All Forum Posts by: Andrew Cushman

Roof work, some structural repair, deck work, ceiling work from water damage, etc. Rough guess is $20k - $30k. It isn't anything too crazy, but he just needs a good GC who can go out there and knock it out. Juniper Hills is about 30 minutes from Palmdale/Lancaster.

Hi all,

A friend of mine has an investment property in Juniper Hills, CA that experienced damage from a storm almost a year ago and needs to be renovated. Been having trouble finding a reliable and available contractor for the property. Do you know of any contractors in the Juniper Hills area who could be available to do the job?

Also, who would you say is the top realtor in the Juniper Hills area?

Thank you!

@Kheng Lim you don't have to be local to get a Fannie/Freddie loan. I live in CA and have done agency loans in TX and GA. With that said, you do need to have some kind of local presence or experience, but it doesn't have to be you. It could be a partner that lives or owns locally, or a professional 3rd party manager that is local to that region and has a good resume.  Another way is to buy property with non-agency loans and then refi into agency down the road once you have established a track record in that market.

@Sebastian Hauer , I didn't go through the M1 program but I can highly recommend it. I sometimes contribute to the group, and I've known Rock Thomas personally for about 6 years. He is authentic, high energy, a jedi of business and wealth creation, and a master of accountibility. I've seen a number of guys graduate the M1 program and become "whole life" millionaires.

1Life Fully Lived is the non-profit started by Tim Rhode, who is one of the founders of the Gobundance mastermind (which is what gave birth to M1). 1Life isn't a full-on program like M1.  1Life is geared towards getting the word out to people on how to dream, plan, and then live their ideal life. Much of that is done through 1 or 2-day conferences. The focus now is becoming more on bringing hope and options to inner city people. So while 1Life does a lot and I would recommend going to an event, it's not a long-term structured program like M1.

If you'd like to talk more about M1 feel free to PM me.

Andrew

@Robert Freeborn , the best deals are obtained through relationships, and no service or software will replace that.  Like @Rick Versace said, by the time most properties reach Zillow or Loopnet they have already been passed around and picked over.  We buy 100+ unit properties, and they are almost all off-market deals brought to us via good broker relationships.

You said you were buying "small" multifamily, so I'm going to assume you mean somewhere in the 5-50 unit range.  If I were looking to buy those, here is what I would do:

1. Use Zillow, Loopnet, etc. to see what brokers have the most listings in the area of the type of property you are looking for.  Then start calling those brokers and building relationships with them.  That means talking with them about what you are looking for.  It means analyzing the junky deals they send you in the beginning and then calling them back to thank them for the opportunity to see it and then explaining why it doesn't work for you.  You then follow up with a question like "are there any other properties you have that we haven't looked at yet?"  Also, always respond quickly!

2. Have a broker set up an alert for you on the residential MLS so that you automatically get sent and new listings that come up. The main reason for this is to find more brokers to work with, but you might snag a deal this way as well. The reason is that a lot of mom & pop owners of small multifamily properties just hand the listing to their friend or relative who is a residential Realtor. That person is happy to take the listing, but since it is out of their area of expertise they don't really know how to market or price the property.

3.  Join the local apartment/landlord association, start going to meetings, and network.  Odds are you will meet lots of owners, and at some point just might be able to put together a deal with one of them.  The same applies to real estate investor meetups.

4.  Direct mail.  This obviously costs money but can be effective with non-institutional owners.  Create a list of all the multifamily properties in your market that you would be interested in buying and start sending letters to the owners!

Good luck!

Andrew

@Henry Perez, I'll add my two cents gleaned from owning about 1,700 C and B class units, some with pools and some without.

Bottom line: when I'm deciding about buying a property with a pool, worry about liability usually has little place in the decision.  Liability is something to be managed and mitigated, not feared. Pool or no pool is really just a market driven decision.

Let's get this out of the way: If you own a significant number of units, especially in class C, you WILL get sued, even if you do everything perfectly.  It's just part of doing business.  However, if you maintain, operate, and manage your properties properly and keep the appropriate types and levels of insurance, it's generally not an issue.  You pass it off to your insurance carrier and they handle it.  Also, if you have done your legal structure properly, it should never get to you personally. Now, don't take me wrong here: if you see something that is an obvious liability and it's something you can't fix, be careful about getting involved.  While tenant related lawsuits typically don't amount to much, you don't want to tempt fate!

