All Forum Posts by: Dan Brewer

Ed,  

It appears you are not taking into consideration one very important factor - the tax benefit of your loss.  Based on what I understand, you have a calculated $315K loss.  Just using a simple example, if you are in the 30% tax bracket, that is a net savings on your taxes of 90K+. Then that money can be put to work as well, and you can earn return on that.  If your net taxable income is not high enough to absorb the entire loss, there are loss carry forward (and backward) provisions.   There are also limitations as to what type of income the loss can be applied.  I would strongly encourage you to talk to your tax accountant to more fully understand this.    

Paul - 

I am very famiilar with a quality mobile home park investment fund.  The fund managers have created several such funds over the years.  You can email me directly for more information.  Even though you are not an accredited investor, there are opportunities for non-acredited investors to invest, beyond what @Paul Wink mentioned.  The fund managers for the fund will make that determination for you.  

Diron - 

I specialize in the assisted living market, and have focused on it for the last five years.  I completely concur with both @Travis Sperr and @Jon Holdman on their points.  Within assisted living, I focus on investments in traditional larger facilities, for a number of reasons.  First, I promote passive income to my investors, and this is truly passive, not semi-passive or any other variation of that term.  2nd, as Jon pointed out, once you establish an assisted living operation in your property, its an ongong business with its own regulations and requirements.  It's not for the everyday real estate investor.   Without repeating everything Jon and Travis stated, there are too many moving parts, too many exposure points for me to recommend this to my investors.  

The most important aspect that defines the success of an assisted living facility is the operator.  If they are very experienced, and have a track record of success, then the likeliood of success for any deal they are managing is very high.  The oppositie is true too - if they are not all that experienced, then the liklihood of failure is much higher.  The only way I would promote such an investment for my investors is if the owner of the property/business would engage an independent 3rd party operator with tremendous experience in the assisted living industry to manage the operations.  There is movement in the single family assisted living community by 3rd party operators to provide such services, but it appears to be in its infancy and not available on a widespread basis.  

I can direct yo to others who are active in the single family assisted living facility market if you wish.  

Good luck in your endeavors.  

Loren - 

I also recommend engaging the expertise of those who have invested in large multi-family properties. They are a different animal.  There is a significant difference between smaller multi-family properties vs larger multi-family properties - economies of scale, on-sight vs off sight management. exit strategy, financing, etc.   The Bigger Pockets community I am sure is full of those when have made the transition and would be happy to provide you pointers and recommendations.  

Excellent point.  I recemmend a combination of both approaches.  

There is nothing like preventive maintenance!  Its natural human instinct to take better care of things we own, and less care of things we don't own.  Like a rental property.   I think its a good idea to contact your tenants and remind them of items that require their atention this time of the year.  If you don't remind them, there is a decent chance it won't get done.   Changing furnace filters on a regular basis can save you replacing a furnace before it should be replaced.  

If you have a property manager that manages your property, don't take it for granted that he/she is on top of this.  Remind the property manager too.  You are the one who will ultimately lose if proper mainteinance is not done

Below is the basics of a Tenant Fall Maintenance Letter.  The letter will be a little bit different for everyone, depending on the prioperty, area of the country, etc.  But this is a start.  Please add your maintenace items to it, so that all property owners can get a comprehensive list of items that should be considered for the letter.   Then you can construct your letter from the list of items. 

One final point - dont make the letter too long with too many items, then it will look like too much work for the tenant.  Employ the KISS principle.  

Dear Tenants,

As the fall weather will soon be approaching please take this moment to review a few items around your home:

1) Lawn and leaf clean up: Remove all leaves in your yard, in landscape beds, along the foundation of the home, etc. Please also check your gutters and let us know if they need to be cleared. When checking your gutters, make your downspouts are attached, directed to the splash blocks, and properly filtering water away from the foundation of the home.

2) Sprinklers: We are creating turn off work orders this week. Thus, by Monday, if you have a sprinkler system at the property and have not yet received a call from a vendor to have them turned on, please contact our office to get that arranged.

3) Air conditioning units/Furnace: If you have not done so already, please take a moment to turn on your furnace for a test. You might also take this time, as a reminder, to change the batteries in your thermostat, replace your furnace filter, and clear your air vents to ensure your unit is working to the best of its ability.

4) This is also a good time to disconnect your exterior hoses.

5) It is also now time to change the batteries in your smoke detectors.

Thanks in advance for your attention to these matters. As always we appreciate your tenancy. If you have any questions or concerns do not hesitate to reach our office at xxx-xxxx.

Landlord

Will - 

You echo my sentiments on senior housing completely.  I have bencome a very stong proponent of senior housing.  They had their own capital market "collpase" around 2000, and it was exascerbated by the 2007 crash.  Yet baby boomers began retiring in 2007.  Ironically, this was a contributor to the crash - read "The Great Depression Ahead" by Harry Dent.  

10,000 babyboomers will retire each and every day for the next 22 years.  With supply way down due to a 12 -13 year capital drought, and demand way up due to retirees, senior housing and assisted living is a sector everyone should take a very hard look at.  For more information, simply go to www.seniorlivingfund.com.  

Desiree - 

I am a firm believer in passive income - your time is more valuable that cash, because your time is finite.  Cash can grow over time, you can borrow etc.  Many investors talk of passive income and passive investing, but really do not do it.  Whether it's SF rentals, flips, commercial rennovation and leasing, its not passive.  

