually I would just walk away.

On the flip side, if you think that LA rents are going up up up, then you may be saving yourself some trouble by locking in a loan at a good interest rate and living in the place for 5-10 years. Needless to say, it always depends on your situation. 

One point of aggravation/benefit of these urban areas is that there is usually a large political contingent attempting to control rents. While I am opposed to this for ideological reasons, as a renter in NYC, it's nice to know that I live and rent on the popular side of this populist argument. I don't think rents in urban areas can inexplicably rise forever, so I am happy to put my money in the midwest, southern New Jersey, or my home city... moreso than NYC. 

At the end of the day I live on the mantra that 'where I live' is consumption, 'where I invest' is where the numbers make sense.

@Michael Chewning 

Welcome.

This is a debate we often have in my home. In short, I believe it's a matter of preference. Here's a good quote from Burton Malkiel's: A Random Walk Down Wall St.:

J.P. Morgan once had a friend who was so worried about his stock holdings that he could not sleep at night. The friend asked, 'What should I do about my stocks?' Morgan replied, 'Sell down to your sleeping point' Every investor must decide the trade-off he or she is willing to make between eating well and sleeping well. High investment rewards can only be achieved at the cost of substantial risk-taking. So what is your sleeping point? Finding the answer to this question is one of the most important investment steps you must take.

When it comes to loans, I believe in the same 'sleeping point.' Depending on your comfort level, it may be 1, 2, 10. 

It may also be good to do an analysis on what properties may be sold for gain, or are just costing too much for what they provide. Getting a loan off the books may be as simple as eliminating the weakest of the 4 properties.

@Matt Good 

I will only buy for cash flow, so if you are considering a flip or appreciation related investment. I would recommend waiting for additional responses.

People have different ideas, but I think when you are doing the work yourself, I would like for a 1.5% - 2% without labor costs (my own labor). In my area, anything that meets 1% is nice, but I imagine Oregon is a little better. I would estimate rents at 90% of the local norm (if your neighbor rents a 3 bedroom for $1200, then you estimate it at $1080, keeps vacancy down). Add in the cost of materials, and make sure to allocate yourself reasonable months where the units are unoccupied (so you are not under the gun to find a tenant in an unsafe/unfinished home). If, at that point, the total rent value of the units is in the 1.5% - 2% range of the all in price, then I think you are aiming in the right direction. Include your own unit as part of this value, as you are creating value for yourself in having somewhere to live. Don't overestimate your own rent. Look at your unit and evaluate what you would be willing to pay * 90%.

Numbers killers: taxes, vacancy, unforeseen specialized labor costs. Don't discredit these things, but make some preparations for them.