All Forum Posts by: Ross Denman

@Samm Mero I live in Carmel and just moved from Fishers. It's very tough to find cash flowing rentals in these areas if you plan to hold a mortgage. You can cash flow, but your COC ROI isn't going to be as high as most investors like. Equity, well that's another story. Carmel is one of the best equity growth areas in central Indiana.

As you can see in this link

https://www.nerdwallet.com/blog/finance/high-roller-cities-wealth-credit-highest/

Carmel and Fishers are 2 out of the top 5 wealthiest cities in the midwest. 

I have a client, who is a local doctor, who purchases high-end condo's in Zionsville and Carmel with 50% down as rentals. This is more exactly opposite of how I was taught to invest, but it is an interesting model.

Personally, I'm not a fan of condo's. HOA's tend to raise faster than rents here, creating less cash flow over time, but this model is more about passive equity building. Basically, the HOA cares for most of the capital expenses over time and allows for a low-maintenance living experience for residents. Because these are more affluent areas, the tenants are stellar and even when we have a vacancy, it is very short... days usually. The residents usually take great care for the home and the areas are very desirable over all... but I wouldn't expect a ton of cash flow. He's probably putting $150k down for $4k-$6k annual cash flow, but they are never vacant, rarely have headaches, and he's building up incredible equity each year from a 2:1 leveraged position. If you are fine with 3-4% COC ROI, it's a fine model as the IRR will still top 10% annually when levered equity growth is figured in, but it's not a cash flow model.

@Suzanne Marta There are various business models that various investors are using. I can't say that one model is superior to the other, but each carries different amount of work, risk, and reward. Personally, I am a fan of being risk aware more than reward driven. I see a lot of investors who are jumping out there and overpaying (in my opinion) for homes in tough areas and I think that introduces a lot of work and risk that they are not likely prepared for. While there certainly may be a great reward... many of these investors are not prepared for the road they have to travel to get there. These types of investments are better left to investors with experience, plenty of working capital, and local resources that they can trust and are familiar with. I promise you that you have to have an iron stomach sometimes for those types of investments.

With that out of the way... I have been watching the MLS soften for several weeks now and believe that we are moving into a stronger buyers market which will present more MLS opportunities. While I am not anti-wholesaler, working with wholesalers can be tricky and even risky. Most wholesalers do not allow for the recommended due diligence steps in their deals (home inspections, BPO/appraisal, time for contractor to nail down a pretty accurate rehab, etc.) Also, it's very rare to see a wholesale deal that is represented in a manner that I consider to be accurate. Inflated comps, bare minimum rehab budgets, inflated rental rates, etc. Because of this, I usually recommend the OOS investors that I work with who are just starting out to just find an easy home that will provide some cash flow with minimal headaches. Usually newer homes in nicer neighborhoods. These are great homes that are able to draw in good tenants, appreciate well, and have relatively predictable and consistent income. Banks like to lend on these homes and tenants tend to stay longer. You won't see the spike in value in 3-5 years like you might in the "up and coming" neighborhoods, but how much is your time and piece of mind really worth?

After you have put your team together and have some performing assets, experience, and understand your team... then you can take on more risk, but I don't think that's where most OOS investors need to start. There are several decent outfits and groups in town that you can reach out to build your network and team. I have several clients that have worked with both @Zach Hoereth and @Ritch Bonisa and they are both established investment companies and there are several more that you can reach out to. I would recommend identifying goals, skills, resources, risk tolerance, etc. then reaching out to various providers in your target market. Referrals are also a great way to weed out some of the pitfalls as well. Look for established professionals who seem to be interested in your success... not just their next deal. There are plenty of people around who are happy to take your money and move on to the next deal. Learn how to evaluate deals as much as possible from behind your computer. There is a lot of public data available to look through before you ever have to visit a property. Remember that the only thing worse than "no deal" is "a bad deal." Half of the battle is taking the "bad deals" out of the mix. Over time, most real estate will grow in value and get better if you take care of the tenants and property, but often times the road to get there isn't worth it to me. That may change once I have millions of dollars to gamble on real estate, but for now... I prefer to work with properties that are more predictable.

Real estate is a fun and fantastic space to be in, but it is not a short-term path or for the faint of heart. Even with the best homes, in the best areas, and the best of tenants... I promise you will still get knocked around now and then. Anyone who tells you otherwise is either inexperienced or selling something. Best of Luck and feel free to reach out if you need anything.

