All Forum Posts by: Marcus Auerbach

I have been BRRRR-ing in Milwaukee since 2009 and it has changed over time. The first years we had plenty of forclosures, that dried up around 2013-2014, so we switched to buying short sales and when that got thin, we switched to buying heavily distressed properties from regular sellers. Eventually, our cost exceeded ARV, at least at the moment. Long term it ios still beneficial to have a 1960s property fully rehabbed.

Two factors made it harder on me: I never wanted to accumulate a bunch of junk properties in rough neighborhoods - our typical target is a 1960's brick ranch in the suburbs. And the second issue is that we tend to over-rehab, meaning our properties turn out really nice. If you are willing to compromise on those two factors you can optimize for your financial metrics and really try to get cash out of the deal, ideally 25%.

But I think a full cash recycle is more of a unicorn, at least for me. Very few deals even in the best years netted us over 20% back. Today we buy basically move in ready and let appreciation do its thing. Milwaukee median sold prices have doubled over the last 10 years, I am pretty sure we will see them double again over the next 10.

Equity is wealth. Your cash flow is typically going to be about 7% of your equity, for example: $70,000 per year on 1 million of equity. If you buy 4 duplexes for 1 million cash you can expect about 70k in cash flow after expenses, maybe a little more. But equity will grow faster than cash flow. 

A lot of people make more than 70k a year from a tiktok shop as a side hustle. And you don't need a large down payment to do that.

In most cases, your ROI of those additions would be less than 50% of the cost. Even in very desirable locations like Tosa or WFB you can't break even. For example, the going rate in Milwaukee for building a 2.5 car detached garage is now about $65k. Adding a bay to an existing garage is not going to be much less, consider you have to also move the driveway, extend the roof line, blend in the siding (paint the entire house?) and it only gives you 1 extra bay. We have a lot of Mickelsons on the North Shore, with an addition in the back: living room down and primary suite up, crawl space underneeth, to the tune of 150k-200k. It can be done more cost-effectively if you can do it within the footprint of the existing foundation and just build up, but still negative ROI.

Probably better to move, rent your old home and buy a bigger one.

Go to the BP store and pick what interests you, Brandon Turner is a good start. The problem with your stated goal of cash flow is that real estate is not very good at cash flow. The real super power is generating equity, which is much bigger than cash flow. It's like buying dairy cows, because you want to produce leather. 

Most people get this wrong in the beginning and therefore approach REI the wrong way and build their business around a faulty assumption - huge strategic mistake. Play with the BP calculator, use a hypothetical 1 million portfolio and see how that plays out over 10,20, 30 years.

If you want cash flow, buy or start a business. By design a main output of a business is cash-flow. It does not matter if you are selling stuff online, buy an airstream and convert it into a mobile coffee shop or pressure wash houses. You scale by having W2's work for you. And then you invest that cash into RE and use the RE to tax shelter the biz.

Why would that be crossing a line? It is not their property, but it is their home! You should be happy they care!!

One of the most succesful 5,000 unit landlords I know here in Wisconsin trains his maintenance techs to greet the tenant with their name, introduce themseves with their name, make a compliment about anything (their couch, their hair. whatever) ask if they prefer shoes off or booties, clean up after themselves and fill out a Google review.

Anything under 5 stars is unacceptable. The tech gets compensated accordingly (and he pays well). They are the only PM company I know that has a 4.8 star google rating. Most are under 2 stars. 

Their retention rate is incredibly high, despite very high rents and annual increases. Everything he does is with the bottom line in mind and they are incredibly profitable.

He would shake hois head about this question!

What was your motivation to buy it? To take care of your stepmother?

You won't be able to get much more out of the house, so the question becomes how can you market the land. Airbnb is an option, but also a lot of work. You can lease the hunting rights along with the cabin to stretch the season until Jan (bow).

The type of mentor you can easily find is the one who likes your cash. It is scary to start out, we've all been there and wished for someone to watch over our shoulder when we started. But residential real estate is not rocket science. Read some good REI books, ask questions on BP. Nobody watches your money like you do.

