All Forum Posts by: Jace Holt

@Victor Baronich A couple of points.  

@Mark Cruse made a great point. Turnover is one of the biggest expenses you can have. Tenenant screening may need some adjustment. Your deposit may be too low. I'm sure if you do or not, but I do not use move in specials or discounts.

I have only been installing luxury vinyl plank flooring. I switched from click lock to glue down because you can easily replace pieces in the middle of the room without taking apart the floor. It is mostly water proof and it can look really nice. I have not used any carpet on these units. The tenants that want carpet will buy a rug they like for the living room area or bedroom. Some buy rugs with carpet anyway so it's not a big deal. That saves an absolute ton on flooring. As far as paint, I use a two-tone paint scheme but the colors are the exact same in every unit. There is no paint matching. I have also switched from the cheapest paint. It actually costs the same or less for more expensive paint because the coverage is better so you don't have to put as many coats on. Also, it is more resistant to scratches and abraision. PM me if you want the exact products I bought. 

When you underwrite the deal, are you factoring in a lifespan of each major capex item? For eample, a roof may only last 15-20 years, so if it's on year 13, the house is worth less by the amount of .75 x price of new roof. Water heaters can be 7-10. I just assume up to 25% of the A/C units across the portfolio are going to need work every spring. They will need condensors cleaned, capacitor replacements, low frion resolved, etc. I'm not sure if I missed it in your posts, but do you have a repalcement reserves % you use? 

Are you raising rents? Repair costs have jumped and it will be harder and harder to pay for those without regular rent raises. I do 1 year leases and then raise then raise the rent a few percent every year. Can you go through your portfolio and review rents comps on everything to make sure they are optimized? 

I think more units will average out the expenses and smooth out the cash flow, but if the cash flow is negative anyway, something else will need to change. 

Quote from @Jay Hinrichs:

Quote from @Joe Hammel:

@Mike Hern

In *2006* there were almost 10x the number of houses for sale as there are right now, in Metro Detroit.

We are sitting a little over 10k homes for sale today, and in 2006 we were over 100k…

 how many of those though would a homeowner buy ??  and how many are vacant and never really going to come back.. I think you have to look at obsolesces in Detroit.. the same can be said with many mid west cities.. INdy has/had 5k vacants  philly at one time 30,000 vacants etc etc.  

in other areas of the country very rare to have an abandoned vacant home.  So that all said I bet your true available homes is much less than 10k at least what owner occs want to buy ??  thats my guess anyway. 

 @Greg R. Good points Greg. I don't know if the shape of the income distribution curve has changed or if it has stayed relatively proportional but simply translated higher. I see your point that you see it as closer to a bimodal distribution, but I'm not sure that is the case. I'm not sure how the economy would have transitioned to allow that change. It would be nice to have some up to date current data, otherwise it is just going to be our anecdotal opinions based on what we are seeing which makes it hard to answer the question. 

To add to that line of thinking, if very large amount of people are currently stuck renting and are chomping at the bit for a drop in prices, that would prevent a drop in prices. If we compared it to a depth chart on an exchange, I think there are massive amounts of people with buy order not far below current trading price. This would mean that the second it drops, there are people buying it back up which results in the current market price being more resistant to dropping. Meaning it shouldn't pop fast like a baloon meaning it wouldn't be a bubble.

If the distribution is bomodal, the reason it matters that the lowest wage earners are now higher is that the market floor is higher. If the purchase price of a house is too high, then they drive up rental demand which drives up rent prices which attracts more investment money to buy up rental property. That decreases supply of owner occupied which slides the price right on up the demand curve. 

Either way, I see current prices as not extremely overpriced.

Quote from @Greg R.:

Quote from @Jace Holt:

When I see low skill jobs like fast food have doubled in wage over the last 8 or so years and are now paying $15/hour, then it seems completely normal to me that food should be double, cars should be double, clothing should be double, rent should be double, and home prices should be double. There is no gigantic correction coming of the price is not fundamentally incorrect. The government is deciding to panic raise the interest rates while still promoting inflation in lots of other ways.

Wages aren't doubling. My W2 pay certainly hasn't doubled. In CA minimum wages/ professions (which are some of the highest paid in the nation) have increased significantly but not doubled. State minimum wage is $14 per hour, I see McDonalds starting at $17-18 (about a 25% increase above minimum wage). In mid-level professions there certainly hasn't been a doubling of wages. Normal "middle class" people are being choked out by prices of goods and services, e.g., gas, food, rents, services, etc. Most Americans are drowning in debt and living check to check. Homelessness is growing at an alarming rate with rents at an all-time high. This might be hard to see for successful investors, but the biggest segment of our society is not doing well financially. 

Thanks for the response. I agree that there are members of society that aren't doing well, but it has been very close to a 50% increase over the past 8 years. See: https://dqydj.com/household-in... If you factor in the standard income increase which is 35% and then add the extreme amount of government subsidies increases, welfare increases, etc. then we have likely exceeded 50%. There are always individuals in bad financial situations, but the marco data points are what is going to determine the market. If the government backs off of the super high welfare and subsidies, the dramatic inflation should subside. That could slow the housing market but because of past inflation across the economy, that can only go down so much. And on top of that, the housing shortage still exists.

