All Forum Posts by: David H.

I'd do equity partnership for this.

 I don't disagree with that one, but in the markets where I've researched (TX, LA, NOVA/DC) I observed two problems with condos.

In LA/TX, the condo fees were just too crazy for what you were getting, and the economics of the condo was just a -little- cheaper than SFH. What that attracts are yield seeking investors and aspirational prime to subprime buyers. End result for me is margin squeezing and a mix of residents that I didn't think was scalable for me.

In McLean, Arlington, and DC, it's a little different. A starter SFH with no problems is $600k+, so condos are an affordable way to enter the market. VA has these awful condo conversions from old apartments. Quality is low to medium, and ignorant yet college educated homeowners who hate "throwing away money on rent" are buying based on comps which are cash flow negative (but with their high tax rates, the interest deduction helps them even out). VA Loans worsen the matter here with all the active duty military getting subsidized loans with no money down. Condos are mispriced. They're moving at a 150-200x rent multiple, and on top of that the owner has to also pay $500-$1000/mo for HOA.

I think there are some markets where condos make a lot of sense. I'm thinking Chicago, Hong Kong, Dubai, Paris, London, Manhattan (not Queens), maybe HNL. Everything I've seen elsewhere that was a condo just had too many risks and were basically homeowners who couldn't afford a SFH and overpaying for a condo and arguing that they get a tax write off + a softly quantifiable convenience yield (close to subway?). That makes it hard to a good return as an investor.

Originally posted by @Allan Landfried  

"I would rather start somewhere, than nowhere!"

That's pretty much the idea. I think I just had to start somewhere, and it had to be somewhere "small" and profitable. I'd love to buy that pretty granite skyscraper at 6% cap rate in downtown, but I don't think anyone would finance that for me.

Starting out, you generally have more time than money and will find yourself doing the ***** work. I don't think it's different in any business or industry. You gotta pay your dues, reinvest in yourself, grow, and graduate. Get promoted at your job, or, in this context, reposition your assets for higher quality and scalability.

There's no way I could manage my old portfolio today without outsourcing, if it's even possible) if I still had all of the subprime tenants. But I wouldn't be where I am without cutting my teeth on something.

One last thought on subprime tenants - they're always in a recession. Whether times are good or bad, they will be living paycheck to paycheck, so there's a component of stability and predictability in your cash flow. Assets are priced lower in the recessions (tail end right now), so take this opportunity while you still have it to get started building your retirement package one crappy house at a time.

Some people call them dogs (aren't dogs man's best friend?), but I prefer Alligators, which I learn from Careleton Sheets (no flames please) because they can eat you alive.

When I started, I had more time than money, and these C/D properties were money makers, albeit more from a PM view.  Since I was PM, I was making money hand over fist.  Tenants were high maintenance and often late, and turnover was high.  Some caused problems, and sometimes you need to call the sheriff.  But at the end of the day, these properties made money because I stayed on top of it.

I've since pulled back on these (still have one 4-plex and 2 duplexes left I'm trying to exchange out) and "graduated" to SFR which I'm finding to be lower turnover, higher quality, thinner margin, but requires very little PM. This shift in strategy helps me scale up units faster without having to scale up PM capabilities.

In summary, if you have the time to be hands on, risky properties can make a lot of money if you put in the time.  One common thread across the best investments I've made is that the stocks, homes, fill-in-the-blank investments that have done the best for me were the ones that nobody wanted to buy.  Bank stocks I bought in 2008 are up 10x after 5-6 years.  Homes are worth 1.5-2x what I paid, and I collected rent/dividends in the interim.  This formula of buying what's out of fashion coupled with fundamental analysis and finally taking a leap of faith is what I follow.

fannie will buy up to 10 mortgages. However, bank policies might still be stuck in the era of 4. I ran into this problem when looking for more cash.

i think it's probably more efficient at these deal sizes to finance at acquisition. Trying to cash out later if and when you get to deal number 4? Come back, and then lets yah about solutions.

I've got property in TX and LA. The Texas market can be tough, but it's very possible to cash flow. The challenge there is the high fixed cost...3% property tax even if the home is vacant. Land is a terrible buy and hold and is eating that deal dead for me.

LA is a sleeper. New Orleans continually flies under the radar because it's a small big city. Its smaller than Atl, Memphis, and Houston, so i don't think the hedge funds are ever coming to town. It's big enough to be a city with needed infrastructure and jobs to attract people and jobs. Growth here didn't go gangbusters, so there is still a short window of opportunity left to pick up the final vintages from the foreclosure crisis.

some neighborhoods have already heated up, but to give you an example,i just passed on a deal in an A hood with a golf course that was going to cash flow. It was $200k that could rent for $1900-$2100 and $100k remodel and flip profit upside. I moved on from there because I'm going to the B hoods where I can get $1500 rent for $65-70k. C hoods fetch me $2500 rent for $140k.

there's a bunch of crap deals too though, and in my experience, the variation from block to block requires that you have someone local who you trust to sift through the homes.

nova/dc is probably one of the worst and most competitive areas I've seen. You can't squeeze blood out of a rock, and you can't cash flow in neighborhoods where investors are happy making money on depreciation and tax write offs.

spencer, i own several rentals, none in nova. I've been renting in Arlington and McLean for almost five years now and couldn't find a good investment even during the foreclosure crisis. Even the short sales from 2010 were cash flow negative to break even.

there was a brief moment in 2010-2011 where you could cash flow in Herndon, but those days are over.

you can still find deals,but you will have to go further out. The closest places you can do are   Annandale and Springfield. If you feel like taking a risk, north DC like past petworth might have a few opportunities. Se dc by Suitland, Anacostia, and Oxon hill are possibilities.

if you want to stay in the commonwealth, Woodbridge, Quantico, and Leesburg aren't terrible.

the bottom line is that making money as an investor anywhere along the orange/silver line requires millions in capital to be a big time developer. Coming in with $100k and elbow grease won't cut it. If you're just starting out, pursue cities where big players aren't competing, like Richmond and Wilmington de.

I don't see anything on the IRS website that says we're required to change our accounting method. Why would I have to file this if I'm just going to keep using the same method of accounting?

good deal at 60k.

I have a vacant office space that I think would work really well for a doctor or a dentist.

It's in a blue collar part of town, and it would be a great place for a medicaid clinic.  Are doctors still able to make money serving lower income America?  If so, how do I get a doctor to occupy this space?

What are some other good business that I can get to fill this kind of area?  The address is [REMOVED].

David