I have several clients looking for these types of properties, but depending on the criteria and capital needed, decent deals seem to be hard to come by. Do you have an inventory source for these?

@Nicholas Morgan with some tweaks, I think that this looks to be a deal. I am telling you though, make sure that you have some reserves and a back-up exit strategy. You may never need it, but being proactive is always best.

I have taken over properties that were previously managed by @Michael Thompson. He is a licensed realtor (although he's changed brokerages a few times) and he's always been easy to work with. I would be really surprised if he was "ripping anyone off." As mentioned above, you can file with MIBoR if you have to.

Getting keys shouldn't be a big deal. We deal with it frequently enough when we are working with an uncooperative or disorganized property manager. Your new PM should try to get copies of the keys from the tenants. If not, we threaten to (and occasionally have) changed the locks at the tenants expense after a couple of months with no success.

Leases can be a little trickier, but not terrible. If you don't have copies in your records and the tenant doesn't have copies, your new PM may just have to put them on a new lease.

If your old PM is holding the security deposit, that's a tougher situation. Indiana statutes are clear about security deposits and you may have to approach with some sort of legal action if he has not released the funds back to you.

The whole process can be troublesome, but not too complicated.  A good PM should be able to navigate the situation without too much trouble. Unfortunately, it happens more often than you might think. The absolute worst was working with clients who were screwed over by the Morris Invest/Oceanpointe scandal... and even then, there are ways to work through it.

@Jay Hinrichs always beats me to the punch :)

The average BRRRR deal that I see only generates $1,000-$2,000 in annual cash flow and that'll likely get wiped out at your first vacancy. I think $78/mo is a little on the light side, but it's not uncommon. My question is why are you "cashing out?" I almost always leave money in my refinances. As long as I have less than 20% as the long-term investment, I'm better leveraged than conventional finance. My strategy/goals are to refinance at least 80% of my money back with a mortgage of 45% or less of the rents. I also keep ample reserves or some kind of back up capital that is easily liquidated (credit cards, stocks, etc.)

The BRRRR method is not a "cash flow" method in 90% or more of all deals. It's a growth strategy. Let the tenant cover the overhead and build equity from a leveraged position. If you're looking for cash flow, hold in cash or sell owner finance as those are much better cash flow models. I also always incorporate principal paydown when a home is performing well. This allows for faster equity buildup, especially when working with a 30 year am. It's almost all interest for several years as @Erik W. mentioned above.

Investors are BRRRRing with very small margins from heavily leveraged positions. This is why Jay keeps harping about how dangerous of a strategy it is for newer investors. It only takes one speed bump to derail your asset and I promise you that speed bump is always around the corner. I'm dealing with it from wind/storm damage at one of my rentals. I have ample reserves, but it still hurts when you have to dip in to $5,000 for reserves for a deductible or pay out of pocket. This is a newly remodeled home with a good tenant. Not even a pig in a tough neighborhood with a suspect tenant and it still hit a speed bump about 18 months after a huge investment.

If the home is already considerably under market, you certainly need to raise the rent, especially if you are investing in renovations. Even if it means not keeping the current tenant beyond their current lease, you should get the rents up at least a little.

Point being... understand leverage, cash flow, equity, and overhead. Whatever you do... don't spend that $5,500... you're probably going to need it at some point.

I think that there's opportunity with the deal, but make sure that you have some back up capital and a secondary exit strategy lined up. Holding on to leveraged properties for even 5 years will usually double your invested capital... but getting there can be a rocky road, especially if you are not prepared.

@Jose D. and @Aladdin M. we see larger concentrations of Hispanic populations in the Eagledale/Lafayette Square areas (38th St and Moller area,) Hawthorne area (just South of Haughville on the West side,) and between Fountain Square and Christian park. If you google something like Mexican Grocery Stores, usually they are in areas with higher concentrations of Hispanic people.

One caveat... under the current Fair Housing and Discriminations laws, we have to screen everyone the same way. Because ITIN numbers are not to be used for credit or criminal history, we cannot place households where all residents are on ITIN numbers as we cannot get the data that we need. We also have issues with residents who have invalid ID's that come back as flagged when the SSN's are run. I've seen SSN's to babies, dead people, military people, etc. It can be a tough space to navigate around. I believe that this is a common issue for many property managers. I've actually sent letters to the President and our US Senators about the complications that "legal" immigrants and workers face under the current system and would love to see a system that allows more opportunities, but obviously, it's a hot button topic for anyone to have a real conversation instead of political grandstanding.

