All Forum Posts by: Konstantin Ginzburg

It's very hard to give you an answer since it will come down to your personal preference. As a general rule of thumb: houses in great areas and are move-in ready (generally referred to as class A properties); tend to have a smaller return on the investment but instead provide less work and have a higher probability of attracting higher quality tenants (all tenants still need to be screened regardless). So this allows for a more passive return path towards real estate investing. The properties that need work or in less ideal neighborhoods often provide higher cash flow at the expense of needing a more direct approach to managing that property. So which option you should pick depending on what you are looking to get from the investments: higher return on your investment or a more passive investment option.

Another thing I would like to point out that's been mentioned a few times in this post already is the advantages of using debt to purchase more real estate rather than paying all-cash for any property you select. I am going to copy in an excerpt from a book I write that I think goes over the debt-leverage strategy for purchasing real estate (sorry in advance for the self-promotion):

"This leads directly into a concept I would like to discuss known as debt leverage. When you purchase a property, you not only gain equity and return in investment on the money you paid towards the property’s down payment but on the full value of the asset. This may seem like a very simple and
common-sense statement, but its importance cannot be overstated. If you have a certain amount of capital to invest; pursuing traditional options such as stocks, mutual funds, index funds, certificate of deposits, etc. will allow the total capital you have invested to grow at a given percentage. By contrast,
leveraged debt in real estate acquisition allows not only the capital you have invested up front to grow but the full value of the property that was acquired through leveraged debt from a lender. To truly understand how important this is; I would like to provide the following example:

You have $100,000 to invest. You want to pick one of three investment routes. You can purchase
a single house that costs $100,000 (let’s assume a conservative 3% increase in annual value driven by normal inflation), you can purchase $100,000 in an index fund (let’s assume a reasonable 9% annual return on investment), or you can purchase 5 houses using a $20,000 deposit for each house (we will assume the same conservative 3% increase in value). Now let’s look at how each of these investments faired at the end of 30 years (let’s pretend each house was acquired using a 30-year loan from a lender). We will also be using compounding interest in each scenario.

Scenario A:
1 house purchased for $100,000 will have a value of $242,726.25 after 30 years

Scenario B:
$100,000 worth of index funds with a 9% annual return will have a value of $1,326,767.85 after 30 years.

Scenario C:
5 houses purchased through lending will be fully paid off after 30 years and will have a total value of $1,213,631.24 after 30 years.

Now let’s discuss what these numbers mean. In terms of total value, the 5 houses and index funds have similar asset values at the end of 30 years in comparison with a single house, despite all three investments beginning with the same starting value of $100,000. By using leveraged debt, the investor in
scenario C was able to earn compounding appreciation value in the form of equity build on a real estate portfolio with an initial start value of $500,000 instead of the $100,000 effective start value that was represented in scenario A. This leveraging allowed the real estate portfolio to have a similar end asset
value to an index portfolio that was earning 3x greater annually compounding percentage return in the form of capital gains. Now let’s take this a step further to appreciate what real estate can do as an investment vehicle. Although a portion of the index fund gains may have been cash payments in the form of dividend payouts, these would need to be reinvested for us to achieve our total anticipated value after 30 years. By contrast, both real estate scenario end values only represent the appreciated values of the
assets themselves. Over the course of those 30 years, each property would also be earning a cash payment to their owners in the form of rent collected from tenants and within scenario C, there are 5 monthly rent
checks being collected from each house of that 30-year period as opposed to 1 rent check in scenario A.

Although scenario A may initially represent a higher cash flow property due to not having a mortgage payment to make each month, the combined total of 5 rental property cash flows (rent has historically gone up very often) will overtake the single property at some point in time. At the end of 30 years, scenario C would provide its investor with the highest total return on their initial $100,000 investment through the combination of appreciated real estate asset value and 30 years of cash flow profits from the 5 properties.
Properly acquired and managed real estate can truly form the foundation of generational wealth for a family and be a realistic avenue of economic progression for those willing to put the time, effort, and research into such a venture. Please remember though that real estate is not a get rich quick venture.

Properties need to be constantly maintained, tenants screened and managed, and many challenges that will need to be overcome. Unforeseen circumstances such as natural disasters can quickly lead to nightmare scenarios that will be the responsibility of the landlord to remedy. This is not a path for everyone, but it is a path open to everyone. Like all investments, it does carry with it risk and this needs to be factored into each investor’s personal investment requirements."

One caveat in all of this is that leveraged debt does open you up to increased risk which is something that should be factored in. Being able to handle risk is nothing something everyone is able to do (there is nothing wrong with that). If taking on debt risk by leveraging will cause too large a stress level for you, then investing in all cash is an option you can pursue for your properties. 

I would say that is a very extreme risk to take for an STR in a market that is at at saturation or likely over-saturation at this point. Especially if you are using revenue numbers from 2019. The few years since then have seen a huge rise in STR investment across the country with the Smokey's being one of those flooded markets. I can't imagine that property being able to break even if you are forced to convert it into a medium or long term rental if the STR market is either to saturated for you to break into at the moment or vacation rentals continues to decline as they had over the last few months. For me personally, that would represent a high risk deal with minimal risk mitigation built into the deal.

