All Forum Posts by: Jason Monroe

@Ellis Hammond, 

I did something similar to what you described. I did it in the Bay Area. 

It's a lot more capital intensive than you want it to be. I would say that you likely have enough money for a smaller thing in Phoenix. Like 600k-ish which might be a duplex in your area

Since I had a story that is similar-ish to yours before I got my first building your buyer profile doesn't sound like it's very strong. These banks are relationship based you will get it in the teeth for the interest rate. 

Oh, and if the property is less than 750k total then you will take it in the teeth because they would likely need to keep the loan on their books so you're interest rate is going to be higher as the portfolio loan penalty. Most buildings don't qualify for an 80 LTV loan.

These fancy situations where the seller carriers some, the bank comes up with some and you come up with 15-20% I've never actually seen but some of the folks on BP will swear it's a thing. 

If you want to do this 100+ unit thing 

I would recommend you talk to some of the syndicators here on BP there are some podcasts like: 

https://www.biggerpockets.com/renewsblog/2016/04/2...

That you might want to check out. You can find a syndicator and use them as a mentor for a deal that you all work together. Then you will get the experience of selling deals to some of the people that fund you and help out other members of your spiritual community. 

So @Sterling White

Did this video on why he walked away from a 118 unit complex that found it's way into my promotional mail folder 

At the end of the video I was very confused as I didn't find the tips worth while 

- When I have walk throughs for multi family buildings if there are deferred maintenance or gross neglect then all of those things would get identified and other specialists would be brought to bear with the general understanding that the initial offer price will be reduced.

- I thought that with a 100+ unit building the key buying principals thing is location, proximity to job centers, unit mix, and access to mass transit. 

- Beyond that you want to ensure that you can stay as close to 95% or whatever the variance is occupied.  Which would have you looking at absorption rates, economic growth trends, median income etc... 

- Value add opportunities ALWAYS have some sort of challenge. That's why a small team would buy it as opposed to an institutional investor.

- Doing a complete inspection of one building usually takes 3 - 5 hours depending on the configuration even if you just spent 1 hour per building which is a kick the tires kind of cursory look would equate to 10+ hours to include the common spaces 

When you're talking about commercial deals there is a lot more than just I didn't like the color, it doesn't have crown molding, and the roof showed signs of significant wear. 

There were other material failures that caused this to blow up since usually commercial deals are longer affairs. It's unfortunate this video didn't include the substance only fluff that might make people start to think the distance between 4 units and 100 isn't that really that large.

Originally posted by @Keith Schulz:

Not to be the pessimist, but I tried one out of state "turnkey" investment, and I'll agree, it was the worst mistake of my investing career. I'm sure there are some good opportunities out there. However, I will never again buy a property I can't lay my eyes on monthly. 

I bought the property in Indianapolis from one of the turnkey networks (I won't mention names, but the owner is a Bigger Pockets member) for $47,000. The property was "fully rehabed" when I bought it, and there was a tenant and property manager in place. I had followed this investment group for years and trusted their knowledge and network, so I did not actually visit the property in person prior to buying (first two mistakes, trust, and not visiting the property).

About 3 months after buying the property the tenants started falling behind in rent. I was immediately on the property managers case about it, and she kept promising the tenant was a good tenant and that she could get caught up. The tenant got close to caught up, but then got further behind each time. Against the property managers will I told it was time to get rid of that tenant and find someone new. The manager assured me she would, and that the property was still in good condition. The next tenant was the same situation. 2-3 months in falling behind in rent, and I started asking the manager more and more questions about the tenants and property condition. She assured me all was good. 

I'm a pretty trusting guy, but I started to sense I could not trust this manager and I scheduled a trip to personally check on the property. The manager told me she would meet me there so I could go in to see the property. Of course, she didn't show up and I couldn't get in because the manager hadn't given the tenant proper notice. At that point, the property manager was fired, the tenant was asked to leave, and I started interviewing new property managers. A new manager was told me the property needed $20,000 worth of work to get back in rentable condition and that much of the work that had been done previously was poorly done and not to code. I ended up cutting my losses and selling the property for about half what I paid for it. 

The bottom line was I lost $20,000 and change, but learned some good lessons. Thankfully it was a small loss in the grand scheme of things. I blame myself more than anyone for not doing more due diligence on the company I bought through, the manager, or the rehaber. My biggest mistake was trusting that since it was through an investment group I assumed they were on top of things, and I thought I could trust the people they were working with. WRONG. The rehabber, was terrible, and the property manager ran the place into the ground, but it was all because I was far enough away that I didn't check on things in person or hire a 3rd party to regularly check on things.