I disagree that the growth is unsustainable. Housing has certainly inflated faster than the national economy overall, but a portion of that inflation is correlative to the overall economy. Suppose somehow the supply was to suddenly match demand, the new floor in real estate prices should be MUCH higher than the floor in 2008-2010 because everything costs more. If we have experiened 15-20% inflation in the overall economy in the last 2 years, that means an $830,000 home should now cost $1,000,000 just to match the inflation of the rest of the economy. If the fundamentals of building and maintaining a house (materials, labor, wages, etc.) are at their new normal and there is no deflation in the market, then we should simply accept that the growth wasn't actually unique to housing. Individuals on average are making more and things are costing more, so there was no net gain. And as far as deflation, the federal government can't let that happen very much for the simple fact that they have put us in a bond liquidity trap and they would default on the dollar.

When I see low skill jobs like fast food have doubled in wage over the last 8 or so years and are now paying $15/hour, then it seems completely normal to me that food should be double, cars should be double, clothing should be double, rent should be double, and home prices should be double. There is no gigantic correction coming of the price is not fundamentally incorrect. The government is deciding to panic raise the interest rates while still promoting inflation in lots of other ways.

If inflation keeps going ahead at even half of what it currently is, then in a matter of just a few years the average family will be buying a million dollar house and will be able to afford it because that is the new normal. 

I don't see homes as significantly overpriced.

Can returns be too high that investors set their expectations too high for any subsequent deal to meet? 

Every few projects I put together, I make one that pencils out really well. When trying to decide how to split the profits, I have trouble deciding how to split my cut vs the investors cut. 

I have talked to investors who put their money into someone else's project  and were put off that their capital was facing all of the risk but the operators made the majority of the profit. They recognized that they agreed to the returns they recieved, but when the operators made way more with no capital at risk, they were a little put off.

On the other side I have spoken to operators who paid out 30%+ per year returns. When they went back to the investors for an18%+  deal, they were turned down and told "I'll just wait for one of those 30%+ deals".

At the end of the day, both investors came out of it with a negative attitude toward the next investmet.

Part of me thinks that a lot of investors have already decided what they think investments should return to them. One type of investor (I'll call them type 1) may be a 8-12% return person who prides themselves is in a low volitilty, low risk, low return investment porfolio. Type 1 precieves high risk from a high return and is actually uneasy when returns are advertised any higher than the SP500 or standard index funds. Another type (I'll call them type 2) will take pride in finding a steal of a deal. Type 2 sees low returns and feels they have underachieved their potential if they invest. They want the highest returns they can get. 

Obviously there are all types of investors and everything in between. Not only that, there are all type of investments. Some more speculative by nature, some less. Some projects I put together can make 12-18%. Some can be 25-50%+. Not every investment will fit every type of investor. Not all investment money is fungible.

I obviously want to take care of both myself and the investor the best way possible.

How is everyone else handling this? What returns do you put on your projects? What criteria is that based on? What percent are you getting? What is the investor getting? What is your psychology on the matter?

Thanks for taking the time to read! I'd love to hear your responses! 

@Andrey Zohrabyan I recomend starting with a small deal and then working your way up. That is the opposite of what I did. My personality is to go as big as possible and that was difficult. If you skip steps, you have major hurdles to overcome. For example, even if the deals are great, you know what you're doing and you speak the language. the banks will see you don't have history and will back away from you. I have been burned with that. If you try to raise money, your track record won't match the precieved risk of the investor. I always suggest starting doing smalls, finishing them quick, and then working your way up in size.

If you can find a way to work for someone on their flip as a laborer, that would be such a great education while getting paid.

What type of real estate are you want to get involved with?

Lawton has struggled with low occupany and low rents, but from my prospective, the market has picked up somewhat over the last few years. What type of investments are you looking for?

@Tina Lee I have a tenant who has had complaints about her electric heater as well. When they keep it on, it stays warm. There's no way around paying for heat. The thing with electric heat is that it's 100% efficient as compared to gas, heat oil, etc. A new system will not change anything. From the way it sounds, this tenant is not worth the emotional and mental tax she is causing. I would suggest replacing the tenant. If NJ law prevents it, then you're sort of stuck. That is the risk of investing in blue states.

You may try telling her directly that your property is not a good fit for her and ask her to leave. While you may not be able to force her out, you may be able to ask her to volutarily leave. I'm not sure you're at this point, but cash for keys would sort of be the nuclear option here.

Has she violated the lease in any way?

@Mitchell Wildman I'm not sure if you heard, but Kemmerer, WY is getting a big nuclear power plant belonging to Bill Gates and paid for largely by the US government that, if I am not mistaken, is replacing the coal power plant. That's located right between Logan, UT and Rock Springs, Wy which puts you not to far from Canyons/Park City and a little farther from Jackson Hole. There are going to be a lot of workers there for the next 7 years or so which means a 12-24 months might be great time to get in and get out. Last I checked a few months ago there were cheap homes and development land on the market but those may be scooped up by now. However it may not be picked over yet for off-market deals so possibly worth taking a look. My main concerns are 1: rents are currently not terribly high so that might be a speculative play and 2: I have no idea how long it will take to learn to pronounce Kemmerer correctly.

@Kody Graves Hi Kody! I live in the Idaho Falls area. I own out of state multifamily and I am doing land development here in east Idaho. If you ever need anything on this side of the state, there are several of us here that can help out. What would you like to find more about?

What type of loan products do you offer and what company do you work for?