 Nick is 100% correct: 

many investors in CA pick a random city in the rust belt, buy for that promised "$200 a month cash flow" that starts right away, and then immediately get crushed by deferred maintenance, expensive turnovers, and the inability to keep a close eye on things because they are so far away.

I estimate that OOS investors have a 20% cost burden that comes just from the logistics and operational inefficiencies. You have enough cash to buy in a secondary CA market.

Yes that's the case in big metro areas, like in NY. This is for example, how Ryan Serhant put himself through actor schoool: by leasing up apartments. 

But Manhatten is not your average Midwest apartment building lease; rents are much higher, so there is a little bit more meat on the bone, so agents can earn a living wage.

Which also goes back to agent economics: at this point in my career (as a top 1% agent in Milwaukee) I earn between 20k and 50k on a good deal - it would not be a good use of my time to lease up an apartment for a few hundred bucks. Young agents are well aware of this and so if they have the tanlent and the drive necessary, they will aspire to leave the leaseing market as quickly as possible.

And knowing rents does not make an agent understand investing. You need to know the local landlord-tenant law, know rehab costs and understand property condition: a lot of rental properties are in rough shape. You can see how many times someone posts on BP about an "investor" friendly agent getting them in trouble with a property in poor condition - you have the one eyed (agent) leading the blind (noobie). Most agents are "friendly", the better question is do they have the necessary knowledge or skills.

@Jim K. , thanks for sharing your story. I read it twice. War and economic disaster really puts things in perspective. And here we are complaining about egg prices.

Love your idea about helping kids learn English. I remember vividly when I F'd in English when I was 13 years old and had to repeat an entire class, I was thinking this is stupid, when would I ever need to speak English in my life LOL

AI will change education. I am trying to stay current with AI tools and instead of listening to podcasts I prefer now having conversations about interesting topics with AI while I am driving - it makes also for a very good language tudor.

I came to the US about the same time as you for my job, my company at the time asked me to move here from Austria. The US is still the land of opportunity and I love it! It is my home of choice after all. I don't think I could have accomplished in Europe, what I was able to do here. Even though I have much to criticise, living in the US could be so much better for it's people, we are sometimes our own worst enemy when you look at things like this money extraction scheme called health "care". The economic pain that Americans are inflicting on fellow Americans under the banner of free capitalism is nuts. My problem is, I have seen it differently in Europe, so it is very hard to normalize what is happening here. And then you look at food or generally the quality of life for most people, it could be so much better! Sorry, I digress.

Once you have done the car thing, it loses it's luster a bit. I have had a weekend car for 6 or 7 years and it's fun, but I barely use it. Taking care of my family (we don't have kids either) has always been a concern of mine. Being in a position where I can help financially without going broke myself has always been one of my main motivations. 

Your take on crypto resonates with me. I am very much on the fence. I am not sure what we are going to see happening economically in the US in the next 10 years. 36T in debt is beyond concerning. The bond market is concerning. And boomers taking money out of the system at a scale we have never seen. I am not worried about your average garden variety recession and a massive economic collapse seems unthinkable, but I am not sure if it is impossible. My grandpa has lived through the 1930's and WW2, he once said to me when I was little: boy, just because you have not seen it in your lifetime, that does not mean it can't happen. He had seen a lot of unthinkable things happening. So preserving my ability to be there for my family no matter what has become front and center.

On a lighter note, we travel a lot. When I moved to the US I wanted to visit every national park and then realized that does not work with 2 weeks of vacation. That was the first thing we changed after I retired from corporate in 2015. We now travel at least 4 times a year together and I have started throwing in fun adventures that I am still young enough to do that. In Sepember and October, I will be riding a motorcycle across 6 countries in Africa and I am beyond excited for that. We will have a support vehicle, a mechanic, a medic and guides and I feel that's the stuff that is totally worth spending money on. I have done this before in Patagonia and it has been such an incredible experience! And you meet the coolest people!