All Forum Posts by: Zachary Schneider

Ah, that's definitely a side of things that I had failed to consider! I think you're probably correct in your assessment of how changing interest rates and availability of credit could impact rental rates in different market conditions. Thanks for sharing your perspective! I'l have to keep studying as I prepare to pick up my first rental property, because a sound understanding of how changing markets can impact my investments in the long term.

Can you recommend any good, digestible books on economics? I'd like to dig a bit deeper into the meat of it, because I clearly still have a lot to learn on that front.

In trying to understand the relationship between rental demand and the real estate market, I would make the following assumption:

So, I would expect that rental rates will somewhat decline during the coming transition, and slowly increase as we come out the other side.

As for why we may have seen a different trend in 2008, I can only speculate. I still have a lot to learn, after all! If your statement is true, I would guess that the severity of that collapse shook the faith in homeownership, keeping rental demand high even as property values plummeted. Of course, if that is what happened, then maybe the same trend would hold true in other periods of decline?

If anybody else can shed some light on this, it would definitely be appreciated! I want to understand this fully, without having to rely on speculation or assumption.

Congrats, Dan, and good luck! You picked a great time to start getting serious about real estate investing, because 2017 is looking to be a "wind down" of our extremely hot real estate market. If previous trends hold true, then as our market loses the rest of its momentum, we can reasonably expect to see a good 3-5 years of downturn, which presents a great opportunity for prepared investors.

As for your question about finding suitable properties: I'd love to try to help! Just keep in mind that I'm pretty new to this game, myself, so don't take what I have to say as the final word on the subject. :)

Generally speaking, most great investment deals don't come from the MLS, and here's why: most MLS properties are tailored towards consumers, not investors.

Consumers decide what they are willing to pay based on what the emotional value of that property for them. They see their kids growing up there, they see weekends with friends and family, they see cute lil' puppers running around the yard, romantic evenings in, etc, etc. All that makes them willing to pay more, because they want to make those fantasies a reality. It's not just a house, it's a home.

Investors, on the other hand, purchase properties based on what they can afford to pay, as dictated by the actual calculated margins of that property's expected cashflow. Once you have learned the right numbers to crunch to "guarantee" a great deal, you will be able to analyze any given property and calculate exactly what number you need to beat in order to meet your cashflow goal. If you can't purchase the property for less than that, then it's a bad investment.

Given the differing perspectives of consumers versus investors, most properties on the open market tend to be poor deals for investors. That's not to say that good deals can't be found, of course! You'll just have to be more creative and more determined, and you'll definitely have to accept that the vast majority of offers you write will be rejected.

Again, take what I'm about to say with a reasonable degree of allowance for my own inexperience on this subject, but if you are searching for deals on the MLS I would recommend seeking out older listings that haven't seen much action. Finding those homes that have been on the market for six months and/or have had multiple deals falls through might be the ticket to finding a highly motivated seller. Whether they simply can't afford to hold on to that house any longer, or don't have the time to keep waiting around for their fantasy offer, these sellers might be more willing to take a "lowball" offer just to get a done deal.

Other venues include FSBO's, auctions, private sales from other investors (network!), and even good old fashioned canvassing. Knock on doors, make calls, drop mailers, etc.

Just, whatever you do, don't forget that you are an investor! All of our offers need to be based on what your calculations show the property to actually be worth to you. Hard numbers! And remember that those numbers can (and often should) change. If you inspection reveals that previously unexpected repairs are needed, your counter-offer should reflect that. Likewise, if the property turns out to be in much better shape than you expected, thus making your calculated expenses much too high, you might consider dealing in good faith and raising your offer to reflect that. Of course, that's just my perspective: get a good deal, but also deal fairly.

I hope that this has been at least somewhat helpful for you! Congratulations again on making such a great decision, and good luck in your ventures! If there's ever anything I can do to help, don't hesitate to reach out to me. :)

Should You Renovate and Rent?

