All Forum Posts by: Andy Gross

If she's not comfortable investing in real estate, and you can't convince her it's the right thing to do, then don't do it. Figure out what both of you are comfortable with, and do that.

Honestly, this is more marriage advice than anything else. But, if she is cool with you doing the investing, everything acquired during the marriage is considered marital property even if you invest using "your money."

Thanks for the breakdown! The difference between this rehab, and one for retail, must be in the finishes/materials. After reading through your website, it's clear that your $1000 budget for appliances wouldn't go far if you were flipping to sell to retail.

@J Scott 

Those numbers look great. From my limited experience in remodeling, the rehab numbers seem very, very reasonable. Are these long-term contractors you are working with, and thus getting/negotiating lower rates, or are these retail prices? And when you say "gut" rehab, I'm assuming these aren't the typical Baltimore City shell that has three walls and half a roof, right? Are you taking the walls down to the frames?

Hope I'm not asking too many questions. I'm just trying to wrap my head around your deal. I hope to purchase my first rental at the end of next year and trying to accumulate as much knowledge as possible.

@J Scott   are you going to write about these on your website?

@Christina R. , if J doesn't, would you mind doing a write-up? I ask because I am really curious about how these rehabs for rentals work out. When flipping to retail, a new kitchen (cabinets, counters, appliances and lighting) can easily run $20k+, installed, but lots of these rentals in Baltimore seem to wind up being under $50k, all in. Obviously you aren't putting stainless/granite in the lower end rentals, but still, even assuming good mechanicals, a new kitchen, bath, misc. repairs, still has to be expensive, especially if there is lead paint to contend with.

@Elke Cardella Some additional thoughts. You may want to look at the areas between Penn Station and Charles Village into the Barclay neighborhood. The area between North Ave and abut 27th street has lagged in development, but you may be able to get on a rising tide in that neighborhood. Lots of development in Station North, which had previously stalled out during the recession. I couldn't tell you numbers, honestly, but there are some small multi-family buildings and mixed use buildings, that with a little love and stabilization, could see some appreciation as the rest of the neighborhood comes online.

@Elke Cardella 

The lawsuit got sorted out in time. I don't know the final resolution, but nobody was unjustly enriched. Lawsuits happen. I know, because I'm a lawyer. Rarely is it personal. It's part of the business and part of the agreement landlords make to tenants to provide a safe product. When landlords fail, lawsuits happen, but, some are going to abuse the system. The best you can do is screen tenants well and make sure you have a good, up to code, lead-free product. Also, lots of certain entities get sued time and time again. I would avoid buying properties owned or managed by these entities. But also, running background checks on tenants can weed out serial-plaintiffs.
I think appreciation can happen, especially in the right areas. Unit block of North Montford is nice because of its proximity to the park, and there aren't a lot of shells left in the unit blocks.

Gonna have to respectfully "clarify" what Wayne said. First, Maryland is really no different than most states trying to balance their budgets. As a guy from MA, you probably know what this is like. Taxes and fees are part of the business equation, and if your business fails "because of the taxes," you are kidding yourself. It failed because you failed to plan for the taxes. It's like saying "maintenance costs put me out of business." That should only happen if something entirely unpredictable happens. Research and budget for taxes. If you can't budget for the taxes, then find another business. The "rain tax" as described here is a relatively small (couple of $ a year) stormwater remediation fee that other jurisdictions charge as well. Honestly, it's going to be one of the least expensive things you deal with.

Next, is lead paint, which is serious. There are plenty of ways to mitigate risk. You can never eliminate the possibility of getting sued. As a recent podcast episode pointed out, the guest stayed in her place one night before she got sued for $10k. You can sue anyone for anything. The question is whether or not you can be successful in either a) getting out of the suit once its filed, b) reducing your risk of lawsuit, or c) ensuring that you will prevail should it come right down to it. Also, the statute of limitations runs three years after the exposed kid turns 18, so, up to 21 years and nine months (including gestational exposure). Going to the meetups, talking to guys like @Ned Carey or @Tyrus Shivers will give you a good idea on how to protect yourself. Ned has already pointed out some issues with the market you are looking at. From what I've seen (this is anecdotal, based on limited evidence), Baltimore County courts are going to be a bit more landlord friendly than City courts. First time you get sued, find a good lawyer and bring your paperwork. If you did the right thing, it's still going to cost you a bit of money, but you shouldn't get taken to the cleaners.

Because of the demographics in Baltimore, managing your own properties might be too time-consuming if you have a full-time job or live out of state. Ironically, lower priced properties tend to have more management headaches, but this is why you hire a manager. Several BP members have management companies, and seem to care enough about the business to make a good effort.

My larger points is that lawsuits happen. My uncle, who is probably one of the best businessmen I know, got sued for $12million the day after one of his tenants discovered mold in the house college. Not even kidding. His places are 100% renovated when he moves people in, and his firm does great work. When he got the call from the tenant, he had a team of certified mold cleaners working on the house to remediate the problem within hours, along with plumbers, roofers, etc to figure out why mold grew in the first place. He was incredibly accomodating to the tenants, and I'm sure it cost him a bunch of money, but he knows that doing the right thing will eat into your bottom line sometimes. Got sued anyway. It happens.

Finally, don't bank on appreciation, because you never know if an area is going to pan out, and changes are, the odds of appreciation are probably factored into the price. Instead of focusing on growth, I would personally focus on value. If a lot of people are excited about a particular area appreciating, realtors/sellers are going to price that into the equation. Appreciation is a mental thing.

@Stephanie Lella , margins can be tough in those areas, so you are going to have to work hard on purchase price. Also, 2428 E Fayette seems to be right on the border of the rehabbed areas, but looking around, it seems like there is good movement in that area. IMHO, south of Fayette is where the action seems to be, and if possible, I would try to get on a North-South street because Fayette is a major road that may be a turn-off to buyers. Orleans Street is a dump and I don't see it getting any better anytime soon. I haven't been to the neighborhood in about 3 years, but last I recalled, redevelopment was heading north of the park and then kinda stalled after the 100 N blocks immediately north of the park. Things may have changed, but in business, there is the adage that goes something like "the first person in usually loses everything, but the person that comes in afterwards can really clean up." 

With that said, there is some real opportunity there, especially if you find the right deal. Patterson Park is awesome. I spent 2005-2009 living a stone's throw from the park, playing football on weekends, and kickball and softball on weekdays. It's a vibrant neighborhood, and houses immediately facing the park tend to command a premium, especially if there is off-street parking. A roof-deck, or engineering for a future roof-deck is a must in Baltimore City. Houses closer to the park, or immediately west of the park are going to command a higher price.

Andrey, that's interesting. I live in a condo in Kaneohe, and I don't see how it cash flows, but that's for the owner to figure out. We were thinking about buying but we knew we would only be here two years before returning to the East Coast, so we decided to rent. To buy into our complex we were looking at about $475k and up, plus $650 in maintenance and HOA fees. Rents were in the $2500-$3000 ballpark, and but I think this complex can support $3300 if the unit has a good view and is in great shape. If you need a PM, good luck cashflowing.

Either way, the HOA is oppressive. They used a telephoto lens to take pictures of our balcony because our railing wasn't in compliance. Creepy. I've got stories from our neighbors, some of which have been driven out of their houses in part because of the HOA. We've had members of the HOA board attempt to barge into our house, uninvited, to do impromptu inspections, without notice.

Congrats on your first purchase! Are you at all concerned about HOA fees? It would seem to me that $1300 per month rent, minus 50% rule, debt service and HOA fees will really eat into your budget.