I have 12 single family properties in another state that I have never seen. I have a trusted partner in that area who takes care of everything. I give up some equity, but I sleep well at night knowing that I have no concerns about those dozen properties.

I have 4 properties in another state that we bought sight-unseen, thanks to a trusted colleague who I paid to verify the area and complete DD. I found a great PM that could also handle renovations, so that piece of the puzzle is complete as well.

I actually flew there last weekend to check out the area and see the properties for the first time; I don't expect to go back anytime soon.

I have 8 units in another state where I used to live. I know the area, I have a great PM managing things, and I know some other investors that I could call to help out if there were ever any issues the PM couldn't handle (or if there were issues with the PM).

I haven't seen those properties since 2017, and haven't been inside those properties since 2015. But, my PM does a walk-through after each tenant, sends me pictures and handles all necessary repairs and turnover.

I have a bunch of properties local to me that I spend WAY too much time dealing with, simply because I'm local. If I were to move away, it would force me to stop dealing with them myself, which would be a good thing.

I have a few apartment complexes in another state that I haven't been to since we purchased them. We have an asset manager who oversees them, a PM company that is on-site 60 hours/week, and contractors who are on call when we need them.

Long story short, you need to get things set up properly, but once you do, there's no reason you ever need to see your properties unless you want to. And this goes for everything from SFR to large multi-units, and everything in between.

Factor the extra costs (DD, property management, paying people to check on things, etc.) into the equation, make sure you trust the people you hire, and then ask for consistent status updates.

Absolutely. That's why I mentioned the leverage as an "OTOH" sort of comment. Leverage increases yield and risk proportionally and also RE doesn't always only go up.


Yep, owning buildings is generally not as passive. But if you bought a property that you're spending hundreds of hours, and didn't factor that into your overall return on then you bought a bad property. You can also buy bad REITs though too. So the moral of this story is: If you don't do the analysis correctly up front for an investment then you're going to make mistakes that impact return. That applies to all investments, not particularly to REI.

What you *can't* do with REITs is cause the price to go up or down from your own actions. You *can* do that if you buy buildings. You also can shelter some income and gain other tax advantages that you don't get with REITs. I do 100% agree with you though that if you can't beat a passive investment in a REIT by buying a building, then don't buy a building.

That's true, but this is dangerous in a way that normal real estate leverage rarely is. While prices do fluctuate, they're normally slow relative to publicly traded asset prices, and you don't have margin calls in mortgages. So with a building it's at least possible to ride out a market slump so long as your rents keep coming. Not so much buying REITs on margin.

We're totally aligned on this. I honestly believe that the vast majority of after work real estate investors would be better off just investing passively in REITs. Actually this conversation has caused me to reconsider looking at REITS for some portion of my overall investment portfolio. And if I can get a 30%+ COCR on REIT dividends that that's sort of a no brainer for me to toss some money at that might otherwise have used to buy buildings. I don't have a lot of confidence in my own discipline level to research REITs, but maybe I'll try it. My target COCR for the buildings I buy is 30% anyway.

I agree w/ AcesUP.

I own 0 properties that I don't have to take a plane ride to get to. 90% of what I own I've never seen in person. Here's what you need:

1. Understand basics property management. Lots of good books on it, but my favorite is Landlording by Leigh Robinson. You need this knowledge for 2.

2. Interview a bunch of property management companies. Find a firm that has each other basic PM responsibilities covered will full time employees (e.g., leasing, legal, collections, maintenance, book keeping, etc). My experience has been that you don't want the guy that has 100-500 houses under management. That size firm isn't making enough money to have a solid team and everyone working there is going to be stretched too thin. That means stuff gets missed. Make sure they have real software systems and they're not sending spreadsheets each month. Check references.

3. Hire the manager.

4. Go find the facebook group for RE investors in that city. Use these folks to check prices on what you're being charged for repair and maintenance services. Leverage their local knowledge to find cheaper alternaties. (Normally a good PM will give you the option of using their people or your own chosen vendor).

5. Banking is slightly more difficult because most of the investment loans that get done are with smaller regional banks, esp if you want to scale. Those guys definitly prefer that you're local or at least localish. But to get started, just interview a few loan brokers and take conforming loans.

That's about it. This isn't rocket science. Almost everything in REI can be outsourced.

I don't speculate on interest rate futures, but if I did I wouldn't do it by buying buildings. I have both fixed and variable rate mortgages. For the variables, I hedge with interest rate futures. John Reed has a good explanation of this in his book Best Practices for the Intelligent Real Estate Investor, but there might be other places to find that info.

Given that I don't speculate on interest rates, I don't have and exit strategy related to interest rates.

If the parameter was that you could only invest in real estate or nothing, then you're exactly right. If the parameter is what it actually is -- that you can invest in a lot of different stuff and RE is just one of the things -- then you're exactly wrong. You can make more money more quickly and at lower risk and less work with #1 than #2. And the gain from #1 is effectively uncapped -- it could be worth trillions.

