All Forum Posts by: Andrew Watson

@Account Closed. I can’t help with a property manager recommendation. We believe that with affordable housing we are better at maximizing and protecting our assets than a property manager would be. 

We buy and hold SFRs, primarily south of Atlanta. In '17 and '18 we spent a lot of time evaluating markets around the Atlanta metro. We were primarily looking for cash-flow because we don't like being dependent on appreciation. If you're a believer in the "percent rule" (whether it be 1% or 2%), Atlanta doesn't even register, while 1-2% is very achievable in some of the surrounding areas (to get our homes a little closer together we recently sold an SFR, fully renovated with new roof, and it met the 1% rule on the sale price).

In our analysis a couple of years ago, our "finalists" were Albany, Columbus, Macon and Covington.  We decided to stay more to the east and focus along the I-75 corridor for a variety of reasons, one being the massive expansion at the Savannah port.  We've been very happy with that decision, but I believe there is still plenty of opportunity in Columbus, with the right property and the right property manager.  "Turnkey" makes me a little nervous - we renovate our properties with the intention of renting with minimal maintenance, but I'm not sure turnkey operators do the same.  A poorly renovated property, or a disengaged property manager, will make for a very unpleasant experience.  

I'd be happy to share more about our selected markets if you would like to connect offline.  

Keeping in mind that we are in affordable housing, we don't care about credit unless it's a recent repossession.  We also aren't sticklers for 3X income, but you have to be close to that and demonstrably able to cover rent + expenses.  What we ARE sticklers for is evictions (nope, not a chance) and verifiable rental history.  We basically only rent to people who have previous landlords who will vouch for them.  We have violated that rule only once, and it's the only time we have had a problem tenant.  But you have to dig, vette, question, meet face-to-face, check public records to make sure you're talking to the REAL landlord, not their Momma.  

We have a couple of SFRs that are in neighborhoods closer to C.  Same issue with the fireplaces so we went the electric route - no, they don't look much like real flames, but hey, they actually "crackle" like a real fire and put out heat.  Even though the homes are in C neighborhoods they're nicely done and they rent on Day 1 for 10-20% more than the rest of the neighborhood, and those fireplaces absolutely help.  Now, as we start renovation / rehab we look for places to create the fake fireplace.  For $500 they set our homes apart, drive our rents higher and most important, get us top-tier tenants, even in lower income areas.  

We invest primarily south of Atlanta, from McDonough to Macon, and even in those markets we aren't seeing any multifamily properties that touch the 1% rule...unless you're willing to buy a shack in a neighborhood where guns are NOT optional (and that assessment is coming from someone who doesn't shy away from shacks in rough neighborhoods).  Multifamily prices are downright silly.   With our SFRs delivering 15-20% annualized ROIs, we can't find a multifamily anywhere that makes any sense to us.  

If both strategies produce your target results, then neither are wrong.  Like your partner, we look for "guaranteed" cash flow so we can pay off the mortgage in 8-10 years.  I say "guaranteed" because we're really good at estimating our real cash flow, but not so good at predicting appreciation.  

That being said, we prefer your approach for one big, expensive reason: we believe buying an SFR where all the work has already been done is a big risk. Spray-n-Pray (shotty workmanship and major issues covered with a coat of paint) is running rampant these days and we want to spec the work, INspect the work, and decide when the wall is sealed, the ditch filled and the work is complete. This approach gives us 10+ years of very low maintenance costs and fewer headaches.

I would have responded sooner, because I value the feedback from this forum, but I was scrambling to salvage a deal that LendingHome was funding. 

Fortunately, we were able to negotiate a contract extension (on the day it expired), find another lender with the help of some people on this site, and close 3 days later. 

I’m happy to provide any specific details offline. 

While your current cash flow is non-existent, it sounds like your long term objective is reasonable - when the time comes for you to leave your 9-5 job you will own it free and clear and it will provide decent cash flow. Considering that long term objective, I wouldn't get distraught over CapEx...if you have the resources to cover it. To the contrary, if the area is trending positive in rents, I would plow money in now while you have the 9-5 income - take care of the roof, the HVAC, and any other every-20+ year expenses. Our approach is to heavily invest the first year after purchase, then enjoy the tax benefits and years of trouble-free income. It works well for us - but, our cash-flow is substantially higher - you will have to do the planning and have the resources to fund these capital projects out of pocket.

Does anyone have any suggestions on a reliable / competent lender that may be able to move quickly?  We have the property under contract.  Our lender has now missed 3 closing dates, changed the terms on us twice, their appraiser has gone awol, and now my contract is about to expire.  And yes, when this is all over I will post an honest, if embarrassing, review of the “lender”.  As well our agent and the closing attorney - all of whom are done with this particular lender.

Here are the details:
Most important, it’s a 2 acre property. It’s 1.3 miles from the downtown area of one of the hottest bedroom communities of Atlanta. Vacant lots recently sold for $130K for 1/5 of an acre. The area is in the mist of a huge expansion of the downtown / village area, and this property is walking distance (with sidewalks). It also has a 3b / 2ba ranch which needs $15K and 14 days to make a fully inhabitable home, but the play here is the land. 

When the appraisal finally came back (2+ weeks later) it valued the property at $315K. We have it under contract in the mid-300s and are prepared to put 30% down, if necessary. Our plan is to do the light renovation, rent the home (it will clear the debt-coverage requirements by 50% or more), and begin planning and permitting for a small residential development. Planning, permitting and financing could take a year, by which time supply shortages and labor costs may have stabilized. Maybe. 

I don’t know if the appraisal is the problem, or the fact that we buy a lot with cash (we have good credit, but we don’t hold a lot of credit lines) or if it’s just the lender’s incompetence.

Any suggestions would be appreciated.

As almost everyone on here will, or has, suggested, you need to run the numbers before investing in anything.  And before piling $800k into something on your first run, you need to really know the numbers...LIVE the numbers.  Everyone is different, and I know nothing about your financial position, but that sounds like a big number for a first time deal.  

In the interest of full disclosure, you should take my advice with a grain of salt: My first deal was a SFR for which I paid $22,000. I rented it to a great couple for $550 / month and didn't spend a nickel on it for 2 years. That couple just moved into our most expensive home (purchased for $60K and we put another $15K into it). I'll do some re-hab (about $6K) on the $22k home and rent it for $625. You can see from our history that we would have a hard time wrapping our heads around an $800K investment unless it came with 16 units.

Best of luck, but more important than luck, know those numbers and every possible contingency.