All Forum Posts by: Kristofer Kretsch

Look, big cities go through long term cycles.  Forget the headlines and hype.  We've been through one of the most spectacular two-decades for tier 1 cities.  I used to live in Boston, and have been to San Fran only once, but I'm not ready to count San Fran out.  Though I'd admit they have a number of systemic problems.  Look at NYC, Boston, etc.  We just had twenty years that were phenomenal for these cities (ever rising property values, virtuous investment cycles, incomes rising, crime falling).  Valuations got stretched and they're in a tough spot now.  I moved to and invested in a second tier city and saw better value there.  I don't know how long it will take, but I know these world class cities will find a way.  It's not a straight line up and we got too used to the trend.  I don't know how long a downturn might last, but that's where local knowledge is key.  If you look at Boston, starting in the or 80's to today the up-turn can last say 40 years, the down-turn that preceded it was mid-60's thru the 70's, so maybe 10 to 15 years is a fair approximation.  I don't mean to imply that the downturn for San Fran will last a decade, but I do think you got to get back to fundamentals for a recovery to occur.

I'm not in STR's for full disclosure. I do LTR's but have been considering MTR's in my area due to regulations banning STR's. The question I keep wondering is whether STR's will be cyclical like the hotel industry. CNBC did a piece a few years back now (but it can probably be found on YouTube), about how most major hotel chains (Marriot, Hilton, IHG) are basically just booking platforms (they own very few physical real estate assets). Implying that the main difference between them and AirBnB, VRBO, and STR platforms is type of building and the ownership (individual investors rather than large commercial real estate investors). Don't get me wrong, I'm not anti-STR, but am just wondering if STR's are cyclical. I think if we do go through the "Air BnBust" as it's called on social media, it's probably just a normal downturn, not a bust. It will be like normal business cycle, and as other's have mentioned, locally dependent.

Me too.  I bet someone in the local real estate investor group network would know.  Check out RIREIG.  I'm a new member, but someone there would know.  We have some MA members too.  I'm in Providence, RI.

I think the windows I purchased were around $550 per piece, materials and labor.

I had a 1890's multi I needed replacement insert windows for.  The best combination of quality and price was to work direct through a local lumber yard.  Old homes have non standard sizes in my region, so the window dimensions need to be fabricated to size.  Approximately half the price of the installation was labor, so getting something mid-grade seemed like the best route.  I bought vinyl and avoided the complex glazing options.  They're much sturdier than the home depot equivalent.

I've heard that a fuse panel being present can be a problem with bank financing, so that might give you some leverage or kill your financing.  Talk with your lender.  Either way, if it's only the main electrical panel or the GFCI's it shouldn't be too big (expensive) a deal as both can be replaced, just make sure you budget for it.  A year ago I bought an investment property (built in 1895 with knob and tube wiring) and decided to hire an electrician to do a full re-wire of a 3-family multi-family to disconnect all knob and tube and run all new modern wiring.  That was roughly $40k for that work.  My recommendation would be to have an electrician provide a recommendation and quote on what needs to be done prior to buying (if you can in this hot market, or choose to accept the risk and get the recommendation after).  It's probably a few thousand dollars to upgrade the fuse boxes and more to replace the GFCI's in the bathrooms and kitchen.  If you're looking to exchange all outlets with GFCI's that price will be dependent on how many outlets your exchanging.  Also, talk to an electrician about what is allowed per code in your area and seek quotes.  Sounds like you have an old home so try to find an electrician who has a lot of experience working on old homes, they'll often be able to present you a tiered approach, ranging from upgrading the fuse panels, or adding a few dedicated circuits for window AC's, all the way up to a full re-wire.  In some sense, I've heard from others that fuses aren't necessarily that bad, they have worked fine for years, but there are some shortcomings in that the fuse can be bypassed or replaced with too large a fuse.  And it's not something I would want my tenants messing around with.  You will likely need to know a good electrician if you plan on managing the property anyway, so now is a good time to find one.

I can only speak for myself and I try to think of things a number of ways, individually, micro-economically, and macro-economically.  

The first is can I sleep at night.  I try to think through a "stress test" type scenario like what would I do in an environment that saw a 10% drop in real estate value, maybe the loss of some % of rent, and (for good measure) between my partner and I maybe one of us looses our job.  

The second thing I think through is am I a buyer, a holder, or a seller in this market and would that affect my ability to sleep at night.  My intention in real estate is to buy and hold, but maybe things don't work out as intended.  Anyway, I think through what type of deals would entice me to buy and if any of my properties are not turning out like I expected and should but cut while the market remains hot.

The third thing is knowing my local real estate market.  In my area I suspect housing price appreciation/inflation may be higher than the headline numbers as I've perceived the average quality of homes for sale declining while the average sales price still rises briskly.  That said, I think there is a limit to the downside in demand because part of what I believe is driving real estate in my metro is the work-from-home trend and the influx of people moving in from other higher priced metros.  My metro is still relatively affordable (though the gap is closing) and offers a higher quality of life (in my own opinion and I am biased) relative to two other metro's in the region.  If a rise in interest rates were to make homes more expensive, we'd probably still see the influx of home shoppers looking for affordability.  At least this is what we saw in the last monetary tightening in 2019.

