All Forum Posts by: Mike Nuss

Hi @John Cava 

It sounds like you have a fun one. This must be a good location if there is potential to be torn down at 325-350k. You'll find a lot of owners in Portland that are willing to change terms if it does indeed keep the house from being demolished. 

Every single term in a seller carry deal is negotiable. I've found that more reasoning and clarity behind each term equates to better success for these types of transactions. 

For example, don't just pull an interest rate out of the sky. What makes 5% fair? What makes 6% fair? It makes much more sense to tie the rate to market conditions. 4% makes a heck of a lot of sense right now given what banks are offering. There is no need to pay 5-6% in this market. 

To answer your question, interest only payments are the easiest way to keep your payments more manageable. You can always use an amortization schedule, but this just increases payments, reducing cash flow, and doesn't do much to the principal balance with a 7-10 year balloon window. Interest only versus amortized schedule really comes down to the seller and the income stream. 

My question to you is....what are the sellers real needs? The less you know about their goals, the harder it is to meet their needs in the structure. The more you know, the easier it is to structure a true win win scenario. 

@Bill Exeter and @Dave Foster that's some great clarification and insight. What would be your take on the other way around? 

Say I purchased a property intended to be developed and held as an income producing property, but then received an offer I couldn't refuse 6 months later. Could I accept that offer and then exchange into another income producing property, even though I never developed the original property into an actual income producing property? The intent is very defendable, but what about a short time frame of 6 months?

Hi @Cameron Rouse here's a long reply for you. I apologize in advance...

It sounds like you're living in Marquam Hill for a year? That's a great pocket. Kind of isolated, but tree house cool. What's your PITI? Negative cash flow is a no no, but that definitely is a location to hold on to if you can. Maybe some kind of creative rental strategy could help make holding it more bearable in the short term. Any chance it is a historic home eligible for special assessment?

My thoughts on SW Portland 

There is one big reason why SW Portland is one of the toughest markets for rental property acquisitions that make sense. That's Property taxes. Properties in SW Portland typically have higher property taxes because the west side had higher valuations during the 1990's property tax measures. 

I missed out on a John's Landing duplex last year simply because property taxes were $6,000 (my inner east side 4plexes are less than $5,000). I could've offered another $200 per month in principal and interest payments, if the property taxes were in the $4,000 range like they should be. I knew that. The seller knew that, but that was the difference between me buying her duplex and it going to the open market where we both knew it would sell for more. 

I love inner SW Portland, especially Lair Hill, but the property taxes make SW Portland almost unbearable. For this reason I focus mostly on the inner east side. I market to the west side,but I don't really get excited about it.  

Getting on to your post though...

Where to invest?

I have to answer your question with a question. Where would you like to invest that is not SW Portland (for the reasons I just stated)? What is it that you want to accomplish? Why do you want to accomplish that? and How are you going to accomplish it?

In my opinion, It's a lot easier to work in a market you love. There are a lot of areas that have better price to rent ratios that Portland, but those areas doesn't get me excited so I don't consider them. Inner Portland gets me very excited so I focus in those areas. Go invest where you will easily stay motivated to do what is necessary to keep momentum flowing. You matter, the market doesn't. 

150K is plenty 

I wish I had the knowledge at 28 that I do at 37. I was looking at real estate through the same conventional bank financing mumbo jumbo that most people do, rather than focusing  on product (inventory), money (private lenders and sellers) and clients (renters, assigns, retail buyers). Conventional real estate methods keep you from honing in on the fundamentals of real estate. Getting face to face with sellers, getting face to face with lenders (brokers don't count), getting face to face with tenants, bureaucrats, title reps, planners, etc.. is what matters. So many people think real estate investing consists of realtors, banks, inspectors and escrow. There is so much more to it than that.