 Thanks for the clarification. I'm not very familiar with the process of medicade qualification so I doubt I can offer up much help. However, in addition to the problem of the 5 year lookback that @Randall Alan pointed out; wouldn't selling the house still not help since she is just converting a real estate asset into a liquid cash asset so would not qualify for medicade if they tie coverage to asset holdings?

 I don't think I see the value in this product in that case. It doesn't seem like it would save the investor any time since it would just act like a chat-based tenant interview and would still require the investor's time in order to get more information from the tenants. If you were able to incorporate AI or other functions to automatically generate additional questions without the investors input; I think that may represent value by saving the investors time. But I don't think I can see how your current setup would save time or effort for the investor. Sorry. 

Would the questions/comments that pop-up when the tenants answers the original questions be something that is generated from a pre-existing set of responses tied to the tenants answers or is this something that the landlord would need to respond to personally as the tenant is filling out the application? 

I'm a little confused as to why she needs to sell the property to meet the state's requirements. Since the property is fully paid off and is owned by her, she should have the ability to do whatever she wants with the property whether its a seller finance or simply signing an Articles of Transference to legally transfer the title to another member of the family. If she needs a certain amount of capital to pay for her treatment from the state, then that is another matter. If you haven't found any financers who are willing to finance the deal as is, then you should just continue to call around to different lenders until you find one that is willing to work with you. Try to go to local lenders as opposed to national chains, from my experience local lenders are more willing to come up with other financing measures rather than 30 year fixed rated standard loans. Try to ask for FHA or DSCR loans to see if they are willing to offer those.

I think choosing the location you want to invest in would be the best first step. It's hard to point you towards what a good location would be since that depends on what your priorities are: landlord friendly laws? property appreciation? established market? projected growth? incoming regional corporate investments? long term rental business model? short term vacation home rental business model? Once you identified what aspects you want to focus on, try to find areas that meet those requirements. Try to reach out to people on this forum who already deal in the market you chose and ask them their thoughts on the region. Pros/cons of that market. For reference, if you have any questions or interest in the New Orleans market, you are welcome to reach out and ask me. I'd be happy to offer any advice I can. Once you selected your market, begin reaching out to realtors, property managers, loan officers, ect. in that area to begin building your local team. I would not even begin looking at properties until you have a team in place that you feel you can trust. I would personally try to find a real estate agent first since they can often point you towards where to find the rest of the team (if they can't, then you might be better served finding a better realtor). 

It is hard to answer all those questions because real estate is extremely dependent on location so a lot of the answers would vary greatly from state to state and even city to city as far as property management cost and ROI would go. But the general advice I would give is to personally go to the city's you want to invest in first and get a feel for the city itself and establish a network first before you purchase any property. The success and failure of your real estate investment will fully depend on your boots on the ground team. Make sure you select the right property management team and vet them thoroughly before you even look at any properties. It would also help to invest in a city where you know people you personally trust to look into the property from time to time as well.

I am currently not buying but mostly because I had bought a lot in the previous 2 years so I'm not in the rebuilding liquid capital phase. Prior to 6 months ago, I had been aggressively buying the previous 18 months because I had anticipated inflation would rise (guess I was right) and I viewed real estate as a safer investing that would grow my net-worth with high inflation speeding up the process in conjunction with the low interest rates that were available then. I was still always very cautious and particular about which properties I did invest in. 

As for now: I think we have seen the worst of inflation and I also think that interest rates will likely remain at where they are now for the foreseeable future (I'm personally hoping they go back down in the coming years but that's impossible to predict). Having said that, if I had cash to invest with right now, I would buy more multifamilies in the current market but I would not feel any rush to do so. If the right deal comes along that I think would be worth it, then I would jump on it but at the same time, I'd feel very comfortable walking away from a deal I wasn't completely happy with. I'm not too concerned about interest rates because if the deal cash flows, then it cash flows and I can always increase the cash flow in the future with a refinance if interest rates go back down. I think there they may still be a bit more of a pricing correction for real estate coming but there is also a strong possibility that real estate prices will resume rising in the near future due to continued supply shortages (although they are highly unlikely to resume rising again at the rate they had been throughout 2021). Even if the prices do correct further though, I wouldn't be concerned since rental prices have historically increased even during periods when property values decreased so as long as I don't intend on selling the property, the currently appraised value of a property I own doesn't affect me. Even though real estate dips, historically it has increased over the long-term so as long as I am willing to hold the property for at least 5 years, the probability of me needing to short sell a property is very low unless I really really really overpaid for the property. I think deals can be found in any market, just need to be selective and not rush into a deal. I'm a fan of the mantra: "time in the market is better than timing the market"

To the best of my knowledge, there are no laws or restrictions preventing you from wholesaling off the MLS. The issue is typically more that the MLS is available to so many investors and buyers, that finding a deal that would appeal to an investor of the MLS would be extremely difficult to do. You also run into the problem of the asking price for the property not only has to be low enough to meet an investors criteria as it's listed but it also has to be low enough to interest an investor once the added cost of your wholesaler's fee is factored in.