Best PM For C-Class?

Member since 2019 · 12 posts · 1 vote

hey All!

Newbie investor here. I've been bitten by the real estate "bug" and love the prospects here in Indy. It's economically diverse, affordable, there is a fair amount of inventory and selection, it's large, the evictions are shorter than many states, etc.

I am looking at properties in the 50k-80k range. That would be considered the C range I believe? (correct me if I'm wrong pls!)

Looking for a great PM.

I will be buying single-family. I am not interested in section 8.

The main things I'm looking for is:

1) They make their money on volume. If they rely on any other method...such as maintenance (marking up materials, labor, etc.), turnover costs, other excessive fees, or other methods to make their money, it will not turn out well for me. I realize there will always be a mark-up, but it cannot be excessive:

-----A) Low average tenant turnover time

-----B) Low average turnover costs

-----C) Clearly documented fee structure

...........I realize that some property managers may have high management fees, as high as 12%. I am okay with that...In fact, I would prefer it! I might be willing to pay even more. A high management fee means they are likely making less on the hidden stuff (maintenance, turnover, hidden fees, etc.). That's what I worry about.

2) Has a stellar reputation

3) The average tenant stays for a long time.

- Great tenant screening

- Doesn't just look for warm bodies. The PM actively looks for tenants that want to be there long-term. Even if it takes a bit longer to find them.

- If the tenant wants to leave, the PM finds out why and fixes that problem.

4) When they get a service call from a tenant, they do over-the-phone troubleshooting before sending someone to inspect/repair the problem.

5) Always uses an unlicensed handyman when possible. Only uses licensed contractors when necessary

6) Cares about their investors and understands them. Realizes the importance of maximizing long-term profit

7) Responds quickly to the needs of tenants and investors.

8) Handles evictions smoothly and quickly

9) The manager is selective. He/she refuses to manage D-class properties

- If the PM would manage a property in a war zone, that's a bad sign. If the PM is desparate for business, there's a reason for that.

10) Has been in business for at least 5 years

11) Experienced with C areas

If I am being unrealistic, please let me know! Hopefully this is not a "mythical" PM.

thanks

Alex Fidelia

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

what your describing C class with no tenant turn over 650 to 750 dollar renters is just an oxymoron and you will soon find that out..

NO pm can do what you describe.. the tenants in those price points don't live the way you want them to live..

as @Jeff Schechter stated a PM would starve without lease fee's mark up s etc..

If I was in the PM business on the low end like your describing I would have a set fee of 150 a month .. its more in line with asset management .. than it is with tenant property management..

Keep in mind your 650 tenant to qualify needs to make 3X rent.. that's less than 2k a month.. take out the rent take out 150 to 200 for utls that lease basically 250 bucks a week to pay for their car their phone.. food cloths , most have kids the dog food etc etc.. these are folks that live pay check to pay check.. so to think your going to get stability in that renter is wishful thinking and or you simply don't know what you don't know..

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Tchaka Owen
Real Estate Agent · Merritt Island, FL · Member since 2017 · 986 posts · 1k+ votes
7y
@Alex Fidelia
1. Class C properties are determined by age, quality, work needed, etc, not by price. In Indy, many C's will fall in that price, however you could potentially get a B or D.
2. What is your reason for not wanting section 8 tenants?
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Alex Fidelia
OP
Member since 2019 · 12 posts · 1 vote
7y
Originally posted by @Tchaka Owen:

@Alex Fidelia
1. Class C properties are determined by age, quality, work needed, etc, not by price. In Indy, many C's will fall in that price, however you could potentially get a B or D.
2. What is your reason for not wanting section 8 tenants?
hey Tchaka,
Those are some great points!
1. That makes sense, but is there an easier, more direct way to measure a property's class...for example by using rental rates?
e.g. C-class may be $600-$750 (I'm just making up numbers here). In theory the rent should be set by the market.
...I realize this will be a ROUGH estimate, but it will at least help me filter out a lot of properties and narrow my focus.
2. I'm not interested in section 8 because:
- You have few options. There is only one property manager in Indy that I know of that is good with C-class section 8. I do not have other options, and the PM knows it. Thus that PM will cost more...its kind of a monopoly. Sure I could start renting to regular tenants but that would cost time and money.
- Section 8 forces you to make repairs on the most minor small things on their annual inspections. Those costs will add up even if my PM charges reasonable rates.
- I heard that tenants often do not pay their portion of the rent
- If the tenant damages the property, there's no money to go after. I realize you can garnish wages but I hardly see that as being worth it unless there is a lot of damage, and wages sometimes are not garnishable
- the tenant has no skin in the game. If most of the rent or security deposit comes from Uncle Sam, why would the tenant take care of the property? They won't -- it's just human nature
- What if section 8 rent is below market rent?
- Even if the tenant takes care of the property, there's another problem. They are not financially responsible people, that's why they are poor. Thus they probably have some history of evictions or paying late rents.
Source: https://www.biggerpockets.com/member-blogs/11099/76035-4-reason-landlords-wont-rent-through-section-8
best
Alex
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Jeff Schechter
Developer · Nashville, TN · Member since 2016 · 484 posts · 406 votes
7y
@Alex Fidelia - What you're describing is the way a good Turnkey operator will run their PM. ANY PM that is not an arm of a turnkey company is not going to survive on just a % of rent, and needs to charge a markup on maintenance. Many of them look for ways to increase the amount of maintenance necessary to increase their profits. This is especially true when tenants turn over. We've learned this from first hand experience.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
what your describing C class with no tenant turn over 650 to 750 dollar renters is just an oxymoron and you will soon find that out..
NO pm can do what you describe.. the tenants in those price points don't live the way you want them to live..
as @Jeff Schechter stated a PM would starve without lease fee's mark up s etc..
If I was in the PM business on the low end like your describing I would have a set fee of 150 a month .. its more in line with asset management .. than it is with tenant property management..
Keep in mind your 650 tenant to qualify needs to make 3X rent.. that's less than 2k a month.. take out the rent take out 150 to 200 for utls that lease basically 250 bucks a week to pay for their car their phone.. food cloths , most have kids the dog food etc etc.. these are folks that live pay check to pay check.. so to think your going to get stability in that renter is wishful thinking and or you simply don't know what you don't know..
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James Wise
Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
7y
Originally posted by @Alex Fidelia:

