All Forum Posts by: John Nachtigall

I am investing remotely in Cleveland from CA.   I have bought 4 duplexes since February, so I am very new and would not even consider them stabilized yet.   I am using Holton-Wise for the property manager and their associate Varner Group for the realtor as well as their associate Hoag agency for insurance and Black Tie Title for closing.   I can give you a summary of my experience so far.   For the record while I am a client, they did not ask me to write any review.  And while I will refer to Holton-Wise because that is part of my experience this is mostly about my experience so far.  

I have been very happy with my service at Holton-Wise.   I am purposely investing in higher class (A-B) properties, so sacrificing some cash flow for stability and the ability to exit easier if the time comes.   The objective is to use the cash flow in 10-20 years to offset part of my income when I retire.   I have a very high paying W2 job, so replacing all my income and retiring now is not feasible (or desired).  

James offers a service where he will do a personalized analysis (30-40 min youtube video) of the property for ~$500.   While I am easily capable of analyzing the numbers on my own, I found that the information was was well worth the money.   To me it is similar to paying an attorney to analyze your legal situation.   You can't fully replace experience with knowledge.  Example of what it looks like in the link.   I have had all but the 1st property analyzed and 3 that I didnt buy for various reasons.  

https://www.youtube.com/watch?v=g1WfG2teuKE

I use Wells Fargo for my mortgages, I have a good relationship with the banker and mortgage officer so that has been very smooth.   Varner Group (Stephanie is my broker) is great.   They only do investment properties so everything is geared to that.   It is all over email and e-signature (until the closing) so that is quick and easy.   Because they are all integrated they all talk to each other without the need for me to coordinate.   So the realtor handles everything until it gets to closing, it moves seamlessly to closing, then after closing it moves automatically to property management.   I purposely choose this because I want the most passive investment possible.   It is living up to the billing

Holton-Wise takes care of property management (10%) with additional fees for things like service calls.   They also quote and take care of any repairs and turnover costs as well as renovation of units.   I have already had 1 unit have to be evicted (well started to evict), they do all that also for a fee.  I also already had a bathroom leak.   My job is to approve and pay and they do everything else.   I am sure someone will point out I could arrange these things cheaper, and maybe I could (after making all newbie mistakes and the inefficiency of remote).   But then I would be taking my time which at about $200 an hour would not net out positive.   Again, my objective is not to make the most possible, my objective is to make the most possible with the least amount of involvement.  If I did not have a "turnkey" property manager I would have just not invested.   

I do have to set up utilities, that is the worst part for me.   There are a variety of agencies across the cities.   Some have good websites and others don't.   I takes up to 2 months before I can get everything settled into an e-pay.  In Cleveland owner has to pay water/sewer but I have to do electricity and gas when it is empty and such.   Real pain.

The most important part, investment returns, I can't really say. I would say it takes months if not years to actually stabilize the properties at final levels. I will say you can easily find class B units that meet the 1% rule in Cleveland. I think it is a great city for rental investment. I am finding myself specializing in the Lakewood part of town. It is already partially gentrified, so not the best deals, but you can find the "worst house" on a great block right off the MLS. Several I have bought require renovations, but I will wait until a natural turnover. They all currently cash flow now, however, so any additions in the coming years in gravy. Again, this is a long play for me. In 3-4 years if I have all renovated units with market rent and good tenets that would be right on schedule.

Hope that helps

My personal opinion, I have a hard time with people who take advantage of other people (legal or not).  Set aside the legality, lets look at the base case

- Wholesaler (WS) advertises for owners that want to sell. Not owners that want to sell at a fair market price, owners that are "in distress". One common theme that all education on wholeselling is that you have to find a "motivated seller", someone who is desperate to sell, the more desperate the better, because desperate people are emotional and emotional people make bad decisions. Bonus points for sellers who are also uneducated and socially inhibited. Like all good marketers they turn this into an feature by saying they are "solving problems". In reality, they are just finding a person with a soft spot to exploit. If you really wanted to "solve problems" you could be an agent and help them list it on the MLS to get max value.

- The WS then offers a fraction of the current value of the property, numbers from 50-70% get used a lot, with the promise of a quick sale.  The owner agrees, usually without any security or research.

- Optional step, the WS does not have the money, so in fact enters into the contract in bad faith.   This is not all WS, but a signification portion.   Again a common theme of wholesaling education is the need for little to no money. 

- The WS then markets the contract (but really the property) to someone who can actually supply the money and takes a cut.  

- Optional step, they don't find a buyer and walk away leaving the desperate person 30-60 days more in desperation and with no recourse because they only received $1 in escrow to hold the property.  

- Optional step, and in my opinion the most scummy, do a "subject to" and take control of the property without taking responsibility for any of the debt.   So the WS can walk away at any time and leave the seller with an even more distressed asset having sucked whatever marrow they could out of the asset.   

I just have a hard time getting behind any process that requires finding desperate people to work. Theoretically, if every WS told them that they could be 30% more on the MLS, in exchange for a longer time, and fully educated the seller, then maybe. The seller could then make an educated choice between max value or speed. But the reality is that is not the practice. In reality, a lot of very questionable people do very questionable things. So if you want to be a WS, you have to live being painted with that broad brush.

So you "winterize" your retirement by buying multifamily real estate.    I own multi-family syndications, but I dont know that I would recommend them for retirement.

