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All Forum Posts by: Craig S.

Craig S. has started 31 posts and replied 108 times.

Post: How Heavy Is Your Wealth Tilted Toward Real Estate?

Craig S.Posted
  • Rental Property Investor
  • Cleveland, OH
  • Posts 110
  • Votes 13

@Don Konipol

There is a great saying I like:

Concentration builds wealth, diversification preserves wealth. It sounds like at your age and stage of life you want to create more diversification to preserve wealth.

In terms of real estate, I think it depends on how diversified and risk-averse the portfolio is. On its face, it sounds like you are somewhat diversified but at the same time it’s mostly still real estate.

At the end of the day there is no right or wrong answer. I have found that the best answer for YOU is what will allow you to sleep well on your pillow at night without thinking too much about it.

Maybe considering some mix of index funds and other investment vehicles outside of real estate could give you more broad financial exposure and diversification. Maybe bringing your RE portfolio closer to 50% allocation. There isn’t a perfect science, really it depends on what will make you feel secure.

Post: Multifamily Construction Cost Projections?

Craig S.Posted
  • Rental Property Investor
  • Cleveland, OH
  • Posts 110
  • Votes 13

Hello BP community:

I am under contract on some land that I am considering building multifamily on.

It appears I can build approximately 80 units on the land (based on permitted density), which could be more or less units depending on the exact style of units we would construct (one or two story, etc).

I just started my due diligence phase, but the first thing I need to do is better understand the financial feasibility for the project, and how the return might compare to other investments we have undertaken in the past, which have been mostly acquiring existing buildings and renovating, not new construction.

The land acquisition cost is relatively straightforward. Land purchase price / x units = land cost per unit.

The construction cost of the units is also relatively straightforward. Cost per square foot X square feet = construction cost per unit.

We would be installing a street and double stacking townhome style units on each side.

I part I don’t have experience with necessarily is how to better understand infrastructure and site work cost (road, utilities, excavating, etc. I know this can very widely and depending on soil type, etc. there can be a lot of changes.

Does anyone have experience with constructing new multifamily communities or homes, etc. that could help me better understand how to project costs on infrastructure/site work component?

Besides land, infrastructure/site work, and the building construction itself, am I missing any other major category of costs?

Post: What's it like having a business partner?

Craig S.Posted
  • Rental Property Investor
  • Cleveland, OH
  • Posts 110
  • Votes 13

@Jonathan Feliciano

It depends on how deep of a partnership you plan to form. Are they a capital partner and you don’t have much day to day interaction? Then skills, personality, etc. won’t matter as much. However, if they are going to be an operating partner with yourself, that is a different type of relationship to consider. If that’s the case here are a few thoughts:

1) Treat them similar to a spouse, would you rush to get married? Or take your time to find the right one and build a relationship (date a while) to vet each other out? Consider your shared vision, financial goals, values, morals, ethical alignment, and personality types.

2) You likely don’t want someone with your same skills. That may not add value to the relationship. You likely want someone with different or even opposite skills and strengths as yourself to have a more balanced approach. Are you a risk taker or conservative, are you organized or disorganized, are you emotionally intelligent or think more with your heart? Are you an outgoing people person or quiet and analytical? Etc.

3) Lay out expectations and responsibilities very clearly and in writing from the beginning. Don’t assume you’re on the same page with things, spell it out so there is zero confusion or wrong expectations.

Partners can be the best or worst thing that happened to you, much like the right or wrong spouse. Choose wisely.

Post: Salting Multifamily Question

Craig S.Posted
  • Rental Property Investor
  • Cleveland, OH
  • Posts 110
  • Votes 13

Thanks @Greg Scott for the feedback. I take your posting as not advice on how to structure our salting contracts, but rather clarifying your focus is on limiting liability. I agree, ensuring safety and limiting liability is a primary concern. However plowing, shoveling, and salting has not been an insignificant cost for us, probably in the range of 3-5%+ of our gross income (depending on how much salt they really use).

Post: Salting Multifamily Question

Craig S.Posted
  • Rental Property Investor
  • Cleveland, OH
  • Posts 110
  • Votes 13

Hello BP Community,

I have always had a long debate what is the best strategy when it comes to salting multifamily properties/small apartment buildings. The more units under one roof, the more efficient the cost of salting is, as you will pay the same cost for the sidewalks whether 3 people walk on it or 30 people.

I am not debating whether or not to plow or shovel the snow, only the salting component. Salting has always been very tricky to figure out what the best solution is. Of course, we want to provide clean parking lots and sidewalks for our residents and reduce slip and fall liability, however we also don't want to go broke on salting every year. Salting is also very rough to concrete surfaces, brick building masonry, etc. We have one historical building with sandstone window and door ledges that takes a beating every year with the salt, it eats away at the sandstone more and more every year. Salt is just to dirty/nasty! People track it indoors on their shoes, etc. Just a giant mess.

