All Forum Posts by: Sebastien Hitier

if you go for a low income tenant, pm becomes crucial. You won't make the pro forma on that investment, and lending is hard. In short, 100k is cash-flow, 60k is trashflow. Both may work well, see what works for you.

advice 1 is keep some cash at hand even if it seems to lower yield to have unused cash. 

True that leveraged bets speculating that market keeps going up and there will be a greater fool to bail you out leads to ruin. It is a matter of time.

Real estate investment is for many not a rational investment, it will go south eventually when numbers don't make sense.

It looks like the bar conversation did not consider investing when the numbers make sense. In fact, did the conversation even cover what it takes for an investment to make sense?

Somewhere above 5k net per month, it appears to me that earning more means less freedom. 

You take on so many commitments and responsibilities. The family, the second house, the third house, the gardens, the car, the bike, the boats...

Here is the zillow forecast for Frisco: https://www.zillow.com/san-francisco-ca/home-value...

Indeed, SF median is 4% up last year, just 1% up for next year. A crisis in SF market is unlikely given liquidities available to anyone. 

This is just low/stagnating price, which sounds normal as affordability is low and rates do (and can) not go down much further.

Note the corresponding national numbers are +7.3% and forecast +2.9%. SF is anticipating the trend.

What makes a US city suitable for turnkey investment

I split properties in 4 categories: going from trophy houses $500,000+, afluent houses (below $500,000), basic house (below $160,000) and trashflow (below $90,000). Turnkey providers generally address the bottom 2 categories (rental property $90,000-$160,000 and trashflow $30,000-$90,000). Cities where turnkey investment work need to verify the following criteria:

• high rental yield directly benefits investors, this means low prices compared to rent
• long term rent (or price) growth has in fact as much importance, an investment yielding 6% and growing by 5% per year forever is as good as an investment yielding 11%.
• large housing stock and distressed property stock is required by the turnkey provider.

The high rental yield and distressed property stock aspects will push the turnkey providers towards the most distressed and highest yielding markets. This is not always in the investor's best interest, as slightly lower yield markets can have more room for capital appreciation and growth,

Secular Trends

Real estate prices follow secular trends. Just looking at how population varies every 10 years over the last 50 years gives a good idea of what will happen to a city in the next 20 years.

• large population decline will cause an increase in vacant housing stock. This put downward pressure on market prices and cause neighborhoods to decline.
• a rapid population increase will cause a shortage of housing, and this will tend to increase rents and prices.

We are not talking about identifying specific up and coming neighborhoods on their way to gentrification, this is very hard to do without being very familiar with a given neighborhood, but about painting the states with a very wide brush and see what cities are going to grow at a macro level.

The list below has links to the wikipedia demographics section.

The 1 minute tour of relevant US cities

Cities with secular demographic downtrend:

• Detroit MI
• Cleveland OH
• Birmingham AL

Cities with stable long term demographics:

• Kansas City MO
• Indianapolis IN
• Memphis TN

Cities with secular demographic uptrend:

• Tampa FL
• Atlanta GA
• Dallas Fort Worth TX
• Charlotte NC

Cities that became too expensive for turnkey:

• Las Vegas NV
• Orlando FL
• Phoenix AZ

Hi, when evaluating properties, do you use services like rentfaxpro.com? It seems to be a good tool to quickly separate the chaff from the good grain...

disclosure: I am currently evaluating this service, I am not affiliated with this service. 

 Which turnkey operator blew up? Do you have info on how it happened?

I bought a property in Mesa AZ. The property under consideration is a triplex located in a community for people aged over 50. The snowbirds (older citizen from colder states in winter) coming to this place do not seem well feathered. Despite strong price appreciation in Mesa, the triplex has not gained much value.

The triplex had a difficult start since 2014: It was bought in 2014 fully occupied. Rent is low $550 to $725 despite the triplex being nicely renovated. One tenant not only could not manage to pay rent, and he was a "bad character": after he lost his job, he first said he could not pay, and then that he would not pay (because the flat has problems), then he became violent and started to threaten the lady next door and her daughter (also my tenant) because she was young, there was some footage of him beating his partner. My good tenant left before I could evict the bad one, leading to double vacancy and extensive repairs on that unit. This killed all returns before interest in 2014/2015, and brought average tenancy duration on the property to 21 month.

With hindsight, it is obvious that the tenancy agreement from previous owner was strangely accommodating: low deposit, very unusual rent reductions if tenant does normal things like pays on time, change his aircon filter and for pest control. The bad tenant would claim the money but would not do any of that.

The net yield has now risen to 6%, and there is little appreciation. Depreciation of 3% needs to be factored in, as the 3 kitchens with appliances, toilets and washroom can trigger expenditures far beyond what the modest rents can absorb in a year, so unless we can raise rent, this triplex may not yield more than a bond.