So, back to the pool.  As @Jeff Greenberg said, pools are generally an important thing to have in B and A properties.  With C properties, I still like to have them as it's an amenity that many other C properties won't have.  The reason many C properties have them filled in is related to age: at some point, that pool was 20 or 30 years old, and rather than spend a ton of money on major repairs, the owner just filled it in.  To me, nothing better communicates "we've given up on this place" than a kidney shaped patch of grass surrounded by decaying pool decking!

@Deanna McCormick is absolutely correct - If you plan on self-managing.  Typically the local municipality has all kinds of rules, regulations, and inspections to deal with. Plus, you need to operate the pool and keep it clean, which takes time and expertise.  So if you're going to manage the property yourself, you might want to skip one with a pool.  On the other hand, these are all things a good property management company can handle for you.  We use third party management for all of our deals, and the ones with pools are no more work for us than the ones without (again, it's the management company's job to take care of the pool).  As far as expense, in the big picture, it's usually minimal.  Plus, you're typically getting higher rents and/or higher quality residents by having the pool.  Just make sure all the expenses are in the historical financials, and that you factor it into your proforma.

@Andrew Campbell said it well: if it is a standard amenity in your market, your tenants are going to want it, it adds value and enjoyment to their lives, and helps you compete.  Just make sure you are properly insured, treat it as another cost of doing business, and go get yourself a great deal!

Andrew

P.S.  I live in California and have experienced many hot days in Sacramento.  Stockton and Modesto seem even hotter.  If I were living there I would want a pool!

@Danielle Friberg , my favorite thing to do is take the little yellow man from Google Maps, drag him into bad neighborhoods, and see if he gets robbed.  If so, stay away ;-)

@Chris Tracy mentioned a few good ones.  I use City-data on a regular basis, and deptofnumbers.com has great data as well.  

Trulia.com can be good for crime maps, although you'll want to dig in a little deeper before you actually buy a property.

Since you posted in the multifamily forum, I'll post more resources that I use for apartments.  However, most of the info applies to rentals of almost any size:

Free Broker Research/Reports (sign up on the website or request from a broker):

CBRE, Marcus & Millichap, Berkadia, Cushman & Wakefield, Colliers

Those guys are national. Often the regional brokers will have reports specific to the metro they cover, which can also be very helpful.

Some Paid Ones: ALN, MPF Research, Axiometrics.

For the above, if you build relationships with brokers and property management companies they will usually be happy to forward you the reports for free.

Some newsletters, magazines, and the like that are useful:

Multifamily Executive, Bisnow, Units Magazine, NAA Industry Insider, and the various newsletters put out by the other sources listed above.  With Bisnow, you sign up to receive daily updates on whatever markets you choose.  I find it very helpful for keeping up with new job announcements, deals, trends, etc.

Finally, as @Todd Dexheimer mentioned, Dave Lindahl's book Emerging Markets is a good overview and I highly recommend it for learning the big picture.  However, the resources above, plus your tolerance for risk and travel, will help you determine where your next investment will be.

Good luck!

Andrew

@John B. , great question!  Sometimes you can learn more from the failures than the successes, especially when we've been in such a long bull market and success seems easy. On a side note, Paul Moore has a great podcast called "How to Lose Money" where he interviews people on their worst deals and moments.  It's worth a listen!

@Mike Dymski nailed it though - invest in the people first, and the deal second.  The right people can salvage a bad deal.  The wrong people will make a disaster out of even a great deal.

I have one direct personal experience to share with you:  Back in 2005, when the single family market was hot, I was working as an engineer, and I had zero real estate experience. I lost probably 80% of what I invested.  It wasn't a true syndication, but the principle is the same.  This company was selling shares "pre-IPO" and supposedly using the money to develop single family houses on golf courses, etc.  My boss invested in it, and I went in largely on the back of his due diligence (he went to their offices, met with the principals, etc.).  The real allure was getting a deal on shares that would supposedly triple when they went public. As it turned out, the company had built some properties, but nowhere near as many as they said, they over valued what they had built, and the majority of the money they were bringing in was going to pay fake dividends and for the lavish lifestyles of the principals.  I started to smell a rat, but just prior to me asking for my money back the SEC swooped in, shut them down, and took 4 years to seize and liquidate what assets actually existed.