Salt is also expensive. Last year, we spent more money on salting applications than we did on the snowplowing services itself.

We also struggle to determine how much salting is truly necessary. Some tenants complain it is too much, and some tenants complain it is not enough on stairs, sidewalks, etc. We try to ensure the salt is applied enough to keep down dangerous/slippery ice and to keep the snow melted, but we don't want to go overkill having a "zero tolerance" ice policy like hospitals have, we just want to keep snow and ice down to an acceptable and safe level, without going over-budget.

For some of our buildings where salt seems to be really deteriorating surfaces (mainly building sidewalks and masonry stairs) we thought about using a different product (either calcium chloride or magnesium chloride) however while they are less damaging than pure salt, they are also more expensive (something we are trying to avoid).

What do you other landlords do that have midsize (10+ unit) buildings? Would it make sense not to salt at all, or only salt once or twice per week? We are finding it difficult to quantify into words how much salt our plowing company should be doing. If we tell them "use your best judgement" or "when extreme conditions are present" they always seem to go overkill. We would like to try to figure out a simple guidance we could write up in our plowing/salting contract that will make our monthly bills more predictable and less expensive. We are trying to negotiate fixed pricing this year for salt, however we still need to have the right guidance on what level of salt we need as they will likely base their pricing on roughly how much salt we tell them we need.

Ideally we would not salt at all and simply plow/shovel, that would avoid all damage to concrete, etc. caused by salt. But I am afraid not salting at all could leave several days per year very slippery and snow/dustings could accumulate very quickly since nothing would be there to melt it. We also don't want to physically go visit all our properties every-time we think there is ice just to give our plowing company a decision, that is the reason for outsourcing it to begin with.

I would love to hear others thoughts on your salting policies, what ice melt products you use, and how to minimize that cost!

Post: Appliance Repair or Replace Decision Calculator

Craig S.Posted
  • Rental Property Investor
  • Cleveland, OH
  • Posts 110
  • Votes 13

@John Warren good note. Even new appliances can have issues relatively quickly, however a warranty (usually at least 12 months from manufacturer) can help.

Post: Appliance Repair or Replace Decision Calculator

Craig S.Posted
  • Rental Property Investor
  • Cleveland, OH
  • Posts 110
  • Votes 13

Hi BP Community,

I purchase all of my appliances brand new for my rental properties. I have experienced several occasions recently where I am faced with the decision to spend the money to repair or replace the appliance. This doesn't matter if it is a range, refrigerator, washer, dryer, etc.

Up until now, I always just kind of used my gut feelings and guesstimated whether I was better to repair or replace the appliance in question, considering its age, cost to repair vs. replace, etc. I like to systematize repetitive tasks, and thought about this situation. So I decided to create a basic formula with a "decision engine" so I didn't have to make a random guess, but rather make the decision based on what the data shows every time I am faced with the decision to repair or replace.

I am sure other landlords are faced with the same decisions, so I thought it might be helpful if I shared the spreadsheet I came up with. I could make this really "smart" and more complex by factoring in additional variables into my formula, like current vs. effective age (if I make a repair the lifespan of the appliance will be increased), time value of money, efficiency of newer appliances vs. old ones, etc. however my goal wasn't to get overly complex, and just make a simple formula to make better data-driven decisions on this semi-frequent occurrence.

To use the formula, you would just enter/change the values highlighted in yellow on the spreadsheet and the rest will auto-calculate.

If you spot a simple way to improve the formula or think I forgot about something, please let me know and I'd be happy to improve the formula. All in all, my main goal of this post was to share something I built that I found useful and believe other landlords might benefit from. Hope it helps!

Post: Cash vs. Financing ROI For Buy and Hold Multifamily?

Craig S.Posted
  • Rental Property Investor
  • Cleveland, OH
  • Posts 110
  • Votes 13

Hello,

I would like to know others "expert/professional" opinions on Cash vs. Financing for long-term buy and hold multifamily properties. I am aware of most of the benefits (pros/cons) of paying cash, however I am not as in-tune to the more advanced benefits for financing. Below I will start a brief bullet point list with the most notable items that come to my mind, however can someone give me a good argument why financing is better?

I guess the basis of my question really comes down to "what is a better financial return", however looking purely at numbers sometimes is also misleading and other economic factors come into play (like risk tolerance, etc.). And just to clarify, my question has nothing to do with negotiating a new deal and whether it is better to make cash offers or finance--this question is purely regarding what is better for a long-term buy and hold strategy.