You have plenty of $ to invest in the market you want to invest in and do really well. If you really want to kick *** in real estate, learn how to be a professional at acquisition. Learn values, market rents, NOI, financing and the players in your market place. Talk to owners with investment grade real estate. Everything else falls into place from there.

You're 28 years old so you can really do what you want to do. Take it slow and buy a property "here or there" if you want to or become a mogul. It's all up to you. 

@Brad Hammond I'm a fan of multi family for many reasons (please keep in mind my experience/context for my opinions, which is the inner Portland market). I've outlined a few below.

1) Forced appreciation. A $100 rent increase per unit, per month, for a 4plex, with a 5 cap equates to $96,000 in forced appreciation. That cannot be matched in the single family world. Period. It doesn't take much to increase rents $100 per unit. A $400 rent increase on a single family homes = really no change in value because single family homes are not valued by income. 

2) As @Benjamin Ficker stated, having more than 1 tenant paying your bills is a good thing and reduces risk on the debt service portion of management. 

3) In Portland, multi family is just as liquid as single family homes. This isn't the midwest. Multi family goes fast in our market place and the buyers are less emotional (and afraid) than owner occupant buyers. 

4) MF properties are easier to finance than single family homes. 

       4a) I highly recommend you look to non conventional ways of funding your transactions. Big banks are good for 2 things...low rates and long fixed rate terms. Other than that they're a pain. Basing your investment strategy on bank financing parameters will drive you crazy, limit your ability to grow and will keep you from being as productive as you could be.

5) MF provides better cash flow and allows for more efficient management. 

6) $/Unit decreases as your "# of units per property" increases, typically. 

7) Leverage. I want a property that can pay for a high amount of debt service. Amortization is one of the best benefits from real estate. More leverage = more debt that you are not paying off. More tenants, paying of more mortgage debt will result in higher net worth (and higher cash flow) in the end. Also, multi family properties create more leverageable equity, especially with forced appreciation, which will help grow your portfolio over time. If you're limited to 4 or 10 (depending on your financials and lender) conventional loans, and you're going the conventional loan route, I would focus on getting as many of those loans on multi unit buildings as possible, for all the reasons stated above. 

Really though, it comes down to what you want to do. You can do well, or not so well, in both SFR and MF.

Hi @Valerie Alexander 

It sounds like your husband is paying to be a "bird dog" and I don't mean the $1,000. I mean the 85% ( $1,000 for life time education is about as cheap as it will get).

Most gurus (I've met Gary before, but I have no experience or knowledge of his courses) do not know the Portland market. His system is great for him. He gets a lot of people paying him 1k to be a captive education audience and feed him really high profitable deals. 

I'm assuming in our price ranges he's probably looking at 100k deals. If your husband does find a 100k deal....why not wholesale it for 15k to a local investor that can act quickly and be a repeat buyer for you that is knowledgable in the market place? This route gets you paid upfront and really takes out the risk (I'm assuming his system is like most...you get paid on the back, if he's a successful manager of the project).

Most people get into REI because they want freedom and income. Working a guru system typically makes you a glorified employee without the freedom and resources to get to the ultimate end goal.

Networking with local players will get you to that end goal much faster. 

Good luck. Portland is an exciting market to be apart of. Enjoy it!!

@David C. you have plenty of bullets. 

1) 250K private lender with a track record of paying them back

2) You have experience completing a rehab, which is probably stronger because it almost took you out. 

3) You have a track record of refinancing out of a rehab

If you're strategy is to buy, rehab, rent and refi......I believe inner Portland is the place to be. Repositioned inner Portland assets are easier to refinance because you can create better equity spread in lower cap environments. 

My question for you is how much do you "love" real estate? You're a long term buy and hold guy. I think Portland is an excellent long term hold play, which is backed by all of the institutional money flowing to our inner core and strong tertiary markets. You can be successful in many many ways, but I'm also sensing you really like inner east Portland. I get it. Inner East Portland is sexy, hip, diverse, historic, modern, grungy and full of excitement right now. I love spending days running around the neighborhoods our properties are in. It's so romantic hunting real estate becomes second nature in these areas. It's hard to get the same rush running around in the suburbs. 