The definition of true passive investing is this : "regardless of any time you spend on that particular investment, whether it be 5 minutes, 5 hours, 5 days, it has absolutely no influence on the outcome of that investment".  So think about this in the context of your rentals.  If you spent virtually no time on them, whould it affect the performance of that investment?  I suspect the answer would be absolutely yes, even if you have a property manager because you have to manage your manager.  Conversely, if you spend a great deal of time on your rentals, would that affect the outcome of that investment? Again, I beleive the answer is yes.  

If you want to stay active, then you are not looking for passive income.  Perhaps you are looking for semi-active or semi-passive income, which is where I classify SF rentals, and there is nothing wrong with that.  You time will slowly get consumed as you add more active or semi-active investments to your portfolio.  And at some point, you will max out your available time, have to sell off to purchase more, or bring on other human capital to support your investment activity.   

So I encourage those who seek passive income to ensure it is true passive income.  In the stock market world, a proime example of passive income is mutual funds.  In the real estate world, it is real estate investment funds. There are other examples to, but that is a very big one.  You will find that will a very well reseached and well managed fund, you can achieve consistent and reliable double digit returns, which is going to be very competitive if not exceed your return on SF investments in most situations.  I have been in this business 22 years, and that is where I now focus virtually all my time for me and for my investor clients.  I no longer own a single rental or investment property.  

If you are unfamiliar with an area, or are looking for new areas in which to invest, asking for opinions is one option.  However, with the availability today of so much data, many intelligent conclusions can be drawn simply by procuring and evaluating the data.  And much of this data is free and readily accessible via the internet.  

A tried and true measure that has been around for a long time and is still relied upon today is the ratio between median household income and median home prices in any given market.  Historically, on a national scale, median home prices average about 2.2 to 2.5 times median household income.  For example, if median household income were $100,000, then median home prices average between $220,000 and $250,000.  Most observers would consider this a "healthy' real estate market.  When those ratios start getting out of whack, specifically on the high side, then you start to have concerns about the affordability of homes.  I have historically only considered markets where the ratio is less than 3.0.   So just now I went to www.city-data.com, and checked the national ratio, and the ratio for Omaha and Fargo. The national ratio is 3.20 - significantly higher than historical.  But I'll get back to a very good reason why it is higher in a minute.  The ratio for Omaha is 2.26 - very attractive.  The ratio for Fargo is 3.71 - very unattractive.  Now this is just one measure, and there are certainly other things to consider.  Fargo may be experiencing a boom, perhaps due to the oil industry. If you like riding booms, great.  But the problem with booms is you never know when the bust is coming.  

In my opinion, the median cost of a home divided by the median household income is a BIG measure, because it incorporates so many other measuers including unemployment.   It speaks directly to the point of affordability.  A common statistical statement is that over time, everything eventually regresses to the mean.  In other words, if the market is too high, it will adjust down, and vice-versa. Since the national average is 3.2, anything below it will adjust up, and anything above it will adjust down, over time.  

I would also encourage you to look at historical trends - what has happened to the homeprice/household income ratio over time. So if you like Omaha, and you are not living in Omaha, check that out.  If you see the ratio rising, find out why.  If you see it falling, find out why.  For me, the ratio for Omaha tells me its pretty attractive.  Fargo would concern me.  I would look very closely at the trends for Fargo or simply look elsewhere.  (BTW, my wife is from Omaha - I love the city.  She is a Mercy High school girl for those of you who might care!)

Getting back to one reason the national ratio is at 3.20 - mortgage rates.  The mortgage rates have been at historically low levels for such a long period of time, that people can afford more expensive homes for the same level of income.  This drives up home prices, skewing the ratio.  So what happens when the morgage rates drop?  Fewer people can afford those home proces.  So the home prices will start dropping.  And the ratio will drop, regessing to the mean. We have a morgage bubble, causing the boom.  But busts will follow.  For the steady, long term, play, stay in markets below the national average, and ideally below 3.0.  

Alex -

Real estate investing is such a vast area; there is the right spot for everyone in real estate. At one time, I owned dozens of rental properties.  But I discovered I didn't have the discipline and detail-opriented nature to effectively manage them.  I hired someone to manage them for me, but was unhappy with the attention they paid to the properties. So I decided that while real estate rentals are wonderful investments, and the vast majority of investors do very well with them, they did not fit my interests and skills.  I have been in real estate investment for over 20 years, its my fulltime profession.  I found my passion on the capital side of the business, and have continued to evolve and specialize.  Its what I enjoy, and believe that I am very good at doing.  I can bring a lot of value to others, which is terribly important to me.  So rather than chasing dollars and return, I sought what I liked to do and what I was good at.  Amazingly, the dollars and returns followed.  

My suggestion to you is to invest in what makes you happy and in what you like to do.  It could be the single family rental business, it could be a different direction in the real estate investment world - there are so many directions you can go.  It could also be the stock market (although I found out I that was not a good idea for me either lol).  

One key factor to consider is how much time and effort you personally want to invest managing your investments.  I promote the concept of passive investing, because for most people, time is their most valuable asset.   

If you enjoy what you are doing, you are bound to be more successful at it. Good luck in whatever you decide!