BE VERY CAUTIOUS IF YOU DO OUT OF STATE TURNKEY INVESTING. I'm a real estate guy, but if you want a hands off blind investment where you are looking strictly at the numbers, stick to stocks and mutual funds. I hope this doesn't completely turn off those of you looking at turnkey options, but I hope you learn from my mistakes and you don't make the same mistakes I did. Do about 4 times the due diligence that you would, if you were investing in something locally. 

This was a very sad story that was totally avoidable 

Did you buy this thing without getting an inspection ? 

What was it about the flip company that made you say yeah, I don't need independent management ?

Did you get an estoppel from the tenant before buying? 

Did you have anyone on the ground like an agent look at the property to give you a 4 eyes review? 

Separation of powers is fairly new being coined in some book in the 1700s according to Wikipedia. 

Someone selling you something is not going to be unbiased. If you don't have someone do an independent review and you get screwed you broke the covenant of investor diligence. 

I am glad you learned the lesson cheaply enough to hurt and not cripple you. 

I know I'm over simplifying, it doesn't seem that hard 

I would imagine @Jay Hinrichs saying "Questionable ethnics is like ice in your drink at a burger flipper, the higher the volume the more ice they put in your soda, and will use words like *cooling optimization* to defend the scant amount of soda in MY DRINK!" 

TK tends to exists in high volume areas so expect questionable ethnics from *liars*, I mean "providers"

1) People talk in these local markets 

2) Contact a number of property management companies 

3) After you get over "what areas do you have your doors" and any other intro questions 

4) Ask the property management people "would you take on a property at address X,Y,Z and if not why?"  

You can get the bonus round if you would ask them if they would pay X for a property with Y configuration in Z area. Most of the time they are also licensed and would be able to help you appreciate if whatever the opportunity is a good value. 

5) A LOT of these TK providers sell OLD properties which will need a lot of major components replaced if your inspection doesn't reveal the replacement of those systems "sometimes you can win betting on borrowed time" 

@David Li Its great you bought a car from your rental income. As someone who appears to be value conscious why did you buy a new-ish car rather than a panamera whose depreciation curve had flattened out like one 4-ish years old? If this was your play car and you were going to put the car on Turo I would understand sort of. Except for the loan where you would be better to lease the vehicle. Turo is airbnb for cars and you can make the car unavailable for rent during the period you want to use it.

@Adam Meadows, great post. One of the other things that you have to deal with when your starting is to learn to not over-upgrade the property for the tenant class you can reasonably attract to the property from the perspective of the rental. Heated stone floors in the bathroom(s) is a feature potentially not appropriate for sub 1,000 dollar rentals. 

Curb appeal matters the inside of the house needs to look good but don't neglect the outside as it will make the property look incomplete. 

Be honest about what you need and tell lots of people. When your networking if you don't tell people what you need then they have to work harder to bring value to the relationship. If other people have to work harder for their relationship with you then your *network* will *notwork* for you.  

https://www.biggerpockets.com/forums/51/topics/218...

finding deals, raising money, doing inspections / repairs and dealing with tenants takes a lot of work. 

I am here in the Bay Area also you also need to identify what areas are strategic for you so you can grow into them. 

There are a lot of syndication professionals on here that would be happy to connect with you. Who could help you identify the workflow and skill set needed for that kind of deal so you can work on closing the skills gap. They also have friends that do deals and if your sophisticated or accredited they could invite you to participate in a deal.

Some of the people from biggerpockets are doing this summit www.sfbaysummit.com Oct 7 and 8 it costs money because it's an education and education costs money. There are going to be a lot of people in a similar situation there so you can find friends, coaches, people to sell you deals there. You will need to bribe your spouse to let you spend 2 days away but events like this will help you narrow down your goals  and with who, so you can start executing. 

Lets be clear these are areas the police will still go right? If so its not a war zoje but an area with "significant police activity" 

As was previously stated retention can be a problem your tenant vacancy percentages might trend toward 15%.  You might need to offer hazard pay to vendors who work on the property. Some of the vendors might have had a bad experience with the area and don't go there anymore out of fear for their tools / equipment. People will live in all kinds of things in all kinds of areas. 

As previously mentioned tenant screening or rather the tenant screening of the PM company is the part that matters. Some of these kind of properties can require "strong management". You want to partner with someone that way when of you want to trade the property the PM can be offered to a new buyer and their contribution can be sold as a property feature. 

No idea why your numbers don't bank in tenant turn over. The fixtures (Refrig, stove, sink, etc...) are likely at the end of their useful life and if someone leaves your going to need to replace them to get market rate rent. 

If the beneficiaries are out of area right? If so they may not care or totally understand what's going on. They just need a number they can quibble over. 

I would guess the beneficiaries have it in their head they can get 100k  for this property. As such I would structure the offer to ensure they could get 100k after closing and all fees. That would likely put you in the 110-120 range. Where you would help them appreciate your equity position and the paying for unit turn as there is no existing pool of money for this and taxes are eating your lunch. 

Good luck