If you love Portland like a lot of investors I know. Go straight to Laurelhurst, Buckman, Hawthorne, Mt Tabor, FoPo, Cully and get face to face with people that own real estate. You will find that 250k is plenty when matched with the right seller, especially if you have two years to refi. 150K down and 100K rehab can provide a ton of value. You don't even have to find "motivated" sellers to be successful. You have to find someone willing to listen, with a great asset, needing fresh ownership/management and you can make a lot of people happy simply by providing value.

If you're too busy to spend the time necessary to "hunt" for real estate opportunity, then continue doing redfin searches in lower priced neighborhoods. Portland has a ton of opportunity long term so you will be successful either way. I think many of the areas mentioned above are great ideas. @Neal Collins knocked it out of the park with his comments about FoPo, Lents  and the suburbs. Foster Blvd between 52nd and I-205 will be dramatically different in the coming years. Beaverton should find better success developing it's core and at some point suburbs will begin to form hubs with urban feel and  suburban amenities. I encourage reading Price Water House and Urban Land Institute's 2016 emerging trends for some back ground on that thought process. 

Portland Metro has too much long term demand right now (if long term demand can be measured) and too little supply to go wrong in the long run. Just keep investing in good neighborhoods and you'll do well. 

@David C. your budget and flexibility with your private lender should not limit you at all. It really comes down to how do you want to source your deals? Laurelhurst, Irvington, Hawthorne, Hillsboro, Beaverton. You can use your 250K and get into all of those neighborhoods. It's just a matter of how hard you want to try and the steps you're willing to take to get there. 

@Brian Knier brings up one of the best points. Get to know your market. Don't worry about "where" worry about becoming an expert in that market segment and you will do just fine. 

@Isaac Frost we have a ridiculous number of accounts with Umpqua and they've done a great job. 

We are currently getting a loan from Premier Community Bank out of Hillsboro and Tigard. They focus on local business accounts, have great customer service, good rates and understand that most real estate developers do not fit in a box. If you're looking for good loans on top of good banking, I suggest talking with Premier.  

Thanks @Jay Hinrichs

One other thing to consider, at least for me, is how good of a job do the leaders do at educating their membership. I can honestly say we don't get deals fed to us, because we do a great job at teaching our members how to do deals without us. I also wouldn't feel bad if we did, because we give a ton of value. You have to give value in order to get value...

It all boils down to the leadership because the leadership creates the culture.

Everyone is going to have a different opinion on leadership.

In my opinion, a good REIA leader is not only active, but relevant in their market place. And they share their market experience with their club. I also believe in effort and providing value. I typically spend 4-5 hours preparing for our once a month meetings. We used to do that 3 times a month. Our business suffered because of it, so we changed our format to once a month.

Membership hasn't fallen off at all because of the culture of our membership. We charge 2x what the local REIA charges for 1/8 of the meetings. Why? Because we have a sharing culture, we provide content and our $300 yearly fee keeps the less committed people from poisoning that culture.

Honestly, and not to bash, but with the experience I have from our local REIA....I don't believe in the National REIA model.

REIA model is to bring in Gurus and split the profit of overly expensive gimmicks (my experience, I do not assume this is for all of them).

I attended (I ran a sub meeting so I was invited) their board meeting after Fortune Builders came to town. What I saw was a bank account with over 6 figures and a new check from fortune builders for over 40k. The 40k came from selling out their database. Their largest overhead is buying the board members dinner once a month.

My partner and I quit within a few months and started our own. Not everyone wants to be a member of our group and honestly, that's 100% okay with me.

I for one would much rather pay $300 to be in a group that had relevant leaders than $150 to a group that allowed national gurus to prey on their members. I think it's safe to say our ~120 members agree.