All Forum Posts by: Mike H.

It doesn't help that interest rates are relatively high compared to the last few years and seem to be going up with the new inflation news and such.  And it also doesn't help that we're putting tarriffs on a bunch of key materials (steel and aluminum) which is going to drive up the price of materials yet again.  And if the 25% tariff hits canadian lumber, then everything is going to shut down.

I'd like to know when this country is going to actually do something to help new construction. The local govts aren't getting better they're getting worse.

I somewhat understand why the cities are trying to regular airbnb's out completely.  But quite honestly, how is that truly constitutional.  Since when should any local govt have the right to tell someone they can't rent or lease their property or other items.  How is it any different than what uber did with taxis?   Why weren't uber drivers required to get taxi licenses just like taxis did?  They snuck under the rules by claiming that private individuals had the right to offer other private individuals the service.

So again, how do these cities get away with regulating people's abilities to rent their homes on a short term basis?  Yet, the same properties in the same cities are allowed to rent their homes on a long term basis.   That literally makes no sense.

Who is at risk of any harm for str's? The city is still getting property taxes.  The owner of the unit is getting more revenue and has less risk (less risk of eviction, damages, collections, etc).  And the guests are able to stay in a better property than a typical hotel room can provide. 

To me, I just don't see how noone has been able to overturn some of these str regulations being promulgated by these cities.  Unless they wanted to say that the units in those areas could not be rented at all, then to me its absolute nonsense. 

I think the success of str's are going to be very market specific. 

What I do believe is that if you can find a way to add properties as a true investor (i.e. paying 70% of the ltv), then you're going to have an advantage over most of the other str's in that market and you should do well. But the days of paying retail and making a killing I believe are gone for good. 

I think some of these areas that are now heavily regulated are going to help the people that own str's in those areas because they can no longer boom with inventory creating gluts and thereby issues with rents.

But here is the one that I will suggest.  There's no way that investing in traditional LTRs can do what STRs in the right markets can do in terms of returns and ability to scale quickly.

Typically the really expensive homes (i.e. 400k, 500k, 800k) don't cash flow positive as LTRs. At least not in any of the markets I had seen before.  Yet you can buy 400k, 500k, million dollar plus homes that can cash flow if you find the right markets.

And thats where I think str's beat everything and why I will only be doing str's going forward.  I love the fact that property management is built in. I love that there is no risk of evictions (assuming you don't allow stays for 30 days or longer). And I love the idea that any damages can typically be reimbursed from the guest or the insurance.

That eliminates a ton of risk there compared to LTRs. 

And if you are truly investing to where you're getting all in on million dollar properties at 700k to 750k, the amount of equity capture, and future returns you can do with one property would typically require you to do 5 to 7 sfh's in areas that cash flow and that still requires you to self manage.

Yea. If you plan on STR then you will have to do snow removal and lawn mowing. Snow removal is typically dependent on the amount of snow.

Usually you can find someone that will do a driveway for $50 to $75 a pop. You just ask to be added to their customer list and they'll come automatically when the snow hits.  And we typically only get 4 to 5 snows a year that require the drives to be plowed.  That being said, you never know what the weather might bring.  You might get 8 or 9 snows a year or you might get 2 or 3.  Last year I think I shoveled my drive twice and i'm further north than bloomington here. 

To me the biggest issue with out of state investing and long term rentals is that you have to deal with property damages and/or evictions.  Depending on the state and even the county, the eviction process can be a nightmare.  And typically long term rentals don't make it easy to include property management fees into the numbers and have them still work well.

I would consider looking into STR type areas where you can avoid the risk of property damages (str and pm insurance covers almost everything that they might damage) and evictions/collections. If you have a tenant that doesn't pay and you have to evict, you might lose 3 to 5 months of rent payments plus have make ready costs of 5k to 6k depending on what they do. That house won't have a profit for 3 or 4 years now.

As an out of state investor, I think STRs are now the way to go. Built in property managent. Less risks of significant cash outlays and/or collections defaults. And you still get the same benefits in terms of tax benefits (depreciation is a beautiful thing), rental profits, principal paydown and appreciation. 

I think there are more horror stories than anything when it comes to those kinds of companies.  They tend to overcharge for rehab and/or overvalue the properties they find investors and then overpromise on the rents they can get.  Sometimes they find a renter that will sign a lease for a high amount only for the renter to default leaving the owner eating the vacancy. 

I think the days of growing a portfolio through a company like that are done as well. 

Now that doesn't mean you can't get creative on your own to avoid paying retail.  If you put in an offer at 85% of list price on every decent home on mls in your targeted area, you're going to get a house or two that should only need cosmetic rehab - which you could control the costs better.  Then you just need to find a property manager. And a good property manager could help you get the cosmetic rehab done.  

