Tampa Small Multi-Family Deal: Any red flags?

Question

Hi All! I'm looking at this property for my first deal: http://www.loopnet.com/Property-Record/11715-N-15t....

I've asked for some more information. I don't live in Tampa, and until I give the place a visit, I'd appreciate any viewpoints on the area, or any other "major red flags" that should make me think twice about this.

Kusum Chanrai · Answer

Hey Michael. This is a very interesting note, thanks again for taking the time. There were lots of different points made here. I'll do my best to respond. 1) With regards to savings, I've saved a lot, so thankfully, yes I should be able to buy an apartment building for my first deal, albeit a small one. Fingers crossed. It needs to be worth it. We have specifically not bought in SF, given the high prices, and would like to invest my savings somewhere. 2) "Do I have the stamina to hold a commercial income property through the next Downturn" - That's a good point. And you are also correct, "buying when it is time to sell" isn't going to provide me with the best value. I'll be honest, I've only started looking into real estate investing in the last month, and most of my early strategies in terms of city selection etc have been extracted directly from books. Because other folks were "sworn off' Detrioit, I hadn't given it a 2nd glance, but perhaps I should. 3) Just so I'm clear on your advice, are you suggesting that I: Don't focus on an apartment building deal for my 1st deal Don't "follow the herd" and rather see where there's real, value opportunity, even if it means focusing on SFR vs. MF. Hang tight until the next crash takes place, and be ready to pounce. Or most likely, none of the above. Simply to be careful, and think more broadly. I'm considering investing with the PE company "Praxis Capital" instead, since they have such a strong track record, and it might be the best way to get my feet wet. In any case, thanks for all the help. It's very kind of you. And I'm now very interested in digging deeper in Detroit :)

Michael Haynes · Answer

@Kasum Chanrai, Hello from Tampa. If you Google the address and scroll down to the Zillow.com site you will get all the information you need to know with a lot more pictures. This complex sold in 2014 for $699,000. The Loop.net site says that they want $62,500 per unit, with 12 units. Here is the Zillow site http://www.zillow.com/homedetails/11715-N-15th-St-...This complex is in the area we call, "Suitcase City." The reason is because they built it out with hundreds of apartment complexes for the student housing opportunity. When I first got to Tampa, 30 years ago, I lived for a time in a duplex on 11th St. We consider this a War Zone because it is full of druggies and crime and the tenants are constantly moving out. There was a blog on BP that gave a full description of the opportunity to target students for rentals if you want to look for that discussion. Do you know any students that have any JOB's? Do you know any responsible Millenials? The target property for investing would be multi-family. It's like buying a Trailer Park. You make one big Deal and everything is centrally located with enough rental income to afford to hire a PM and Handyman to do all the repairs for you. This is what a Business is supposed to be. A machine that you set up and it makes Money for you. Problem is, that Businesses usually turn into a JOB for you and most of the time you should have just kept your JOB and got paid on Friday. You really should fly out and check out the neighborhood and meet some of the Tenants and do your comps. There is a complex on Fletcher and 22nd that the University owns for the students and they fenced it in and hired Security to guard the place. Got the message? You going to be an Absentee Owner to boot? Good Luck.

Michael Haynes · Answer

@Kusum Chanrai, Hello again. You show again how organized and detailed you are. You must also have a really good memory to have retained all these Real Estate terms and methods of Valuation in a short time from books. You must be looking for a way to make Passive Income with Real Estate Investing. I belonged to a Stock Investing Club here in Tampa for ten years and we had 500 old guys with Money whose only goal was to find a safe place to "park" their Money. Lots of them had owned different kinds of Rentals and that was the last thing they wanted to go back to. My first Mentor told me that I would not be able to make money with trading Stocks, until I got rid of my Rentals. Ten years later and I have to say that he was right. After the 2008 Crash I became totally, bogged down, with a lawyer and hands on managing my Rentals. Stock "Investors" are the Buy and Hold guys. The "Traders" are the Short Term ones who get in and out and do a lot of Searches for the next one to Buy or Sell. So, with your first observation, you have to Plan to have a Team that you know and Trust in order to set up a Business using a block of apartments as your vehicle. This would be similar to what Burger King does when they look to start another Franchise. They totally research the town and the area and usually the four corner property where they consider building a new restaurant. the Owner and Manager have to go to BK University and pass all the exams. They have to know an Operation Manual full of Rules and Procedures. They have to know how to hire and fire and operate all the machines and do all the maintenance and inventory and serve with a smile. You complicate the matter by thinking that you can research online or with Agents and Buy a property in a place where you do not live and can't drive to, for you first Investment property. The problem with Real Estate is that it is not Liquid like Stocks or Commodities. When you want to Sell, you can't just push the button on your laptop, like I can with my Futures trading and get out of your trade, with or without a Profit. Your second two observations are concerned with finding a Deal and Buying when the time is right. With Rental properties you are looking to make Money with Positive Cash Flow from the Rents and over Time with Appreciation in the Value of the Property. The problem is that you can Buy the right property, for the right price and even if the numbers all work out to show a Monthly Profit, your not going to make any increase in Value over Time, which is where you try to Create Wealth with Real Estate. This is also applicable with your third observation if you were to give your Money to a Investment Company that buys, sells and manages Rental properties. Do a Search on BP for the Blogs from the guys who are making Money with REITS and other Real Estate Investment Companies, because now your back to the same place that all those old guys from my Club were at. Your trying to find a safe place to park your Money. Everybody, worldwide, is looking for some way to produce Yield greater than the 1% that they can get from their Banks. Can you imagine the problem for all the people in Japan, where the Bank charges you Negative Interest Rates to hold your Money? This is why people in Finland are stashing Money in their microwaves. Have you read about India outlawing Cash and the chaos it is causing? You know that our Government bailed out our Banks with the 2008 Crash. Do you know what the Government did in Cyprus? Do you know what is involved with a Bail In? The Fed is considering the use of Negative Interest Rates here and seizing any savings not being protected by the FDIC limit, like they did in Cyprus, when necessary to save the Banks. The largest amount of Money right now is being held in Bonds which aren't paying enough to cover Inflation. The Dollar is strong against other currencies because we are the best of the worst case scenarios in the World. I would say that whatever you do, don't be an Absentee Owner.

