All Forum Posts by: Mike Nuss

@Danna Gramme I've given many presentations on rent control, and a couple times at the meetups we host, it might even be recorded somewhere. We're having one next week, you and your husband should come check it out. 

https://www.biggerpockets.com/forums/521/topics/749092-rarebird-investor-network-fall-2019-vendor-fair

@Jay Hinrichs "Not so much from the how to wholesale beginners who are really just trying to tie up property to flip contracts but I see them taking properties from normal listing channels."

Well stated. 

My thoughts exactly. The Zillows, Open Doors and such are not competition in the high cost renovation "value add" properties that make the best investments. They're competition for listing agents, by grabbing the people that are okay with a small discount for lack of headache. Those sellers aren't the type of sellers we have historically purchased from. 

@Danna Gramme a couple thoughts

1) Yes, I'm currently buying, but pro formas have changed significantly do to the inability to bring rents to market immediately for value add properties (except for certain circumstances the law allows). Still finding good deals though. 

2) We don't know how 'rent control' laws are going to affect WA, OR and CA. We think of NY, slumlords, cap on rent increases, etc when We think rent control. Thanks for your input in advance!......This statement summarizes where most landlords are. Rent Control is location specific. I suggest reading the actual ordinance so you can better educate yourself rather than assume it'll be the same as NY and others (which Oregon's isnt).

3)  I see in greater Portland prices trending down fast....Where do you see that. Costar just published a large report that suggests the statement is wrong. RMLS' last market action report also suggests that statement is wrong. 

The costar report shows a large increase of apartment purchasing in Vancouver, which is expected from rent control and Portland's screening criteria changes. The market is finding it's way right now. Demand is figuring it out, sellers are figuring it out and that's going to lead to more volatility in the short term. As in the stock market, volatility is a great time for educated buyers to do really well. We've been pretty successful purchasing multi family this year and expect that trend to continue, you just have to purchase with specific knowledge of the law and market in order to reduce the risk. 

@Jay Hinrichs and @Brad Hammond thanks for the shout out, greatly appreciated. 

@Christopher Johnson our market is flooded with hard money now, to the point that it's becoming more like soft money. Our next meeting on October 10th will be a vendor fair, there will be a couple lenders there with booths and probably a couple more lenders just in attendance. Come check it out, you should be able to meet some people that can help push your investment goals forward, plus you'll get some free beer and meet some interesting people. 

As far as strategies that work well. Portland is a great market for flipping and for brrrr. Cash flow can be great as well when using creative financing strategies (and brrrr), but is not so great for the more common 25% down conventional financing route. 

https://www.biggerpockets.com/forums/521/topics/749092-rarebird-investor-network-fall-2019-vendor-fair

@Audra Luther I'd be very careful to sell a property in a nice market in Oregon and buying in a "cashflow" market. 80K won't allow you to get much scale, which is what you need in order to be successful and have consistent cash flow in those types of market. It sounds like you're experiencing real cash flow in Oregon (a market you know well).....paper cash flow (proforma #'s) can be exciting when looking in other markets, but remember real life is much different than paper cash flow. Asset class matters a ton and my fear is that 80K and desire for more cash flow will result in buying a risky asset class, which can go south in a hurry. Cash flow zealots seem to ignore "liquidity" of those assets. When the only buyer of your asset is another out of state buyer, they'll run #'s the same way you do. What's the rent? Then back into a 1% rule valuation. Problem is, those cash flow markets do not see appreciation in rents, which mean you won't see appreciating in value, so one bad tenant experience can wipe out all of your cash flow, then when you go to sell, you end up with an overall loss. Where as in Eugene, your buyer is most likely an owner occupant, which is an emotional buyer so many more factors come into play which makes the asset much more liquid. Liquidity and tenant class (risk) are much more important than a few hundred more in cash flow. 

@Jonathan Raz relo will have to be paid. In order to not pay relo in Portland, you have to have a "relo exemption" letter from the city at the time the lease is signed. So for the existing tenant, relo needs to be paid. Once you own the property, then you can apply for an exemption letter for future occupants. Here is a link to the exemptions at the city level and how to apply for them. 

https://www.portlandoregon.gov/PHB/76351

My pleasure @Jacob Frison.....make sure you review the past 12 months of HOA meeting minutes. If you see any discussion about litigation, run as fast as you can way from that deal. Condo owners have very little control over the HOA budget so just know that going in. You may end up with a large assessment (20-40K+) that has nothing to do with your unit and what you can rent it for. Make sure they have a solid amount of reserves in their account and an adequate reserve study in place.

@Jacob Frison you should find a networking group and start meeting investors in your area. The two biggest groups in town are the Northwest REIA and RareBird Investor Network. You can find other meetings on meetup.com as well.

Dig deep into the rental numbers and control factors for renting a condo. HOA fees typically just eat into cash flow without providing much value (although sometimes they include utilities) and many will have rental regulations that could affect the rental performance in the long term.

@Phil T. great question. Here are some thoughts on BRRRR as a whole, not just the HELOC scenario

BRRRR strategy has quite a few levers and those levers will all potentially be affected differently. All in all, I see the BRRRR model having a larger risk/reward equation than we've seen in years past. The lending side brings risk, but I think there will be more reward if the project is successful and a fixed term refi happens in the end.

Purchase price - I think we can expect competition (demand) on the cash required purchase side to lower, so there's a high probability purchase prices going in can be better. I've been saying this for years that acquisitions will get better once the market stops saving flippers that are making poor purchase decisions. 

Renovation cost - At least in Portland labor is so flipping expensive and costs have been increasing so much that I'm excited for this change. I'm expecting with high probability that renovation costs will go down with a recession. 

ARV - There could be a hit to the values on the back end for the refi, but honestly I think the better acquisition prices and better renovation costs will make this a moot point. Also, the finance strategy on the ARV (retail) level is completely different than finance on the brrrr acquisition side. See below for my thoughts on the refinance.

Rental rates - I'm less concerned about this in our Portland market as rental prices are pretty sticky and we still have an overall housing supply shortage, especially in the single family market. That's probably not the case for many markets, which I'm no expert on. I'm always a fan of stress testing BRRRR on the front end by using less than market rents in the proforma for acquisition. When using below market rents, the end result is usually more $ back on the refi and better cash flow on the back end. If rental rates go down then there's obviously room for that to happen as well.

Refinance - This is the biggest wild card because we truly do not know what lenders will be thinking. Also, their changes will be made based on things outside of just the real estate market (macro more than micro actions). There's probably a high probability that interest rates will go down. This is huge in the ability to refinance as many lenders look at DCR (debt coverage ratio) for the refinance. The DCR has been the deciding factor for the final loan amount on all of our BRRRR refinances so even though values may go down, our loan amounts could still go up because the DCR with lower interest rates will allow a higher loan amount.

The biggest concern on the lending side, in my opinion, is how tight will lenders get for investors. Will they simply lower LTV's and require more equity? Will they pull out all together and change their overall lending balance sheets by focusing on other asset classes? How banks react will have an affect on the ARV as well as the ability to refinance out. For this reason alone I would not be willing to use a HELOC on a different property to make this one successful, without assets or cash to pay off the heloc in the event that a refinance does not go well.

@Amanda Bostic please do. More the merrier!