All Forum Posts by: Stuart Udis

@Kris Stack With the balance sheet you appear to have, something isn't adding up. It's normally the little guy investing $5K in syndications who drinks the Kool-Aid expecting 8-15x returns in a real estate deal. There's nothing to suggest RAD ran a Ponzi, they just appear to be terrible operators who managed to raise a lot of money. That has nothing to do with 8-15X return expectations. Even the best operators don't yield those types of returns.  What knowledge and patterns led you to believe that type of return profile was attainable? I am sorry but nothing you wrote adds up.

@Savannah Wallace If there's a mortgage (which applies to most properties) the signature line on this recorded document will contain the member's identity.  This is an easily accessible public document. Confusing anonymity for asset protection is one of the biggest misconceptions that's consistently echoed in these forums. It's also consistently the novice investor with no balance sheet to speak of who is petrified of "losing everything" and who get caught up spending too much of their time and resources creating these unnecessary entities falsely believing they are invincible. Meanwhile they run reckless businesses due to their perceived invincibility.  It's a huge problem.

As others have already noted what does "20 doors" achieve? Most who are chasing doors have in their mind a precise amount of cash flow they anticipate generating per unit and believe acquiring a set number of units will help them achieve financial freedom, the ability to leave their W2, perhaps allow their spouse to leave their W2 etc. Unfortunately that's not how real estate works and I caution you not to approach real estate through that lens because it will lead to poor investment decisions. 

@Zach Logan I commend you for recognizing the easier absorption of many cap ex items as well as operational expenses associated with owning real estate. Many who fail as investors purchase lower cost real estate and get drawn in by their spreadsheet cash flow without understanding the true costs associated with keeping those properties running. I am not recommending you purchase a $400K quad that yields $200/m in cash flow, but I do recommend you focus on identifying good real estate acquisitions that are in that price range instead of the entry $100K properties. 

The one caveat is the 95% financing. I am generally opposed to financing any real estate at 95% LTC although I will admit, the ability to acquire an FHA property (at even higher leverage) in a neighborhood with strong fundamentals that experiences a significant appreciation event is possibly the greatest return an investor can generate. However, with that comes risk and most who are qualifying to purchase FHA properties are not in the position to run the necessary analysis correctly.

On the flip side of that argument, I would rather have a 95% LTC loan on a $400K property in a historically stable neighborhood than a 95% LTC loan on a $100K lower tier neighborhood. One cap ex event and I am already under water with the $100K property. Again 95% leverage yields greater risk in general but to present this point another way, I would sleep better signing my name on a $7M loan collateralized against a $10M multi-family property with great occupancy history and good reserves  in a A/B location than a $95K loan on a C/D  property because I am more likely to be called upon to cover a deficiency with the $100K property. I realize debt can be scary as a new investor, but understanding the collateral is incredibly important.

@Vaughn Ramcharitar Who is the natural buyer? That  hasn't been discussed and is important to the disposition strategy.  If this is a portfolio of homes in neighborhoods with low home ownership than selling these homes individually is going to be a monumental task and selling as a portfolio or perhaps in multiple packages will make most sense because an investor is the logical buyer. If these are homes in neighborhoods that always were (or even better for you) transitioned to neighborhoods where home ownership has increased, chances are there's a lot of equity and the best buyer, depending on condition may be to sell to home owners. This requires analysis by local real estate sales people who are experts on the markets where the properties are located. Understanding who the natural buyer is should come before assessing tax strategies. 

@Savannah Wallace What's the purpose of the Wyoming LLC member in @Dhiren Ahir's case as an owner of 7 SFR's (or for most real estate investors for that matter). If conflict were to arise, statistically it would most likely be a premises liability, a mechanics lien related to a contractor payment dispute or land lord tenant matter. How does the Wyoming LLC member benefit the investor in any of these scenarios? I agree investment real estate should be titled to an LLC, but that's mainly to keep individuals names out of the docket in the event one of these common types of claims are filed. The extra layer of having a Wyoming LLC member adds no value. In fact, merely adds additional operating expenses to the business.