The first question you need to answer in regards to renovating the property and converting rental unit is: are the margins there? What is the extent of the needed repairs, and how high are the estimated expenses? Can they be mitigated by taking on some of the work yourself? In the thirteen months since you have stopped taking on tenants, have the rental rates decreased? Have vacancy rates increased? Are there any other new expenses? 

Your original cashflow of $175/month is a relatively thin margin. If you have significant new expenses, and/or if your cashflow potential has decreased, you might find yourself barely in the black -- or even taking a small loss each month!

If you haven't already, you should run the numbers on your property again to determine whether or not you can even afford to make the necessary repairs without turning the property into a loss, and if so, whether you have enough positive cash flow left over to even make it worth the trouble.

At the end of the day, the wisest move might ultimately be to sell your property, even if you have to take a loss on it.

If You Need to Sell

Are you working with a real estate agent on that sale, or have you been listing as FSBO? With a depressed local real estate market, you may need a more aggressive strategy than what has been employed so far. If you're not working with a realtor, I might recommend seeking a local real estate agent or team who knows the market well and has experience selling distressed properties. They may be able to help you put together a plan for marketing your home towards other investors, even. If you are already working with a realtor, it might be time to consider looking for a fresh set of eyes. \

As the poster before me mentioned, you might also be able to sell it at auction, but I'm afraid I don't have enough experience to comment on that either way.

Unfortunately, that's about all the insight I can offer. I'm still pretty new to this game, and lack the experience to speculate about a real estate market I'm not familiar with!

Welcome, Yaniv! I'm a new Saint Louis real estate investor with a similar price range. I'm afraid I can't yet offer much way in the way of specific advice just yet, but I'll shoot you a Colleague invite so I can follow along with your progress. Perhaps we'll be able to bounce some things off each other as we both move forward with our respective goals.

 Oh yes, no doubt! 2016 was a great year for real estate nationwide. I saw much the same (albeit at significantly lower price points) in my market. The average listing was only active for 12 days for our busiest season, and same-day contracts were extremely common. As a newby real estate professional, I'll be sad to see the market shift once our momentum ceases. As an aspiring investor, though, I'm still quite excited to see what opportunities a down market might bring.

I'm digressing from the point a bit, though! I certainly wasn't trying to imply that LA was a bad market, I just means that the extremely high expense of the area meant that it wasn't likely to be indicative of the actual costs of doing business faced by the average investor.

I hope things are going very well for you, though!

At the risk of sounding naive, I want to ask your opinion regarding the best way to build up some firsthand experience in real estate investing. I have read about two dozen books on the subject, and have actively followed discussions, podcasts, and message boards as well, so I am familiar with much of the process and feel confident that I could navigate the basics if push came to shove. Just the same, I'm wary of going solo on a deal before having developed any firsthand experience!

Do you reckon that there are investors out there who would be willing to let me shadow them through the purchase and rehab of one of their new investments in exchange for a bit of sweat equity, or even a nominal cash investment to show that I'm serious? I want to see how an experienced investor navigates this process, and most importantly, to see how they deal with some of the unexpected challenges that I am sure to encounter.

If you think this pretty reasonable, then how might you suggest I go about making this kind of pitch, and what would be the best way for me to cold-approach potential "targets," assuming that nobody in my personal SOI is keen on it?

 Keeping in mind, of course, the LA is the most inflated real estate market in the country. There are countless others throughout the US that are much more affordable and have better margins. While $100k may be just enough to get started in Los Angeles, that same amount of money could potentially leverage half a dozen solid cashflow properties out here in Saint Louis.

I have a lot of respect for Grant, and his advice was quite helpful in putting my own financial house in order, but I'm not sure that I agree with his perspective regarding investment properties. Now, I haven't read all of his work, so I may be totally misunderstanding his point, but based on what I am familiar with it seems that he recommends purchasing investment properties outright with a full cash payment.

