All Forum Posts by: Brad S.

https://aoausa.com/

Apartment Owners Association of California. A very good resource and very low membership dues. I used them when I had my rentals in CA. Not just for apartments.

@Jennifer Cramer prop mgr is the most important in my experience. They aren’t motivated by the selling commission, the rehab or repair costs, or a loan closing. They want rentable properties, easy to manage, in areas where people want to be. They are the expert “boots on the ground” that can tell you what areas are more (or getting more) popular, what property features current renters want (I.e. 3 vs 4 bedrooms, location near specific schools, etc), or other rental trends they see, etc. That info also translates into good possibility for future rent and price appreciation. And since they presumably will continue to have to deal with renting, maintaining, and managing the property after the purchase, their motivation is typically more inline with yours.

And they are realtors or typically have a realtor dept or connections, as well as contractor and lender connections. Many lenders are multi-state anyway, you typically don’t need a local lender, just a trusted one.

Also, sometimes prop mgrs have deals from their own in-house clients (landlords), where they are looking to sell for certain reasons, etc. Basically prop mgrs can be a valuable hub of resources.

I'm going to go against the grain somewhat - I don't fully subscribe to the "invest in your backyard, or travel-close areas" theory. To me, that sounds a lot like the story of the guy looking for his lost glasses at night, under the lamp post, because that's where the light is, even though he lost his glasses in a different area. Or it's like being in a convenient relationship that doesn't quite offer what you need.

Don't go where it's convenient, go where it's most likely to help you hit your goals, and if that is in your backyard, great! ..but, if not, then develop the connections to do well in more beneficial areas. You don't have to be the expert, you just need to find those trusted people that are.  By the way, this is specific to your more hands=off goals, not necessarily geared for people wanting to do flips/rehabs or more complicated strategies, although, I have known people who to do that form a distant also.

There's these new fangled inventions you may've heard of, the interwebs, email, phone, and even local map street views, etc. There is no reason why you need to limit yourself based on geography alone. I had previously owned out of state rentals for almost 20 years, where I had never been to those areas or even seen the properties. And I was able to navigate those just fine. I've also had very local rentals, in my backyard, which were not as easy to deal with. It wasn't the ease of location that made the difference, but the trusted professionals. And it sounds like you want a more hands-off approach.

So, I would focus on those areas that fit the criteria most likely to get you to your future goals. There are other posts and blogs with info on how to pick a market, @Eric Fernwood has some good info in his post.

There are multiple groups/companies that have done a lot of the homework and their business is to promote good areas and opportunities to buy turnkey rentals in areas poised for some good growth and potential. So, the trick would be to do the homework on those companies and find ones to trust. They, themselves would already have their core 4 to rely on, and then you are geting the power of a larger group, as opposed to someone who is a small part of their business. An example is - I purchased only 1 rental in FL, but I purchased through a investment company whom I know and trust very well. They are doing 100's of deals there through their same contacts/partners. So, if there is an issue with my single property, it is in their best interest to solve it since it represents a larger part of their business, not just my 1 property. And by the way, since I knew and trusted them, I was fortunate to just about triple my money in a very short period of time, due to following their research and lead.

Good Luck :)

First, your potential "deal" does not appear to be a true "deal". It works out to 89% of value (($220k + $20k)/$270k). That's a losing proposition right there, unless you have ulterior motives or know some imminent information which is poised to positively affect the value.

I come from an era where you try and get (or create) "value" in a purchase. The past handful of years was atypical, and anyone who had recently jumped into the RE game (within around the last 5-10 yrs) most likely have had it fairly easy and straight forward, with unusually low rates and high affordability and steady demand (both buying and renting). The easy pickins are fewer and far between these days.

So, my first thought is that your example is not a good example for a RE investment, unless you are treating it as a long term investment vehicle where you contribute to your investment fund each month (potential negative cashflow), hoping it will grow over time (appreciation). Nothing wrong with that, if you have the discretionary income and you have good reason to believe the property will appreciate.

Second, everything (or most everything) can cash flow, it's just a matter of return on capital. So, the "no cash flow" is an assumption based on desired returns and initial out of pocket expenses. If you put 100% down, you have cash flow, but the % return will likely be low.

So, as to your actual question - to me no cash flow would make sense if you have very good reason/s to expect good local appreciation in a reasonable amount of time, through imminent population growth, income growth, imminent path of progress, highly anticipated changes to an area affecting the demand of an area, etc. And if you can afford it. 

An example would be proposed and expected zoning changes, imminent business growth coming to an area-large companies investing millions/billions of dollars, etc. One specific example is: we have a property in Austin which is giving off a very low return at the moment, but there is some proposed code amendments which would allow up to 3 units on a single family lot. Those changes are likely to be passed and go into effect next year, so we are holding steady with out current tenants and will reposition the property with multiple units after the changes pass. 

Another reason to be ok with low or 0 cash flow is if the totality of your portfolio balances it out. I previously did an exchange where I purchased a higher cash flow property in a typically low potential appreciating area, a few average cash flow properties in average appreciating areas, and a couple of low or no cash flow properties in highly anticipated appreciating areas. But, as a portfolio, it was positive cash flow, so that made sense to me in aggregate. I basically spread my risk and potential rewards.

