All Forum Posts by: Michael Gansberg

@Batool Hussain - a new investor's probability of success has an inverse correlation to the investor's distance from the investment property. Out of state usually means you can't easily pop in to check on your investment, and, as unlikely as it sounds, there are people out there who may even try to take advantage of you due to your inability to easily see what's going on. 

Many investors don't invest in their backyards because they think the cash-on-cash return is too low, or they have some other complaint, so they fly their dollars across the country in search of higher yields, even though the investor has little experience in their OOS target market. "Cleveland(for instance) has such high yields, I should buy there," they reason. Investing remotely not only makes it harder to visit the property, but it also means you'll have less knowledge of your target area.

And your post conveys the hypothetical and largely illusory joys of Section 8 investing. Many investors think this way: "The government's paying, their credit is good! Free money forever." Remember that all Section 8 recipients have to re-certify(annually, I think, but I wouldn't really know since I haven't had a Sec 8 tenant in a very long time.) If they fail to re-certify, the checks stop, and the eviction starts. Also- Sec 8 recipients generally have problems holding full-time or part-time jobs(if they had no such problems, they wouldn't receive Sec 8, and once they're on Sec 8, why would they want to get off?) So these tenants of yours will be home during the day, with little but time on their hands. What could possibly go wrong?

Another word about Sec 8. There are annual inspections, and the inspectors don't feel like they're doing their jobs if they don't cite you for violations in need of correcting. Now after having Sec 8 tenants for years, I realized that I never passed a single inspection or re-inspection, and that all the stuff that was broken was not broken the year prior, but for some reason, I(the property owner) still had to fix it though I'd never set foot into the resident's apartment. Sometimes I was required to do substantial upgrades, only for the tenants to break a whole new round of stuff over the next year. Section 8 is a sucker's bet.

You note in your first paragraph, "I would just need to buy and hold." Your time is valuable- if you need to hold for 5 years, as you suspect, well then you'd better be finely compensated for your time(and trust me, there's time involved) and for locking up your capital. If the cash flow is negligible as you suggest- and if you're wrong about the appreciation- then after 5 years, you will be a seriously unhappy camper. You'll say, "Why didn't I just buy an index fund? Grr!" 

@Kevin Charles - I'll post a brief and representative anecdote, but I wouldn't feel comfortable directing the investment decisions of others. 

Recently- within the past year or two- Albany passed a law stating that all multifamily houses must prove that they are, in fact, multifamily houses. Most investors are unaware of this law. So upon trying to sell a multifamily house, an investor must fill out a form and provide proof that the house was operated as a multifamily prior to 2017. This is over 6 years ago, and many people don't keep business records for that long. So you send in whatever proof you have, then someone sitting behind a desk in Albany decides if in fact your house is a multifamily, or if you must convert it to some other use before being able to sell it. This takes several weeks and costs $100. This is the dumbest law since Indiana tried to round pi to 3 by legislative fiat in 1897.

Bonus story- Albany also passed a "Good Cause" eviction law a few years ago, but fortunately it was stricken by an appellate court in March 2023. The city is steadfast in its beliefs that it can legislate its way to prosperity, but I'd side with Ronald Reagan on this one, who said, “The top 9 most terrifying words in the English Language are: I'm from the government, and I'm here to help.”

I've owned property in Albany for 20 years(and elsewhere as well, so I have enough experience to judge these things with some statistical power.) I can confidently say that in Albany, the inmates are running the asylum.

@Atul Mohlajee - I'd take this as a learning experience. Regardless of what you do with this tenant- evict, keep her, etc., in the future, she'll make you better at this. Primarily- when someone gives you a to-do list prior to move-in and you don't agree with it(it seems as thought that happened? I couldn't quite tell from your post,) then don't rent to them. If the relationship starts in a contentious manner, it will generally age in a negative way- more like bread ages than wine.

Regarding this tenant- I suggest ripping off the band-aid instead of peeling it off slowly. Get rid of her and replace her with someone who appreciates you as a housing provider and won't use you as their whipping post.

@Nikola Kiridzic - it sounds to me like DSTs(Delaware Statutory Trusts) would be a good fit for you. You can split investment proceeds into multiple properties(if you choose,) and it's totally hands-off. And the cash flow goes to you(the investor.) Check it out.

I use my inner barometer(thermometer?) The scarier it is to buy, the more likely that buying is the right thing to do. When you feel absolutely comfortable with buying("hey, what could go wrong, it's real estate!") then maybe the market's a bit toppy. However, I agree with the general sentiment on this thread. Buy consistently, manage well, and in the long run, the vagaries of the market will be irrelevant and you'll be happy that you bought. That's what my 20 years worth of experience has shown me, anyway.

@Karl B. - I agree with your thinking. I'm also de-emphasizing residential in my portfolio in favor of commercial, which is probably something I should've done awhile ago. Three years ago, I was 100% residential, now- depending on how you calculate it- I'm closer to 75%, and continuing to shift. If enough residential investors feel the way we do, that should have a meaningfully negative impact on future rates of return.

I understand the emotional connection to housing- everyone needs somewhere to live, right? But my sentiment is that if government wants to make housing a right, which is reasonable, then government should build and manage the housing for those who are unable or unwilling to pay, as opposed to nationalizing the housing stock by way of rent control. 

[Disclaimer: This is an apolitical post, I'm a moderate of neither the Republican nor the Democratic party.]

What do people think regarding the "Renter's Bill of Rights" proposed by Biden? It's yet to be solidified, but it currently smells like national rent control. For a more detailed description, check the BP blog post linked below.

My feeling is that rent control is bad and a headwind for multifamily housing. However, government has regulated housing for longer than I've been alive, and in a more heavy-handed way in the past few years, yet multifamily housing has been one of the best places that an investor could invest recently, despite government's best efforts to level the playing field between owners and renters. Is this just more noise, something that may take a few bips off an investor's rate of return? Or is this the final nail in the coffin, which means to me that other real estate asset classes, such as essential retail, industrial, farmland, etc., will outperform multifamily in the near-medium term?

https://www.biggerpockets.com/...

@Waylon Smith - congrats on starting out. The 2% rule(I assume, I've never read the book) is intended as a general rule of thumb. It was likely written in a time of higher prevailing cap rates and interest rates in general(for mortgages, bonds, stocks, etc.) 

Remember that the higher the yield, the higher the risk assigned to the property by market participants in general. For instance- which is better, a stock yielding 5% or a stock yielding 10%? Typically, the market has shunned the latter in favor of the former, so the wisdom of the masses has voted that the former is a safer place for their money. Real estate is no different- if you see a very high yielding house, the market is telling you something. Likely that the tenants will need to be babysat, hounded monthly for rent, then evicted anyway for this, that, or the other thing.

As a younger investor, I chased high yield, thinking those old fools who bought those pretty houses were morons, and that I'd show them! Now I'm a middle-aged investor, and I realize old fools are not as stupid as I once thought. In fact, lower yield properties have performed better for me over time, and with fewer hassles. Good luck with your journey.

@Gloria A. - holy cow. Find the baddest a$$ eviction lawyer in your area, and sic him/her on them. I don't know the laws in NC(assuming your property is in NC,) but in NY you can generally serve a 30 day(sometimes 60 depending on lease terms, other times 90, don't get me started, I ❤️NY!) But you'll need to evict them even if they're current on rent, these tenants will cost you in the long run.