It's not necessarily a *bad* strategy, but it totally dismisses one of the most powerful tools in an investors' arsenal: leverage. For $100k, I could buy one property outright, or I could leverage five. Would maximizing the cashflow of a single property really outpace that brought in by five? Generally speaking, I would think not.

As far as actually waiting to invest until you have $100k in liquid cash, assuming that's what he meant? Well, talk about wasted time! At my current income, it'd take me ten years or more of subsistence living to even approach that! In all that time, squirreling away my excess cash in a savings account, I could have instead put that money to work for me!

Having some emergency funds is a great idea (I try to maintain six months of expenses at all times), but $100k seems incredibly excessive for the average family in the average market.

 No, definitely not! There are some advantages to having your real estate license as an investor, but many highly successful ones don't (including Brandon Turner, who wrote "The Book on Rental Property Investing").

The main benefits of having your license are that you can browse the MLS for great deals yourself, in representing yourself you can cut out many of the delays you might experience using a middleman, you can "pay yourself" when buying properties by collecting your share of agent commission, etc. Definitely some nice perks, but nothing crucial.

If you don't get your license yourself, there are almost certainly local realtors with experience in real estate investing who could help steer you right. Check out a local REI group on Meetup.com or a similar website and attend a meeting. Speak with the local pros and they can most likely point you in the right direction on finding a great agent.

 That's a big question with a lot of different answers depending on a wide variety of factors! Which is to say, "it depends!"

Personally speaking, if I had $50,000 in my bank account, the first thing I was do is tear up a little and pump a celebratory fist skyward. I've never broken $10k I'm sorry to say! But hey, young guy who is only just getting started. As far as my personal investment plan goes? Well, assuming I didn't have the expertise or education to make the best decision for myself yet, I would temporarily set that aside in a growth account and take the time to learn! 

I'd start with a few books (I recommended four above) to help build a solid foundational knowledge of the skills and information I needed to succeed, and then I'd attend some local real estate investment groups (you can find them on Meetup.com usually) to network a bit, and speak with other folks who knew my area very well and were active in investing in it, so that I could get an idea of the locations and properties I should be investigating, and also to get some recommendations for a great local realtor with considerable experience in investment deals!

At this point, I would have to consider how I want to use that $50,000. Do I put it all into one property to minimize the amount I need to finance, thus maximizing my cashflow? Do I divide it between several properties? It will take some thought and some research! Once I have a good idea of how I want to use the money, what kind of properties I want to invest in, and the general areas I'm looking to find those properties, I would contact the most highly recommended realtor my new local investor friends could suggest.

Upon sharing my search criteria with him or her, my realtor could then pass along several relevant properties for me to consider. Using the skills I learned in analyzing properties and cashflow from the books I read (again, posted above), I could determine which of those properties had the most potential and investigate further, and possibly even submit a couple of offers on the properties that had the greatest estimated cashflow! I would of course keep in mind that I am looking for great deals, which generally means I might have to be willing to make some "lowball" offers, and that many of them will probably be rejected.

Once I do find that good looking deal and have my offer accepted, however, I'm still not quite out of the woods! It's time to do all my due dilligence into the property. I would have very thorough inspections performed to get the best possible overview of the property and what kind of condition it is in, and use those results to help more accurately estimate the financials of the property. If my projected cashflow statement still looks good, even after be able to factor in the short and long term costs of upkeep, I can pull the trigger! Hurray!

It's all about a dedication to self-education, careful planning, and thorough analysis. I can't tell you specifically what your investment plans are or should be, nor could I tell which properties or neighborhoods are most promising in your area. As a beginner myself, and one not familiar with your market, about the best I can do is point you to some of the resources I've used to help me gain the information, confidence, and skillsets needed to succeed in real estate investing. So, please, take your time with that money! Don't drop it on a deal just for the sake of forward momentum unless you're armed with the knowledge that you need to ensure it is a good deal! 

Good luck!