All Forum Posts by: Marcus Auerbach

@Ben Hanvelt I would not worry too much about cap rates in the market up to 4 unit buildings and focus on comps. Cap rates really come into play with larger projects, especially in the institutional space. And you are right: in that context cap rates of 10 are unrealistic. I just recently spoke with a analyst who works for a retirement fund and they are extatic if they find something better than 3.5% cap. They search nation wide, and from what I understand investing in RE seems to be an increasingly bigger challenge the more money you have. Aparently it's much easier to make 20% on $100k than it is to make 5% on $100M. 

@Gaston Barua You are on the right track with making offers. Don't get discouraged, set realistic goals and stick to them. Patience is part of this game. You have to be able to strike quickly if an opportunity presents itself, yet sit tight and keep waiting patiently until it does. You can spend your money only once. Where I would look to improve is the way you determine FMV. I hope you have an agent who knows what he's doing and understands investment properties (agents who are not investors generally don't have a deep level of understanding of the dynamics involved - in a competitive market that's all the difference). Now that I am an agent I can write my own offers and I find that I have a high acceptance rate so far, in other words I don't bother to wirte an offer if the circumstances are not such that I can reasonably expect that it will be accepted. The shotgun approach is better suited for marketing than for writing offers. By the time I have written one offer I can speak to 10 listing agents and get a feel for the motivation level of the seller and find one that is worth a shot. However, three rejected offers are not that many, don't let that discourage you. I would look at the way you evaluate FMV and work with your agent to pre-qualify potential targets. Sometimes it's speed - you have to be the first to do the drive by like @Brandon Richards said, sometimes it's patience and waiting for the seller's motoivation to build until they are willing to consider less than they had originally planned for. Good luck!

@Pratik P.

That's the only explaination I can think of - most agents have never heard about yellow letters, let alone are familiar with any regulations related to the subject. So to your point, who knows..

Just to clarify - the FBI was an empty threat, at least I never heard from them. I did however get a letter from the BBB. The complaint was false advertising for "cash offers". The home owner claimed nobody has that much money, so it must be a hoax. I contacted the BBB and had to respond in writing to the complaint. Also I remember someone who was uncomfortable selling his house for cash as they literally envisioned a briefcase full of cash (like drug money in a movie).  I think thats funny, but also those were interesting insights in the minds of potential sellers. The way we craft a message is one thing, who it is received and understood is sometimes another.

@Pratik P. I think what the seller's agent was referring to is what's known as "sign jumping" - meaning calling on a home that is listed in order to make them switch listing agent. That's illegal at least in Wisconsin.

@Avrohom New no legal issue with direct mail I am aware of. We usually get about three angry calls for every interested call. The more personal and handwritten your letter looks the more attention you get - a plain advertising postcard usually does not prompt that many angry calls, but is also less effective. My most favorite callers yelled, threatend to call the police, BBB and the FBI, some actually do call the cops, we got calls and messages from the police - but all they do is ask to remove a specific person from the mailing list and they were really professional about it. I belive handwritten letters make them feel stalked or watched and that prompts an emotional reaction.  Best thing you can do is stay calm and professional, explain what you have to offer and propose to remove them from the mailing list.

My vote is: only if you have to. That is determined by the market. In Milwaukee most SF's are rented without washer and dryer, so we don't. We do provide kitchen appliances. The one thing about appliances is that if you provide them you sign up for the maintenance and repair part as well. In our experience that's as much work as the rest of the house.  For that reason alone we provide new appliances.

Speaking for my market most investors here will agree you should make a minimum of $200 per door per month after all expenses, reserves and PM. Let me take you down the rabbit hole a bit ;-) 

$300 or more profit per door is not impossible. Ad $100 if you self manage and dont have to pay a PM. Ad $150-$200 in monthly principal pay down on your loan. Depending on the area you may also expect furture appreciation, typically more appreciation in markets with lesser cash flow - it's a trade off. If you ad it all up you should be in the teens. You will quickly learn to NOT tell that anyone outside the REI world, because people will laugh at you or think you are making it up. Anything above 5% is associated with extremely high risk, right? And anything over 10% is probably illegal, right? I hope you get my sarcasm.

