All Forum Posts by: Account Closed

Hey @Tracey Robinson, I wouldn't force yourself to buy property unless you want to. You should consider that capital gains also comes with depreciation recapture taxes if you did depreciate the rental. 

It's hard to predict the degree of magnitude with which property values will drop. This "recession" should it continue, will not have originated in real estate and prior to the covid-19 crisis real estate had not rallied to the same degree as the stock market has. I don't think real estate is as overvalued this time around than the previous crash. For these reasons I don't think it'll drop as hard (the same way bank stocks have not and I believe will not be thrashed as severely as 08, as well). It does has the potential to drop though! 

I would say if you do end up deciding to buy, buy assets (and in markets) that aren't so volatile. Prioritize maximum yield as well. Maybe find something that's a bit undervalued due to the covid 19 lockdown scare so some of the future depreciation is factored into your purchase. If you do all of this you'll be far less exposed to loss of property value, and you'll be cash flowing well even if the market softens. I'm looking for good deals in midwestern and southern markets right now to add to my portfolio.

One last bit- lenders are not at all keen on financing rental property purchases right now. We certainly aren't finding any commercial lenders that want to do this for new clients without extremely stringent criteria that seems designed to push us away. You may have to buy cash or wait until lenders lift suspension on financing. 

Have you looked into any extensions to 1031 deadlines associated with the crisis? That might give you more time to make a decision?

@Jay Hinrichs the concept of businesses having only one month of operating reserves blows my mind. Call me conservative, but in peak times looking over the cliff, the businesses that really make it out have big cash piles. 

Nonetheless, I know here in CA even the small businesses that can afford to pay their landlords will not. The moratorium on evictions applies and businesses are writing letters to landlords saying "extend my lease bc I'm not paying". Landlords are writing letters to their mortgagors. And their utilities companies. 

Of course, the cost of all this will be redistributed through the system when things are good again. Ha.

My business is affected, but I cannot yet tell you to which degree.

Our sellers are not the biggest problem- some of them have told us they want to wait for the air to clear (no pun intended) before they proceed with selling us their property. Serious buyers seem to be just as serious as before, just a bit more diligent with their properties. New investor opt ins through online marketing is steady, although opting in and buyer purchase behavior are somewhat independent of each other.

Commercial lenders are all working from home, and they're not so sure what to do about appraisals that require entry to the property. Most of our appraisals are external, though. We operate across 7 states, so we're waiting to see which title companies and county recorders' offices are or are not open for business. 

I'm not so sure about tenants paying rent in April. Wishing all of my affordable housing tenants were on section 8 right now.

Our business and employees are fully working from home, and fortunate to have the ability to do so. Marketing budget has not decreased. It'll probably increase. 

This situation is pretty crazy, and unforeseen. But i've gotta say, preparation for this kind of thing has to be baked into each and every one of our business models. Riding out waves like this is key!
 

I can't speak for owner occupants, but here's how my small multifamily investor list is breaking down:

The lookers who may have been thinking of starting to dabble and the investors who wanted to get started with a very small amount of funds have hit the pause button, as they should. Newbies and those with limited resources should be a bit more prudent when volatility is as it is. 

My serious investors- the ones who are already sold on the idea and have the money to do so repeatedly have not stopped. They're following through with escrows. They're signing purchase agreements on new properties. They're asking about our upcoming deal pipeline. Now they're all doing a bit more due diligence, making sure they understand short term expenses, and seeking out more information on the current tenants- which is smart. 

As for us, an acquisitions & sales company- We're shifting to keep the demand as high as ever by staying ahead of the curve and offering less to sellers on the front end... basically offering at prices we expect to see once the market softens so our investors still see "crazy deals". For them, the crazy deal is going to have to offer better value. How could it not, when the stock market is offering so much better value? We're also pushing hard into quality affordable housing in markets with strong rental demand to minimize price volatility and keep returns high. With some due diligence and a good property manager, subsidized housing is something we as buyers have had great success with before, and are very interested in while riding this wave down. 

It's only been a week and a half folks. Demand for primary residences and even investments is highly contingent upon their buyers' emotions, not just economics. 

Hey gentlemen! @Eric Wang @Vincent Billera

I wish I could help you, but I might be a little biased.

Our model is rather different than turnkey, and I tell our investors not to purchase from us because they us. We find and filter through off market deals to bring the better ones with better cash flow to our clients. After that, its a matter of 3rd party inspections, pictures, 3rd party appraisals, and collecting the seller's leases + financials. We put it all in front of our investors and say, "here you go, this might make your due diligence easier".

Basically, it's our job to do the dirty work for our buyers. You're the brains, we're the brawn.

I would say the best way to vet us out is to vet the markets we operate in and the property management companies we work with in them

Hope you guys have had good luck finding properties!

@Account Closed 

If you're trying to get to a big revenue number in a year, your best shot is selling stuff. Unless you fall into a very deep equity position on a large asset and are able to acquire, add value, and exit (refi or sell) within the next 11 months of the year- which I know is not something I can likely do with that kind of time span. 

When everyone's mining for gold sell the shovels. They need it.

@Adnan Dizdarevic Investors are certainly willing to pay a premium for properties that still provide good yields in a peak market. There are still deals! The MLS might just be a tough place to get them right now.

I'd build your network of wholesalers, or start a small, targeted  campaign where you market directly to sellers if you really have a little bit of time, effort, and marketing cost to spare. Offering well over asking repeatedly to get deals that aren't even that great should never be something you settle for. 

@Michael Holmes that might make it a bit more worthwhile! Have you had a chance to speak with some long term owners within the community? This might be better help than taking a technical approach to HOA due diligence.

370k purchase price for 3k monthly income with a nonconforming/alternative rental strategy is too low of a yield, IMHO. 

The financing terms seem a bit off as well. I've never seen 20% down on 3.75% on a 30 year fixed product. You're usually looking at 25% down on a fannie/freddie rental property loan over 30 years with a 5ish% rate, or a commercial loan with 20% down and 3.75 on a 25 year / 5 year balloon product. The commercial route would not approve this property for financing due to the low cash flow- their debt coverage requirements would not be met. 

Also, are you sure your insurance would be $100/mo for a property with this intended use? Is management still going to be 8% for this type of rental strategy? You also haven't included any owner paid utilities, and I imagine you would be paying them for this type of property since submetering or RUBS programs can't be implemented in a big shared house. 

I don't think building an in law quarter will return too much because of high cost of construction- and I think you're exposing yourself to a good amount of risk by doing so because project cost usually runs high, and by the time you're finished the market may be softening creating an instant equity void. 

 If you're committed to the group home approach, I'd seek something out that has opportunity for more beds at a lower price if you're confined to $500/rent per bed. 

TOTALLY not trying to be negative here- just drawing attention to every detail I could spot at a glance in hopes of helping! Remember, we're in a peak market. That means you should be shooting for even higher cash flow standards than usual, because it's unlikely you're making much money in appreciation in the near term!

@Michael Holmes

I know a lot of people who invest in HOA properties that have gotten hit with a special assessment. I tend to avoid HOA rental properties altogether because of the convoluted nature of predicting the HOA's behavior and being able to perform due diligence to do so. I know many HOA's won't release documentation to a buyer purchasing within the community until after appraisal and inspection of a property are complete- and then, I'm not quite sure how clear their books may be or how strong of a predictor they would provide in your estimations of future special assessments.

What kind of property are you buying in an HOA? A single condo or a multiplex?