All Forum Posts by: Stuart Udis

First, not all lenders require a seasoning period and when a seasoning period is a requirement the timeframe varies lender to lender. Treat the stabilization of the property as the start of the seasoning period which is when the construction is completed and property is leased. Since you haven't started the project yet, use this time to network with lenders to see who offers the best terms....seasoning, rate, leverage and pre-payment penalty terms. 

@Dustin Wilkes Welcome! I've personally sold a number of properties to VA buyers. The underwriting process is certainly more arduous than most acquisitions but through my personal experiences some of the lenders are far more knowledgeable about the requirements and make for a far easier process for both seller and buyer. In fact there are quite a few sellers who will opt to go with a different buyer solely because they don't want to deal with the perceived headaches of a VA buyer underwriting process. If you can brand yourself as someone with a strong track record of getting VA buyers to the closing table efficiently, realtors will take notice and vouch for you and your clients as offers are submitted and this will show tremendous value to borrower clients.

@Joe S. For a number of years the majority of my time has been devoted to investing and developing. While I am an attorney and lean on those skills I would be more inclined to consider my career that of a real estate developer at this point. To answer your question, I would prioritize someone with similar real estate interests and objectives that would allow me to spread the workload. Their ability to invest alongside is merely a way for me to ensure they take their responsibilities seriously. Raising capital is secondary. The stabilized properties operate fine without me but the development side of the business requires me 24/7. If I take a break, that part of the business cannot function effectively. 

Cashflow is primarily emphasized by beginner investors...."I want to reach XYZ monthly cash flow to replace my W2" or "I want to accumulate XYZ doors to replace my W2 income"  with a monthly cash flow number attached to each door they look to purchase.  It's a narrative that's pushed through social media, sales brokers, turn key operators etc. It's gotten to a point where C/D located properties in the Midwest are now referred to in these forums as "Midwest Cash Flow Properties",  as if a new asset class has been created. 

The problem this creates is that of expectation. Many who are buying these properties have an expectation their properties should cash flow xyz per month without understanding the true operational costs because the true operational costs are dismissed by those advising them to make the purchases. Making matters even worse, the properties most are buying (the lower tier properties) are disproportionately impacted by operating costs and cap ex.  The consequence of the unrealistic expectations: buyers becoming terrible operators of their real estate....failing to keep up with cap ex, going the cheapest route on repairs etc. just to maintain the cash flow they expected. Unfortunately this only leads to greater problems down the line because its not sustainable. 

Nothing exemplifies this better than an interaction I had yesterday in the forums with a fellow poster who bought a $150K turn key house and posted the homes marketing photos. The sidewalks were destroyed and the walk way concrete was off set. Repairing the sidewalk came down to a risk benefit analysis. This was deemed a "Midwest Cash Flow property". If failing to maintain your property is the only way it cash flows, I am sorry but that is not cash flow.  

The lack of awareness of the risks is easily observed in posts written every day in these forums. I never said you can't make money buying entry level single family homes in the Midwest or any market for that matter....but the investors who are most inclined to succeed are the hands on operators, not the passive investors or those paying retail price for a turn key in a lower tier neighborhood with no barriers of entry. The narrative that these are cash flowing properties is aggressively pushed by everyone who benefits from these transactions...turn key operators....brokers....pm's but its incredibly difficult for the non hands on buyers to operate these homes for a sustainable period of time.

Thanks Jay and Scott, your comments pretty much affirmed what I was running into. The access to capital is not necessarily a driving force in my pursuit. Finding someone who can offer me better balance is the primary motivator but I figured if someone is going to invest their own capital then they will take their responsibilities more seriously than someone who doesn't or even someone who merely raises from an outsider. 

No pot shots as you say are being thrown at anyone. My comments aren't about rent to retirement, I made that clear. It's with the entry level SFH turn key business model as a whole. It's not RTR's fault the property can't absorb proper cap ex, that's a product of the market. However, I disagree with your comments that the investor buyers who buy these homes have a greater appetite for risk and know the risks that exist. That's simply not true. Most are also not considering between the new construction product and the entry level SFH with risk being the deciding factor. In fact very few fall within that category. Most buy the entry level SFH because its what they are qualified to purchase.

Most investors who buy these homes believe they are investing in a safer investment because it came from a turn key provider. They equate the period leading up to the time its ready to rent as the risky part of the real estate process and pay a premium to bypass that part but this leaves them with unreasonable expectations because the real estate they purchase is inherently risky. Active operators are far more likely to succeed in the entry level SFH space and that's not who buys entry level homes from turn key operators.

I'm with you that sidewalk slip and fall litigation may be less likely in the Midwest than say Mid Atlantic which tends to have more litigious cities but dismissing premises liability issues can come back to bite an investor and when these properties have such razor thin margins that an investor must consider the cost benefit analysis of safety against ROI, there is a real estate issue and is usually a losing proposition.

@James Wise I don't litigate, so no I am not an ambulance chaser. Also not one of the alarmist attorneys who are recommending expensive entity structures. In fact one of the themes of my posts is dissuading investors from over spending on entities and asset protection. Another is the perils of investing passively or through turn key providers in entry level SFH's. My posts aren't specifically about Rent to Retirement, rather the concept more generally.

I am also not concerned with the new construction turn key model, its very different than the lower tier/entry level SFH's and not relevant. You know just as well as I do that the entry level SFH turn key model is nothing but a money grab for the turn key providers and PM's who ultimately manage the properties for them. Most of the investors buying the homes don't have a clue what they are doing or what a good investment looks like.

It's a problem when safe walkways are a cost burden and can't be absorbed. That points to how razor thin the margins are when dealing with these properties and how the smallest of issues can turn these properties upside down for the investor buyer but very few know this as they are posting ringing endorsements. As I said earlier, moving in a tenant is the standard that's applied in making these properties "turn key" and that doesn't bode well for most of the investors buying them.

My comment has nothing to do with comps and your decision to make the repair shouldn't be comp influenced either.  If someone is walking down the street and trips on your sidewalk or a  walk way whether its a tenant, delivery person or passerby you are the one who gets sued because its premises liability exposure. Even the tenant can sue you if they injure themselves.  The fact other properties have chewed up sidewalk isn't a sound legal argument either. The only thing that makes these properties turn key is the fact they are move-in ready for a lower income tenant with low expectations. The properties themselves often have flaws and outstanding cap ex items that are wrongly ignored. 

@Vijay Radhakrishnan Your turn key rental needs a new sidewalk and walkway poured. Clear as day premises liability exposure right in your marketing photo. I guess not so turn key after all...