A while ago a guy on the BP podcast explained that he has more success offering 6% to private money lenders than offering 8% - why? Nobody wants to make 8%, because they are worried about loosing all of it and rather do 6% and "be save". Interesting how that works..

So, you can't tell anyone you are making 18% ROI without raising eyebrows. But you can still take this up another level yet: let's say you buy a distressed property below market value, repair it, thus improve the value, then finance it and get more money from the bank than you paid for it. So your investment was negative. How do you calculate ROI with zero or negative investment? By the way if the bank ends up giving you money, that's tax free, because it's not "income" - you can still spend it or invest it in your next deal.

So, where is the catch you may ask? Well, for once it's a LOT of work and never as easy as it sounds on paper. Many give up before they have bought their first deal. Second I would argue that the investment is not only money, but also a significant amount of time. Most successful investors have spent literally thousands of hours learning everything they can and then spend many hours putting a deal together. If you put a price tag on that (100 hours to put a deal together, get it rehabed and rented and financed at $200 per hour = $20,000 in time value invested) and ad it to the calculation (which nobody does) your ROI goes way down. So in a way, you have to work quite hard before you get rewarded and before you earn a double digit return on your financial investment.

Waukesha County is a quite diverse playground with currently a little over 1500 active SF listings - everything from rural to growing growing suburban neighborhoods and older urban markets. I can speak to the northern part of it. It's a completley different scenario than Milwaukee propper: of course price points are higher, but taxes are lower and school districts are better: we see some double digit population growth areas. There is definitley a notion to move out of the city - I hear that a lot from clients in the retail market for the reasons mentioned before, schools and taxes. This demand is also driving rents up, as there is a shortage of SF rentals. The areas between Brookfield and Menomonee Falls is developing and filling in fast. While Milwaukee is flat (0.18% population growth - I would argue it has been saved by it's more afluent areas; otherwise we'd see a big fat minus) Menomonee Falls and Sussex have seen almost 10% population growth. A new Cosco and SamsClub just moved in, there are at least 5 or 6 new subdivisions developed I know of and most of them in the 400 to 600k range, driving up the overall price perception of the area. There are zero developments for first time home buyers (250 k and below), but several condo development projects that try to service that market. At the same time there is some old housing stock in the same school disctricts that sells between 130 and 180k and provides good investment opportunities with acceptable cash flow and great potential for future appreciation (Not to forget substantial principal pay down due to larger loan amounts). BRRR can work really well as there is enough spread to make the back end feasable, same for flips. Low inventory of course is a challange: after being in the low 4s supply has droped down to 3.8 months which is very tight. Good rehab deals do pop up, but have accepted offers usually within a couple days, so both speed and cash (or hard money) are very much a requirement to participate. Long term hold SF deals are not that difficult to get and can be bought with conventional financing. I hope this helps, please feel free to contact me if you have any specific questions.

@Justin Mountjoy welcome to BP and all the best for your first buy and hold deal (luck should not be necessary - looks like you are well prepared).

@Tim Tauer welcome to BP. What you are thinking about is very possible to do, in fact I think it's the single best way to get started for a number of reasons. First you need a place to stay anyway, might as well take one that's free (paid by the tenant). Second it's relativley easy to do - you dont't have to be an expert in marketing, rehab cost estimation, negotiations, contract and title work and city wide market price analysis - all of those and then some required to become a successful wholesaler. And most importantly you have access to owner occupied financing, which allows you to skip the 20% down the rest of us need and go ahead with 10%, 5% or less. And then as you said rinse and repeat. I think you are on the right track!

@Sendi Becerra hi and welcome to BP. Love your logo.

@Vikas Raoot if you are interested in the suburbs I can help - that's where most of my rentals are.