All Forum Posts by: Susan Gillespie

Hi @Sundeep Amin When I started out 10 years ago, I compared two opportunities - one close to home, the other turnkey in a distant market I had researched but ultimately didn't know well enough. I chose the distant turnkey in a hot market and it wasn't a winning strategy.

I learned my lesson and have since done well.

For investors starting out, my view is that it's better to invest in a market you know extremely well. It doesn't have to be the market where you live, but you do have to learn it. Make as many local contacts as you can and get their opinions. Talk to investors, property managers and realtors. You'll get good perspectives from all.

People look for quick and easy wins, but it doesn't work that way. The more knowledge you have up front, the greater your chance of success in the end.

I don't have a specific market recommendation, but feel free to let me know if you want to discuss long distance investing.

Set your strategy, decide on your market, do the research and always run the numbers before you buy.

@Wayne Brooks and @John Moore

There is no contract clause for delays - or for making partial payments. He wants money (his motivator) and I want the work finished (my motivator). Thanks for your perspectives.

@Rolanda Eldridge and @Matthew Paul

I agree with your point about making payment for work when it's done. That's my only leverage. Asking nicely, then asking repeatedly, didn't work.

I struggle with the idea that bad service costs the same as good. I think there's a middle road and am trying to figure out what it is.

@Michael Herr yes I understand Millie's perspective. We got a renter two houses down and I didn't like it one bit. But it worked out ok.

I would consider it an advantage that Millie will keep an eye on your house. Make sure she has your mobile number and check in with her occasionally.

We recently had a renter who created some problems and I wish someone had told me early on.

We had a big hail storm last year. As a result, I have an insurance claim for a new roof and siding on my home.

My contractor has been nothing but trouble. For example, the crew tore off siding before new materials arrived. There was a delivery delay, then the order fell through, then it took four weeks to get new siding. That was in November. I had scaffolding on my house for weeks, then snow arrived. The first crew quit, probably because they weren't getting paid, and it took a few more weeks for another crew to finish most of the job. I still have a punch list of repairs and some final work. The freezing weather has caused delays.

This whole process has been frustrating and a big waste of time. I had to keep calling the contractor to get status updates. He finally became responsive when I involved my attorney about the "abandoned project."

The good news is that I only paid a few thousand dollars to start the project. Most of the work is completed, but not fully inspected, and the punch list remains. Since this is Minnesota, the roof inspector won't be out until the snow melts.

The contractor wants some money because he's having cash flow issues. How he stays in business is beyond me, but I'm not paying until work is complete.

My question: what should I deduct for bad service?

What would you do?

Hi Ashish, I was just at the UofM-Carlson School on Monday for an event. My husband is an alum, and after college started at KPMG. You have similar career paths - and I'm with you on the weather issue.

We're also investors, so feel free to connect.

Susan

@Trey Leigh I ran your numbers above and get an estimated internal rate of return of nearly 15%. The benefit of using internal rate of return (IRR) is that it's the return for your entire investment over the 15 year period, including upfront acquisition costs. I also added estimated closing costs and commissions.

There isn't detail on expenses in the numbers you gave. One thing I noticed is annual net cash flow is $1091, or $91 a month, which doesn't leave much room for unexpected expenses.

I can help you with a cash flow calculator and return metrics if interested. Good luck with your decision, I think you should double check cash flow.

@Ron Averill have you looked at the value of your deal over time? Assuming you finance the property, you're paying down the mortgage and building equity. How's net cash flow? If it's strong, you could use that to pay down the mortgage faster or save it for another investment.

Depreciation is a non cash item. It doesn't affect monthly cashflow, but has benefits in terms of sheltering property income from taxes.

It sounds like purchase price is your major concern. Have you tried looking for problem properties (off market, wholesale, poor condition, offer recently fell through, high days on market for MLS properties, etc.)?

I think your approach to knowing your numbers before you buy is a good one. I also think it's ok to buy a good deal, not expect a great one, if net cash flow is strong and if it meets your other investing criteria.

@Account Closed that was my challenge a few years ago when there were so many deals to choose from. How could I compare properties and which one(s) would be the strongest performers?

I invest in SF properties, and am not sure what type of deals you're looking at, but sound financial analysis applies in all cases. I make sure the deal has the ability to generate positive net cash flow, then look at IRR. I also look at net present value (NPV) of cash flows to compare deals.

As Warren Buffet just wrote in his annual letter, "Focus on the future productivity of the asset you are considering. If you don’t feel comfortable making a rough estimate of the asset’s future earnings, just forget it and move on. No one has the ability to evaluate every investment possibility."

He wasn't only referring to real estate, but he uses two real estate investment examples. cnn money has a great excerpt of the letter.

http://finance.fortune.cnn.com/2014/02/24/warren-buffett-berkshire-letter/

If I'm pitched deals that don't use IRR, I assume I'm dealing with non-finance people. The deals may still be ok, but I always run my own numbers regardless.

Feel free to message, I do have a suggestion.

My feedback is that it should be comfortable and mid to upper 60s are fine. Most people will be coming in with jackets on, so going from 0,10 or 20 to 60s is like a heat wave. If your wood floors are still cold at that temp, I would bump up a little more.

Do you have rugs at your doors? There's nothing worse than renters or buyers coming in to look and getting soggy socks due to stepping in puddles from wet boots and shoes. We use entry rugs and generally leave them with the property. They make it seem homier, it cuts down on wet shoes and tracking, and people love freebies.

@Bill Coleman a few more condo thoughts:

1. There's a huge variety of condo types, from low rise to high rise and townhouse style. Even hotel condos. It's hard to know what people mean when they say "condo." I've personally had good results investing in townhome-style condos. Renters like the private entrance, patio, attached garage, etc. It feels more like home than an apartment. I like the low maintenance. I get good cash flow and have seen solid appreciation, largely because of choosing residential communities with mostly owner occupants. What type of condo are you considering?

2. It sounds like you've lived in one yourself? My first home was a new construction condo, so I learned a lot from going to meetings, hearing about my neighbors' complaints, understanding insurance issues (like double deductibles), dealing with the board of directors, etc. I see a big advantage in investing in what you know.

3. There's tremendous variability in HOA fees. High HOA fees are cash flow killers. I try to avoid condo communities with pools, club houses, etc. It's harder to make the numbers work.

4. Once you find a condo formula that works, it's easy to repeat. You can easily track high and low prices and rental rates if it's a large enough community.

5. Two red flags I've found with some condo communities are deferred maintenance issues (old roofs, rotten wood siding, greenery growing in gutters). Fortunately, it's easy to spot this. Second, if a large number of units are for sale or for rent, I avoid it. I look for stable owner occupant communities, and yes, make sure they allow rentals.

I see a huge upside in investing in condo communities. I don't think condos will ever be my sole niche, but after living in, owning and renting out various condos for 15+ years, I see many advantages.

Do you have a specific concern holding you back?