hey All!
Newbie investor here. I've been bitten by the real estate "bug" and love the prospects here in Indy. It's economically diverse, affordable, there is a fair amount of inventory and selection, it's large, the evictions are shorter than many states, etc.
I am looking at properties in the 50k-80k range. That would be considered the C range I believe? (correct me if I'm wrong pls!)
Looking for a great PM.
I will be buying single-family. I am not interested in section 8.
The main things I'm looking for is:
1) They make their money on volume. If they rely on any other method...such as maintenance (marking up materials, labor, etc.), turnover costs, other excessive fees, or other methods to make their money, it will not turn out well for me. I realize there will always be a mark-up, but it cannot be excessive:
-----A) Low average tenant turnover time
-----B) Low average turnover costs
-----C) Clearly documented fee structure
...........I realize that some property managers may have high management fees, as high as 12%. I am okay with that...In fact, I would prefer it! I might be willing to pay even more. A high management fee means they are likely making less on the hidden stuff (maintenance, turnover, hidden fees, etc.). That's what I worry about.
2) Has a stellar reputation
3) The average tenant stays for a long time.
- Great tenant screening
- Doesn't just look for warm bodies. The PM actively looks for tenants that want to be there long-term. Even if it takes a bit longer to find them.
- If the tenant wants to leave, the PM finds out why and fixes that problem.
4) When they get a service call from a tenant, they do over-the-phone troubleshooting before sending someone to inspect/repair the problem.
5) Always uses an unlicensed handyman when possible. Only uses licensed contractors when necessary
6) Cares about their investors and understands them. Realizes the importance of maximizing long-term profit
7) Responds quickly to the needs of tenants and investors.
8) Handles evictions smoothly and quickly
9) The manager is selective. He/she refuses to manage D-class properties
- If the PM would manage a property in a war zone, that's a bad sign. If the PM is desparate for business, there's a reason for that.
10) Has been in business for at least 5 years
11) Experienced with C areas
If I am being unrealistic, please let me know! Hopefully this is not a "mythical" PM.
thanks
Alex Fidelia
Yea some unrealistic expectations in here man. For example
1) They make their money on volume. If they rely on any other method...such as maintenance (marking up materials, labor, etc.), turnover costs
You want folks to work for free my man? Doesn't work that way. Assume that any product or service you buy from anyone anywhere is a profit generator for said company. Otherwise why go to work?
1 Reply
Alex Fidelia
OP
Member since 2019 · 12 posts · 1 vote
7y
@Jeff Schechter @Jay Hinrichs @James Wise @Tchaka Owen
hey All,
Thanks for you candid replies, that's very helpful! So here is what I am learning...A PM needs to make money from at least one of 3 Profit Centers (I'll call them Poisons, haha):
Poison A) a lot of turnover, but low maintenance mark-up
or
Poison B) high maintenance mark-up, but low turnover
or
Poison C) hidden fees
Let's compare 2 scenarios:
Scenario I) You buy a C class property 10% below market value
Scenario II) You buy a B class property 10% below market value
Here's my hypothesis: buying B-class (scenario II) gives you the greater likelihood of long term success because your cash flow is less dependent on your PM.
Here is my logic:
1) PM's will almost always make money on maintenance, turnover, or hidden fees (the 3 poisons). Avoid the ones with hidden fees. This leaves maintenance and turnover.
2) In Scenario I (C-class), there is statistically MORE maintenance and turnover. Thus, the PM has more opportunities to make money and thus gets a BIGGER slice of the pie. As a result, your expenses (and thus your cash flow) is MORE dependent on your PM.
3) In Scenario II (B-class), there is statistically LESS maintenance and turnover. Thus, the PM has fewer opportunities to make money and thus gets a SMALLER slice of the pie. As a result, your expenses (and thus your cash flow) is LESS dependent on your PM.
4) You may find that a PM will cost you much less than the others on maintenance and turnover. But in general, this will not last (and constantly changing PM's has its own time/stress/money costs). The PM will eventually find ways to increase their profit through either maintenance or turnover. They are a business after all and will try to maximize profit.
5) Thus, to maximize your cash flow, you must be less dependent on your PM
6) Thus, scenario II (buying B-class) should lead to more cash flow over the long term.
* Yes these are general statements. But assuming all else is equal....in theory....B class should be better
** This is not to say you should get a crappy PM. You still need to screen them heavily. But realize that they WILL make money on the 3 poisons.
Does that sound accurate?
But wait a minute...I think there is one flaw in my reasoning: C class properties typically have higher cash flow after factoring in the higher maintenance
...So maybe the higher cash flow in C class properties offsets the higher management cost?
Now I'm confused again... :(
thanks
Alex
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
Buy one of each and see how it works out for you.
you seem to be under the illusion that the PM controls the deal.. when in fact the PM is not there hand holding the tenant they make the best decisions based on experience to put a tenant in your unit.. but they are not babysitters.
@James Wise has some great content and videos I would check those out.. he uses the term savage a lot.. and that is for darn sure in the C D class ..
PM's no matter who they are, are not miracle workers and you seem to be missing the point a PM would much rather not have a ton of turn over even though there is a charge for it.. there is over head and time to do that work. It does not just happen by osmosis..
Its why large PM's that I know that ONLY manage A B class 50 units and up.. they only charge 4% and you have a live in on site manger that is fee based. A buddy of mine here in Oregon has over 8 thousand units.. However not near the drama his job is to mange the onsite managers.. I like that model.. :)
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
Also when you say C class has better returns than B or A that's only on blue sky proforma's you wont know until you buy one of each and keep them for 5 years then compare.. and its all about IRR not first months cash flow.
does you no good to buy C class that when you go to sell it its all beat up and you have to spend multi thousands updating it and it never went up in value.. you will actually lose money..
Of course many say they will never sell .. but that's another fallacy and pipe dream real estate on average turns over every 7 to 8 years.. unless your a local and its your sole business.
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Alex Fidelia
OP
Member since 2019 · 12 posts · 1 vote
7y
Originally posted by @Jay Hinrichs:
Buy one of each and see how it works out for you.
@James Wise has some great content and videos I would check those out.. he uses the term savage a lot.. and that is for darn sure in the C D class ..
hey Jay,
Appreciate the lightning fast response!
That sure is a great model, I agree! That is definitely my eventual goal once I have more capital.
Sorry, let me clarify my position on PM's....
I don't think the PM controls the deal, I was just trying to figure out how to optimize my strategy by isolating the PM factor.
The way I see it, it is the investor's job to buy right and pick the right team. If I don't do that right, I am the only one to blame for poor returns.
But If I buy right and buy in a nicer area, I minimize the effect the PM can have on my expenses. I realize that a flat-out bad PM can ruin your cash flow even in an A-class property. So you have to pick a pretty good one. But you don't have to find that 1% diamond-in-the-rough PM (which will be fleeting) if you buy in a good area.
Does that logic make sense?
But I still don't understand. If the PM profits from turn over, wouldn't he/she be willing to spend the overhead costs and time?
I'm still confused on whether I should buy B-class or C-class...I feel like I'm in analysis paralysis here....lol....
Is it better to buy B or C, given the PM's here in Indy? Are the B class PM's better than the C-class PM's or vice-versa? Maybe that would help me decide?
Am I still barking up the wrong tree?
thanks
Alex
0 Reply
Alex Fidelia
OP
Member since 2019 · 12 posts · 1 vote
7y
Originally posted by @Jay Hinrichs:
Also when you say C class has better returns than B or A that's only on blue sky proforma's you wont know until you buy one of each and keep them for 5 years then compare.. and its all about IRR not first months cash flow.
does you no good to buy C class that when you go to sell it its all beat up and you have to spend multi thousands updating it and it never went up in value.. you will actually lose money..
Of course many say they will never sell .. but that's another fallacy and pipe dream real estate on average turns over every 7 to 8 years.. unless your a local and its your sole business.
hey Jay,
Yeah I agree the proformas cannot be trusted. I am not going by proformas though, I am going by talking to other investors that own property.
....So are you saying that I may be better off buying a B class property because at has a higher likelihood of appreciation so that if I do sell it, I am less likely to lose money?
Are C properties sold by investors more often than B properties? With the higher maintenance, turnover and headache factor, I could imagine that being the case. It certainly makes sense to buy something you are less likely to sell someday.
thanks
Alex
0 Reply
James Wise
Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
7y
Originally posted by @Alex Fidelia:
Originally posted by @Jay Hinrichs:
Buy one of each and see how it works out for you.
@James Wise has some great content and videos I would check those out.. he uses the term savage a lot.. and that is for darn sure in the C D class ..
hey Jay,
Appreciate the lightning fast response!
That sure is a great model, I agree! That is definitely my eventual goal once I have more capital.
Sorry, let me clarify my position on PM's....
I don't think the PM controls the deal, I was just trying to figure out how to optimize my strategy by isolating the PM factor.
The way I see it, it is the investor's job to buy right and pick the right team. If I don't do that right, I am the only one to blame for poor returns.
But If I buy right and buy in a nicer area, I minimize the effect the PM can have on my expenses. I realize that a flat-out bad PM can ruin your cash flow even in an A-class property. So you have to pick a pretty good one. But you don't have to find that 1% diamond-in-the-rough PM (which will be fleeting) if you buy in a good area.
Does that logic make sense?
But I still don't understand. If the PM profits from turn over, wouldn't he/she be willing to spend the overhead costs and time?
I'm still confused on whether I should buy B-class or C-class...I feel like I'm in analysis paralysis here....lol....
Is it better to buy B or C, given the PM's here in Indy? Are the B class PM's better than the C-class PM's or vice-versa? Maybe that would help me decide?
Am I still barking up the wrong tree?
thanks
Alex
You seem to have this odd mental block that you & the Property Manager are working against one another or that the Property Manager is looking at your portfolio & trying to figure out ways to trick you out of $30 her or there, lol. You aren't going to get anywhere in this business with this thought process.
The skinny of it is this. There is work that needs to be done. Doesn't matter which way you slice it, managing a property takes work. The lower the asset class the higher the workload. Either you need to do the work or you need to pay someone to do the work. If you are paying someone to do the work expect them to have a price model that covers their overhead along with a profit. Pretty simple stuff dude. Don't know what Poisons or hidden fees are. Any management contract I have ever read pretty clearly points out the things that you are going to be charged for. Again you can either do the work or every time work is needed you can pay someone else to do the work.
3 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
Originally posted by @Alex Fidelia:

Originally posted by @Jay Hinrichs:

Buy one of each and see how it works out for you.
@James Wise has some great content and videos I would check those out.. he uses the term savage a lot.. and that is for darn sure in the C D class ..
hey Jay,
Appreciate the lightning fast response!
That sure is a great model, I agree! That is definitely my eventual goal once I have more capital.
Sorry, let me clarify my position on PM's....
I don't think the PM controls the deal, I was just trying to figure out how to optimize my strategy by isolating the PM factor.
The way I see it, it is the investor's job to buy right and pick the right team. If I don't do that right, I am the only one to blame for poor returns.
But If I buy right and buy in a nicer area, I minimize the effect the PM can have on my expenses. I realize that a flat-out bad PM can ruin your cash flow even in an A-class property. So you have to pick a pretty good one. But you don't have to find that 1% diamond-in-the-rough PM (which will be fleeting) if you buy in a good area.
Does that logic make sense?
But I still don't understand. If the PM profits from turn over, wouldn't he/she be willing to spend the overhead costs and time?
I'm still confused on whether I should buy B-class or C-class...I feel like I'm in analysis paralysis here....lol....
Is it better to buy B or C, given the PM's here in Indy? Are the B class PM's better than the C-class PM's or vice-versa? Maybe that would help me decide?
Am I still barking up the wrong tree?
thanks
Alex
Memphis invest is one of the top turn key providers in the country and has a monster PM business something like 3k SFRs and what do they do.. they write 2 to 3 year leases.. No section 8 that I know of.. So no their goal is to maximize their investors returns.. not churn the accounts and trying to get turn over and lease fee's.. I understand why you would think that and maybe some PM's do that .. but the fact remains C class tenants are tough on properties your going to have constant maintenance calls etc.. believe me I at one time owned 350 doors of C class in 4 markets.. for me the one of the happiest days of my life was when my partner at the time bought me out.. Not only a nice liquidity even for me.. but no more dealing with constant tenant drama.. and our partners were the PM's even with the PM with a ownership interest in each door its was still a challenge and more drama that I personally wanted to deal with.. of course I have many other avenues in real estate to generate cash flow or spendable cash .. being in the business as a RE broker an NMLS licensed mortgage banker and a licensed developer LOL so 3 income streams for me personally.
So if you do go into landlording you may want to hold out for 2 and 3 year leases then prey the folks don't break the leases early.
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0 Reply
James Wise
Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
7y
Originally posted by @Jay Hinrichs:
Originally posted by @Alex Fidelia:

Originally posted by @Jay Hinrichs:

Buy one of each and see how it works out for you.
@James Wise has some great content and videos I would check those out.. he uses the term savage a lot.. and that is for darn sure in the C D class ..
hey Jay,
Appreciate the lightning fast response!
That sure is a great model, I agree! That is definitely my eventual goal once I have more capital.
Sorry, let me clarify my position on PM's....
I don't think the PM controls the deal, I was just trying to figure out how to optimize my strategy by isolating the PM factor.
The way I see it, it is the investor's job to buy right and pick the right team. If I don't do that right, I am the only one to blame for poor returns.
But If I buy right and buy in a nicer area, I minimize the effect the PM can have on my expenses. I realize that a flat-out bad PM can ruin your cash flow even in an A-class property. So you have to pick a pretty good one. But you don't have to find that 1% diamond-in-the-rough PM (which will be fleeting) if you buy in a good area.
Does that logic make sense?
But I still don't understand. If the PM profits from turn over, wouldn't he/she be willing to spend the overhead costs and time?
I'm still confused on whether I should buy B-class or C-class...I feel like I'm in analysis paralysis here....lol....
Is it better to buy B or C, given the PM's here in Indy? Are the B class PM's better than the C-class PM's or vice-versa? Maybe that would help me decide?
Am I still barking up the wrong tree?
thanks
Alex
Memphis invest is one of the top turn key providers in the country and has a monster PM business something like 3k SFRs and what do they do.. they write 2 to 3 year leases.. No section 8 that I know of.. So no their goal is to maximize their investors returns.. not churn the accounts and trying to get turn over and lease fee's.. I understand why you would think that and maybe some PM's do that .. but the fact remains C class tenants are tough on properties your going to have constant maintenance calls etc.. believe me I at one time owned 350 doors of C class in 4 markets.. for me the one of the happiest days of my life was when my partner at the time bought me out.. Not only a nice liquidity even for me.. but no more dealing with constant tenant drama.. and our partners were the PM's even with the PM with a ownership interest in each door its was still a challenge and more drama that I personally wanted to deal with.. of course I have many other avenues in real estate to generate cash flow or spendable cash .. being in the business as a RE broker an NMLS licensed mortgage banker and a licensed developer LOL so 3 income streams for me personally.
So if you do go into landlording you may want to hold out for 2 and 3 year leases then prey the folks don't break the leases early.
Lease length importance is going to hinge on asset class, like basically everything else in this business lol. A 2 or 3 year C-class lease isn't worth much if anything. I argue that it's bad for business as there are more paperwork requirements like consumer guide to agency & agency disclosures that 90% of PM's are not aware of. Fact is that if a C-class tenant wants to break their lease 4 months into a 36/mo lease that paper ain't holding them there & there isn't really anything the landlord can do about it.
2 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
Originally posted by @James Wise:

Originally posted by @Jay Hinrichs:
Originally posted by @Alex Fidelia:

Originally posted by @Jay Hinrichs:

Buy one of each and see how it works out for you.
@James Wise has some great content and videos I would check those out.. he uses the term savage a lot.. and that is for darn sure in the C D class ..
hey Jay,
Appreciate the lightning fast response!
That sure is a great model, I agree! That is definitely my eventual goal once I have more capital.
Sorry, let me clarify my position on PM's....
I don't think the PM controls the deal, I was just trying to figure out how to optimize my strategy by isolating the PM factor.
The way I see it, it is the investor's job to buy right and pick the right team. If I don't do that right, I am the only one to blame for poor returns.
But If I buy right and buy in a nicer area, I minimize the effect the PM can have on my expenses. I realize that a flat-out bad PM can ruin your cash flow even in an A-class property. So you have to pick a pretty good one. But you don't have to find that 1% diamond-in-the-rough PM (which will be fleeting) if you buy in a good area.
Does that logic make sense?
But I still don't understand. If the PM profits from turn over, wouldn't he/she be willing to spend the overhead costs and time?
I'm still confused on whether I should buy B-class or C-class...I feel like I'm in analysis paralysis here....lol....
Is it better to buy B or C, given the PM's here in Indy? Are the B class PM's better than the C-class PM's or vice-versa? Maybe that would help me decide?
Am I still barking up the wrong tree?
thanks
Alex
Memphis invest is one of the top turn key providers in the country and has a monster PM business something like 3k SFRs and what do they do.. they write 2 to 3 year leases.. No section 8 that I know of.. So no their goal is to maximize their investors returns.. not churn the accounts and trying to get turn over and lease fee's.. I understand why you would think that and maybe some PM's do that .. but the fact remains C class tenants are tough on properties your going to have constant maintenance calls etc.. believe me I at one time owned 350 doors of C class in 4 markets.. for me the one of the happiest days of my life was when my partner at the time bought me out.. Not only a nice liquidity even for me.. but no more dealing with constant tenant drama.. and our partners were the PM's even with the PM with a ownership interest in each door its was still a challenge and more drama that I personally wanted to deal with.. of course I have many other avenues in real estate to generate cash flow or spendable cash .. being in the business as a RE broker an NMLS licensed mortgage banker and a licensed developer LOL so 3 income streams for me personally.
So if you do go into landlording you may want to hold out for 2 and 3 year leases then prey the folks don't break the leases early.
A 2 or 3 year C class lease isn't worth much if anything. I argue that it's bad for business as there are more paperwork requirements like consumer guide to agency & agency disclosures that 90% of PM's are not aware of. Fact is that if a C-class tenant wants to break their lease 4 months into a 36/mo lease that paper ain't holding them there & there isn't really anything the landlord can do about it.
no argument from me.. Memphis left the C class space years ago.. but that is their model.. And I suspect Clayton M in b ham does this as well. But that's my point a 600 to 750 renters regardless of the classification of the asset A B C D F are just not the most stable of folks.
ONe thing I always notice when I did go through our portfolio when I tagged along for a hud inspection or whatever if I happened to be in the market.. is that most of these tenants have very few possessions.. IE big screen maybe a table and chair a couch bed on the floor cloths in the corner on the floor etc.. for them to move is not the agonizing ordeal that many of us associate with moving.. they can pick and go in a matter of hours.. we don't think of that as investors especially well established investors with lots of stuff..
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James Wise
Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
7y
Originally posted by @Jay Hinrichs:

Originally posted by @James Wise:
Originally posted by @Jay Hinrichs:

Originally posted by @Alex Fidelia:
Originally posted by @Jay Hinrichs:
Buy one of each and see how it works out for you.
@James Wise has some great content and videos I would check those out.. he uses the term savage a lot.. and that is for darn sure in the C D class ..
hey Jay,
Appreciate the lightning fast response!
That sure is a great model, I agree! That is definitely my eventual goal once I have more capital.
Sorry, let me clarify my position on PM's....
I don't think the PM controls the deal, I was just trying to figure out how to optimize my strategy by isolating the PM factor.
The way I see it, it is the investor's job to buy right and pick the right team. If I don't do that right, I am the only one to blame for poor returns.
But If I buy right and buy in a nicer area, I minimize the effect the PM can have on my expenses. I realize that a flat-out bad PM can ruin your cash flow even in an A-class property. So you have to pick a pretty good one. But you don't have to find that 1% diamond-in-the-rough PM (which will be fleeting) if you buy in a good area.
Does that logic make sense?
But I still don't understand. If the PM profits from turn over, wouldn't he/she be willing to spend the overhead costs and time?
I'm still confused on whether I should buy B-class or C-class...I feel like I'm in analysis paralysis here....lol....
Is it better to buy B or C, given the PM's here in Indy? Are the B class PM's better than the C-class PM's or vice-versa? Maybe that would help me decide?
Am I still barking up the wrong tree?
thanks
Alex
Memphis invest is one of the top turn key providers in the country and has a monster PM business something like 3k SFRs and what do they do.. they write 2 to 3 year leases.. No section 8 that I know of.. So no their goal is to maximize their investors returns.. not churn the accounts and trying to get turn over and lease fee's.. I understand why you would think that and maybe some PM's do that .. but the fact remains C class tenants are tough on properties your going to have constant maintenance calls etc.. believe me I at one time owned 350 doors of C class in 4 markets.. for me the one of the happiest days of my life was when my partner at the time bought me out.. Not only a nice liquidity even for me.. but no more dealing with constant tenant drama.. and our partners were the PM's even with the PM with a ownership interest in each door its was still a challenge and more drama that I personally wanted to deal with.. of course I have many other avenues in real estate to generate cash flow or spendable cash .. being in the business as a RE broker an NMLS licensed mortgage banker and a licensed developer LOL so 3 income streams for me personally.
So if you do go into landlording you may want to hold out for 2 and 3 year leases then prey the folks don't break the leases early.
A 2 or 3 year C class lease isn't worth much if anything. I argue that it's bad for business as there are more paperwork requirements like consumer guide to agency & agency disclosures that 90% of PM's are not aware of. Fact is that if a C-class tenant wants to break their lease 4 months into a 36/mo lease that paper ain't holding them there & there isn't really anything the landlord can do about it.
no argument from me.. Memphis left the C class space years ago.. but that is their model.. And I suspect Clayton M in b ham does this as well. But that's my point a 600 to 750 renters regardless of the classification of the asset A B C D F are just not the most stable of folks.
ONe thing I always notice when I did go through our portfolio when I tagged along for a hud inspection or whatever if I happened to be in the market.. is that most of these tenants have very few possessions.. IE big screen maybe a table and chair a couch bed on the floor cloths in the corner on the floor etc.. for them to move is not the agonizing ordeal that many of us associate with moving.. they can pick and go in a matter of hours.. we don't think of that as investors especially well established investors with lots of stuff..
Agreed. Very rare that you see bed frames in $650 duplexes and things of that nature. You see more trash bags holding clothes than baskets.
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
Originally posted by @James Wise:

Originally posted by @Jay Hinrichs:
Originally posted by @James Wise:

Originally posted by @Jay Hinrichs:
Originally posted by @Alex Fidelia:

Originally posted by @Jay Hinrichs:

Buy one of each and see how it works out for you.
@James Wise has some great content and videos I would check those out.. he uses the term savage a lot.. and that is for darn sure in the C D class ..
hey Jay,
Appreciate the lightning fast response!
That sure is a great model, I agree! That is definitely my eventual goal once I have more capital.
Sorry, let me clarify my position on PM's....
I don't think the PM controls the deal, I was just trying to figure out how to optimize my strategy by isolating the PM factor.
The way I see it, it is the investor's job to buy right and pick the right team. If I don't do that right, I am the only one to blame for poor returns.
But If I buy right and buy in a nicer area, I minimize the effect the PM can have on my expenses. I realize that a flat-out bad PM can ruin your cash flow even in an A-class property. So you have to pick a pretty good one. But you don't have to find that 1% diamond-in-the-rough PM (which will be fleeting) if you buy in a good area.
Does that logic make sense?
But I still don't understand. If the PM profits from turn over, wouldn't he/she be willing to spend the overhead costs and time?
I'm still confused on whether I should buy B-class or C-class...I feel like I'm in analysis paralysis here....lol....
Is it better to buy B or C, given the PM's here in Indy? Are the B class PM's better than the C-class PM's or vice-versa? Maybe that would help me decide?
Am I still barking up the wrong tree?
thanks
Alex
Memphis invest is one of the top turn key providers in the country and has a monster PM business something like 3k SFRs and what do they do.. they write 2 to 3 year leases.. No section 8 that I know of.. So no their goal is to maximize their investors returns.. not churn the accounts and trying to get turn over and lease fee's.. I understand why you would think that and maybe some PM's do that .. but the fact remains C class tenants are tough on properties your going to have constant maintenance calls etc.. believe me I at one time owned 350 doors of C class in 4 markets.. for me the one of the happiest days of my life was when my partner at the time bought me out.. Not only a nice liquidity even for me.. but no more dealing with constant tenant drama.. and our partners were the PM's even with the PM with a ownership interest in each door its was still a challenge and more drama that I personally wanted to deal with.. of course I have many other avenues in real estate to generate cash flow or spendable cash .. being in the business as a RE broker an NMLS licensed mortgage banker and a licensed developer LOL so 3 income streams for me personally.
So if you do go into landlording you may want to hold out for 2 and 3 year leases then prey the folks don't break the leases early.
A 2 or 3 year C class lease isn't worth much if anything. I argue that it's bad for business as there are more paperwork requirements like consumer guide to agency & agency disclosures that 90% of PM's are not aware of. Fact is that if a C-class tenant wants to break their lease 4 months into a 36/mo lease that paper ain't holding them there & there isn't really anything the landlord can do about it.
no argument from me.. Memphis left the C class space years ago.. but that is their model.. And I suspect Clayton M in b ham does this as well. But that's my point a 600 to 750 renters regardless of the classification of the asset A B C D F are just not the most stable of folks.
ONe thing I always notice when I did go through our portfolio when I tagged along for a hud inspection or whatever if I happened to be in the market.. is that most of these tenants have very few possessions.. IE big screen maybe a table and chair a couch bed on the floor cloths in the corner on the floor etc.. for them to move is not the agonizing ordeal that many of us associate with moving.. they can pick and go in a matter of hours.. we don't think of that as investors especially well established investors with lots of stuff..
Agreed. Very rare that you see bed frames in $650 duplexes and things of that nature. You see more trash bags holding clothes than baskets.
U know what in the fire and police business they have ride along.. I think people should pay you a few hundred bucks to just ride along one day when your doing inspections.. :) Investors simply live a different life style.. they live a great lifestyle generally then invest in those that live pay check to pay check then expect them to live the life the way they do.. simply a pipe dream
Podcast Guest on Show #222
JLH Capital Partners51 Review
Website View Page
0 Reply
Alex Fidelia
OP
Member since 2019 · 12 posts · 1 vote
7y
Originally posted by @Jay Hinrichs:

Originally posted by @James Wise:
Originally posted by @Jay Hinrichs:

Originally posted by @James Wise:
Originally posted by @Jay Hinrichs:

Originally posted by @Alex Fidelia:
Originally posted by @Jay Hinrichs:
Buy one of each and see how it works out for you.
@James Wise has some great content and videos I would check those out.. he uses the term savage a lot.. and that is for darn sure in the C D class ..
hey Jay,
Appreciate the lightning fast response!
That sure is a great model, I agree! That is definitely my eventual goal once I have more capital.
Sorry, let me clarify my position on PM's....
I don't think the PM controls the deal, I was just trying to figure out how to optimize my strategy by isolating the PM factor.
The way I see it, it is the investor's job to buy right and pick the right team. If I don't do that right, I am the only one to blame for poor returns.
But If I buy right and buy in a nicer area, I minimize the effect the PM can have on my expenses. I realize that a flat-out bad PM can ruin your cash flow even in an A-class property. So you have to pick a pretty good one. But you don't have to find that 1% diamond-in-the-rough PM (which will be fleeting) if you buy in a good area.
Does that logic make sense?
But I still don't understand. If the PM profits from turn over, wouldn't he/she be willing to spend the overhead costs and time?
I'm still confused on whether I should buy B-class or C-class...I feel like I'm in analysis paralysis here....lol....
Is it better to buy B or C, given the PM's here in Indy? Are the B class PM's better than the C-class PM's or vice-versa? Maybe that would help me decide?
Am I still barking up the wrong tree?
thanks
Alex
Memphis invest is one of the top turn key providers in the country and has a monster PM business something like 3k SFRs and what do they do.. they write 2 to 3 year leases.. No section 8 that I know of.. So no their goal is to maximize their investors returns.. not churn the accounts and trying to get turn over and lease fee's.. I understand why you would think that and maybe some PM's do that .. but the fact remains C class tenants are tough on properties your going to have constant maintenance calls etc.. believe me I at one time owned 350 doors of C class in 4 markets.. for me the one of the happiest days of my life was when my partner at the time bought me out.. Not only a nice liquidity even for me.. but no more dealing with constant tenant drama.. and our partners were the PM's even with the PM with a ownership interest in each door its was still a challenge and more drama that I personally wanted to deal with.. of course I have many other avenues in real estate to generate cash flow or spendable cash .. being in the business as a RE broker an NMLS licensed mortgage banker and a licensed developer LOL so 3 income streams for me personally.
So if you do go into landlording you may want to hold out for 2 and 3 year leases then prey the folks don't break the leases early.
A 2 or 3 year C class lease isn't worth much if anything. I argue that it's bad for business as there are more paperwork requirements like consumer guide to agency & agency disclosures that 90% of PM's are not aware of. Fact is that if a C-class tenant wants to break their lease 4 months into a 36/mo lease that paper ain't holding them there & there isn't really anything the landlord can do about it.
no argument from me.. Memphis left the C class space years ago.. but that is their model.. And I suspect Clayton M in b ham does this as well. But that's my point a 600 to 750 renters regardless of the classification of the asset A B C D F are just not the most stable of folks.
ONe thing I always notice when I did go through our portfolio when I tagged along for a hud inspection or whatever if I happened to be in the market.. is that most of these tenants have very few possessions.. IE big screen maybe a table and chair a couch bed on the floor cloths in the corner on the floor etc.. for them to move is not the agonizing ordeal that many of us associate with moving.. they can pick and go in a matter of hours.. we don't think of that as investors especially well established investors with lots of stuff..
Agreed. Very rare that you see bed frames in $650 duplexes and things of that nature. You see more trash bags holding clothes than baskets.
U know what in the fire and police business they have ride along.. I think people should pay you a few hundred bucks to just ride along one day when your doing inspections.. :) Investors simply live a different life style.. they live a great lifestyle generally then invest in those that live pay check to pay check then expect them to live the life the way they do.. simply a pipe dream
hey Jay and James,
So is the optimal strategy to simply buy in a great area that attracts quality tenants? As long as you buy right?
Attracting quality tenants and buying right seem to be the only large variables that are under my control.
Just want to clarify that I would be willing to buy C class...I am fine with the PM profiting from maintenance and turnover. If the maintenance costs are higher that is fine if the numbers work, but how the heck do I estimate the expenses?
It seems to me like:
B class = attract quality tenants = less turnover = less variability = easier to estimate my turnover expenses
C class = attracting lower quality tenants = more turnover = more variability = harder to estimate my turnover expenses
I realize that everything is an estimate. But as an investor you want to select the option that is easiest to estimate.
...But here's an argument to buy C-class: "The market is up, that means B class property values are inflated much more than C class. "
I guess that is the only main anti-B class argument I have left...
thanks
Alex
0 Reply
James Wise
Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
7y
Originally posted by @Alex Fidelia:

Originally posted by @Jay Hinrichs:
Originally posted by @James Wise:

Originally posted by @Jay Hinrichs:
Originally posted by @James Wise:

Originally posted by @Jay Hinrichs:
Originally posted by @Alex Fidelia:

Originally posted by @Jay Hinrichs:

Buy one of each and see how it works out for you.
@James Wise has some great content and videos I would check those out.. he uses the term savage a lot.. and that is for darn sure in the C D class ..
hey Jay,
Appreciate the lightning fast response!
That sure is a great model, I agree! That is definitely my eventual goal once I have more capital.
Sorry, let me clarify my position on PM's....
I don't think the PM controls the deal, I was just trying to figure out how to optimize my strategy by isolating the PM factor.
The way I see it, it is the investor's job to buy right and pick the right team. If I don't do that right, I am the only one to blame for poor returns.
But If I buy right and buy in a nicer area, I minimize the effect the PM can have on my expenses. I realize that a flat-out bad PM can ruin your cash flow even in an A-class property. So you have to pick a pretty good one. But you don't have to find that 1% diamond-in-the-rough PM (which will be fleeting) if you buy in a good area.
Does that logic make sense?
But I still don't understand. If the PM profits from turn over, wouldn't he/she be willing to spend the overhead costs and time?
I'm still confused on whether I should buy B-class or C-class...I feel like I'm in analysis paralysis here....lol....
Is it better to buy B or C, given the PM's here in Indy? Are the B class PM's better than the C-class PM's or vice-versa? Maybe that would help me decide?
Am I still barking up the wrong tree?
thanks
Alex
Memphis invest is one of the top turn key providers in the country and has a monster PM business something like 3k SFRs and what do they do.. they write 2 to 3 year leases.. No section 8 that I know of.. So no their goal is to maximize their investors returns.. not churn the accounts and trying to get turn over and lease fee's.. I understand why you would think that and maybe some PM's do that .. but the fact remains C class tenants are tough on properties your going to have constant maintenance calls etc.. believe me I at one time owned 350 doors of C class in 4 markets.. for me the one of the happiest days of my life was when my partner at the time bought me out.. Not only a nice liquidity even for me.. but no more dealing with constant tenant drama.. and our partners were the PM's even with the PM with a ownership interest in each door its was still a challenge and more drama that I personally wanted to deal with.. of course I have many other avenues in real estate to generate cash flow or spendable cash .. being in the business as a RE broker an NMLS licensed mortgage banker and a licensed developer LOL so 3 income streams for me personally.
So if you do go into landlording you may want to hold out for 2 and 3 year leases then prey the folks don't break the leases early.
A 2 or 3 year C class lease isn't worth much if anything. I argue that it's bad for business as there are more paperwork requirements like consumer guide to agency & agency disclosures that 90% of PM's are not aware of. Fact is that if a C-class tenant wants to break their lease 4 months into a 36/mo lease that paper ain't holding them there & there isn't really anything the landlord can do about it.
no argument from me.. Memphis left the C class space years ago.. but that is their model.. And I suspect Clayton M in b ham does this as well. But that's my point a 600 to 750 renters regardless of the classification of the asset A B C D F are just not the most stable of folks.
ONe thing I always notice when I did go through our portfolio when I tagged along for a hud inspection or whatever if I happened to be in the market.. is that most of these tenants have very few possessions.. IE big screen maybe a table and chair a couch bed on the floor cloths in the corner on the floor etc.. for them to move is not the agonizing ordeal that many of us associate with moving.. they can pick and go in a matter of hours.. we don't think of that as investors especially well established investors with lots of stuff..
Agreed. Very rare that you see bed frames in $650 duplexes and things of that nature. You see more trash bags holding clothes than baskets.
U know what in the fire and police business they have ride along.. I think people should pay you a few hundred bucks to just ride along one day when your doing inspections.. :) Investors simply live a different life style.. they live a great lifestyle generally then invest in those that live pay check to pay check then expect them to live the life the way they do.. simply a pipe dream
hey Jay and James,
So is the optimal strategy to simply buy in a great area that attracts quality tenants? As long as you buy right?
Attracting quality tenants and buying right seem to be the only large variables that are under my control.
Just want to clarify that I would be willing to buy C class...I am fine with the PM profiting from maintenance and turnover. If the maintenance costs are higher that is fine if the numbers work, but how the heck do I estimate the expenses?
It seems to me like:
B class = attract quality tenants = less turnover = less variability = easier to estimate my turnover expenses
C class = attracting lower quality tenants = more turnover = more variability = harder to estimate my turnover expenses
I realize that everything is an estimate. But as an investor you want to select the option that is easiest to estimate.
...But here's an argument to buy C-class: "The market is up, that means B class property values are inflated much more than C class. "
I guess that is the only main anti-B class argument I have left...
thanks
Alex
You should do as Jay suggested earlier & buy one C class property along with one B class property. In addition to that you should self manage both of them for at least 5 or 6 years. You are not approaching this from a mental standpoint that would ever allow you to have a productive relationship with your management company.
2 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
Originally posted by @Alex Fidelia:

Originally posted by @Jay Hinrichs:
Originally posted by @James Wise:

Originally posted by @Jay Hinrichs:
Originally posted by @James Wise:

Originally posted by @Jay Hinrichs:
Originally posted by @Alex Fidelia:

Originally posted by @Jay Hinrichs:

Buy one of each and see how it works out for you.
@James Wise has some great content and videos I would check those out.. he uses the term savage a lot.. and that is for darn sure in the C D class ..
hey Jay,
Appreciate the lightning fast response!
That sure is a great model, I agree! That is definitely my eventual goal once I have more capital.
Sorry, let me clarify my position on PM's....
I don't think the PM controls the deal, I was just trying to figure out how to optimize my strategy by isolating the PM factor.
The way I see it, it is the investor's job to buy right and pick the right team. If I don't do that right, I am the only one to blame for poor returns.
But If I buy right and buy in a nicer area, I minimize the effect the PM can have on my expenses. I realize that a flat-out bad PM can ruin your cash flow even in an A-class property. So you have to pick a pretty good one. But you don't have to find that 1% diamond-in-the-rough PM (which will be fleeting) if you buy in a good area.
Does that logic make sense?
But I still don't understand. If the PM profits from turn over, wouldn't he/she be willing to spend the overhead costs and time?
I'm still confused on whether I should buy B-class or C-class...I feel like I'm in analysis paralysis here....lol....
Is it better to buy B or C, given the PM's here in Indy? Are the B class PM's better than the C-class PM's or vice-versa? Maybe that would help me decide?
Am I still barking up the wrong tree?
thanks
Alex
Memphis invest is one of the top turn key providers in the country and has a monster PM business something like 3k SFRs and what do they do.. they write 2 to 3 year leases.. No section 8 that I know of.. So no their goal is to maximize their investors returns.. not churn the accounts and trying to get turn over and lease fee's.. I understand why you would think that and maybe some PM's do that .. but the fact remains C class tenants are tough on properties your going to have constant maintenance calls etc.. believe me I at one time owned 350 doors of C class in 4 markets.. for me the one of the happiest days of my life was when my partner at the time bought me out.. Not only a nice liquidity even for me.. but no more dealing with constant tenant drama.. and our partners were the PM's even with the PM with a ownership interest in each door its was still a challenge and more drama that I personally wanted to deal with.. of course I have many other avenues in real estate to generate cash flow or spendable cash .. being in the business as a RE broker an NMLS licensed mortgage banker and a licensed developer LOL so 3 income streams for me personally.
So if you do go into landlording you may want to hold out for 2 and 3 year leases then prey the folks don't break the leases early.
A 2 or 3 year C class lease isn't worth much if anything. I argue that it's bad for business as there are more paperwork requirements like consumer guide to agency & agency disclosures that 90% of PM's are not aware of. Fact is that if a C-class tenant wants to break their lease 4 months into a 36/mo lease that paper ain't holding them there & there isn't really anything the landlord can do about it.
no argument from me.. Memphis left the C class space years ago.. but that is their model.. And I suspect Clayton M in b ham does this as well. But that's my point a 600 to 750 renters regardless of the classification of the asset A B C D F are just not the most stable of folks.
ONe thing I always notice when I did go through our portfolio when I tagged along for a hud inspection or whatever if I happened to be in the market.. is that most of these tenants have very few possessions.. IE big screen maybe a table and chair a couch bed on the floor cloths in the corner on the floor etc.. for them to move is not the agonizing ordeal that many of us associate with moving.. they can pick and go in a matter of hours.. we don't think of that as investors especially well established investors with lots of stuff..
Agreed. Very rare that you see bed frames in $650 duplexes and things of that nature. You see more trash bags holding clothes than baskets.
U know what in the fire and police business they have ride along.. I think people should pay you a few hundred bucks to just ride along one day when your doing inspections.. :) Investors simply live a different life style.. they live a great lifestyle generally then invest in those that live pay check to pay check then expect them to live the life the way they do.. simply a pipe dream
hey Jay and James,
So is the optimal strategy to simply buy in a great area that attracts quality tenants? As long as you buy right?
Attracting quality tenants and buying right seem to be the only large variables that are under my control.
Just want to clarify that I would be willing to buy C class...I am fine with the PM profiting from maintenance and turnover. If the maintenance costs are higher that is fine if the numbers work, but how the heck do I estimate the expenses?
It seems to me like:
B class = attract quality tenants = less turnover = less variability = easier to estimate my turnover expenses
C class = attracting lower quality tenants = more turnover = more variability = harder to estimate my turnover expenses
I realize that everything is an estimate. But as an investor you want to select the option that is easiest to estimate.
...But here's an argument to buy C-class: "The market is up, that means B class property values are inflated much more than C class. "
I guess that is the only main anti-B class argument I have left...
thanks
Alex
for me personally I think the thing to do with C class is to scale if you cant get to 10 to 20 of them fairly quickly then I would skip over that asset class. even buying A class that just breaks even.. there is nothing wrong with your tenant paying off your mortage on an A class over time rents tend to go up and values tend to go up.. after a 10 year run.. many times A class out performs C class on a IRR basis which is the real metric.. there is a reason so many CA investors that have been landlords for a decade or long are very wealthy it was not on cash flow per se at least at the start.. and that goes for prime areas of other markets like DC NY Boston north side of Chicago etc etc. Austin.
Podcast Guest on Show #222
JLH Capital Partners51 Review
Website View Page
2 Reply
Alex Fidelia
OP
Member since 2019 · 12 posts · 1 vote
7y
Originally posted by @James Wise:

Originally posted by @Alex Fidelia:
Originally posted by @Jay Hinrichs:

Originally posted by @James Wise:
Originally posted by @Jay Hinrichs:

Originally posted by @James Wise:
Originally posted by @Jay Hinrichs:

Originally posted by @Alex Fidelia:
Originally posted by @Jay Hinrichs:
Buy one of each and see how it works out for you.
@James Wise has some great content and videos I would check those out.. he uses the term savage a lot.. and that is for darn sure in the C D class ..
hey Jay,
Appreciate the lightning fast response!
That sure is a great model, I agree! That is definitely my eventual goal once I have more capital.
Sorry, let me clarify my position on PM's....
I don't think the PM controls the deal, I was just trying to figure out how to optimize my strategy by isolating the PM factor.
The way I see it, it is the investor's job to buy right and pick the right team. If I don't do that right, I am the only one to blame for poor returns.
But If I buy right and buy in a nicer area, I minimize the effect the PM can have on my expenses. I realize that a flat-out bad PM can ruin your cash flow even in an A-class property. So you have to pick a pretty good one. But you don't have to find that 1% diamond-in-the-rough PM (which will be fleeting) if you buy in a good area.
Does that logic make sense?
But I still don't understand. If the PM profits from turn over, wouldn't he/she be willing to spend the overhead costs and time?
I'm still confused on whether I should buy B-class or C-class...I feel like I'm in analysis paralysis here....lol....
Is it better to buy B or C, given the PM's here in Indy? Are the B class PM's better than the C-class PM's or vice-versa? Maybe that would help me decide?
Am I still barking up the wrong tree?
thanks
Alex
Memphis invest is one of the top turn key providers in the country and has a monster PM business something like 3k SFRs and what do they do.. they write 2 to 3 year leases.. No section 8 that I know of.. So no their goal is to maximize their investors returns.. not churn the accounts and trying to get turn over and lease fee's.. I understand why you would think that and maybe some PM's do that .. but the fact remains C class tenants are tough on properties your going to have constant maintenance calls etc.. believe me I at one time owned 350 doors of C class in 4 markets.. for me the one of the happiest days of my life was when my partner at the time bought me out.. Not only a nice liquidity even for me.. but no more dealing with constant tenant drama.. and our partners were the PM's even with the PM with a ownership interest in each door its was still a challenge and more drama that I personally wanted to deal with.. of course I have many other avenues in real estate to generate cash flow or spendable cash .. being in the business as a RE broker an NMLS licensed mortgage banker and a licensed developer LOL so 3 income streams for me personally.
So if you do go into landlording you may want to hold out for 2 and 3 year leases then prey the folks don't break the leases early.
A 2 or 3 year C class lease isn't worth much if anything. I argue that it's bad for business as there are more paperwork requirements like consumer guide to agency & agency disclosures that 90% of PM's are not aware of. Fact is that if a C-class tenant wants to break their lease 4 months into a 36/mo lease that paper ain't holding them there & there isn't really anything the landlord can do about it.
no argument from me.. Memphis left the C class space years ago.. but that is their model.. And I suspect Clayton M in b ham does this as well. But that's my point a 600 to 750 renters regardless of the classification of the asset A B C D F are just not the most stable of folks.
ONe thing I always notice when I did go through our portfolio when I tagged along for a hud inspection or whatever if I happened to be in the market.. is that most of these tenants have very few possessions.. IE big screen maybe a table and chair a couch bed on the floor cloths in the corner on the floor etc.. for them to move is not the agonizing ordeal that many of us associate with moving.. they can pick and go in a matter of hours.. we don't think of that as investors especially well established investors with lots of stuff..
Agreed. Very rare that you see bed frames in $650 duplexes and things of that nature. You see more trash bags holding clothes than baskets.
U know what in the fire and police business they have ride along.. I think people should pay you a few hundred bucks to just ride along one day when your doing inspections.. :) Investors simply live a different life style.. they live a great lifestyle generally then invest in those that live pay check to pay check then expect them to live the life the way they do.. simply a pipe dream
hey Jay and James,
So is the optimal strategy to simply buy in a great area that attracts quality tenants? As long as you buy right?
Attracting quality tenants and buying right seem to be the only large variables that are under my control.
Just want to clarify that I would be willing to buy C class...I am fine with the PM profiting from maintenance and turnover. If the maintenance costs are higher that is fine if the numbers work, but how the heck do I estimate the expenses?
It seems to me like:
B class = attract quality tenants = less turnover = less variability = easier to estimate my turnover expenses
C class = attracting lower quality tenants = more turnover = more variability = harder to estimate my turnover expenses
I realize that everything is an estimate. But as an investor you want to select the option that is easiest to estimate.
...But here's an argument to buy C-class: "The market is up, that means B class property values are inflated much more than C class. "
I guess that is the only main anti-B class argument I have left...
thanks
Alex
You should do as Jay suggested earlier & buy one C class property along with one B class property. In addition to that you should self manage both of them for at least 5 or 6 years. You are not approaching this from a mental standpoint that would ever allow you to have a productive relationship with your management company.
hey James,
I appreciate you being honest with me on this...
Your'e right. There's nothing wrong with PM companies making a profit, they are providing a service and saving me a lot of time and headache. Otherwise I would not hire one.
...And they need to be compensated fairly for that
I guess I just never thought of it that way!
Going forward, what is the best way to establish a good relationship with your PM?
thanks
Alex
1 Reply
Alex Fidelia
OP
Member since 2019 · 12 posts · 1 vote
7y
Originally posted by @Jay Hinrichs:

Originally posted by @Alex Fidelia:
Originally posted by @Jay Hinrichs:

Originally posted by @James Wise:
Originally posted by @Jay Hinrichs:

Originally posted by @James Wise:
Originally posted by @Jay Hinrichs:

Originally posted by @Alex Fidelia:
Originally posted by @Jay Hinrichs:
Buy one of each and see how it works out for you.
@James Wise has some great content and videos I would check those out.. he uses the term savage a lot.. and that is for darn sure in the C D class ..
hey Jay,
Appreciate the lightning fast response!
That sure is a great model, I agree! That is definitely my eventual goal once I have more capital.
Sorry, let me clarify my position on PM's....
I don't think the PM controls the deal, I was just trying to figure out how to optimize my strategy by isolating the PM factor.
The way I see it, it is the investor's job to buy right and pick the right team. If I don't do that right, I am the only one to blame for poor returns.
But If I buy right and buy in a nicer area, I minimize the effect the PM can have on my expenses. I realize that a flat-out bad PM can ruin your cash flow even in an A-class property. So you have to pick a pretty good one. But you don't have to find that 1% diamond-in-the-rough PM (which will be fleeting) if you buy in a good area.
Does that logic make sense?
But I still don't understand. If the PM profits from turn over, wouldn't he/she be willing to spend the overhead costs and time?
I'm still confused on whether I should buy B-class or C-class...I feel like I'm in analysis paralysis here....lol....
Is it better to buy B or C, given the PM's here in Indy? Are the B class PM's better than the C-class PM's or vice-versa? Maybe that would help me decide?
Am I still barking up the wrong tree?
thanks
Alex
Memphis invest is one of the top turn key providers in the country and has a monster PM business something like 3k SFRs and what do they do.. they write 2 to 3 year leases.. No section 8 that I know of.. So no their goal is to maximize their investors returns.. not churn the accounts and trying to get turn over and lease fee's.. I understand why you would think that and maybe some PM's do that .. but the fact remains C class tenants are tough on properties your going to have constant maintenance calls etc.. believe me I at one time owned 350 doors of C class in 4 markets.. for me the one of the happiest days of my life was when my partner at the time bought me out.. Not only a nice liquidity even for me.. but no more dealing with constant tenant drama.. and our partners were the PM's even with the PM with a ownership interest in each door its was still a challenge and more drama that I personally wanted to deal with.. of course I have many other avenues in real estate to generate cash flow or spendable cash .. being in the business as a RE broker an NMLS licensed mortgage banker and a licensed developer LOL so 3 income streams for me personally.
So if you do go into landlording you may want to hold out for 2 and 3 year leases then prey the folks don't break the leases early.
A 2 or 3 year C class lease isn't worth much if anything. I argue that it's bad for business as there are more paperwork requirements like consumer guide to agency & agency disclosures that 90% of PM's are not aware of. Fact is that if a C-class tenant wants to break their lease 4 months into a 36/mo lease that paper ain't holding them there & there isn't really anything the landlord can do about it.
no argument from me.. Memphis left the C class space years ago.. but that is their model.. And I suspect Clayton M in b ham does this as well. But that's my point a 600 to 750 renters regardless of the classification of the asset A B C D F are just not the most stable of folks.
ONe thing I always notice when I did go through our portfolio when I tagged along for a hud inspection or whatever if I happened to be in the market.. is that most of these tenants have very few possessions.. IE big screen maybe a table and chair a couch bed on the floor cloths in the corner on the floor etc.. for them to move is not the agonizing ordeal that many of us associate with moving.. they can pick and go in a matter of hours.. we don't think of that as investors especially well established investors with lots of stuff..
Agreed. Very rare that you see bed frames in $650 duplexes and things of that nature. You see more trash bags holding clothes than baskets.
U know what in the fire and police business they have ride along.. I think people should pay you a few hundred bucks to just ride along one day when your doing inspections.. :) Investors simply live a different life style.. they live a great lifestyle generally then invest in those that live pay check to pay check then expect them to live the life the way they do.. simply a pipe dream
hey Jay and James,
So is the optimal strategy to simply buy in a great area that attracts quality tenants? As long as you buy right?
Attracting quality tenants and buying right seem to be the only large variables that are under my control.
Just want to clarify that I would be willing to buy C class...I am fine with the PM profiting from maintenance and turnover. If the maintenance costs are higher that is fine if the numbers work, but how the heck do I estimate the expenses?
It seems to me like:
B class = attract quality tenants = less turnover = less variability = easier to estimate my turnover expenses
C class = attracting lower quality tenants = more turnover = more variability = harder to estimate my turnover expenses
I realize that everything is an estimate. But as an investor you want to select the option that is easiest to estimate.
...But here's an argument to buy C-class: "The market is up, that means B class property values are inflated much more than C class. "
I guess that is the only main anti-B class argument I have left...
thanks
Alex
for me personally I think the thing to do with C class is to scale if you cant get to 10 to 20 of them fairly quickly then I would skip over that asset class. even buying A class that just breaks even.. there is nothing wrong with your tenant paying off your mortage on an A class over time rents tend to go up and values tend to go up.. after a 10 year run.. many times A class out performs C class on a IRR basis which is the real metric.. there is a reason so many CA investors that have been landlords for a decade or long are very wealthy it was not on cash flow per se at least at the start.. and that goes for prime areas of other markets like DC NY Boston north side of Chicago etc etc. Austin.
hey Jay,
I guess I don't understand why IRR is the real metric. Wouldn't it depend on your goals?
My goal in real estate is $4,500/month in cash flow. So shouldn't I just be looking at cash flow?
I also don't understand the point about needing to scale C classes quickly. Obviously if you buy your properties more quickly, you will make more money overall because you will start cash flowing earlier. But that's true regardless of class. So I guess I'm just not getting your point.
But let's forget about why for a second. To reach my $4,500 goal, all I need is 15 C-class properties cash flowing at $300/month. How quickly would I need to purchase them for C-class to be worth it, in your opinion? 5 years? 10 years?
thanks
Alex
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
Originally posted by @Alex Fidelia:
Originally posted by @Jay Hinrichs:

Originally posted by @Alex Fidelia:
Originally posted by @Jay Hinrichs:

Originally posted by @James Wise:
Originally posted by @Jay Hinrichs:

Originally posted by @James Wise:
Originally posted by @Jay Hinrichs:

Originally posted by @Alex Fidelia:
Originally posted by @Jay Hinrichs:
Buy one of each and see how it works out for you.
@James Wise has some great content and videos I would check those out.. he uses the term savage a lot.. and that is for darn sure in the C D class ..
hey Jay,
Appreciate the lightning fast response!
That sure is a great model, I agree! That is definitely my eventual goal once I have more capital.
Sorry, let me clarify my position on PM's....
I don't think the PM controls the deal, I was just trying to figure out how to optimize my strategy by isolating the PM factor.
The way I see it, it is the investor's job to buy right and pick the right team. If I don't do that right, I am the only one to blame for poor returns.
But If I buy right and buy in a nicer area, I minimize the effect the PM can have on my expenses. I realize that a flat-out bad PM can ruin your cash flow even in an A-class property. So you have to pick a pretty good one. But you don't have to find that 1% diamond-in-the-rough PM (which will be fleeting) if you buy in a good area.
Does that logic make sense?
But I still don't understand. If the PM profits from turn over, wouldn't he/she be willing to spend the overhead costs and time?
I'm still confused on whether I should buy B-class or C-class...I feel like I'm in analysis paralysis here....lol....
Is it better to buy B or C, given the PM's here in Indy? Are the B class PM's better than the C-class PM's or vice-versa? Maybe that would help me decide?
Am I still barking up the wrong tree?
thanks
Alex
Memphis invest is one of the top turn key providers in the country and has a monster PM business something like 3k SFRs and what do they do.. they write 2 to 3 year leases.. No section 8 that I know of.. So no their goal is to maximize their investors returns.. not churn the accounts and trying to get turn over and lease fee's.. I understand why you would think that and maybe some PM's do that .. but the fact remains C class tenants are tough on properties your going to have constant maintenance calls etc.. believe me I at one time owned 350 doors of C class in 4 markets.. for me the one of the happiest days of my life was when my partner at the time bought me out.. Not only a nice liquidity even for me.. but no more dealing with constant tenant drama.. and our partners were the PM's even with the PM with a ownership interest in each door its was still a challenge and more drama that I personally wanted to deal with.. of course I have many other avenues in real estate to generate cash flow or spendable cash .. being in the business as a RE broker an NMLS licensed mortgage banker and a licensed developer LOL so 3 income streams for me personally.
So if you do go into landlording you may want to hold out for 2 and 3 year leases then prey the folks don't break the leases early.
A 2 or 3 year C class lease isn't worth much if anything. I argue that it's bad for business as there are more paperwork requirements like consumer guide to agency & agency disclosures that 90% of PM's are not aware of. Fact is that if a C-class tenant wants to break their lease 4 months into a 36/mo lease that paper ain't holding them there & there isn't really anything the landlord can do about it.
no argument from me.. Memphis left the C class space years ago.. but that is their model.. And I suspect Clayton M in b ham does this as well. But that's my point a 600 to 750 renters regardless of the classification of the asset A B C D F are just not the most stable of folks.
ONe thing I always notice when I did go through our portfolio when I tagged along for a hud inspection or whatever if I happened to be in the market.. is that most of these tenants have very few possessions.. IE big screen maybe a table and chair a couch bed on the floor cloths in the corner on the floor etc.. for them to move is not the agonizing ordeal that many of us associate with moving.. they can pick and go in a matter of hours.. we don't think of that as investors especially well established investors with lots of stuff..
Agreed. Very rare that you see bed frames in $650 duplexes and things of that nature. You see more trash bags holding clothes than baskets.
U know what in the fire and police business they have ride along.. I think people should pay you a few hundred bucks to just ride along one day when your doing inspections.. :) Investors simply live a different life style.. they live a great lifestyle generally then invest in those that live pay check to pay check then expect them to live the life the way they do.. simply a pipe dream
hey Jay and James,
So is the optimal strategy to simply buy in a great area that attracts quality tenants? As long as you buy right?
Attracting quality tenants and buying right seem to be the only large variables that are under my control.
Just want to clarify that I would be willing to buy C class...I am fine with the PM profiting from maintenance and turnover. If the maintenance costs are higher that is fine if the numbers work, but how the heck do I estimate the expenses?
It seems to me like:
B class = attract quality tenants = less turnover = less variability = easier to estimate my turnover expenses
C class = attracting lower quality tenants = more turnover = more variability = harder to estimate my turnover expenses
I realize that everything is an estimate. But as an investor you want to select the option that is easiest to estimate.
...But here's an argument to buy C-class: "The market is up, that means B class property values are inflated much more than C class. "
I guess that is the only main anti-B class argument I have left...
thanks
Alex
for me personally I think the thing to do with C class is to scale if you cant get to 10 to 20 of them fairly quickly then I would skip over that asset class. even buying A class that just breaks even.. there is nothing wrong with your tenant paying off your mortage on an A class over time rents tend to go up and values tend to go up.. after a 10 year run.. many times A class out performs C class on a IRR basis which is the real metric.. there is a reason so many CA investors that have been landlords for a decade or long are very wealthy it was not on cash flow per se at least at the start.. and that goes for prime areas of other markets like DC NY Boston north side of Chicago etc etc. Austin.
hey Jay,
I guess I don't understand why IRR is the real metric. Wouldn't it depend on your goals?
My goal in real estate is $4,500/month in cash flow. So shouldn't I just be looking at cash flow?
I also don't understand the point about needing to scale C classes quickly. Obviously if you buy your properties more quickly, you will make more money overall because you will start cash flowing earlier. But that's true regardless of class. So I guess I'm just not getting your point.
But let's forget about why for a second. To reach my $4,500 goal, all I need is 15 C-class properties cash flowing at $300/month. How quickly would I need to purchase them for C-class to be worth it, in your opinion? 5 years? 10 years?
thanks
Alex
Very simple you will not get 300 a month in cash flow in financed C class.. not over time.. what happens when your tenant breaks the lease at 4 months and does 5k of damage.. were does that put U.
keep in mind lets exam were these houses come from.. do you have any idea ?
1. older folks moving out of the area because its is renter dominated and values are only what a wholesaler will pay for it.. since they wont sell any other way.. then they go up the good chain
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1 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
Sorry the batteries went out in my key board
2. these properties come as surplus tax sale abandon like Morris invest clients got roped into.
3. foreclosures
4. foreclosures of landlords who just got sick of the tenants and walked away
5. homeowners who realize the house is not worth much and walk away
6. burnt out landlords who have had enough and just sell to get out of them.
the houses in many markets and a lot of indy these are 50 to 100 year old homes.. they have been cycled and cycled and cycled.. if everyone who bought a rental over the last 2 decades loved it did well in C class and never exited you would have zero inventory and prices would be double .. and rents would be higher.. rents in these areas are quite stable the values are only as good as the rents.. rents never go up prices by and large never go up simply because most landlords that buy these wont buy them unless they can make 10% COC or thereabouts on 20% down.. so they back into the numbers just like your doing. Ergo those rules or criteria stymie appreciation and gentrification in those areas.. they are basically always going to be what they are going to be.. keep in mind if you can afford 1200 for rent your not going to rent in a 600 to 700 dollar area you are going to want the better schools the safer neighborhoods the nicer people etc..
Podcast Guest on Show #222
JLH Capital Partners51 Review
Website View Page
0 Reply
Alex Fidelia
OP
Member since 2019 · 12 posts · 1 vote
7y
Originally posted by @Jay Hinrichs:

Sorry the batteries went out in my key board
2. these properties come as surplus tax sale abandon like Morris invest clients got roped into.
3. foreclosures
4. foreclosures of landlords who just got sick of the tenants and walked away
5. homeowners who realize the house is not worth much and walk away
6. burnt out landlords who have had enough and just sell to get out of them.
the houses in many markets and a lot of indy these are 50 to 100 year old homes.. they have been cycled and cycled and cycled.. if everyone who bought a rental over the last 2 decades loved it did well in C class and never exited you would have zero inventory and prices would be double .. and rents would be higher.. rents in these areas are quite stable the values are only as good as the rents.. rents never go up prices by and large never go up simply because most landlords that buy these wont buy them unless they can make 10% COC or thereabouts on 20% down.. so they back into the numbers just like your doing. Ergo those rules or criteria stymie appreciation and gentrification in those areas.. they are basically always going to be what they are going to be.. keep in mind if you can afford 1200 for rent your not going to rent in a 600 to 700 dollar area you are going to want the better schools the safer neighborhoods the nicer people etc..
Jay,
It sounds like your criteria has evolved a lot over the years, and you have thought things out carefully.
Right now, I see B class as lower risk in general (I'm sure there are always exceptions). Maybe I will want to get into the C class in the future when I am more experienced and willing to take more risk, but B class seems like a good idea for a new investor.
If I were to change course and get into the B class space, are there any PM's you would recommend?
thanks
Alex
0 Reply
Raju V.
Investor · Severna Park, MD · Member since 2016 · 32 posts · 39 votes
7y
@Alex Fidelia
"To reach my $4,500 goal, all I need is 15 C-class properties cash flowing at $300/month."
You probably need closer to 30 C-class properties to reach your goal of $4500/mo. A few things that are much higher with tenants paying $700/rent:
1. Tenant turnover
2. Maintenance cost
3. Property damage
4. Stress level
What ever your pro-forma numbers are on these types of properties. I would cut the net number in half and that would be your true net income/cap rate.
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Best PM For C-Class?

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@Alex Fidelia