All Forum Posts by: Ross Leavitt

Thanks for your input @Greg Dickerson and @Ronald Rohde. I think what I'm getting is that industrial is more variable from one local market to another. So we'll just continue to ask our broker lots of questions. Thanks again!

Unless you are planning on moving back into any of those properties, it would probably make sense to sell these homes and use the cash to buy basic houses in working-class neighborhoods. ROI is typically better with class B properties than class A+, which is apparently what you have now.

With BRRRR these days it is nearly impossible to refi with none of your own money in the project. That was easier a few years ago, but the purchase price of distressed properties has been pushed up by the popularity of rehabbing. That means smaller margins and less opportunity to create the equity you need to cover your downpayment.

We are in the middle of a BRRRR that will likely result in no cash invested, but we had to get creative: bought a duplex, splitting it into 2 zero-lot-line properties, selling one to a friend. Rent and refi the other side, and should have no cash down at that point. This is in a neighborhood of identical properties, so we're hoping to keep doing it if this one turns out well.

Outside of something unusual like that, BRRRR will require at least some of your own cash 99% of the time.

@Ronald Rohde we are looking at general areas but haven't started shopping for land yet, since we're still deciding whether to go multifamily or flex industrial. 

What OZ areas do you think are the most promising? Of course we're looking for that unicorn OZ that is not currently depressed and still has room for more economic expansion.

@Greg Dickerson thanks so much for chiming in. This kind of property is just what we had in mind. We're trying to put together our own pro forma to compare the project with our typical multifamily development. 

How would you come up with a long-term vacancy factor? 

Larger tenants are always NNN, but does that equation change when you're carving up the space more and more for smaller tenants?

As the rented space shrinks, do you get more rent per foot at some point? (I.e., with multifamily the smaller the unit, the more rent per foot generally.)

With our multifamily, vacancy has been predictable and low. And with so many units, if something causes a unit to sit vacant for a while, it's a small percentage of the portfolio. If we get into flex industrial, there are going to be fewer tenants, and we're more nervous about taking more time to re-tenant a unit, especially with fewer total units. How do you mitigate this risk?

I guess these are the kinds of specific questions I should have posted initially, but thanks so much for your help. Oh, and if you know of anywhere else where someone has answered these basic questions already, I'd love to be directed there!

Your broker needs to be paid one way or the other. And you need to not overpay for the property. Often FSBO properties are overpriced, which means you'll be negotiating on the price anyway. Part of that negotiation will be for them to pay your broker, or simply lower the price enough for you to pay your broker directly.

Some FSBO sellers have an allergic reaction to buyer brokers, in which case you may offer to work with directly, without having your broker between you and them. Then, just have your broker review every document that is produced and give you advice at every step of the transaction, and pay your broker yourself. Your broker will most likely be just fine with this arrangement, if that's what it takes to get the seller to work with you.

And remember, a FSBO price should in theory be a few percent lower than an MLS price, because it is not accounting for any brokers being paid.

PM'd. Would love to talk about recent investments we've made in the area and your goals.

First off, if you're going to be a landlord you simply must learn the landlord-tenant law in your state. Take the time to educate yourself. It will pay off.

I did a quick search on "Tennessee landlord tenant law" and found the full text of the law as well as a couple summaries. Read the summaries thoroughly. Skim the full text of the law and keep a copy on your computer so you can reference it if issues come up.

https://www.omnirealty.net/overview-tennessee-rent...

https://www.nolo.com/legal-encyclopedia/overview-l...

https://www.tennfairhousing.org/sites/tennfairhous... 

Next, contact the local landlord association. They will know the local laws. Consider joining, but if you have a very basic question, the person who answers the phone will likely explain the law. Here's a list of local associations:

https://www.thelpa.com/lpa/associations/tennessee....

As for increasing the rent, here's the deal. If the previous landlord was subsidizing the tenants by giving them below-market rent, that was his decision, and the tenants should be forever grateful for his generosity. If he wanted to ensure that they continued to enjoy below-market rent on their home, he could have signed a lease before he sold the property to you, to lock in their rate for some period of time. If he did, you have to honor that rate until the lease expires. 

If not, then you bought the property at a market price, and you deserve market rent. If you decide that you like the tenants so much that they should be the beneficiaries of your charity, then by all means, do it. Are they the kind of people you would like to write a check to for $200 each month? Because if their rent is $200 below market, that is what you're doing. It's fine to do that, just know what you're doing. If that $2400 per year would do more good going to a local charity rather than being given to your tenants, maybe you should consider that.

Good luck with your investment! Take the time to learn how to do it right, and it will be a rewarding journey.

@Jay Hinrichs, since you've done everything, could you share some tidbit from your experience with multi-tenant industrial? 

My dad and I have done a fair amount of student-oriented multifamily. We need to put money into new construction in an opportunity zone (from the recent tax law), and are considering diversifying into multi-tenant industrial. We've interviewed a couple brokers that came well-recommended, but I still want to do my own research about what it's like to own this kind of real estate long-term. Out of all the RE investing material I've read and listened to, I don't remember industrial ever being mentioned. 

So, does anyone have educational resources they would recommend? Has anyone owned this kind of property? What has your experience been? Thanks so much!