All Forum Posts by: Jordan Grimstad

Anyone here live in Minneapolis/St. Paul area and invest in Rochester B&H (specifically multifamily)? I'm considering Rochester real estate for my next deal, and I wanted to get experienced investors thoughts on the following:

• How do you think about property management? Do you treat it like it's a 100% remote market or are you still checking on the property in person a few times a year?
• How competitive is Rochester's market vs. the Twin Cities' market?
• Any neighborhoods to avoid?
• What kind of vacancy rates and property management fees should one expect?

Yes and no. I would suggest a nuanced approach - like Jeff said, you should just focus on paying the right price for a property.

In my mind, it depends on what the nature of the crash is - for example, if the crash is due to a contraction in the job market, pretty much every segment suffers (renters can't afford rents, people don't have free money to buy flipped homes, etc.). If the crash has to do with some specific industry segment (for example, subprime auto loans), you could see rents in certain market segments get worse, where some rents stay stable. 

I don't think "unload it all!" is a viable exit strategy - real estate is an illiquid asset, so one should be clear-headed about the risk of being unable to go with their plan A exit strategy (particularly if that strategy is not "buy and hold"). In fact, "buy and hold" seems to be one of the few popular REI strategies where the exit strategy is sort of built in (hold until you're back on even footing).

Assuming I'm following correctly, this is dollar cost averaging - essentially, we should all admit to ourselves that we don't understand macroeconomic cycles, and just focus on investing in real estate in the moment, if it makes sense to buy it in that moment, rather than say "I'm at a market high - I shouldn't buy" or "I'm at a market low, I should buy everything." It's part psychological, but also part mathematical in nature.

Not a lawyer/tax accountant, but how do you establish state of residency when you do your taxes? I would assume it's similar rules, but might be worth checking with an expert.

Taking your insurance, mortgage, tax, and rent estimates at face value (I assume that these are fairly certain/stable), you might be a bit optimistic on your expenses:

- Vacancy: I don't know if 2% is the right number or not, but just to sense check - 2% vacancy means that you have no more than 1 week (on average) to turn over a unit, assuming it's fully occupied and each unit turns over once a year. If people tend to stick with longer leases (2+ years), this might be a safe assumption, but if everyone's on a year to year lease, this might go up a bit.

- Property management: do you plan to property manage the building yourself? Sorry if I missed the context somewhere in your post - if you don't plan to manage the building, you'll want to include those expenses as well. Even if you do plan to property manage, it would be good to build that scenario just to understand what your risk is in case you need to stop managing it on short notice.

- Maintenance: $1k/year - I'm fairly confident this is optimistic (or, at the very least, assumes a very short holding period after your renovation). Sense checking this, $1k/year assumes $125/unit in maintenance per year - if you call a plumber or an electrician for a unit once all year, you've likely exceeded your budget; this also doesn't include maintenance on common spaces for the building (although this could be wrapped into property management).

--> If you are hoping to hold for the long term, you'll have to budget for capex as well - you have to assume some lifecycle on major appliances - if your water heater(s), air conditioning, electrical system, etc. go out, you'll likely be looking at a >$5-10k expense for an 8 unit property

On the point about maintenance - while I feel confident that your number is fairly low, I'm not sure of the best way to go about estimating expenses on a small-medium apartment building is - I'm guessing it's a per-unit $ outlay approach or % of purchase price/year, but I think a more experienced investor will need to weigh in on this one.

Just double checking - how much cash do you need up front for the note + renovations?

I personally split it between cash and liquid investments - checking/savings and ETFs (total market/well diversified); absolutely none of my money is in individual companies. I've seen some other posts on BP that, to me, are exceptionally bearish on parking money in stocks/ETFs while you wait for a deal (example: "don't keep any money in stocks that you intend to use in the next 5 years" was a real piece of advice I've seen here) - I don't personally agree with that logic (because even a 10-20% market correction would just bump me from market A to market B) but I can understand if someone's trying to buy RE at a price that doesn't leave much room for error.

I guess it kind of depends on if you have a more-than-vague concern that the US/the world is headed for another financial crisis. I'm getting slightly nervous looking at current valuations/the current state of international politics, so I'm not really looking to add more money to my ETF positions unless the market moves sideways for a couple months.

I think it really depends on your priorities - #2 sounds harder but offers greater return on your money. A premium property might be less work/direct involvement but offer thinner returns. The money that you would put into any new place should net you a fair return on the money invested - doesn't matter if it's a $100k property or $1M property, you should be focused on what your cash return on your investment is - and if it's the % return or the $ (materiality) of the investment that makes the difference for you.

I'm confused - are your options 1) sell and make a sizable profit or 2) hold and lose money/struggle to turn a profit? Is there an option 3 (hold and turn it back into a profitable investment in a reasonable amount of time)?

If option 3 isn't on the table...not sure why option 2 would ever be the one you pick. You could do a 1031 exchange and get into a more premium property and handle the tax situation as well. 

I'm also a bit surprised that the realtor is "firmly" suggesting financing decisions, but putting that aside - it would make sense to pay more up front if the money you save from decreased interest rates offsets your upfront costs (+ time value of money) during your expected holding period. In other words, if you're getting a 0.1x% improvement on your interest rate and you plan to sell in two years, the 5% up front down payment is likely not worth it. However, if you were planning on holding the property for 15+ years, it might make sense.

My 2c - I don't know if I totally follow the context of your question, but I think that reading up a bit on the different types of entities (particularly as they apply to your state) would be a good place to start, if you haven't already. Also, I think there are enough moving pieces in your situation (your income, the income that is being brought into the picture by your wife, the connected-but-disconnected nature of your brother in the equation, etc.) that it's worth talking directly to an attorney and/or tax professional - given the money and complexity involved, likely best to get the *right* answer rather than a cheap answer from BP.