Hispanic tenants are usually good tenants for us and they usually reside in a home for a while because of some of the complications they face in finding housing. They can be "harder" on homes though as many will have more residents coming and going, work dirty jobs, and just have busy lifestyles.

Every different type of lifestyle and resident demographic presents its own idiosyncrasies, but we like the Hispanic residents that we have been able to place and would love to see immigration reform that would allow us to work with them even more.

@Harvey Levin I first heard of PM's leveraging tenants late last year. The few investors that I've talked to who were with PM's like these were unaware and didn't understand why their tenants were not renewing. I've seen monthly fees for the PM, fees for calling work orders, fees for paying online, etc. While some of these fees are ok, these PM's seem to be somewhat predatory. They charge you a discounted PM fee but keep 100% of the various "convenience fees" charged to the tenants that add up to more than the PM fees charged to the owner's. If a tenant ends up paying an extra $50/mo or more with their rent for using your PM, they will likely move across the street to the home that isn't charging that. While it's normal for an online processing fee, I spoke to a previous tenant who's owner transferred to a property management company that manages from out of state. She is very frustrated as they only take online payments (since they have no local office) and they charge a convenience fee (not just a processing fee that comes through the processing provider.) Putting an undue strain on tenants is a good way to have tenants who do not pay, don't pay on time, and simply don't care about taking care of your home.

BTW, this is not saying that Great Jones is good or bad as I haven't heard anything bad about them... but if you look up case# 48C05-1908-SC-002536 at mycase.in.gov you will see that they just filed eviction on a tenant a week ago. Maybe it's their first one... who knows.

Most of the bad PM's have fizzled out over the last couple of years and the industry is always changing with new technologies. A valid PM in Indiana has to be licensed to manage as a 3rd party. While there are some that are better than others at certain aspects and types of investments, most of us are pretty good at what we do. That includes Great Jones as well. Property management is the most difficult business that I've seen to do well with. Trying to keep owner's, tenants, and vendors satisfied with the same activity can be tricky. There's always some sort of drama in the background somewhere. 

I know that Jones has been on a big advertising campaign, which is usually a sign of someone hungry for growth. We've reduced our advertising this year and have been more selective about the clients we work with. I know that Harvey and I talked last year about his company doing the same thing. For us, it's quality over quantity. While we still have issues, like any PM, but we know who we are, where we excel, where we struggle, and what makes our clients portfolios perform. A good PM will always be looking for ways to do things better when there are problems. Honestly, if you call me about something that is not a fit for us... I may tell you to call Harvey or Josh as we all do things a little differently and have niches and areas that we excel.

@Graziano Casale best of luck! I recommend interviewing several different providers and see who is a fit for your needs.

@Adam Larkin I am a local investor, consultant, and work as the business developer for a local property management company. We work with a lot of OOS investors and help them build teams. The PM company just does property management (not acquisitions, large scale rehabs, etc.) so it's important to us to build relationships and have a network of providers and professionals to work with. This tends to give our clients information from various different perspectives. A realtor, property manager, contractor, home inspector, insurance company, and banker will all see different aspects of a deal differently so getting information from a variety of sources is very valuable. Shoot me a message and I'd be happy to put you in touch with some of the providers and professionals that we frequently work with.

I recommend finding a few target markets. There are several here in the midwest as well as various other markets. They do not have to be the "best" deals, but a market that has deals. At that point, start engaging professionals and providers in that market as well as networking with other OOS investors who are in your target market. BiggerPockets is a great place to find other OOS investors. In my opinion, having a great team in a decent market is better than having a poor team in a great market. The team really is that important. I've talked to many investors whose biggest frustration was purchasing what appeared to be a great deal but having limited professionals to manage and maintenance the property. You find yourself somewhat stuck and unable to tweak your team by replacing some members. Usually this happens in smaller markets where opportunities present themselves.

To me... the most important parts of your team will be your realtor, property manager, banker, and insurance agent. They should likely be able to recommend title companies/attorney's, contractors, home inspectors, etc. It can be difficult to find the right realtor as their financial incentive isn't necessarily aligned with your long term financial goals and investors can be very time consuming for a realtor to work with. Realtor commissions are very deal driven. Property managers are more performance drive. Bankers, and insurance companies have a much greater exposure to the liabilities that may come with holding investment properties long-term, so there tends to be a greater financial alignment there as well. Your insurance company can let you know if you have to carry flood insurance or if an area has a variety of risk factors that need to be considered. Bankers want to make sure that a home will perform well enough to cover the overhead and not default.