All Forum Posts by: Guy Azta

Reading all the posts, seems like everyone already covered pretty much everything. I personally tend to agree with people like @Owen Dashner @Joshua Myers and @Brian Ploszay. I think that there is a strong argument to make for why the economy may decline, at least in some segments, but in a significant enough way to impact the one and only thing we all rely on - tenants with ongoing jobs paying rent. This is our oxygen and without it, I would assume most of our investments are worthless, and are actual liabilities. 

So yeah most people here probably don't try to buy properties during a downturn only to wait years and years and sell them later for a premium. That may be a pretty small crowd in my opinion. That's why you may not see many here on BP looking to sell. I think what many have not yet addressed is a possible scenario where a year from now the economy and jobs are at a much worse shape. If you own properties and you're starting to have negative cash flow from some for a period, that could start changing your outlook. If you compound that with falling everything (prices, employment, stock market) it can get ugly fast. 

For me, while I am happy that I own, and I bought mine coming out of the recession (= cheap), I cannot lie that there's a part of me thinking it would be easier and better to not own real estate during times like this. For the buy and hold people like myself, selling is a drastic measure. I sold one of my properties years ago and regretted it. 

My formula for surviving this period is = reserves + cash flowing businesses + trimming down expenses = hopefully keeping 100% of my portfolio on the other side. 

Hi @Robert Ryan saw you were trying to get opinions about whether to buy or not. So mine is of course just an opinion and is no better or worse than the next guy's. There are probably 2 main scenarios you should consider fully. One is where the economy will rebound in the near future and things will return to some form of a new normal where in general tenants have jobs, there are enough of them and can support paying rent consistently. In such scenario, it is unlikely you will see the type of discounts we all saw past 2008, or at least you'll have to search hard for them. The other scenario is that the damage will happen later, once the government eases out of the stimulus and propping up everyone, but jobs are not coming back fully. That may not happen right away. This is just my opinion, but that can be the biggest risk. So if you will be in position to ride out a period of 1-2 years where the economy and jobs decline, there may be less tenants to choose from, it may be more challenging to fill in the units etc, then you're probably in the clear. It's a tough quandary and many people are trying to figure this one out. I've heard some people say that in real estate even if you buy a bad deal, with time you have a good chance of turning it around. The key here is that you need to be able to keep it. There may be nothing else more important than that.

Hi @Caleb Bryant interesting. Seems like you're mostly in the trade side of things. I'm sure there are a lot of opportunities in that space. Sounds like you know what you are doing. I'm sure there are some opportunities in the buy and hold if you look for them or have a pipeline to receive them. It stills surprises me how bullish people are these days. I know it's hard to say how bad things will get and for how long, and at the end it may not be all that bad. It's just hard for me to see why take the risk now where it's still early on. But again, anyone who has a lot of reserves and can find a very good opportunity, will probably be safe. This is my 3rd financial crisis, first being the Dotcom bubble, second the housing bubble (which ended up being very opportunistic for me), and now this covid19 crisis, and this is certainly the most bullish crisis I've ever seen. Alright best of luck

Hi @Daman Gandhi good thread. Been thinking about posting one myself haha ;-) Seems like most who replied been getting rent. is it because those who did not are not replying? Would be instructive to see more of the other side. In my situation, April was almost fully paid, with one exception of a tenant who has been late for a few months now. But I'm already feeling the impact of this. One of my long term SFR tenants, who's been there since I bought the house years ago (and been such.a great tenant I have not spoken to the management company in at least 2 years maybe more), just gave out a 30 day notice. Based on a quick search it seems like that particular area doesn't have too many vacancies, so I hope to find someone new soon, but I would consider that to be a real impact, esp with such great tenant.

Also, another thing that happened is a few months ago in another building the family of one of the tenants moved him out, but failed to vacate the unit (very unclear situation). That was pre-virus. It wasn't handled in a timely fashion by the then PM administrator (she left since), so I got stuck with a vacant yet un-relinquished unit, and with an eviction moratorium. 

I also decided to not raise rent for anyone. Knowing that property taxes and insurance always go up, that's an issue as well.

And we're just at the very early stages of this scenario. I'm glad that things have gone relatively good for most of my properties, as well as most people here, but it is a very concerning situation. Aside for the near term concerns, which may be mitigated, since as many here pointed out the government is doing things to help, the medium term could prove to be more challenging, with less employment opportunities and some areas that can get really hammered. 

Thanks for the thread.