I point this out because I feel that people often get confused about the idea that any RE investment is only a good investment relative to what other investments are available at any given time. People get so laser focused on getting an edge in REI that they forget that their overall return isn't even beating a typical index fund (which honestly I doubt most RE investors actually are).

But the premise isn't investing in a lot of different stuff.
Its investing in real estate and nobody here is investing enough money to move global markets, nor make trillions. Its people buying mostly individual properties or REITs and trying to get an edge on that process.

Hi Spex. Long time. Thanks for this thread.

Here is my investment opportunity. It seem great to me, but please let me hear yours and others' thoughts.

$850k for a 32 unit apartment building in a TX city with a university (not Austin). Rent is $500 per unit. They are all 1 bedroom units. I will put 20% down and also roll $50k rehab loan into the purchase loan, so total loan will be $900k - $180k = $720k. 5% interest rate expected. I'm remote so I will pay management 10% of gross rents for at least the first two years. Will consider trying to reduce management to about 7% thereafter.

Rehab will mostly be new flooring, plus drywall repair and paint, plus some cabinet door repairs (no full cabinet replacements), plus some new light and water fixtures. A couple of replacement stoves and refrigerators. Typical stuff.

The big hurdle (and why I got such a great deal, imho) is that 20 of the units are vacant (12 occupied). I have heard that the former owner was trying to get drug dealers and addicts out of the place, but refused to upgrade any units, and ran out of money, and had trouble re-renting units as they became vacant.

I have canvassed the area, and I know that there is plenty of demand, and this building should comfortably have 90% occupancy or more at $500/month comfortably. I do think it will take 6-12 months after rehab construction to get fully rented.

I calculate a cash flow break even at 38% vacancy. Loosing about $4k per month with 65% vacancy. I have allocated $50k cushion to pay for the negative cash flow until rented up. At 90% occupancy, CAP rate should be about 10%. Cash on cash should be about 30%, higher if I can operate at 95% occupancy.

Is this a good deal? What pitfalls?

TIA.

The biggest pitfall is that your renovation budget is off by a lot. And underestimating the time it takes to turn around a property that has a bad culture. But it sort of sounds like the PO has done a lot of the work of getting rid of the bad element.

But all in all, it sounds like a good deal based on what you're describing. What are the market cap rates in that city? Is the population growing over the last 20 years or so?

Thanks, re renovation, I will look at it. Getting contractor bids, but it's hard to nail the cost down regardless.

Typical cap rate for Class C properties in this city is 8%. More like 6% for Class B+. (There are some newer apartments that I would still call Class B, though on the plus side of B.)

Population growth about 0.9% per year last few years. Seems growing to me. Gradual new jobs. My skim of local newspapers makes it feel like a growing city. More jobs coming in, than going out. Some articles about a division locating there, or new construction for XYZ company. Didn't see anything about company departures. Plus the university seems like a source of growth. Driving and walking the streets it has a good growth vibe.

My sister's husband was thinking about investing in this commercial real estate offer somewhere in upstate New York. I don't know what his relationship is with the firm setting up this deal (I think maybe his dad has bought shares of properties with them in the past). Anyway, they asked me what I thought of it, and I know basically nothing about real estate investments, but my intuition is that it's not worth putting any time or money into this. They sent sent me this link regarding the property:
https://www.bigmarker.com/fnrpusa/To...za-Deal-Launch
It annoys me that they don't even given you the address or city of the shopping center. There's no way this can be better than just investing in some REIT or ETF, right?

Easy to find the demographic info just google "Xcity demographics" and you'll find the wikipedia page for that town that has all the census data since the 1800s.

This deal seems like a winner based on what you describe. Just be sure you're considering your costs accurately and you should be good to go.

I don't particularly see the draw of an 8.6% yield and hopeful 11% IRR. Seems like a lot of investments could easily do that well or better, including REITs. But I don't know what your brother in law's goals or situation are, so I can't speak for him.

Yah, I have the demographics. My two biggest concerns are (1) renovation costs - I've never managed a job this large and with so many moving parts, and remotely - I'll be relying on the property manager to make sure the contractors do good work and (2) the rent-up period running too long. I am prepared for mishaps in both of these areas, its just that mishaps will cut into my profitability. I don't want to look back two years from now and say, damnit, I coulda got almost the same return in the S&P 500. Not worried about surprise S&P upside - we should be so lucky - but if my CoC gets below 20% I'll start to wonder if I made the right decision.

Are you thinking that rehab will be $50K on a 32 unit property?

That's about $1500/unit, which may be enough to repair drywall and paint, but not much more than that.

For the general scope of work you're talking about above, I'd budget between $100-150K in Texas...

Depending on what/where the University is, it may not be as big a draw/advantage going forward as you think it is. The cost of education has simply gotten too high/too risky for a lot of schools. This is mainly the case for lower ranked schools, but is also going to be incredibly damaging for private/expensive liberal arts skools.