Michael Haynes · Answer

@Kusum Chanrai, Hello again from Tampa. You seem to have internet smarts and know RE terms and can do searches. You say this complex in Tampa was a pick for your first Deal? Does that mean that you have enough money to Buy a block of apartments for your first Deal? You were looking on the Commercial RE site, Loop.net, for a property. I am just a small Investor with 30 years, renting Duplexes and Houses in S. Tampa. At the present time, I am a Seller. I went through the 60% Loss in property values in the 2008 Crash here in Tampa. After 8 years of recovery from a devastating bottom, the Market here is at a Top. So, I am selling the remainder of my Rentals and I think I just received an offer for my CG half acre down by the front gate at MacDill AFBase. At that point I will be "Debt Free!" and have around $100K to start over again. I also have a Residence with my girlfriend on the Hillsborough River with more than $100K in Equity Value to split with her. Real Estate historically, runs in 7 to 9 year Cycles. I am also a Futures Trader and that is one of the other things I will be doing while I wait, patiently, for the next Downturn in this Market, in order to "Buy when there is Blood in the Streets." I worked on a property owned by my friend, which I managed for a time. I am going to try and save that from the Bank, because of all the Sweat Equity I have investing there. I can rent the big Bungalow house in front and live for free in the 2/1 house in the back. That can be a Flip later on. You live in San Francisco. I grew up in Palo Alto. My sister has a million dollar house on one of those hills in SF. Your intention is to put your Money to work. If you read some of the BP Blogs this week, we had one young Investor asking about Ft. Myers Florida and another telling us that he is making an absolute killing in Detroit with Tax Lien Auction properties. The lesson is that the time to Buy Ft. Myers was in 2004 after Hurricane Charlie flattened that area. Miami was after Hurricane Andrew. Detroit was hit by the "Economic" Hurricane and I would say that if you can stand the cold and want to "farm" a neighborhood or whole City, that Detroit could be at the bottom of all bottoms for Value Investing. If you can pick up a house for $1000 at Auction, that you can rent for $800 a month and actually get the Tenants to not destroy your property and pay the rent...that's a DEAL. Do you know anything about trading Stocks or Futures? We have charts to show us the highs and lows of the Price. We also have the Commitment of Traders report, that shows us where the Commercials, "Smart Money" are Buying or Selling. That is compared to the Speculators, "Dumb Money," Retail Investors, who are usually doing the opposite. The inexperienced in any Market, usually Buy when it is time to Sell and Sell when it is time to Buy. I have been repairing my Rental house that I am Selling, down by the Base in S. Tampa, where all the Builders are Buying tear down houses and Building Town Homes like crazy. My house is not in tear down condition and I figured that gutting it to make it into a thing of beauty would not give me any more profits and make it harder to Sell. There are many other similar houses within a few blocks that were rehabbed and have been For Sale for months. Give me $20 to $30K profit on a ten year Rental that I Flip and that is a good Deal. The other reason that I am Selling is because I own houses and a farm Rio de Janerio, State and I have to get back down there to start living again. Your smart. You can see that every Broker or Agent will want to Sell you anything, because that is their JOB. There are plenty of warnings out there about the negative State of our Markets. As a trader, I say that we got the annual Christmas Rally, late this year. That was helped by the "Trump" Rally which may last for six months and then Look Out Below. Do some more research and decide if you really want to hold onto a Commercial Income Property through the next Downturn. The streets in Tampa are not "paved with gold."

Kusum Chanrai · Answer

Really, really helpful Michael - Thanks a lot. Yes - I saw a high vacancy percentage within one of the reports that made me nervous. Thanks a ton for all of this! I think I need to come spend some time in Tampa sooner vs. looker to minimize my number of ignorant mistakes, might you know the best brokers to connect with? Or potential local resources you suggest I tap into? Thanks again. Very kind of you.

Anthony Dooley · Answer

If you clicked on the more information button on the website, nobody is going to call you. Call the listing agent directly and ask them questions, if they will pick up the phone. Know what to ask for before you call. Write down your questions. You also need to know what the NOI was for the last 12 months. They can get you a print out showing the trailing 12 months of income and expenses. You must know this to determine the value. You will need 25% down to finance with most commercial loans.