All Forum Posts by: Rodney Lorenzo

@Matthew Irish-Jones, no my pockets aren't deep enough to pay the mortgage of my investment. I unfortunately inherited the riff raff, the previous landlord filled the building with to sell it. As a result, I've had to evict most of them for non-payment. I may have to do what he did. I'm going to follow Bob Steven's advice and focus on govt-subsidized tenants, even though my one Sec 8 tenant moved out because of the neighborhood. If I still struggle to get it cash flowing, then I'll have to take my losses and sell because in the long run, I'll end up losing a whole lot more. The building itself is in good shape, except the neighborhood it's in isn't. Next time, I'll do the opposite and buy a POS in a good neighborhood. Thanks for your advice and for not attacking me with condescending remarks like @jameshamling needed to do. These forums are to help one another out. Not attack each other from behind a keyboard like a coward. I truly hope he doesn't own an AR15.

Most people on here have been in a similar situation. No one gets every investment right. Sometimes you win, and sometimes you learn.

I have been doing this for 10+ years, and run a Construction, Property Management, and Realty company. I have graduated to more complex investing, and we are still at times scrambling to get things right by making incorrect assumptions, construction goes over, market changes, rents plummet, we forgot to carry a 0, building code changed, etc...

You are not the problem here, you made an investing mistake, it happens. The fact that we live in a society where you can make an investment, be overrun by non paying tenants, swindled by a dishonest seller, and have almost no recourse is the real issue.

There was a time in this country where they put people in jail for this type of behavior. It was called debtors jail.

Good luck getting this turned around. Anytime I have taken a large loss I have tried to look at it as paying for education, that helps me sleep at night.

100% my thinking here as well!

Not every investment works out, and as a newbie, you don't know where all of the landmines are. I wouldn't advise this strategy (D-class multi) to a new investor, but what's done is done. Treat this as a (massive) learning lesson and you'll be way ahead for your next investment.

The biggest mistakes I see here are:

1. Ignoring red flags and being afraid to lose earnest money. (Way better to lose 5k quick than 50k)

2. D-class properties are not worth the trouble, unless you want to specialize in these areas. Requires a certain skill set.

3. Blind trust of PM and no recourse for poor performance.

4. Not getting all financial docs and due diligence completed before money goes hard.

5. Emotional decision making instead of decision making via numbers only.

I've made some of these same errors, but believe that this makes for a better investor in the long run!

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@Vadim Feygenberg, yes as a newbie I made a mistake and I realize that. I'm not like the others that succeeded with their first investment. Unfortunately, I can cry about it and accept the fact and move on. I agree with you that Sec 8 tenants can be expelled by the program if they trash the place or break other other rules, however, my one Sec 8 tenant moved out because of the neighborhood. I inherited the riff raff from the previous owner who filled it with whatever just to make the sale. I can either choose to do the same or fill it with govt-subsidized tenants and at least, make an effort to stabilize the building. When I read the ledgers and T12, it was way after the earnest deposit was made and I didn't want to lose 30K. Of course, now I realize that if I buy and hold in this case, I may end up losing a whole lot more in the long run. Thanks for your advice and for not bullying or attacking me like @jameshamling did. I think we should all help each other out like Brandon Turner intended this forum to be, instead of using it to attack and berate the mistakes of others. I will be reporting this individual to Brandon Turner. Again, thanks for not stooping to a low level to make a point.

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Quote from @Vadim F.:

@Rodney Lorenzo curious where this property is located? Just because the property is located in a low class neighborhood, does not mean your tenant pool will be low class as well. I would highly recommend you find a PM that knows how to deal with the tenants in that specific neighborhood.

From what I am reading, it seem you had rose colored glasses on and decided to get the biggest property you could afford thinking you would be able to cash flow a ton. At the same time you didn't look at the ledger properly to see if the numbers make sense or not. For example, I invest in Cleveland, there is a duplex available for 75k with 1 unit rented and 1 vacant, The tenant on the rented is behind on payments 1.5mo, and looking at the ledger for the past year has only been one time once. Even with market rents being 750mo per unit, I am not going to touch that deal because its not clean at that price, now if I can get it for say 60-65k it might make sense to risk it. Why? Because I am getting it at a discount to offset the trouble tenant. The area as you might guess is D class, but with the right PM in place you'll still get a good tenant.

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Quote from @Matthew Irish-Jones:

Quote from @Rodney Lorenzo:

The urge to get into real estate pushed me to invest in a 6 unit building in a neighborhood that I didn't think was that bad. I thought, the cash flow could be good so why not. This was a year ago. Now, my PM is struggling to fill the units from bad tenants that I've had to evict and I can only pay the mortgage out of my own pocket by so much. I'm very worried of defaulting on this property.

To make matters worse, I have a 5% penalty on the loan if I sell it before 5 years. If I were to sell it, I'd have to not only pay this penalty, but the 6% realtor commission on top of that. What would you do in my case? I'm thinking of selling it off market to avoid the realtor commission and possibly paying someone a 1% finder's fee for bringing me a buyer. I would then pay 6% in total in ridding myself of the property, which is the same amount I would be paying a realtor. 6% is better than 11%. I've learned that bad neighborhoods tend to attract bad tenants, while good attracts good. I may just have to have my PM fill the units with whomever, just to boost the value of the property, which is what the previous owner did, hence, me inheriting his bad tenants. Yes, I'd hate to do this to another investor, but at the end of the day, I don't want to see my first investment go down the toilet. What would you do in my case?

How deep are your pockets? If they are deep enough you can weather the storm, pay eviction costs, turnover costs, and loading fees for tenants. You will do all of this with the HOPE that when you turn it around you get paying tenants. Because D/F class investments have a much smaller tenant pool that can pass normal screening standards the vacancies are prolonged, and eventually you panic and add tenants that are not qualified. You are normally better off with vacant units than non paying tenants.