The bottom line answer to your question is: When it gets you closer to your goals. Then the challenge is to be clear on what your goals are.

You can do some preliminary homework yourself by contacting the local zoning office (whoever governs zoning in the Subject area) and ask them what the policy is on rebuilding a damaged nonconforming structure. Many times they have their municipal code online and you are able to find the info there. In my experience, many areas will allow the structures to be rebuilt with the same use, if less than 50% is destroyed. But, maybe your area is more beneficial and you can educate any lenders then.

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@Daniel Beck  There's no conflict of interest between a seller and a tenant/buyer. Both of their interests are inline with their own obligations/responsibilities - both are focusing on negotiating a deal advantageous to themselves.  An example of a conflict of interest would be with a Realtor negotiating to buy a property directly from their client, since the Realtor has a fiduciary responsibility to their client, so their interest in getting a good "deal" on the property would conflict with the fiduciary duty of putting their client's interests ahead of their own.

I get what you are trying to say, but I think you are getting tripped up a little. As a seller, you would want to negotiate a "future property value" which fits you profit objectives for that specific deal. You wouldn't want to contractually commit to selling it based on what an appraiser tells you it is worth, at a future date, or you could setting yourself up for a loss - literally, having to PAY the tenant/buyer to buy the house!  Example: What if I picked up a lease/option deal in 2006 for $400k (my purchase or agreed upon purchase price to the seller) and watched it fall to a value around $200k, around 4 years later (2010). If I had it as a lease option, in which, I contractually agreed to sell it to my tenant/buyer 4 years later for the appraised value then (in 2010), I would literally, be obligated to sell it to them for $200k and possibly be liable for damages ($200k) if I didn't! That doesn't sound like a risk I would want to take!

You, as the seller, are in control of what you want out of the deal. So, you decide how you want it to go. Now, you can say "the tenant/buyer agrees to purchase the house within the next 4 years at the appraised value, at that future time, NOT TO BE BELOW $450K, etc, blah, blah, blah. But, I would never agree to anything unknown without a safety net. Read my previous post for additional info.

If your L/O training isn't pointing things like that out, then search for better training.

I'm sure you are aware, in typical free markets with typical outside influences, returns move inline with risk and inverse to demand. The higher risk deal - the higher the potential returns and vice-versa. The more demand - the lower the potential returns and vice-versa. So, the higher the return potential, the higher the relative risk and the lower demand, which does not typically equal an "A-Market" ("A-neighborhood"). So, what you are asking for, goes against typical market forces and results - a higher than typical return (7-8%), in a higher demand/lower relative risk area (A-neighborhood). So, what you are seeking is challenging to find. I never say never, because I do believe unicorns eixist. :) But, it is more likely you may need to find an animal with a similar body type and attach a custom horn and paint it purple, pink, rainbow or whatever color/s you choose. Point being, you have a better chance creating the conditions for your preferred returns in a deal, than stumbling upon the unicorn or someone willing to share the unicorn with you.

Additional Brain Droppings:

* SFRs in A-neighborhoods are typically higher priced, with lower returns, since more people want to live there (i.e. higher demand) and are therefore, willing to pay more money (i.e. lower returns), because they value more then cashflow returns in those neighborhoods. These neighborhoods are typically made up of more owner occupied properties, reflecting motivations other than strictly financial returns. So, you'd be competing with those owner-occupant buyers.

* Less owner occupants are typically interested in multi-unit properties, and therefore, there is less outside motivations (emotions, etc) and more emphasis on financial returns (investor motivations). This causes returns to be more inline with risk. Example would be someone who could put cash in a money market account @ 5%, would probably want to have more than a 5% return on a multi-unit property with the potential of more risk.

* The better returns may be found in B/C areas in the path of growth and gentrification. Smartly researched B areas can become A areas over time.

* You point out you don't want to be in a market which has appreciated 50% in the past 24 months, but those are most likely A-neighborhoods, because demand pushed the appreciation in those areas. I personally would be concerned about investing in an area that didn't have a fair amount of recent appreciation, or at least I would try and understand why it didn't and be aware of my goals when investing in those areas. I mean, why would you want to be in an area that nobody else wanted to be in, when they could've purchased with a 3% mortgage? I have owned those properties in those areas and was happy to "dump" them years ago.

* Generally , for what you are looking for, you would have to "create" it, either by moderate to major value-adds, build from ground-up, add additional units (a lot of areas are encouraging adu's now), etc.

* You may be more interested in looking at other investment vehicles instead of real estate, if you need to have those returns you desire. Like syndications or other investment opportunity funds. I know of 2 opportunities right now where they are conservatively projecting 8% cashflow returns (and realistically expecting much higher), with very trustworthy smart people.

* Or, why not do hard money lending or other lending, you could easily get 8%+ on low ltv loans right now, with reduced, controlled risk. I have a client that just got two 12% loans from a lender, with a low ltv, she would've been happy to pay 10% elsewhere.

Good luck with whatever direction you choose.

Here is an example of an A-Frame house. You can see how it has the appearance of the letter "A" and hence it's name. Typically you might see them in mountain or vacation areas, especially where they get a lot of snow, since the steep roof slope helps direct the snow off the roof. There are lots of articles on them online, but here is one with some info.

https://www.fieldmag.com/articles/aframe-house-guide