All Forum Posts by: Mark H. Porter

I was really expecting one of these to be -

“I want to make good cash flow on a passive first property”

I had two large beach houses, one an 8br and another 13.  Both hot tubs were maintained 2x per week walking with the pool maintenance and the pool company would advise when it need to be drained and cleaned.  It only happened every few months.

Like Bill was leading to, your first task is to stop the water intrusion.  It’s a bit confusion as you talk mostly about the humidity level but not about standing water.  Gallons of humidity from the air itself is certainly an oddity.

So you need to find where the water is getting in.  If it’s not from leaky pipes, nor high-water levels, then it’s from surface water.  

If the house was built on a slope then you’ll need a French drain installed on the high side to take the water away from the foundation and around the house.  If the house is built on level ground, then just get a landscaper to slope the ground away from the house all the way around.  Also, make sure you have gutters (are they clean?) that have downspouts that terminate at least four feet away from the foundation.

Once you stop the water intrusion you’ll be able to see what, if anything, needs to be fixed.  Remember, your tenants aren’t going to pay you more rent for a pretty basement so only do what you need to to keep them warm, safe, and dry.

Abdi - I bought my first Burlington-area property in 1996 and sold the last one in 2022.  During that time I accumulated 55 units by selling some of the older, smaller ones under 1031’s and buying much larger properties.

Strictly from a landlord view, Burlington was a great place to do business. Sure you had a city permit for everything along with inspections and rules to follow but so long as you did you could make a ton of money. Toward the end I had an NOI of $450 a door on class C properties (which is the overwhelming majority of Burlington).

But …

There’s a human-side that has changed dramatically.  With the social changes that have taken place, mostly due to the local changeover of city leadership,  the city has experienced a marked increase in crime and drug use.

Also, property taxes are sky high.  I know people say this often about their states, but I found Burlington ridiculous.  As an example, my personal home was tax assessed at $399,000 and my tax bill was $13,500 per year.  And this was on a Residential tax instead of the Commercial tax which is 50% more.  The property taxes in the state as a whole are going up 14% this year.

Don’t forget that if you go out of state to invest you’ll be giving away ~15% of your income to a management company.  You’ll also be paying for yard maintenance and other things you could do yourself to save money.  Rule of thumb - the more YOU do, the more money in YOUR pocket.

Best of luck -

Justin - i, like I imagine hundreds of users on this forum, have been in exactly this same position.  Though interest rates at the moment are high, the absolute smartest move for you will be to continue to use reasonable leverage to continue to purchase more and more properties over, as you say, the next ten years.  Keep that low interest mortgage on your home as long as possible.

As an aside, and to grow even faster, always keep the mindset that "everything is for sale for a price". I've done many 1031's with this mindset - in one case moving from a 3-unit to a 10-unit to a Walgreens to two strip malls. The sale of the 3-unit to the purchase of the strip malls took 6-years. And none of my personal money ever went into the purchases except for the first one with 3% VA loan. Anyone can do this.

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This is just the type of question being answered that brings BiggerPockets I to a gossip column instead of a truly valuable medium.

 Funny thing, Dave, is that if you talked like this two years ago we'd think you were nuts!  The high-interest environment without (what we thought would be) a positively correlated cap rate has certainly messed up our traditional thinking.

A few years back I wouldn't have touched a class-B/C multi-family for under a 7.5% cap and 20% down with 25% amortization at a ridiculously low rate.  Those were the glory days that I doubt we'll ever revisit.  

Now, by putting down this large down payment, you're doing more than just reducing debt and making the numbers work for a positive cash flow. You're also making the banks happy as they are almost all considering, as a side-qualifier, a DSCR to ensure they'll get paid in the future. I've even had banks say they'll write the deal if I deposit 10% of the loan value back into a money market at their bank.

It's a crazy world - 

Listen to Bill! The only LLC you'll be able to form is a "disregarded" LLC, which means it gets traced back to your SSN for 1031 purposes since the original property was in your name. Personally, I didn't have a property in an LLC until I had 22 units. I seem to remember that I didn't even have a business card until then either.

You are VERY late to the game to be making these decisions.  I've done quite a few 1031's and each time I had my three targets already picked which means they were less than two weeks from being signed when I closed on my downleg.  your QI should be telling you to hustle right now.

The 9% rate isn't the only piece of the pie. Amortization length along with any DSCR requirements comes into play also to determine what kind of down payment requirement you may have to meet. My long-time bank came at me in October when I was doing a single tenant commercial purchase with 7.95%, 22-year amortized, 25% DSCR so to get a deal I needed 32% down. Commercial lending is getting VERY complicated as lenders are seeking more capital to beef up their coffers.

Aside with what others have said, you’re only diversifying by two (residential and fitness).  One pandemic and that entire center, being fitness focused, is wiped out.

To win on this you need to reduce the risk.  Any chance the bar is on an end that could be made into a drive-through?  Will the bar location actually be a full-service restaurant?

How long have the vacant front been vacant?

Was this place built as a warehouse-type structure that has been compartmentalized or does it look like a strip-mall?  This will determine what type of uses are feasible.

Listen to @Nathan Gesner on this one. I didn't even have an LLC until I got to 22-units and only then because I was getting into commercial buys.

I had the umbrella until then and actually for a few years after.  Heck, I still don’t have business cards and now I do MTNL strips with major chains.