All Forum Posts by: Marcus Auerbach

Hi Jeff, I wish I could tell you differently, but you have too many potential failure points in this plan and their probabilities multiply. I have done a LOT of rehabs and a few of them were flips. Flipping is hard enough if you do it 15min from your house and without a partner. As far as price point you want to go up high enough where people are will to pay for great design and not just necessities like a functioning HVAC. The secret to flipping successfully is always in the design part: exceptional design makes money. Just repairing broken properties is not a profitable business model. 

When you look at the amount of work, ROI, risk and taxation, flipping is not a great business. Don't flip because you love RE. I'd much rather buy a coffee shop or a car wash. Or any other cash-flowing business and then use that cash to buy more rentals.

Knowledge is always an unfair advantage. I know a guy who owns several thousand apartments in Morocco. Would not be my cup of tea, but yeah I am sure he has an advantage bringing American capital. 

But "safe" is not the major concern. I would be more worried if the country is politically stable and its property laws hold up. Otherwise you may find out that the government annexed your real estate or someone bribed someone to change the ownership records - good luck if you are not a local

Quote from @Ashley Kroft:

Hello BP!

I am curious what you all use as a property management software to screen tenants, create applications for the tenants to apply, create leases, list the properties for rent, maintenance requests, etc. A do-it-yourself program that is landlord friendly to a beginner landlord. 

Right now I am using Avail and I'm not loving it as I cannot upload my own rental application. What do you all use for your properties? 

Thank you in advance for your time reading my post and answering my questions. Much appreciated!!! 

You don't need any software to get started. The beginner-friendly ones don't deliver what you need and the more advanced systems (like bildium) will have you spend more time learning the software than anything else. And I am generally a software guy! We use a lot of IT in my other business, but I can't make a good case for fully integrated property management software until you get into 100+ units.

Analysis paralysis is a very easy trap to fall into. And similar, you can spend time to design a logo, print buisness cards, set up a website, creating LLCs - or you can go and buy properties instead.. 

All you really need is a seperate bank account. We use Zillow to avertise, MySmartMove (Transunion) for background checks, Google sheets of course, bookkeeping  is completely outsourced and they use Quickbooks (I died on that hill more than once, best decision ever to outsource), for communication a seperate cell phone and it's mostly text messages, rent collection via my bank (ACH), and maintennace in a spreadsheet (how much maintenance are you planning on doing??) Leases should be State specific (we use Wisconsin Legal Blank for all forms) and mature / well-litigated, meaning court-tested.

There are very little synergies to integrate these systems. Yes, I may have to type a tenants name more than once, but most of our tenants stay 5+ years, so big deal.. 

Depends on your goals. Pay off fast, finance forever? It seems like the USD is entering a period with higher inflation and higher interest rates in general. Ray Dalio explains historic debt cycles and where the US is headed. We also are in the middle of a generational shift. Boomers withdrawing money from Wallstreet and moving into into retirement assets removes capital from the markets, Gen X does not have the same wealth to make up for it. And Gen Z is broke.  

Inflation may normalize at around 3-5%, 10-year treasury bills could go to 6-8%, pushing conventional mortgages to double digits, making todays 7% look like a bargain. DSCR loans are now cheaper than conventional, because they are based on prime. If the Fed cuts in September, the gap could grow even bigger. You are already leveraged only 60%, maybe explore some other options. I currently use 10/10 commercial loans - fixed for 10y and fully amortized for 10y.

Quote from @Amelia Cooper:

I want peership. I got six properties under my belt without being part of a community and now I am facing challenges that 1) I do not know if they are real challenges or part of the normal course of business or 2) how to resolve them or 3) if I am doing it right. While I appreciate your naysay, what I am looking for - reassurance and oversight - can't be replaced with a Youtube video. 

You just found one, and it's (almost) free. We can help you here as a sounding board for questions, but it also sounds like you need to grow a thicker skin and that's a personal growth challenge. Your thoughts become reality - and I don't mean that spiritual in any way, I am an engineer. So you have to learn how to control your thoughts. Like the old saying: whether you think you CAN or you CAN'T: - you are right.