- there are very few "Core" deals out there, almost everything is "Value Add" or "Opportunity" which are much higher risk. The point of retirement investing is preserve principle. Maybe something in the NNN space, but you specifically mentioned multifamily.

- Given we are at the end of the cycle, cap rates on multifamily especially are very compressed. When the recession hits they will expand and your investment will instantly be worth less than you paid even if you hold-steady or improve rents. If Cap rates go from 4% to 6% on a 100,000 NOI building, that reduces the value of the building $900,000 (2.5 to 1.6 mil). That is not unrealistic in a recession cap rates could go much lower.

- Syndications or direct investment are very illiquid, you cant get out fast.   If you have need of the money (health scare) you cant easily liquidate.

I am not a retirement planner but I would think a mix of higher rated bonds with some dividend stocks would be a much safer investment if you are in retirement.    Now if you are 20 years out, like me, it is much different math.   The risk/reward ratio makes much more sense.  

I do have a hard time believing that 7 people just handed cash over to a stranger they can't even name with no receipt for multiple months.   The old owner was allowed to pocket the receipts, the new owner can only evict if they are behind after he bought the building.   So why would the old owner lie about that.   When you add in that they all got evicted with "no notice" I have to say i am on the landlord side.   

Regardless, it is another interesting story for real estate investors.   Any time you have people int he mix you can't predict what is going to happen.  

To quote @James Wise

Landlord from Hell
https://www.losaltosonline.com/news/sections/news/200-police-fire/60714-late-rent-prompts-eviction-by-invasion

Tenets from Hell

https://www.cleveland19.com/2019/08/26/multiple-cleveland-families-evicted-building-apartment-tenants-call-move-controversial/

Hard to believe in this day and age, especially in CA, the landlord would just gather up a  "posse" and physically throw someone out.   On the other hand it is equally impossible to believe that 5 tenets would "pay cash" for rent without getting a receipt.   

@Justin Reyes

No way the math works. 30k invested tax free for 30+ years in an index fund beats any property you would buy. Certainly when you add in risk/reward.

- S&P has returned 10% yearly average (dividend reinvested) for the last 100 years. You have 30+ years to retirement so any recessions are irrelevant , you will go through at least 4. It requires no skill, no thought, no education, no fees (0.02%), no advice.

- You are brand new to real estate. You have no experience picking properties, managing them, and no capital reserves. Even if you pick a property that earns and equivalent 10% return you still pay taxes and it is not compounding.

Until you max out your 401k each year any other investment won’t come close to the simple math and risk/reward. 401k only require contributions and patience. You can do it. Grow your career and income, max the 401k, then consider the real estate to supplement it.

The IRS implications are a problem to be sure.   But what happens when the tenets figure out they don't have to pay you?  You have a month to month lease with them, for a property you do not own.   More importantly you have no authorization from the owner to act as their agent.    So...

1. They stop paying

2. You file eviction, because as an obviously intelligent student of the law you realize you can't self-help the eviction.   

3. The court asks you if you are the owner (no) or the agent of the owner.   If you claim to be the agent of the owner you have to provide that documentation, which you don't have.

4.  The court kicks you out as you have no authority to bring suit.   You are neither the owner nor the agent.   You have no legal control of the property.   You in fact have even less rights than the tenet who can not be removed without eviction.  You have no more right to evict them from that property than you have to evict me from mine.  

5. The tenet lives rent free.   And after 10 years, since they are the actual occupier of the property, can apply for the ownership under your adverse possession argument.   

That seems like a bit of a flaw in the plan.    You better hop Bernie and AOC don't organize a rent strike.   

PS.   I don't think anyone is fooled, this post is obviously a thinly disguised advertisement to solicit capital for your scheme. 

I totally agree that Detroit is on a positive trajectory.   I also agree that if you are willing to take the risks, there is a lot of potential money to be made.   But you have to take into account how low the city got.   When you are raising prices 20%, it is off a very low base.   We are talking about a city that fell so low it could not replace street lights.  I just don't see how a remote investor/landlord could reliably navigate this (link below).   (side note, the door at 15:23 and 16:21 is on a class B property, it looks like something off a missile silo)

https://www.youtube.com/watch?v=tEgpfQFpQUM

-  The renewal is very street specific

-  The tax rate is the 9th highest in America.   And if they want to increase services it would need to go higher still.  

- The school system is a disaster, Crime is still in the top 10 cities, Blight is a big problem.

-  The city is sized for a population 2-3x the current population so supply will outstrip demand for a long time

-  I am not convinced the city government has moved past its corrupt ways.   

So for a local, with a hands on attitude I think there is a lot of really great opportunities.   But I think a long distance landlord looking to use a property manager, there is just too much risk.   

Glad to hear that you are killing it, good luck to you.   I would love to see the motor city regain its glory again.  

You can sell your notes to "American Greed" and when you release the book option the movie rights.   Given the "evil landlord" trope going around you could be a Netflix mini-series out of this....

 One other thing you might consider.   There is obviously an opportunity cost of you being there (you are not doing something else).   However in this electronic age maybe that does not have the impact it used to.  That works against you doing the work

If you are trying to talk yourself into it, however, you might add a premium for time.   If you are involved it might get done faster, which is worth something.

As much as I like math, however, from what you have wrote I dont think you will be happy (emotion) unless you have a hand in it.   So I am betting in the end you will be doing some work.   But I dont know you so that is just a guess.   Good Luck either way, I am sorry your house got trashed.