@Caleb Bryant for sure - was nice commenting on your thread. It's tough, because we live in a fiat currency world, and if you want to accumulate wealth, taking on self-amortizing leverage is a very good thing. Right now it's a terrible thing to have. I was trying to understand why so many people seem so gung-ho on scooping up properties right now, as we could be in month 1 out of who knows how many, and it's very likely the problems in real estate haven't started yet. If the market is crashing badly, it will probably take some time to manifest. And with news like over 50% of renters say they lost their jobs, the fact you can't evict, among so many others, it seems like trying to catch a falling jackhammer. But buying now could make sense for certain people who have a lot of money and reserves on the sidelines and who can find an opportunity that did not exist 2 months ago. But even then, the main reasoning for trying to go for it right now would be under the assumption that the overall damage will be short lived and that the opportunities will not exist for a long enough window. I just find it hard to foresee what great opportunities could emerge in such short window. And as far as government, municipalities etc, there could be a big shift to the left coming next election, which can be less real estate friendly (this is not a political statement). Also it's certainly possible property taxes may go up to offset the revenues shortfall. Not to mention crime rates can go up, destabilizing C class neighborhoods. Really having hard time justifying doing anything anytime soon. But I do admit I wasn't that motivated to buy anything at today's prices even before the virus. I may have been more motivated to jump in if I owned less properties right now.

So what about you. You looking to buy more? If so, why?

Hi Caleb - good thread / questions. First let me reply

1. Are you still investing in real estate through the Covid-19 crisis?

Not at the moment

2. Why or why not?

Primary reason is that I'm extremely busy with work and projects, so don't really have much time to look, but I also have many concerns about what is currently happening and what may happen

3. What niches are you most focused on and why?

If I were looking, the main question I would ask myself is whether I want to take on more leverage, and then how much. Then I would have to ask myself which markets (I am invested in several) would make sense moving forward or whether I need to look into other markets

4. Is that the same focus you had before Covid-19 or not?

I own MFRs and SFRs. I don't think my focus would change if I were to look for something new. There may be something to be said about investing in warehouses, since that could get a boost due to increase in e-commerce and shipping / logistics activities, but I am not educated on that segment. However, I would consider joining a DST type investment, possibly debt-free. I was really into leverage before. Not anymore.

To broaden this up, I read most of the replies. There seem to be 2 main sides - those who think this is a relatively minor event, and those who decide to be careful. I probably belong to the latter camp, but let's pretend I was in the not overly concerned camp. Coming from that perspective I wouldn't expect prices to go down by much, so I would assume finding the vaunted "good deals" would require time and effort. And in that case there will be no need to do anything different or immediate. Ok, now since I don't really belong to that camp, my take is that I much rather be prepared for a long downturn. It doesn't have to be a large crash like 2008. It just has to be long. Under that scenario, I really don't want to add any more leverage.My concern is not so much whether prices would go up or down (some people on this post as well as others don't seem to think they would go down that much), but whether tenants will be able to pay. Yes, people are getting unemployment for now, so perhaps the short term is not of immediate concern to some, but what about a long running recession, massive job losses that may take a very long time to return, smaller tenant pool  and even downward pressure on rent to name a few. The government is now getting involved, placing eviction moratoriums. It's yet to be seen how large of a role it will continue to play. There have been times where adverse government and municipalities actions deteriorated property values. 

My reply is getting a bit long, so let me qualify by saying that I already own 26 units, which is not a lot to some, but still carries a lot of leverage. I bought them all coming out of the last recession, so got them all at great prices. I'm not as aggressive on buying as I used to be. And at this point I definitely prefer less leverage and more liquidity. I really liked what Aaron Taylor, William Jenkins and Michael Robbins had to say. All had some very valid points.

Last, I sort of noticed that the people who tend to be the most bullish also seem to be agents or somehow involved in real estate as a trade. I don't know what to say about this. Wasn't there a saying you don't ask insurance salesperson if you need more insurance. Regardless was interesting reading different people opinions. 

Interesting feedback. Thanks all. Well, to summarize - rents are on the rise 

@Stephanie Skinner - 2011 was a great time to enter. Good for you. My broker keeps saying there are very few things for sale over there right now. It's good for you as an owner, but not so good if you're looking to buy more ;-(

@John Lenhart - nice hearing from you again. My building is a bit odd in the sense that it's mostly studios (efficiencies) and 2 bedrooms. It's possible it used to be all 2 bedrooms back in the day, and the units were split over the years. So what do you charge for studio unit? We charge $475 - $495. I personally don't know that the type of person looking for this type of living arrangement can afford much more than that. We currently get $725 for the 2 bed. It's a pretty large space - around 950 sqft.

@Joseph Cornwell - the building is in the Evanston, right on the edge with Walnut Hills. I could say Walnut Hills if I really wanted to ;-) Just like they started calling Bushwick in Brooklyn "East Williamsburg"... Seems like your building may be higher class than mine. We do really nice renovations and updating, but I cannot see us getting anyone to pay $900 for the 2 beds, even if they are a bit larger than yours. Where is your building located?