And one other caveat if you will, it is my belief that real estate investing can either be an Investment or a Business. My personal philosophy is that if it is an "investment", then the important rule applies--always protect the principal. However if it is a "business" then more risk tolerance is acceptable. It is my personal goal to continue "investing" in real estate, though I have recently brought on 3rd party management and I don't plan for multifamily real estate to be my sole/main income source for growth. If it was, maybe I would be willing to accept a bit more risk as you need to tolerate risk sometimes to grow more rapidly. For me, because I view RE as more of an "investment" it is my goal to protect the principal--though I want to be smart about it and thus the reason why I really want to understand all the pros/cons of Cash vs. Finance for buy and hold to maximize my results.

CASH

Pros of cash holdings:

  • Minimizes risk in down economy
  • Maximizes pure cashflow on the property
  • Don't owe anyone anything, freedom mentality
  • Keeps the options wide open (you can always finance and pull equity out, use as collateral, etc.)
  • Don't have to worry about a bank calling the loan due or something unusual, especially in a recession or tight economy

        Cons of cash holdings:

        • Ties up a lot of equity that could be used for other deals
        • Potentially risks the capital in the property (if sued for example, it is easier to go after equity in the property than a bank loan)
        • Potentially limits ability to grow (more capital tied up into deals rather than ability to acquire more properties)
        • Possibly losing some tax benefits of interest deduction, amortization, etc.

        FINANCING

        Pros of financing holdings:

        • Ability to possibly increase ROI, cash on cash, IRR? If someone could shed more light on this I would love to know more from other "experts" to see how this plays out upfront and over time. Could I get a much better rate of return by financing?
        • Ability to have less "risk" in the deal due to less capital tied up
        • Ability to conserve more cash for other deals/growth
        • What else am I missing here?

        Cons of financing holdings:

        • Having the mentality that you are "owned" by someone (the bank) and worry in the back of your mind they are ultimately in control
        • In a severe down economy you could be underwater and risk the property (though maybe this could be avoided by not being over-leveraged)
        • More administrative and accounting work (though this is probably a very small point in the big scheme of things)
        • Paying 4% interest rate takes away from the return? (Maybe this isn't necessarily true?)

        Oh, and in the markets I invest, they aren't big appreciation states, so that isn't something I heavily factor in

        I am really curious to hear others advice/recommendation/opinion and pros/cons of financing properties. I understand cash pros/cons fairly well, but really want to understand the financing route better.

        Thanks in advance for the help!

          Post: Outsource Property Management 40+ Units Multifamily

          Craig S.Posted
          • Rental Property Investor
          • Cleveland, OH
          • Posts 110
          • Votes 13

          @Danny Randazzo Thanks for your feedback. Just to be clear, it’s not my goal to build a “management” business other than to manage our owned and operated assets (not manage for others). Do you still think it makes sense to “partner” with a management company, and if yes, what do you mean by “partner” (just use their services, or actually partner as in equity involvement)? You mention doing that to scale the “management” business, but I’m not looking to do that other than to potentially scale the management operation in direct correlation with the growth of our owned assets. My challenge is whether I’d want to manage an in-house salaried property manager and maintenance person remotely if I lived in another state, or if I’d be better off to just hire a 3rd party PM firm. Let me know what you meant by your reply and if you have additional thoughts based on this.

          Post: Outsource Property Management 40+ Units Multifamily

          Craig S.Posted
          • Rental Property Investor
          • Cleveland, OH
          • Posts 110
          • Votes 13

          @Andrew Schutsky and @Justin G. I 100% agree with both of you that managing my “self” isn’t the most effective use of my time. I’m not really debating that per se. I have a part time property manager on salary in-house now as well as a maintenance person. However it does still require some involvement me to oversee everything, especially as it relates to my renovations (however that is a finite amount of time) as once renovations are complete it will dramatically reduce that time involved. I don’t swing hammers or make repairs (though I have in the past and know how).

          My main question here I guess to make it more clear is whether or not 3rd party property managers will be able to maintain the same or similar type of high quality properties that I have now. My quality standards are above most, not only in resident criteria, but in building management and maintenance. I wanted to hear from others who are highly concerned with quality (maybe even were hands-on owners) and how they felt letting someone else take over their management operations and whether they found 3rd party managers to be able to sustain high quality or if it was a constant headache dealing with PM companies.

          @Justin G. I like what you said regarding if the company doesn’t add value you have the wrong PM. I’ve talked to a few companies. Maybe I just need to do more research on best ways of screening PM companies, the right questions to ask them, get references from former and current clients and residents, etc. It’s like hiring a babysitter to watch your child—need a lot of screening and trust to take care of my baby.