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All Forum Posts by: Michael Worley

Michael Worley has started 3 posts and replied 102 times.

Post: I feel like I may be missing something on this?

Michael WorleyPosted
  • Investor
  • Carrollton, TX
  • Posts 109
  • Votes 76

$42,000 a door that rents for $505 a month seems in line. I am not sure of your area, but you may wish to look into what the price per sq foot rental rates are. What are the sizes of the units? What is the unit mix? Is the laundry a net positive (the utilities on laundries can be quite expensive. The expenses seem a bit low, but they just did a lot of capital improvements which may explain that number.

As for what to expect in maintenance costs, well that varies of course but nationally for multifamily naahq.org publishes repair/maintenance costs at 3.7% of gross rents. With total operating expenses at 38.5%. Your actuals may vary, but those are the national average. Capex is 8%. If the seller's numbers vary greatly from those figures you should investigate further. It may be a value add opportunity for you, but it may be a money pit. Due diligence is key.

Originally posted by @Giovanni Isaksen:

@Account Closed and all;

... That's why I believe this apartment cycle will have an extended peak similar to the illustration above or How I Learned to Stop Worrying and Love The Bomb Low Cap Rates. If you want to have deja vu all over again read the Wikipedia page Lost Decade (Japan). For a deeper look see the NBER report: The Causes of Japan's "Lost Decade": The Role of Household Consumption which if you change the dates and names would be the story of what's happening here since 2008.

Completely agree with you. The NBER report you highlight supports my claim that demand is the cause for low interest rates not supply. The notion that supply causes price differences more than demand, as proposed by another poster, is unfounded in empirical evidence.

Consider this though.

With SFR it's an all or none proposition, meaning that either it's vacant or it's not vacant. With MF it would be extremely rare to have 100% vacancy. Most deals you can determine the 'break even point' for the vacancy rate and then decide if that's feasible. Vacancies are the killer in rentals, especially SFR.

In addition to that, the 'equity' you have in SFR is more comp sales driven and less operator efficiency driven. If you're in a hot real estate market a SFR may improve in value even if you are a bad operator, which can be nice. However, the opposite is also true. MF values are driven by operator efficiency.

As an example. Lets say the market Cap Rate is 7% for a class C fully stabilized property. If you're an efficient operator you can drive equity by increasing your NOI. As a SFR operator whether you're efficient in your management of expenses or tenant selection, it's only worth what the other SFR sales in the area are worth, give or take a small margin.

Post: 1st Multifamily Deal in Chicago- How'd I Do?

Michael WorleyPosted
  • Investor
  • Carrollton, TX
  • Posts 109
  • Votes 76

No way of knowing until after a couple of years. Vacancy is the killer with 1-4 unit properties. Just about every deal works out if you don't have vacancies or even just tenant turnover costs.

Vacancy aside, if you cash flow $400 a month and live rent free that's a good house hack start.

Post: Bank Operating Account

Michael WorleyPosted
  • Investor
  • Carrollton, TX
  • Posts 109
  • Votes 76

If you have single family homes with conventional financing I would say you can do whatever, if you're using LLC's you will want to keep the books separate. Part of that is keeping the funds from being mixed together.

Post: Bank Operating Account

Michael WorleyPosted
  • Investor
  • Carrollton, TX
  • Posts 109
  • Votes 76

As an aside, each property will have it's own financials so having an operating account for each property also makes reconciling the data more efficient.

Post: Bank Operating Account

Michael WorleyPosted
  • Investor
  • Carrollton, TX
  • Posts 109
  • Votes 76

While I normally agree with Bill G on most everything he posts, I will disagree on this one. I think you should have a separate account for each LLC (and a separate LLC for each apartment complex). As Brian stated, you don't want to co mingle funds if you have multiple investments and multiple investors. So yes, a separate operating account for each property.

P.S. I do not advocate LLC's for SFR but absolutely do for commercial real estate loans, which APTS and Buildings will be.

Originally posted by @Joshua Nicholas:

 http://www.cepr.org/content/deleveraging-what-dele..

 You may want to review the report you linked here. It very clearly shows (specifically on pages 11-17 in figures 2.1, 2.2 and 2.3 that the developed countries/zones  like US, UK, Japan and the EU that they are indeed DELEVERAGING. The total private debt of households has dropped dramatically (hence the point I've made about the reduction of the DEMAND for credit).

Originally posted by @Joshua Nicholas:

 http://www.cepr.org/content/deleveraging-what-dele..

http://finance.yahoo.com/news/why-financial-deleve...

There has been 11% deleveraging in 7 years, the equivalent of going from $20,000 in debt to $17,800 in debt. Hardly massive deleveraging and has been 100% offset by the massive increase in government borrowing which without the Fed printing money would have put massive upward pressure on interest rates. 

We ended Bretton Woods because we lost control of the gold price despite repeated interventions in the market with the London Gold pool. We lost control of the gold price because we printed money and ran large trade and current account deficits starting in the 1950s and spent recklessly all throughout the 1960s, culminating in a run on the dollar and massive dollar redemptions for gold.

And I understand the whole idea that velocity falling is the reason rates have been falling since 1980. But you forget how convenient it is to have a central bank with unlimited printing power unconstrained by gold. I can make rates continually stay low no matter the demand for credit if I constantly increase the money supply.

Anyway this debate is too wonk-y for BP. Real estate is headed for a crash, rates are going to rise soon and there will be hell to pay.

Please explain to me how a central bank can make rates continually stay low. (Hint: they can't, they control the short end of the curve, not the long end). Low rates are a response to low demand for credit, not a cause of it. You have your cause and effect inverted.

Originally posted by @Mark Nolan:

Do you also think that most apartment markets are at or near the peak in pricing for this cycle in San Diego?

Look at the household formation and absorption rates for that market. On a nationwide scale there is no reason to believe that, based on the ratio of new households to new housing construction, the supply is anywhere near the demand for units. It is obviously more local than a nationwide average, but you get the idea.