@Art Perkitny - thank for the data. Very interesting. Yeah, rent growth seems kind of uneven. Some of the high growth in areas I wouldn't expect, but I do not know Cincinnati all that well being outta towner

@Ryan Scott Isacksen - I was looking at Dayton (and a few other Ohio markets) when looking at Cincinnati at the time. From what I've seen, it seemed pretty comparable. I went for Cincinnati, since I generally prefer larger population base (even though being in Los Angeles, almost all markets seem unpopulated in comparison), but could have ended with something in Dayton had the right opportunity presented itself at the time. You bring a very interesting point about the slow rate of working off the recession. Never thought of it like that. Wasn't it Mark Twain who said he'd rather be in Cincinnati when the end of the world comes... 

Thanks for the feedback. May be a combination of improving economy, population remaining stable, some neighborhoods becoming too expensive and lowering units supply, some new luxury units as someone suggested and possibly newer investors buying MFs at higher prices, needing to raise rent, as well as just existing investors trying to bump it up. So seems like everyone commented here is kind of in agreement that it's really happening

@Joseph Cornwell - $875 for 2BD - that's pretty amazing. How large are the units? Mine are 900 sqft and I caved in at $735, going down to $725, even though PM suggested we keep at $735  (was previously $600 or $650). 

@Stephanie Skinner - 50 units is respectable in my book. I have half your amount, most of my props are SFRs. How long have you been investing in RE?

Hi BP,

So I've owned a 12-unit in Cincinnati (Evanston) for a little over 2 years. Most units are studios (efficiencies). I'm out of state. 

It seems as if the rent has been going up. I remember when buying the building, there were many units avail in the under $400/mo range, but now it seems like most are around $500/mo and higher. I'm just curious to get other people take on this and see if I'm reading this right, or whether it's just a seasonal thing or something else. If there is an increase indeed, is it mostly due to better local economy or higher costs of multifamily acquisitions and operations?

Thanks 

@James

@James Fisher  let me try and answer your question succinctly. First I've been overly pretty successful with all other properties I own, be it SFRs and other smaller MFRs, which I have in different markets, spread around several property management companies, so the 12 unit is somewhat of an anomaly in my overall experience. Second, I think there are 2 distinct aspects for my struggles:

The first one is that I bought a building which is mostly studio apartments. All my other houses and units are very spacious (the smallest I think is 800 sqft), so the customer retention (tenants/residents) is far easier. In studios you are dealing with a certain demographic that is typically on the lower end of the income spectrum and with that comes a whole host of challenges. However, having said that, the building actual location has many positives - it is relatively close to the downtown area, is fairly secluded, has nice curb appeal, right by a very good school, on a main road - a lot of things you would actually want in a building. But the fact that it's mostly studios certainly poses a real challenge.

The second aspect is the property management. When I visited Cincinnati to review properties, I met with several prop managers. I ended up going with someone who I thought would be really great. In hindsight they were quote terrible. They wasted a lot of money. I meant there was simply no way to ever make a profit. I don't want to say that they were dishonest, but at this point I have my suspicions. The funny thing is that the owner always told me that none of his other landlords make money and they all complain about losses... at the time I took it for candid and honest advice, but next time I will treat it as a major red flag. So after about 9 months we decided to part ways and I switched to another firm. Initially it went relatively well, but they had other challenges. It was really hard to get in touch with anyone there. If you called, nobody answered. And they were at least a 6-10 employee strong and been around for a while. Also, they didn't have the best staff and things were either not getting done or were taking a very long time to get done. When you need to turn over a unit and it takes a long time to do, you as the owner are in a loss. A few months ago several people moved out, one person unfortunately passes away and there was even a resident who stopped paying and they were hiding it from me if you can believe it... they eventually claimed they got her evicted, but I'm not 100% sure that's what happened. That was a moment I decided to either analyze it for sale or to give it one last chance and find another firm to handle it. But what happened is that I complained to the actual company owner and they acknowledged they poor management. They replaced the non-responsive staff with better people, gave me some credit and ramped up on their communication. So at this moment in time things got a lot better.We only have 2 vacancies right now. Their renovations costs are pretty high, so I'm working on hiring outside contractors to complete the renovation, but I do not fault them for having higher costs. As long as they do not hinder me hiring outside vendors, I can pick and choose what to have them do or don't.

In aggregate having owned this building for about 2 years, I'm yet to turn a profit from it. If I see that going into the 3rd year it's still not working out, I will be inclined to put it on the market.

So to sum it up - you will be confined to the quality of the property you buy. Whether it is due to small size units, poor location or whatnot - you will have to deal with that on an ongoing basis. And you will live or die by the management. Again, I am pretty happy with my 6 other management companies. They all got their little quirks but nobody is perfect, including me. I hope that at this point the building will start performing. At least they seem to want to improve. I'm a big fan of management companies all in all. But you have to beware of companies that are not good. They do exist. I'm a living proof.