If your pockets are not deep enough to withstand the above, you need to sell. You are most likely going to have to sell it cash, because many banks will not lend on a vacant high risk building. They will want it filled, so the next buyer probably needs to be cash. The cash buyer will expect a discount. You probably need a savvy Realtor to help get you out of this.

If it were me I would sell at a loss. The amount of Capital and energy needed to turn these properties around is not worth it. I would rather cut my losses and move on with life, and focus on the next investment.

Sorry you are going through this, I have been there myself. Its a mistake you only make once.

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@John Clark: When you're hungry to get into RE, having these types of urges is not bad. How many people talk about it but never take the plunge. Not all new investors succeed with their first investment, but I'm sure you did. The same PM I have now, was the one handling the building for the previous owner during the acquisition and was very slow in providing the documents, ie T12 being asked of him. By the time I got this info, it was too late. The earnest money was already deposited, but you're saying that a contract can state that a refund of the deposit can be had at "any time" during the acquisition as long as it's written in the contract? Even up to before closing?This is good to know and something I'll bring to the attention of my realtor who represented me

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Quote from @John Clark:

Quote from @Rodney Lorenzo:

Quote from @Dan H.:

Quote from @Rodney Lorenzo:

The building is commercial, so the value is based on all units filled. Right now I have 2 out of 6 filled and the previous owner filled them with riff raff so he could get it sold. In wanting to turn it around to a cash flowing status, I've had to evict non-paying tenants because I thought I could flip them. Now I realize it's taking longer than expect because no one wants to live in the neighborhood. I don't see any gentrification reaching that area any time soon. A partner would balk at the idea of partnering with me for obvious reasons

Did you determine the NOI based on a T12 or projecting current month for the year? I suspect you did something closer to the 2nd than the 1st. I would not rely on getting someone else to value the property as you did and I am surprised you found financing.

There are PMs that specialize in these types of properties. They charge s premium because managing these type of properties require increased level of effort. Find a PM that specializes in this class of property/tenant and pay them what they demand for their valuable skill set. With a specialized PM you may still lose money, but I suspect it will be less than you are loosing today. Maybe a specialized PM can turn this to where you will start to make a little money. Regardless they will minimize losses until your prepayment penalty expires.

Does your prepayment penalty ramp down? For example does it drop to 3% after 2 years?

Good luck

I didn't get a T12 until much later. Way after I had already paid the earnest deposit. When I did, I noticed a fluctuation in the rent roll, but I never got an answer as to why. Later I found it it's because the tenants pay what they want, when they want and I can't run a business like that. At what point does one make a decision to blow his earnest money away? What if you don't find any red flags until after? How is one to know how much money one can lose if you dive right in? I'm a newbie. My first investment. I'm not yet at the stage where I can do this blindfolded but I am one to take chances, except this time it didn't pan out. The PPP doesn't scale down for the first 5 years. It stays at 5% for every year.

I’m glad you originally said that your urges got you in trouble; that’s what happened.

My question is, however, who wrote the contract you signed? Once the financials didn’t make same, and you couldn’t get a straight answer, you needed a contract that allowed you to get out and have your money returned.

If you can’t control your urges, then decide to follow the contract, a contract that you control.

Also, you say the property is commercial, but it sounds like you have residential tenants. Which is it?

Sit down with two or three experienced property managers and ask each how he would handle the situation if you hire him. Pick the one with the best plan of action.

And for the love of God, control your “urges.”

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@Tim Jacob: I hear what you say. Unfortunately, the previous owner filled the building with whatever riff raff came along and I ended up having to evict most of them. Had I known that it would take several months (or more) to flip the units because of the neighborhood, I would've spaced out the evictions. I'll take this as a learning experience and move on, but thank you for not attacking me and berating me like @jameshamling did. People like him who can't control their emotions, only add to the decline of BP's reputation. We're all here to help one another. Not attack one another, especially from behind a keyboard like a coward. Thanks for your diplomacy and advice which I will heed

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Quote from @Tim Jacob:

One thing that should really be noted is quality pms don't manage in bad areas. It simply isn't worth their time. I understand that means you will have to manage it yourself and it's in an area you don't want to go to but it's the only way. If you get a realtor for leasing that won't work either. They will want to place someone and not spend months finding then. This means they will place duds bc of the area and the patience it will take to find someone. If you cant ir dont want to do thus then ypu should sell. Cut your losses and use this as a learning oppurtunity more valuable than some real estate bootcamp from a guru.

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@James Hamling: the unhinged here is you sir. You need help badly. What's the matter, your boyfriend or girlfriend not giving you any? Your efforts to stand out from the others who responded diplomatically only says the education level you have. I visit the Twin Cities occasionally and go with a buddy to a local shooting range there. Maybe I'll pay a visit and invite you to come along, LOL. After all, we're all adults here aren't we? Except some know how to behave like some and others don't. Take a chill pill and STFU. You showed your true colors sir and you've been reported

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All Forum Posts by: Rodney Lorenzo

Rodney Lorenzo has started 13 posts and replied 77 times.

Post: The bad neighborhood I invested in may kill my investment

Post: The bad neighborhood I invested in may kill my investment

Post: The bad neighborhood I invested in may kill my investment

Post: The bad neighborhood I invested in may kill my investment

Post: The bad neighborhood I invested in may kill my investment

Post: The bad neighborhood I invested in may kill my investment

Post: The bad neighborhood I invested in may kill my investment

Post: The bad neighborhood I invested in may kill my investment

Post: The bad neighborhood I invested in may kill my investment

Post: The bad neighborhood I invested in may kill my investment