All Forum Posts by: Marcus Auerbach

@Nate Martin - a few thoughts:

- when you wipe out one loan with another make sure that you pay off the higher interest loan with a lower one (I am not sure what the rates on student loans are)

- when you improve your property, keep it in line with what the standard is on your street. I don't think that a concrete slab will have much return on investment (higher rents)

- duplex land is not a bad place to be! Your priorities are in this order: 1.) risk mitigation, 2.) cash flow, 3.) growth and 4.) net worth.

Here is why I personally like 2 fam better than 4 fam. 4 fam are often smaller units, one or two bedroom. Smaller units make for higher turnover, more management and higher expenses. 4fam will not appreciate as well as SF or 2fam. When you want to sell it your buyer will be an investor, and expect a discount. 2fam can be found with 3 BR and 1.5 BA, which makes for long term tenants, lower cost, less management. Snow and lawn is often done by tenants. A quality 2fam can be BRRRR-ed just like a SF. And when you sell a 2fam to an owner ocupant your buyers will pay full retail.

Focus on one thing and get good at it. There is nothing wrong with 10 or 20 duplexes. If you want to trade up later you can still do a 1031 into a larger appartment complex. And on that note - we are building so many brand new and very cool appartemnt buildings these days - I am glad I don't own a 40 year old cheaply built 12 family that has to compete with a 2018 facility!

@Joe Splitrock that's exactly it - owners look down on tenants for being "cheap" while they pay usually quite a bit more per month for living there. And when someone is comming and going in the night it has to do something with the fact they are renting. It is ironic indeed!

@Linda S. - your concern about a rental property in your neighborhood is right on with what many people are worried about when it comes to their neighborhood. Overgrown bushes a 3+ cars in a neat neighborhood are an eyesoar! But I would say those are residents that are out of place, regardless if they rent or own. There are some streets that look like that and they are all owners.

I do pay attention to how a property is kept by the tenants and I know my guys. Most of them I dont have to worry about, they rent a SFR and pay premium rent, because they want a nice home and will not only pay a higher rent but also make sure it's well kept. They do have pride of, well, residence.

And then there are the guys that take a little different approach, so I keep an eye on them and will remind them to take care of things. Lawn care is usually not so much the issue as it is with leaves in the fall. Some need a special reminder and in some cases my landscaper will do it and then I send them a bill. At that point I know I have made a little bit of a mistake by approving them for the lease. But with a little hand holding they are usually fine.

We do trim the bushes and trim trees once every year or so, because otherwise it's just not going to happen the way we want it. IMO that is a task that should stay with the landlord anyway. We also run weed and feed in spring if the lawn does not look nice. Bottom line when I drive down a street and my property looks the worst I will definitley not accept that.

A slumlord is in my opinion someone who does not take care of the properties and his/her tenants. This is why I find that term very offensive. What you describe is affordable housing. That is an absolutley necessary role in our society. The bad combination is slumlords running afforable housing - that is usually a reason for a public outcry. The book Evicted is talking about this very issue in Milwaukee and the author got awarded a Pulitzer for his work. We are getting a lot of bad publicity from this and it shapes public opinion. And it casts a shadow over all the great work that investors, flippers and landlord are doing to provide great homes and values to our communities!  

Looks like rents are below market too

@Erik Anderson my old boss said the same thing to me when he found out about my hidden career. I met him for coffee and it slipped out of his mouth: oh, you are a slumlord now? 

It was hurtfull. He was the guy who brought me to the US, mentored me until he retired form his role as CEO of a global company. He is a little bit like my father in the US. And he called me a slumlord.

I was so proud of having become financially free through REI. I just quit my job a year after he retired (the new guy was kind of a j***) and was free to go for coffee on a Tuesday afternoon and he called me a slum lord. He didn't mean to and apologized, but it was just the first thing that came to mind.

I have a different perspective now on commercial real estate, I believe that's why many investors want to go there eventually. There is no such thing like a commercial slumlord.

@Anthony Gayden when you move out your choice of tenants will make the difference. We always remodel homes before we put them into service, because we get higher rents and better refi (BRRR). Also, a nicer home will attract nicer tenants. They are willing to pay more because a nice home is important to them. Because they are spending more and it is important to them they are more likly to keep the home nice and keep the yard nice. The same chain of logic seems to apply in the other direction as well. If you rent a home in poor condition, you likly get tenants who don't care that much, they won't keep the house as nice and fall behind on lawn care. Your cash flow is less and when it's time for turnover you find out that you need more money to recover the home, which leads to less improvements, again lower rents and tenants.

@Dawn Anastasi probably a good thing you spoke with him. If you would not have, he may have moved. He may have asked less for his home when he sold it, of taken a lower offer without much hesitation, because his perception was the the neighborhood is going down in value. As we know perception is reality. He may have told his neighbors the same thing, then they see his home sell for less and see that as evidence that he was right. It may have started a downward spiral for no good reason and when you are ready to refi your comps have all gone down. Maybe there is a solid business reason to care about the public's perception. 

@Thomas S. sounds like you run a tight ship, good for you. And you do your own thing. But your comments about the general public opinion is irrelevant made me contemplate: it is not easy to give someone a solid reason why it matters. It probably does not matter to you personally until you need someones approval for something, or until legislation is made. But that will not be changed by one persons action or believes. So I guess you are right in a sense of you does it make "business sense" for you personally - probably not. I will still advocate for a positive image to the public, because I believe in what goes around comes around.

@Anthony Gayden agreed, I have neighbors too and we were certainly curious to see who would move in next. Fortunatley they are pretty chilled and we get along well. As an owner it is not only your financial committment to the neighborhood, but also your quality of life. Everyone wants nice neighbors. 

In Milwaukee, actually a suburb on the north side. The area has been a long standing working class neighborhood, and it is seening now demographic change. Many of the original owners are moving into retirement homes and many of the homes get sold the first time in 40 or 50 years. The new owners (both investors and owner occupants) bring fresh ideas and also money to the neighborhood that has been stagnant for a very long time.