All Forum Posts by: Marcus Auerbach

Keller Williams corporate does a lot of research and is talking about a market shift for a year now. Agents on both coasts have started to feel it sooner than we did in the Midewest. Personally I think we might be looking at a softer year because we start seeing some buyers fatiuge that gets amplified by rising interst rates. But as long as the makro economic indicators point in the right direction we are not going to be not anywhere as bad as we have been 6 years ago. On the stock market we would call it a technical correction - and they are like thunderstorms: the hotter the days before, the bigger the storm. But that's a regular market cycle and nothing I am personally worried about, just in the contrary, it provides great opportunities to buy.

The argument the a single family portfolio is more risky than one large multi family is nonsense. It only holds true for a lone SF, because then your vacancy is 100%. As soon as you have 2, 10 or 100 they support each other just like a MF. On the other hand my SF portfolio has a mix or loans and lenders. The 30 year fixed rate mortgages anchor the portfolio and provide risk mitigation to rising rates. A MF has only one loan and one lender - if that lender decides to call his note due you better have a good plan B. 

@Ahshar Sylvestre your equity criteria is great. It will automatically eliminate most transactions in the last 10 years. We have now just exceeded the national price level peak from 2006 - that's 10 years. Once you tsrat going back further in time you find people who have bought their home in a market with lower price points than today - they are emotionally more open to accepting your offer.

While you are on your quest to the perfect list keep this in mind:

"Ready, aim, FIRE" 

works better in most combat situations than 

"Ready, aim, aim, aim, aim, aim,..."

@Elliott Ridley starting out with no experience as a wholesaler will only get you frustrated. It is really an advanced startegy like Joshua Martin said. I am gettinging angry every time I see a guru advertise that you can start this with no money and then grow a pile of cash to buy rental properties. I have not yet met anyone who was able to pull that off - please someone tell me it worked!

I don't like to discourage you, but it's even worse to see you get frustrated and give up. Skills and knowledge you simply can't have as a newbie are one ingredient, endurance and the willingsness and talent to deal with the weirdest people is another one. The best thing you can do is network with people (as mentioned REIA, BCMU) and offer your help. Ask what you can do for them, if need be for free and become an apprentice. Learn and get some real world exposure, it will be very beneficial for you.

welcome on board @Chris E.

@Michael Braatz your numbers are a good starting point. Of course Milwaukee area is a wide definition and could be anywhere from 30-200k. I guess you are looking in the 60-80k range. Capex may be high or low, depending on the condition. Most houses will need a complete interior overhaul to the extend of 30k-40k in the next 10 years. You can do that up front as a BRRRR or do it over time, or push out as long as possible. How you do it will define your monthly capex. Maintenance is tied to the condition. $100 is a lot for a fully improved home, it is not enough for most homes in original condition.

@Teri Platta thank you very much for the kind words. Wow. You guys were awesome and a lot of fun to work with. You have definitley done your homework and I was very impressed with your professional approach the first time we met. Usually it's the guys who take the lead in a family when it comes to investing: I find it very remarkable that you were initially the driving force who had prepared all the spreadsheets and listened to all the podcasts. I know Todd has got the bug now too and you guys will make an awesome team. Congratulations to number one, that's probably the most difficult one! 

So this is not about how to fix a drain tile or improve cash flow, I wanted to share something about a movie I just saw: War Dogs with Jonah Hill and Miles Teller. It's the story of a young guy who tries to make a living as a massage therapist to feed his family and his bold high school buddy who shows back up in his life and just got started as an arm's dealer serving the US military.

https://www.youtube.com/watch?v=Rwh9c_E3dJk

So the two friends emark on that journey and they do what excited real estate investors would do - they hussle, work like dogs, read and study all night and have a do-whatever-it-takes attitude. If a deal is looking to fall apart, they hussle some more and somehow manage to keep it together. I have never tried to be an arms dealer, but I definitley know that feeling! I have not been a fan of Jonah Hills so far, but this role is just perfect for him and we had a blast watching it. The movie takes an unexpected turn (and I don't want to spoil it) - there are some interesting lessons about integrity, moral, greed and honesty. And about business partners. To me one of the best movies for investors since The Big Short and The Wolf of WallStreet. If you have not seen it I hope you have as much fun as we did. Let me know what you think!

Anywhere as long as you like the neighborhood @Rito Altamirano

One way to look at an invenstment property is the replacement value: how much would it cost to rebuild it, if it would burn to the ground. If homes in a particular neighborhood are selling substancially below replacement value, you have to ask why is this happening? Why is someone selling his home for less than it would cost to build it and even include the lot for that price? It's a strong indicator of a fundamental economic problem: home values are so low - based on the neighborhood and NOT on the structure built on the land - that people are not willing to pay for the structure based on where it is. Essentially the seller is saying: my street is so bad, I will sell you the house for a fraction of the cost it would take to build it, maybe for less than the lumber, shingles and windows would cost. Essentially they are saying I am willing to pay you to take the property from me, because I just don't want to live here anymore. It's so bad. Who would seriousley consider this a good investment?

The second issue is renovation cost (capex). The test is: would the property value improve by at least the cost of a full top to bottom rehab when it becomes necessary. In other words, would it be worth to fix it or do you just rent it until it's done and then burn it? This ties back to the replacement value - if the market does not pay replacement value plus land value for a home then most likly you cannot afford to put a new roof, windows, kitchen and bathroom in the property without loosing money.

The question is not how much do you spend on a home. Because hopefully you can buy it below fair market value. The question is would the location of the home support the cost of the sticks and stones it is made from. If it does and you pay 40k for it you have found a really good deal and sometimes you get one of these.

Some are up, some down, but all changes are in the single digit percentage. I have succesfully challenged one tax assesment in the past based on the fact that the assest value was way out of line compared to the sales price of the home. Milwaukee County taxes are expensive.

@Adam Soyak like J said let the numbers make the decision for you. Where I work our inventory is down to 3.6 months of supply (6 would be normal) and buyers are scrambling for homes. To make the sitiuation worse we will have a lot of listings expire 12/31 and inventory will literally fall off the cliff. At the same time buyers who have been putting of their home purchase until after the holidays will flock on the market followed by those who have experienced family stress during the holidays and are comitted to make a change. Supply will ramin ultra short, because many buyers think waiting until spring is in their best interest (it used to be in previous years). 

That's already a pretty intersting dynamic. Now we have rising interest rates pour additional fuel in the fire. Your buyers would have paid about $100 less per month a few short weeks ago vs today and theyr are worried that rates will go up to 4.5% or even 5%. The 20 year average is 6.8 by the way. Many of my buyers are looking to get something wraped up before interest rates rise any further (4% as of yesterday for a 30 year fixed). All of this creates a situation that is vastly different than what we have seen in the previous years. 

We used to have a supplus in supply and falling rates - so the general notion was to wait a little bit longer and get an even better deal (or a better looking one, because everything is blossoming). 

I don't know how bad your landscaping is right now, but your buyers may not even care and right now everything is white anyway. As far as the driveway is concerned, if it is so bad that it will be flaged during inspection and you have to get it done there is a way to do this in the winter. Your contractor needs a hydronic heater to thaw the ground, then pour the concrete and then keep it heated under insulating blankets for a few days. This is standard on commercial jobs. Obviousley it ads to the cost, but it speeds up the timeline and to J's point let the numbers make the decision for you.