All Forum Posts by: Andrew Johnson

My only advice would be to work (get money) and start inquiring about properties.  Treat it as a learning curve while you're saving.  Learn to do the pro-formas, track what property is listed for and subsequently sells for, identify target markets and learn them on a street level (if you want to invest locally).  That way when you do have some saved up you'll know how to run the numbers of deals yourself, understand the local markets, and won't get killed in analysis/paralysis and have someone else beat you to the punch.  I know it's not really a fun piece of advice to say "learn" but it's far better to make no investment than the wrong investment (especially if you're not flush with cash reserves).  

All of my leases are 12 months unless someone has been there a year and wants to convert to month-to-month (and is a good tenant).  I don't love it because you can't have the "your lease is coming up in 3 months do you want to renew" conversation but I'll always opt to keep a quality tenant.  

I'm just going to chime in on one thing, I'd stay away from vacation rentals. I've never found one that pencils out as well as a multi-family. The property management costs are generally 20%-40% and you have increases costs around stuff like "new bed sheets" you'd never have to deal with in an SFR or MF. Not to mention there's seasonality which means you make a lot of money 1/3 of the time and go in the whole 2/3's of the time. And there's other quirks like beach homes often having higher insurance, general economy impacting the public's ability to afford vacations, etc. The only way I've been able to get any pro-formas to cash-flow is with a very high down payment and that equivalent down payment would generate better returns in a MF. Anyway, just my 2 cents on that issue.

@Daniel Cuevas My first deal (all of my deals) were buy-and-hold.  If I had leveraged I could have bought my second property faster or a larger first property.  So I basically missing out on the additional depreciation that I would get on a larger (or multiple properties) and don't get to write-off any mortgage interest (in a low-rate environment).  Yes, I might be losing out on some additional income but really the "hurt" is in paying ordinary income taxes.

@Derek Rocco Good to hear the units are filled. Rent is one of those things that once it's gone you never get it back. And water in the basement would unduly freak me out. I'm not a contractor nor a plumber so that kind of ambiguity isn't what I'd like. I even stay away from pre-1978 construction so I know I never have to deal with lead-based paint. I'm pretty conservative in my investments so I'll always take newer construction for less ROI, slightly less rent to ensure less/no vacancy, etc. Risk appetite is a person thing!

The short answer is, yes, you can use a property manager.  My properties are out of state of I have a firm that manages them for me.  However, I also take a couple of trips a year out there to check on things (but maybe I'm too paranoid).  What's more prudent to consider is costs associated with it.  You might find their fees range from 8% - 15% of gross rents.  Some charge for marketing or a turnover fee when a unit is vacant, some don't.  Some charge a percentage on top of repairs, some don't.  When you're running the numbers on what (hopefully) would be a profitable investment you have to take all of that into account.    

I think it mostly has to do with your personality, risk tolerance, etc.  Having $100K likely means you have enough for both a purchase as well as reserves.  You could opt to buy a newer property (less maintenance), put more down (enhancing cash-flow), etc.  I know I paid all-cash for my first deal because if it didn't work out as expected I would only "make less money" rather than "lose money".  In the end that deal turned out better than I had planned so maybe I should have leveraged.  The benefit of having a first property cash-flow well is that it really accelerates what you can do with the second property.  Assuming you're still building reserves from your day job and you now have cash-flow from a property (and the tax benefits of depreciation, etc.) you can reload quickly for the second investment.  

One idea is to ask for copies of the leases so that you can confirm what they are renting for and (perhaps more importantly) when the leases were signed.  If they were completely rehabbed 2 years ago but all of the leases were signed in the last 9 months there might be something you need to uncover.  Again, completely hypothetical but it's one thing that I look for when vetting deals as turnover can kill a great pro-forma.  If they are using a property manager I'd ask for trailing 12 months of income/expenses which can also give you some insight.  If they have those and won't supply them to you it's a definite red flag (to me).  

More of an out-of-the-box idea would be to see who is the property manager for the 52 unit complex.  Call them and ask what they know about the 26 unit property.  Assuming you won't be self-managing you'll also need a PM so it could be a fruitful conversation for both.  I know when I vet potential properties through my PM (not in Louisiana) she will point-blank tell me whether it's a property she would LIKE to manage or a property she would be WILLING to manage.  There's a difference :-)

Agree with @Anthony Dooley on asking for trailing 12 months of expenses.  Hopefully that's what you did to come up with your monthly expenses.  I'd scrutinize those expenses as they could either be higher than you plan (potentially a reason they are selling) or lower than you think (potentially due to deferred maintenance).  I'd also ask for copies of the leases to see when they were signed, if they are all new tenants (i.e. significant annual turnover) or people who have reliable stayed a while.  If someone "just wants to be rid of it" it's likely not as "passive" as they would like.  More assumptions here, but that could be because of either constantly turnover/vacancies/market costs or significant/frequent repairs.  

One thing that would concern me to a huge degree is water in the basement.  If it was under contract once, why didn't they fix it before putting it on the market?  Why not fix it when the first deal fell through?  I would posit if it was an easy/inexpensive fix they would have done it already to make their property more marketable.  The paranoid (or diligent) side of me says that requiring no contingencies and not allowing an inspection means they know something you don't.  

Net result: let the property sit on the market another 30 days.  If it sells, it sells, if it doesn't you'll be into February in Pittsburgh with water in the basement.  I can't think that would constitute a "sellers market" and they might become more flexible on the price.  And you'll see if 30 days has allowed them enough time to rent out the last unit. 

One area where you might see an acute link between the two would be vacation properties.  If you see your 401K declining you're probably not going to run out and buy that vacation home on the Gulf Coast, weekend house in Palm Springs, or the ski-in ski-out condo in Aspen.  Even if you have the money you (as @Kenneth Reimernoted) won't feel like it's the right time for that purchase.