I do follow the big macro economic trends and thoughts of many influential speakers but I only view them in broader terms of market perspective and context and have learned better than to try to time the markets.  I'm a big fan of everything on bigger pockets and listen to economic/market thinkers like Dalio, Rubini, Summers, El Erian, Ivy Zelman, Jim Cramer, Hoenig, Jeff Currie, and even some of the MMT thinkers to get some alternate perspectives, among others.  Ultimately I find all these thinkers insightful, even if their opinions differ.  That's the beauty of the markets, it's a celebration of the difference of opinions.  It's always better to try an understand the argument behind what each of these very smart people are saying than trying take it at face value.  Sometimes the assumptions and conditions change.  Often they have different timelines and are only discussing relative probabilities of events occurring.  Often it seems that they are arguing very different things but in someways they are not all that dissimilar.  It's good to keep an open mind and to remain a learner.  I'll also say again that conditions and assumptions can change.  The fed could decide to reverse coarse, or the fed could decide to crush inflation.  Maybe the US budget deficit finally matters, or maybe there's a flight to safety and everyone wants US dollars.  Maybe Ukraine spreads into a broader European war.  Maybe we have 1970's style stagflation.  Maybe we have a minor recession and QE is back and bigger than ever.  I really have no clue and I certainly don't know enough to make a prediction with any real degree of certainty that I'm comfortable with.  All these factors have an impact in real estate but I can't control them.   What I can control is the following: I know myself, my investments, my market, and will remain open minded, and hopefully that will keep me making good decisions.  And that brings me back to #1, can I sleep at night.  Oh boy, it's 11:30 PM ET and I got to get some sleep.  Good night all!

I'm really glad to see the discussion taking place; I had been pondering this same question and it's great to see the perspectives.  In the last several months I bought a 3 family investment property.  Rents are well below market and I've been trying to establish the precedent of good landlording, prior to raising rents.  The previous owner had a different philosophy on landlording, nothing horrible, but the quality of workmanship in the units was probably a C in a B+ neighborhood.  So I'm trying to improve the property and raise rents, and thinking a lot about the right way to go about it.

A similar bill was being considered in my state, Rhode Island.  It would have required inspections for functioning heat and hot water prior to a unit being rented.   Heat and hot water are already legally required to be functioning in a rental (the tenant just has to make a phone call to report it if the landlord is negligent in providing it).  The only difference is this law would create an inspection requirement prior to renting a unit.   First, I can't imagine the state having the resources to perform those inspections so I'm guessing landlords would get hit with the bill and long wait times.  I also wonder what good it will do as heat systems can fail at any time, and most often it's during extreme cold.  I have my heating systems professionally inspected/maintained each Fall, and my heating plumbing company has a loyalty program that makes its members a priority for emergency response in events such as loss of heat or hot water.  I understand where the idea and need of these types of bill coms from, I've heard of some horror stories from renters interested in my units and how I upkeep my property, but I think these types of bills miss there mark and provide an administrative and cost burden that will yield little benefit to renters in terms of keeping the heat on.  I don't see how a one time inspection will ensure more reliable heat and hot water.  Those systems need regular maintenance and tenants should also know their area's rental/tenant laws.  No need to duplicate and complicate rental protections that already exist.

Does anyone invest in and manage homes that have old or antiquated plumbing systems?  Many of the 2-4 multi-family homes in my area have cast iron drain/waste pipe and galvanized water supply pipe.  It's not uncommon to see rust weeping from a CI plumbing stack elbow or galvanized steel water lines flowing at a trickle during an open house.  Given that these are both big potential cap expenditures that could come due in the first few years (or worse if left unaddressed), how are you all estimating, planning, and negotiating the purchase price based on plumbing issues.  

For example, I know CI plumbing stack replacement is not necessarily uncommon, but it would seem to require several weeks where the property was vacant for the plumbers to remove, install and reconnect the waste lines in a 3-story multi.  How do you go about planning for such work?  I figure I would need a vacant property, and thus I would need the leases to align so I could end the tenancy or I'd have to pay my tenants for alternative living arrangements.  If I wait for the leases to end this could take at least one rent cycle since the leases don't currently align.  So the work would be maybe two years out, but what if the replacement couldn't wait?  How long can emergency repairs hold?  I looked at a property recently that had this problem.  I missed out on making an offer before another was accepted (it's a hot market).  2 of 3 units were rented on long term lease and the last rented month by month.  It really got me thinking how I would do it.  I still think the property was a good deal as it had good bones, was otherwise well maintained, and in good area of my city.  By my estimates it would also cash flow positive with more than enough to also cover the maintenance and long term cap ex.  

I know everything "depends", but I'm specifically trying to keep things non-specific, so we can talk more about thought process than analyzing this specific deal.  I would have made and offer, but I was too slow.  So now I have more time to think about this problem for the next one.

I would also love to hear your own experiences with old or antiquated plumbing and how it affected your rentals or your decision to invest.