First, if the investor were to finance their properties (which most do), there will be a signature line on a recorded public instrument that contains that individuals name. However, in the case of a claim being filed, this information is not even needed. All that's required is the deed holder. Once a claim is filed plaintiff's counsel can determine the member's identity through discovery, nothing a Wyoming LLC member can stop. Although in most cases, the plaintiff's counsel doesn't even care because they are singularly concerned with what insurance may be available. They aren't in the businesses of seeking judgments against the member of a 7 SFR housing portfolio because that judgment is often worth as much as the piece of paper its written on.

I believe its important for investors to understand the mechanics of litigation on a very basic level to understand that many of these "asset protection" plans geared towards anonymity provide little to no value. If anything, many investors spend unnecessarily believing these additional entities protect them which leads to bad business practices brought on by their false sense of protection. Anyone who is counseling there clients on creating a Wyoming LLC to serve as a member of their LLC should lay this all out for their clients to understand. I suspect very few would spend the money. I can't keep count of the number of investors I've spoken with through BiggerPockets who allocated resources to Wyoming LLC's and other anonymity plays without understanding the realities of the claim process as it pertains to real estate investors.

@Kris Stack 

A. Foothills Deal – Lack of Business Plan & Risk of Dilution

• How it was sold to investors:
  • Promised 8x-15x returns in 3-4 years.
  • Purchase price was $1,430,000 with $500,000 set aside for planning.

I've generally been sympathetic to those who invested in RAD and similar companies who use social media and conventions to raise capital in such small amounts where running normal diligence is too costly of an endeavor. However, when I see LP's post this, all I can do is shake my head in disbelief. For anyone looking to invest as an LP, if its too good to be true, chances are it is. If someone approaches you with an investment opportunity that "promises" this type of return profile, run! I don't even have to look at the underlying investment to know this is trouble. Perhaps if this was an investment in tech or life sciences where there is the possibility of an IPO you can generate this type of return but real estate does not yield these kinds of returns & anyone looking for these types of returns is investing in the wrong asset class.

1 to 2 and 2 to 3 beds are generally the bedroom count increases that not only lead to the greatest price differences but also rent increases.  However you are absolutely correct this only matters if the space is sufficient to accommodate functional bedrooms and functional living spaces with a proportionate bathroom count.

 I see it with section 8 in particular where landlords squeeze as many bedrooms into their housing as possible but make the homes functionally obsolete for any other purposes. Most who make these awful layouts are chasing cash flow and are not making investment decisions based on market fundamentals. However in the off chance they get lucky and they bought into a neighborhood that shows signs of transition, they eliminated their ability to take advantage of the changing neighborhood because of their terrible house renovation. 

On the other hand, I see investors who make larger units compared to their competition often perform quite well. Although this is going to be neighborhood specific and its important to understand the market where you invest.  First off, the cost PSF on construction goes down as units get larger so even if they may be collecting less per sq ft on rent, it's not detrimental. Furthermore, over time less vacancy provides an upper hand. I experienced this when I became an accidental landlord with a few new construction condos that were delivered in a bad market. They are now some of my best performing rentals. They are 2 and 3 bed units that are about 20% larger than most 2 bedroom apartments in the neighborhood and not only do I rent them at premium rents, but leasing the units when they turn over is incredibly easy. This is not something your spreadsheet necessarily shows in year 1 but makes a huge difference over an extended period of time.

Hi Nadim did you pull a permit for this work that's already been completed? If so you will need a plumber with a Philadelphia license to complete the work. Otherwise the L&I inspector will not close the other permits. Separately, its an odd sequence to have the Plumber in last. Typically plumbing stacks and drain lines are done first with HVAC and Electrical to follow. Water lines can usually be run last since the plumber is likely running pex lines.

Hi Kevin, this is going to be circumstantial based on the individual investor. There's both neighborhood and strategy that must be considered. Some neighborhoods are better suited for certain strategies than others. The investors capabilities (balance sheet/credit, skills, time) all play a role in identifying the best investment strategy.

To illustrate, someone at the wealth preservation phase of their life is going to be looking at different real estate strategies than the 25 year old who looking to purchase their first property. The doctor who makes $500K a year and wants more passive real estate is going to be looking at different properties than the investor who is also  GC. 

The good news is Philadelphia has diverse housing stock and many are successful pursuing different strategies. Perhaps if you share more about yourself,  myself and others can chime in with best strategies and neighborhoods to pursue those strategies.