All Forum Posts by: Rob Barry

@Craig Janet posted above 

So a number of you said maybe I'm getting taken for a ride on the rehab fees. Can I ask just too much of you guys and get an eye or two on this rehab quote? From the pictures, it does look like this level of rehab is necessary. But in terms of pricing in the deep suburbs of Atlanta, Ga, can anyone give an idea of how fair this is?

@Jim K. 

Yeah, you got me. I'd been doing fine with Low B-High C OOS for a few years and thought it would be valuable to add some lower-end properties to the mix to balance out cashflow. So much for "diversification," the reality has been sobering.

Thanks for your thoughts. Tough to read, but what I needed to hear.

Thanks for all the comments everyone.

@Diego Hodge, Wise words. I'm going to get the other properties in the area inspected right away. I think I'll also re-execute my LMAs (if I stick with this PM) to include quarterly inspection reports as part of the workload. Screening process I think is where I'll need to focus here. Maybe I'll need to be more directly involved from here on out.

@Todd Pultz I fully agree that my PM failed me. Even more infuriating is that they were there for the plumbing issues just two months prior and I would be very surprised if there were really no signs of what was going on inside the place. The work has not been done yet, only that plumbing work from May which - of course - I got a work request and talked options etc. In general this PM has done a good job over the past few years. But they don't do a lot of Section 8 and I feel like once covid hit, they must have totally let their guard down and started "phoning it in." Bad combination

I remember talking to them about how we could "enhance the screening" for the Section 8 properties they're doing, and they pushed back saying they legally need to maintain the same set of standards for all their applicant screening, Section 8 or not. Maybe this kind of property management is just outside their core competency... 

@Joe Splitrock - Good insights. I'm debating if I should even put this property back up for a S8 tenant. Any other tips on screening?

@Brian Ploszay - If I had only known! When I was initially considering these properties, I didn't even really think about it. 

So In late 2018 I bought a package of five of those small brick houses you see all over Georgia (less than $70k each) and had the brilliant idea to renovate them and rent them out via section 8. Today I got a $14,000 makeready quote for one that just turned over. Here's what I understand about what happened.

It all started with a leak in one of the bathroom's plumbing. Over some months of dealing with continued leaks, it was found that the old pipe laid in the slab foundation was leaking. When that was dug up the whole thing crumbled. What's more, when they were digging in the yard, we found that parts of this house's plumbing had been connected to the house next door by the cheapskate builders who built the neighborhood. So we had to put that tenant up at a motel while my property manager got the work scheduled and, surprise surprise, because of Covid, all the local permitting was at a standstill. We were working through this in May.

During and after that, the resident basically stopped paying her end of the rent, but because of covid the courts were shut down, so we couldn't do much. Finally we get a notice to vacate saying she was moving out on July 3. This turned into her actually leaving end of July, which the H.A. approved.

And then my P.M. inspected the place. Here is just a taste of what we found.

I held back some of the worst images, including a deceased dog in the back yard. Multiple pest infestations, abandoned cars, dogs wrecking the place (I have a strict no-dogs policy).

The 65-line-item makeready comes to $13,882.

So I'm told by my PM that the woman (who had five dependents on the lease) fell in with a bad dude who had a crack problem or something, had nasty dogs and was abusive. I guess when we put her up in the motel in May, she just left the whole place behind and once the workers left - I am told - the guy moved in with his dogs and wrecked the place. My PM admits that with covid going on, they haven't been doing as many inspections this year....

And so I'm out more than a year's revenue for that property just on a makeready. I'm going to have a long talk with my PM about screening and inspections.

Sure would love someone with more experience knocking some sense in me.

@Cliff C. I know someone who bought a block of properties in BHam with a commercial loan. That seems to be the thing to do if you’re out-of-state, so your holdings have some gravity. Especially with all the funds buying up big swaths of neighborhoods everywhere. 

@Cecile Poyet

Crashes don't happen on cue, and when the majority of people all think something is about to happen, they're usually wrong.

However we are objectively near the end of an economic cycle where easy borrowing and excess liquidity has driven the prices of many things to near limits.

What this means is that most peole are probably overpaying for most deals.

Make sure you're getting a good deal, and mind your leverage (I'm below 50%) late in the cycle and you should be fine.

Looks like the community has covered the hell out of this topic. Just to add my $.02, I think of it more as a matter of portfolio design, which has alot to do with how much cash/assets you have. 

If you have enough so that a 10-15% return would provide you the lifestyle you want, I would rely more on (expert) syndicators. 

If you are not far off from financial independence but still need some growth, you'll want to leverage sweat equity with a portion of your assets to foster higer growth. But it's best to focus on where you can generate the best return, which may not be real estate. 

If you're at the very beginning of your journey, you'd want to focus on only what gets you the best result and not sink money into distractions. 

Also it's important to consider how late we are in the cycle, how compressed cap rates are, and how many "coaching students" there are driving up prices. Does your sponsor count on a year-4 refi to 75% ltv? What happens if we're in interest rate hell by then? Have they been through a recession without losing investor principal? Remember once you become an LP, you give up control. 

Just for a headcheck, my last brrrr refi from Chase came in at 6% with half a point and about $3,100 in closing costs. It was before the EOY rate drop and they were the only ones willing to let me quitclaim out of the LLC I bought it in at close (should have bought in personal name. Live and learn). But its cashflowing and thats still better than commercial rates.

My worst performer is about $200/mo after all expenses. But it will appreciate. Any SFRs I’ve leveraged I think of more as savings accounts paid for by tenants and keep healthy reserves on. I don’t expect to spend any of this cashflow until rents have increased a few times. But I have very little money in these SFRs to begin with.

For my unlevered stuff I’m really looking for $500+ per door.