All Forum Posts by: Jesse S.

@Llewelyn A. thanks for the detailed response! And yes it makes total sense about the political climate and potential changes to landloard laws impacting your investment decisions. I assumed that your response would be about prices and interest rates, but this is an angle I haven't focused on which is highly relevant and potentially more impactful.

Good to know your investment radius and that you had partners for all of your deals. I am looking in a few of the same areas and its comforting to know you needed partners for all of your deals. Every time I see a deal that looks "affordable" I dig a little deeper and find that the property is full of rent stabilized or rent controlled units. Personally I am not apposed to these types of units, but it makes it difficult from an investment perspective, especially at the current Brooklyn prices.

Thanks again for your perspective and commentary on recent conditions.

A little background..... I live in Brooklyn with my wife and 2 kids. We love real estate but find ourselves priced out of our local market. We own two out of state SFRs that we bought turnkey and they are performing well, but we're on the fence about investing more OOS or trying to do something locally. As we are quickly outgrowing our 2 BR and we're thinking about the future, the prospect of moving to the Long Island or Jersey burbs is really unappealing; we want to stay here and the only way I can think about doing that is with some sort of multi-family or Commercial/Residential house hack. I'm not even looking for some sort of CoC return; I just want the rents to offset my mortgage and allow me to afford more space than I normally would. Put another way, if I could rent out a multi-family and have my out of pocket costs be less than what I am paying in rent today, I would be interested. While I'm not banking on Brooklyn appreciation, I do think homes here are a good store of value.

So that bring us to prices... while there are obviously area in Brooklyn we could afford do this, I really value my 30 minute commute to work and don't want to move far out, double my commute to work just to afford a place. So my personal decisions aside, lets talk economics. 

I found this great building that had a 3 BR duplex over a commercial/office space. I absolutely loved it, but it was listed at $2.9M with a 5% cap rate. I'm waiting to hear back from the agent about if the cap rate is hypothetical (i.e. what renting the entire building would return) vs actual economics of the current rented office space. Based on an old advertisement I saw on LoopNet and some rental comps, I think the commercial space rents for $3,500-$5,000. You don't have to be good at math to know that the commercial rent doesn't do much to offset your total debt obligation. So for this one, I don't think the economics make sense.

However, how can a 5% cap rate be attractive to anyone? Possibly as an owner occupant where you aren't looking for a "cash return", but in my example above the numbers didn't makes sense. And if they don't make sense as an owner occupant, how could they ever for an investor??  

I haven't touched on the down payment yet, which I obviously don't have. I'm trying not to make the downpayment be a limiter as I know there are ways for creative financing, but I'm struggling to see how to make anything work (even assuming I can figure something out around the initial cash outlay).  

If you live locally and want to chat about this or have ideas, please post here or shoot me a DM. I'd love to talk. 

@Michael Baum got it, thanks for clarifying. I had mis-read your post above. Theres zero chance I would buy a place where the special assessment is the cost of the unit (or even more!) I was looking at a few new construction condotels and of course they don't mention the potential deferred maintenance / special assessments that will inevitably come in the future. They only highlight the guaranteed return that you get in the first 2 yrs. It's fair from a marketing perspective, but not a good way to think through the long term cost of ownership. While I still like the theory of condotels, ultimately I agree with you that you give up too much control and there's other investments with better returns. I really hate the exit options too, so to quote shark tank, "for those reasons, I am out".

@Michael Baum thanks for sharing your experience....thats super interesting and good perspective. When you say "we just decided to walk away from it" what do you mean exactly? Like you actually stopped paying the mortgage and were foreclosed upon? Or something else? 

With these types of opportunities (especially if you buy from a new development) I wonder what the resale market is like....is there a strong market? Or do they typically go for fire sales? Do you have any insight you can share?  

Be careful renting to friends and don't cut a deal renting to friends of friends. Don't rush to fill your vacant unit with the first person, but wait to find the right one.   

@Jeff Schechter I appreciate the detail about how you guys operate. The providor I deal with in Memphis has a pretty similiar process (with a few differences). But all in all, I like your style!

@Mike D'Arrigo fair points. And I agree that the inspection is crucial. For one provider, I've visited them already and seen their rehabs. They are a solid shop that doesnt try to screw investors over. My take away from this post is to come up with some neighborhood, price, & rent criteria so I can move quickly when inventory come availalbe. 

@Jay Hinrichs Good to know. I more meant that if I fail to pay EM for a couple of contracts with the same TK, then they would likely cut me off going forward. 

@Jonathan Oh Thanks for the reply. I think its probably a combination of both. Some investors being a little too eager and others having a few bright line criteria (i.e. neighborhood, price, sq ft, & rent) that means they can act quickly. All of the houses I missed were in neighborhood that I visited before, so I probably could have acted a bit quicker and maybe I will in the future. It still seems crazy fast, but the lesson for me is to come up with a few criteria which will help me with decision making. I'm in it for the long game, so it would be nice to pick up a few more properties sooner rather than later, but I can also wait.  

@Anthony Wick I had the same concern you did about not paying EM and your subsequent reputation. The TK community is pretty tight knit and demand is so strong, that I can imagine that if you miss an EM payment more than once, you wont be eligible for future deals. 

Does that make sense @Dean Letfus? I think TKs are slightly different in this regard as there isn't much that is negotiable about the contracts. The price is fixed and usually anything from the inspection report is fixed prior to close (at least in my limited experience). 

@Dean Letfus I 100% agree, and thats exactly my point. I'm not taking the turnkey company's word for anything, so I am trying to run my own numbers before putting anything under contract. However when properties are going under contract in under an hour, there is no way those investors are doing their own research; Which I think is crazy! 

@Alyssa Dyer @Dean Letfus yes, they provide a standard inspection process. However when I refer to due dilligence, I'm not talking only about the inspection process, I'm more thinking about basic things like "what is the neighborhood like", "how is sales price compared to the rest of the neighborhood", "what is my projected cashflow based on the actual taxes, my estimate of maintenance, insurance quote etc".  If I have the house under contract but I'm ultimately not comfortable with the cashflow, can I still back out? I understand backing out due to something you find during the inspection prior to close, but is "I actually dont like the numbers" a legimate out to the contract?