Or maybe find a builder that will build for you at 90% LTV and see if the numbers work at that price.

Honestly, I still think STRs are the best way to go for Out of state investing.  The PM fees are built into the numbers. 

I've been doing rentals for close to 20 years and I just learned a new trick that some people probably already know about but it wasn't something I'd seen before.  My brother in law showed it to me when he put in a bunch of blinds in my rental cabin. 

I bought the cheap lowes light blocking blinds.  But instead of using the brackets, he just put the screws straight through the blind bar itself.  Thing isn't going anywhere. 

I wish I had knows that years ago.  Cant' tell you how many times renters had yanked the blinds down out of those flimsy brackets......  Just thought I'd add a little trick to consider. 

I definitely think with your age and the money you have, I would look into a vacation type area that has STRs. Go with a smaller rental and you should be able to find something in that 300k to 350k price range.   Maybe something like the poconos or branson mo or something similar. 

Make sure the numbers so that if you put in 60k to 70k you're getting some sort of annual net profit so you aren't having to feed the investment. 

And absolutely don't pay retail.  You want to pay 300k to 350k but you want that property to be valued at 360k to 420k (i.e. don't pay more than 80% of what its worth).  And that may sound undoable but those deals are out there on mls if you make enough offers.  

In 10 years, that property that you paid 300 to 350k will be worth 500k to 600k and you'll only owe around 200k to 210k and it will likely be making about 15k to 20k in annual profit. 

But that is the one thing to keep in mind.  Sometimes people look at the cash flow in year 1 or 2 and question why anyone would invest in real estate.   Look at the overall numbers if you were to hold something 10 years and that will change your mind real quick. 

The key is to not have negative cash flow. And STRs really help because you don't have the large dings that long term rentals have - i.e tenants damaging the property to where you have huge make ready costs (the str insurance covers that), no collections or evictions issues. 

Landlords in illinois for sfh rentals don't provide snow removal or lawn cutting so thats not an issue.   The tricky part of illinois can be the property taxes.  Some of the nicer/newer homes are up there in property taxes even in bloomington (4k to 6k).  The older homes there aren't as bad (2k to 3k).  Thats in the 1500 to 1800 sq ft size. 

Just be wary of the taxes there.  The other issue is that town is a one trick pony.  You're not getting people moving there that can commute to anywhere.  So your renter pool could be limited.

If you like that price point, I would suggest going a little further north.  You'd still be outside of the chicago suburbs but they'd be close enough to where they could work downtown.  Areas like bourbonnais, manteno, bradley, and peotone. Home prices are a little bit higher than bloomington but so are the rents. And you have a lot less availability in terms of rents.

Overall though,when it comes to investing out of state, I would always suggest people look at STRs. You get built in property management which makes dealing with repairs easier.  And you avoid things like damaged properties (guest insurance from airbnb or prop manager themselves cover that), evictions, collections, etc.   And when a furnace does go out, the property manager will fix it.

You can get a property manager for a long term rental too but the numbers in terms of cash flow just don't seem to work well as they do for str's. 

I stopped buying sfh's as long term rentals here in illinois. I just couldn't find deals that allowed me to be all in after purchase and rehab for no money out of pocket like I used to. 

What I did find is that as a builder in eastern tennessee, I could build STR cabins for less than 70% LTV so that I could effectively BRRR my way into growth without coming out of pocket for a down payment.

Now it does take a lot more cash to do because as a builder I have to front a lot of money at times (land, permits, each stage of construction while I'm waiting on the draw).  So its not as easy as it was before with sfh's where you could get 100% of the purchase and rehab as long as the ltv was 70% or better.  But in terms of being able to grow a portfolio with a ton of equity and solid cash flow, being a builder in this area really works.

I think the STR part of it also helps as well. I can build a 1,000 sq ft cabin including land  and holding costs for about 350k or so and the cabin will appraise out for about 500k to 525k and will produce gross rents in year 2 between 50k to 60k. With a loan of say 350k, and paying property management, it should still provide net profit of about 4k to 7k a year in year 2. And go up from there.  

But what I like about it the most is that I don't have "find" any deals to BRRR. Every single cabin I build is a deal I'm going to add 150k or more in equity (I've done a couple of larger ones that have 200k to 300k in equity) and anywhere from 5k to 10k a year in net profit by year 2.  Year 1 is probably a loss though so that is something to consider. Just the way the str thing works because rents seem to take about a year or so to stabilize.

My goal is to get 20 cabins in the next 5 years.   I say that but my goal for sfh rentals here in illinois was to get to 20 houses in 10 years and I ended up getting to 83 in 15 years (I've since sold half though so I don't own that many now).