Success always looks easy when you see others, but you have not seen their struggles and setbacks. We all have them. I thought my life would be bliss when I got to where I am, but far from it, the challenges just look different.

Self-reliance is something you can cultivate and train like a muscle. Every time you have overcome a challenge, write it down or tell someone about it - you will start to wire your brain that every issue you encounter, you figure out a solution.

Quote from @Tyler Warlow:

@Micah White

Thank you for your input. Our goal with real estate investing would be to help generate flexibility in our life. Generally, it seems to be the consensus that if I tie up my money in equity, that I could get caught in the so-called "middle-class trap."

That's why, ideally, I would like to cover at least a good percent of the expenses that could then be fully covered once we move out. I guess I'm just unclear if that's really possible right now without doing rent by the room.

Wrong metric. You are looking at year 1 cashflow, that is almost never positive, but will improve over time as inflation drives rent. But cash flow is not even a good qualifier; even the worst house hack will beat a SF financially. 

After investing for 15+ years my advice is buy the best MF you can afford (location and condition) and don't worry too much about the cash flow. Your future self will thank you.

Second and about the "middle class trap", if you are looking for cash flow, start or buy a business. RE is not really great at cash flow, it's superpower is equity. A business's purpose is literally cash flow, equity is secondary.

Quote from @AJ Wong:

POV: Human Beings aren't being replaced - especially smart ones. We have been writing about this ARTIFICIAL 'Intelligence' BUBBLE on my substack for years. It is eerily reminiscent of 2000-2008. The peak of this movie is billions for programmers and $120K+ Bitcoin. This go around however- demand for RE and other hard assets could actually accelerate -particularly as rates are floored and monetary policy loosened...part of the reason Berkshire & Buffett just went long on housing. 

The K shaped economy will intensify - with the truly wealthy diversifying dizzying paper gains and everyone else working to acquire what assets remain. We continue to be long: Gold, silver, natural colored diamonds and RE both stateside and internationally with positioning for non-artificially inflated equities. 

 I'm with you on the K-shaped economy. The smart ones go up, the not-so-smart ones are going to be replaced. IDK at this point if labor history is a good teacher, this is fundamentally different than the industrial revolution. 

I have seen BH go long on Lennar I think it was with 800M, but at the same time I see them offer incentives to buyers like never before.. 

@Eric Fernwood , right now I am mostly thinking about the fall-out from a stock market correction that would bring P/E ratios down to historic averages. It seems like right now the market is chasing all-time highs while we see consumer spending sensitive companies like Target and USPS report weak numbers and omit (!!) future guidance.

The issue with AI replacing jobs is a separate one. Replacing keyboard jobs is phase one (next thing would be trucking and transportation in general, uber, doordash etc) which would lead to a lot of people not having much money to spend and really drive a recession. This would probably impact my tenants.

If we are going to start manual labor being replaced by robots, we will have to reinvent our entire economic model. Musk seems to think that this will happen fast, but to me that is still fantasy land, so I'll ignore that for now.

I have not seen a DSCR loan that did not require a large downpayment (25% min), plenty of reserves, an experienced operator and a 1.2 DSCR ratio. Any normal lender will scrutinize your income projections.

Are there lenders out there who will walk out on a limb? Probably. 
Is this a systemic problem? I don't think so.

There is always a % of loans that default. In fact if that number approaches zero, management usually tells their UW that ease up a bit. But with 25% or more equity in the deals, this is not be a 2008 situation and comparing this with 2008 as a catch-all argument is just an uninformed statement

SF are a pain to transact as a portfolio, both for buyer and seller. Typically they are run down. You basically value them on comps, adjust with a flat number or percentage for condition and then adjust some more for investor discount.

Due diligence is a pain for both the listing agent and the buyer. Much better to treat them as a serial flip. Get them vacant one by one at a pace your construction crew can handle and then run that pipeline into MLS.