With that said, as a buyer of apartment complexes having looked at many hundreds of deals over the last 6 years, here are some of the reasons for failure I have seen:

1.  Partner infighting.  Partnerships are like marriage: easy to get into, hard and expensive to get out of.  When the partners start having problems, so do the property and investors.  Make sure any partners you are investing with have a good track record together.

2.  Undercapitalization.  This one is way too common.  People buy (and in the scope of your question syndicate) apartments and under estimate how much capital they will need to renovate and/or sustain the property.  Cash gets tight so they start putting off repairs.  Existing good tenants start to leave, and lower quality tenants start to come in.  Collections go down further and cash gets even more scarce.  The property can go into a death spiral from which it never recovers.  So if you're looking at a syndication, make sure they are raising enough capital up front to fully cover renovations and reserves!

3.  Underestimating how bad of an area the property is in.  Unless you are in the path of growth or gentrification, you can't make a property better than the neighborhood it's in.  Crime and vandalism will hold the property back, or at the minimum, people won't be able to afford the higher rents needed to get a good return on what was spent.

4.  Banking on market growth to hit proforma.  Markets have a tendency to shift quicker than anyone imagines.  You want to work with a sponsor that is creating most of the value/returns by bringing a property up to its full potential where the market is today.  Any market growth on top of that is a bonus.  At the end of this bull market, whenever that is, there are going to be a lot of failed syndications when strong market growth is no longer carrying everyone forward!

I hope that helps!

Andrew

@Drew Shirley, @Michael Le 's response is the concise and accurate answer.  I'll add some thoughts and experience gained from owning properties ranging from 1968 to 1999 construction, about 600 units of which are in TX (including Houston).

First, two general principles:

1. Typically, the older the property, the more frequent and more expensive the headaches - plumbing issues, foundation problems, etc.  Just like people, as buildings age the problems tend to get more frequent, more severe, and more expensive to fix!

2. Older properties carry a higher likelihood of systemic problems: lead paint, poly piping, aluminum wiring, asbestos, environmental issues, etc.  There are ways to deal with each of these, but you don't want to be blindsided by them.

Now, moving more toward whatever your business model is, some other things to consider:

1. Your hold time.  If you are going to buy, renovate, reposition, and quickly (say within 12-24 months) resell a property, the age doesn't matter as much.  As long as you renovate well, even with 1960s construction expenses typically don't start to ramp back up until after a few years.  If you are going to hold for 5-10+ years, you will need to factor in more for R&M and cap ex the older the property is.

2.  Your tolerance for headaches and surprises.  Even with a great 3rd party management company that handles it all, it stinks getting notified that for the 3rd time in as many months you had to spend $2,000 to fix a major water leak.  Oh yeah and the city inspector stopped by, tested some material pulled from your contractor's onsite dumpster, found asbestos, and slapped you with a $30k fine (true story).

3.  Prior renovations performed, as @Andrew Campbell mentioned.  If the property is older but has been fully repiped, rewired, had all the windows replaced, and just got new roofs, you may have fewer problems to deal with than a newer property that hasn't been well cared for.

4.  Location. Much of the older - 1960s and 1970s - product lies in flat or slowly decaying C neighborhoods.  On the other hand, many of those same vintage properties are in great, irreplaceable locations because the city grew around them.  A location like that could very well offset the negatives of owning older property.

5.  Your lender.  Generally speaking, lenders have somewhat of a positive bias toward newer construction.  They perceive it as safer.  This isn't a huge factor, but just something to keep in mind.

6.  Value add.  Often, the older the property, the greater the opportunity for value add, as long as the property is in an area that can support the higher rents.

What do we do?  At this point, I target properties built in 1980 or newer.  I just don't want the extra hassle that usually comes with the older properties.  However, would I pass up a great deal just because it was built in 1974?  Definitely not, especially in this market!

Large swaths of Houston's apartments were built in the 70s, especially in the southwest and eastern parts of town.  In other pockets you'll find a lot of early 80s product.  Late 80s and 90s is almost non-existent.  I bought 1984 product 3 years ago, renovated it, and so far so good!

I hope this helps!

Andrew

P.S.  When buying in Houston, make sure you pay extra careful attention to flood zones!