All Forum Posts by: Marcus Auerbach

Good point Jay! it sucks to pay for another inspection yet, but once you've paid for a new sewer lateral you'll think differently. It seems like 1 out of 3 or 4 becomes an issue within weeks after we put a property in service, and it does not get better once you have 15 ft of human waste in there.. - So snaking the sewer line at the end of the rehab (after, no before, because contractors and construction dirt are sometimes part of the issue!) is now part of our SOP.

@Nathan Schoenborn I know that menards number makes everyone go wow! However, the devil is in the details, of course. Once you run the numbers you'll find out out that that is actually not a very good deal at all. And it's only about a quarter of your total build cost.

For a quick reference and depending on your finishes you can assume that your build cost will be somewhere between $120 and $200 per SF, not inclusing land, architctual plans, developemnet costs, impact fees, overhead and holding cost. 

We have some high end appartment buildings in Milwaukee pushing the top end of that range building at $200. That's why when you look closley you will see that they are extremely greedy with sf per unit. The floorplans are very smart, so they can make a small unit feel bigger. Also a lot of money in the common areas, lounges and lobby. Rents are accordingly high at $1500 to $1700 for one and two BR. My commercial colleagues are already speculating that these new developments will be for sale in the next downturn at significant discounts. 

Do the math: cost per unit inclusing common areas and anemnities is pushing $250k per unit - at $1700 rent who would consider that a good deal? As a reminder, not long ago 60k per unit was kind of a normal price for an appartment building in Milwaukee (granted, much lower standards). MF follows nice cycles from boom to bust and once supply hits the top and vacancies start to increase, rents will erode and incentives blow up eating into the cash flow quickly to the point were debt service becomes an issue. Highly leveraged players will get knocked out first, large players with deep pockets will weather the storm and will start to acquire the excess supply.

I had a very interesting conversation with a guy who's job it is to crunche numbers for REITs and pension funds - they will go all across the country for a solid 3% ROI. Their problem is that they have large amounts of cash sitting at no interest they need to find homes for. So they can fund large developments with very little debt service cost.

@Nick Shuber I don't dare to give you advice on a deal in FL, there are too many differences on whats is requited by State law and what is considered normal and reasonable. What you do need is a local team and that starts with a local buyers agent. Preferrably one who is an investor as well. Most agents have a very superficial understanding of investing. An experienced agent who has vacation rentals of his own has a network of contacts you can use. They will know the best local lender, the best local property managers, contractors and all other ressources you need. Starting with a property is really putting the cart before the horse. Working with the listing agent means that you have are working with someone who's feduciary duties are with the seller. On another note, if the property has not been sold in three weeks it's probably not that good of a deal. Speaking of local Milwaukee experience: every deal that hits MLS get's looked over by literally hundrets of local investors in the first 24 hours. If they all decide it's not worth it it will sit. A local agent will be able to provide more context to that. Good luck!

@Jonah White  Sounds like you are ready to pull the trigger. This is easier than it might look to you right now. Banks are very different and they have very different programs. Let along state and gov sponsored programs you can use. Your experience is like going into one store to buy a great pair of yeans and they dont have your size. Let me check with my lenders and PM you.

Yes, and I think that is a great strategy. Your LLC is the public face to the world and your brand, while you hold title in different entities. So there is a marketing advantage there, that allows for a consistent branding, while you are free to hold assets in other entities, your name or in several other LLCs etc. The main LLC does not have to own any assets, it is essentially a marketing shell. Which is also an interesting concept from a risk mitigation point of view. Of course, I am not an attorney and this is just my personal opinion.

Haha, agree: post got hijacked; I also have no clue about Indianapolis, sorry @Alex Landau

I wholeheartedly agree with @Mike Lowery, we do have a social responsibility and it's not only what we owe to society, but it also in our own best interest!

Interesting white paper with loads of data. Seems like there is a strong lobby and substancial economic power behinde this. On page 16 it speaks about the the impact of crime rates, the perceiption and liveability. And the connection to high density / low income housing - aka 1 BR units. They raise the question if city incentives could promote owners to combine units to more family friendly larger apartment. I follow the logic - larger units, families with kids, lower crime rates. But it's a difficult puzzle to solve: cash flow per square foot is just higher for smaller units. A large portion of the report focuses on economic opportunities for businesses, retail, shopping and entertainment. That is all private and SB capital and it will follow (not lead) as soon as housing set's the trend. Not the other way around. But once the trend gains momentum and there are new restaurants opening up the positive dynamic in the housing market will increase. My gut feeling is that there is enough momentum to stop a further downward trend of the area. If and when it will start moving the other direction is the big question i dont dare to answer. I would say it's a high risk / high reward play. If it pan's out it is a home run, but if it doesn't and you can't bank on it, you have to be okay with status quo as an investor.

75 SFR's for rent in Milwaukee as of today on Zillow. The numbers on this map are a mirror image of the Trulia crime maps - not much of a surprise here: rents are generally higher in Trulia green areas, then yellow, orange and red.

I am afraid they don't: most areas in Milwaukee that are in the sub 100k category have not appreciated in the last 12 months. The metro area as a whole however has gone up 7.4%, but that is a mix of neighborhoods that have done very well and not at all, the average comes down to 7.4%.

$1000 rent for a 85k home seems very low though. Any decently remodeled SF should yield at least $1150 to 1200. Average 3BR apartments rent for 700-900. It's an entire house, a full basmenet for storage, a yard and a garage. That's a lot of value. Go a couple mildes south to the Mayfair Reserve and you are looking at around $1700 for a 2BR apartment.

I think thats a great idea @Rebecca Knox! If I look at different neighborhoods in Milwaukee the difference is not in the houses or streets, they often look the same, it's the people that make the neighborhood what it is. Any effort to clean up a block will benefit everyone. 

My sister in law did that, quite literally in Washington DC. She bought a home in a not so great area close to H Street for only 300k I believe 5 or 6 years ago and would start to pick trash every weekend on her street, clean up the jungle in the front yard. At first people told her she is crazy and it's dangerous (probably was), but neighbor started to talk to her and then follow her lead. Once the street was clean of trash, people stopped throwing their trash away as they walked, neighbors started to clean up their yards. People started to take a little bit of pride. I was out there in December and I could not believe the transformation. Also, her home appraised for over 600k last year. A lot of it is the market, but I am sure the curb appeal helped too.