Additionally, if your complex has had problems with drug dealers and such, students may not be at all interested in renting in it. Don't know if this was part of your investment thesis.

The rehab costs may also be a bit too low. In my experience, costs are almost higher than what they are initially budgeted for. This may ESPECIALLY be the case going forward. The cost of lumber is up like 2.5X in the past year or so. Getting replacement appliances is also sometimes difficult due to supply chain problems.

FINALLY, and perhaps most importantly of all....I would personally try to be there to bring the property back on line. This is a somewhat tricky thing to do and will require all sorts of TLC & initiative. A property management company will not have the same drive & zeal that you will have as an owner.

Once the property is brought back on-line (or very nearly so), then it will be easier to turn it over to a management company.

Just be incredibly careful when remotely using a management company to bring something up to speed & back online.

not giving advice because i don't know anything but what are the downsides to pokerdox going in with silent partners to reduce his risk

it sounds like it's a good opportunity but main issue is understandably doesn't want 1mm nut tied into something that may have unforseen costs and extended timeline to profitability

another thing to consider is to get really sneaky and try to find out why they are selling and that could give some insight ie they want to buy other property, they are retiring, they are broke, etc etc all have different implications to the future profitability

you can also just crowdsource it to 2p2, i'll start things off and buy $5k of the debt for 0.55%

Oh god you're right. I had it in my mind that he had a budget of $180k plus $50k, but looks like it's just $50k.

For a cosmetic renovation I'd probably be looking at like closer to $6,000 per unit as a baseline -- that's like $2k paint, $2k flooring, $2k appliances and kitchen. I mean, that's just based on averages I obv don't know the condition of the actual property. Also normally buildings like this have some level of deferred maintenance, which wasn't addressed in the OP

IN any case, its not hard to get bids on this stuff prior to closing since most of the units are vacant lol

[QUOTE=DTEJD1997;56963501]

Also agree with this statement. It's hard to change the culture of a property like this. Having been in the mobile home park business, I can attest to the difficulty of this. However, much of the pain here is related to the financial burden of clearing out the bad element. Sounds like that's already been done. You can also change the branding of the complex as well to help with this. Usually best if that goes along with a facelift of the exteriors as well.


I don't necessarily agree with this. In my experience, the PM isn't going to be great managing renovation projects and contractors. The PM is usually good at knowing if the work done was adequate to get the place leased at market rate. Manage the contractor yourself and manage the PM as part of the team with specific responsibilities. But to your point, renovation projects aren't passive investments and you do have to be involved.

All good stuff. I have upped my budget to 100k for rehab. Still have the 50k reserve for negative cash flow in the first six months. So I think the biggest concern will be getting a good/value job on the rehab construction. BTW I am in escrow and close mid April.

https://www.cnbc.com/2021/03/12/3d-p...look-like.html

Any opinion/thoughts on this? First 3D printed home was sold last week. With building material and labor costs skyrocketing, seems like it could begin to scale fast if it is viable. Obviously will be issues in certain areas where weather doesn't permit.

we've been hearing about this stuff for ages but never took off so i wouldn't bank on it

we've had far cheaper homes in modular housing for some time, again, you never saw that explode except for fairly impoverished regions and even then people would be worried about losing status as they are viewed not much differently than mobile homes. I think these have a better outlook for status because they don't resemble trailers like modular ones do (since shape isn't restricted by what can be transported by highway)

like modular homes, these will be set designs with little flexibility and likely have such a strong entry point that it'll only make sense in massive developments - i could see it starting in newly developed working class suburbs but would be surprised if it went too much beyond that

bear in mind i'm incredibly biased here, my brother is an architect who does bespoke down to the doorknob

The big problem with these systems is that they only print the walls. A house is more than walls. in fact, lumber and framing labor are relatively cheap components of the overall cost of building. What's expensive in building is all the stuff that these technologies don't touch -- mechanical systems. So it's just another thing competing with lumber, which is probably overall good for the cost of building, but isn't everything its hyped up to be.

There's no such thing as value on rehabs these days, at least not in most locations around the US. Lumber prices have tripled, finish material prices are through the roof, contractors are in short supply and you'll likely be competing with retail jobs for the decent contractors.

I would at least add another $50K to your rehab budget, if not more.

my parents are looking to do renovation work in an estate they inherited, everyone they've spoken to is booked solid for several months and are straight up telling them their bids will be much higher than usual due to all the demand right now

this is rural maine though, ymmv

Not true. I'm still doing deals with value on rehab. In fact I'm doing more BRRR (or whatever the current fad buzzword is for buy and hold) deal right now than I ever before. Like 3-5 per month right now, even with the high materials costs. I guess it depends on the markets you are looking in. And theyre still creating 20%+ equity on ARV and cashflowing 30% COCR.

Best possible general advice I can give anyone about REI is this: Don't listen to platitudes.