Jan 01

What can be done collectively to improve our businesses, save costs or generate additional revenue?

I will post my in-depth thoughts on these topics over the next week or so as time permits me to clean my notes into coherent sentences. If any of the topics interest you comment here or email me at: Tim@ApartmentsMilwaukee.com

  • Reduce Maintenance Costs
  • Become better at sharing our collective knowledge
  • Group purchase of a distressed block or two
  • IT meets real estate

Reduce Maintenance Costs

Improve supply sourcing: ‘How can we use our collective shopping experiences and buying power to improve our bottom-line on a daily basis in 2013?’  More thoughts on better material sourcing.

More effective Maintenance Labor/Contractors/Services The ability to have skilled, cost effective maintenance available on demand is typically a missing element for most small to medium sized owners. Read more on  effective maintenance labor solutions that could change our industry.

Become better at sharing our collective knowledge

The ApartmentAssoc@YahooGroups.com is good beginning. But the idea could be greatly expanded upon. Perhaps a Wikipedia style “Best Practices” Guide* for Milwaukee rental owners. It would include everything that a property manager may run into.

Similarly a Mastermind Group could reap benefits if the right people were involved. Here is an overview of the Mastermind concept.

Also look at what groups like StartUpMKE are doing in the tech field.  Read my thoughts on increasing the sharing of knowledge.

Group purchase of a distressed block or two

Choose a very small geo area of Milwaukee. Think something on the terms of both sides of a block or two maybe three at the max. It should be depressed, as in make Detroit look like a nice place to live, depressed.

Apologizes to Detroit, but many people know of Detroit’s challenges and fewer of the challenges of Milwaukee.

Yes, unfortunately, there are many areas like this in Milwaukee and the numbers are increasing as foreclosures work their way through the system.

The plan would be to assemble a group of investors and turn the area for fun and profit. My  expanded thoughts on group purchasing of a distressed block.

Tech meets real estate

There certainly huge opportunities for software/web solutions to things that cause frustrations for owners and perhaps tenants.

Some ideas:

    • Setting rents to market. How much are you losing because your rents are too low or how much have you lost due to your rents being too high and your vacancies languish? Me, too. ;-(
    • Property acquisition tools Look at what sites like http://www.spotproperty.com/ are doing elsewhere, but not here.
    • Vacancy filling Craig’s List used to work, but now there is too much spam and fraud. What about a system where the tenants need to prequalify before actually applying. While pre qualifying by an individual owner may be problematic from a fair housing standpoint, a proper third party system could work.
    • Custom Management tools My company’s secret sauce is our highly customized management software. Nearly every task is one or two clicks and the computer makes many mundane management decisions on its own.
    • Put your solution here

You can read my thoughts on tech and real estate here

Conclusion

What? This is not enough ideas for one year? Then post yours on the comments!

Shy, then email directly at: Tim@ApartmentsMilwaukee.com either for my review only or to repost anonymously as you direct.

 

 

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Dec 11

You Are Naturally Short Housing

Your house is not an asset. It is a hedge.

You are born with a natural short housing position. For the rest of your life, you will need somewhere to live. Ideally, somewhere with a roof. To use a (slightly tortured) trading analogy, you are born with a short housing position.

Read the full article (It’s worth reading)

Jun 02

Some days it seems like all the smart people think real estate is dead.  One of the larger real estate clubs in Milwaukee has changed their focus from real estate to a mix of  other investment ideas.

Back in 2004-2008 it seemed like everyone was “investing” in real estate even though the numbers did not work.

I had a twenty something kid in my office in .. 2007?.. showing me his Excel spreadsheet and explaining how my model was wrong.  I said ‘Wow! looks like you will be richer than Bill Gates in ten years.’  He said ‘Well,  not richer than Bill Gates, but a Multi! Multi! Millionaire.’  He even offered to sell me a copy of his spreadsheet.  Unfortunately I would not part with $500, even though it it did a nice job at predicting future property values at 25% per annum appreciation.

Last year a lender contacted me,  suggesting I should buy all of his former rental properties.  They were pretty rough, so I passed.

Today relatively  few people are buying in our market, however the numbers can make sense now, while few deals made sense in 2006.

Remember there is a big difference between the wisdom of crowd and a crowd mentality. Go against the stream when, and only when, it makes sense.

Being a contrarian for no good reason is just a fools bet.

 

 

Nov 23

The who’s who of Milwaukee rental housing were in attendance at Joe Peter’s funeral.  So many that one person commented that if a bomb hit the church nobody in Milwaukee would have to pay rent again.  A lot of folks I had not seen in years.  It’s sad that the only time we see these people anymore are funerals for friends.

One such person was Mike, a former board member of the Apartment Association.  He asked if I remembered having lunch with him a number of years ago.  I admitted I didn’t and kiddingly asked if I had skipped out on my portion of the bill. He assured me I hadn’t and that he just wanted to thank me for the sage advice I had given him that helped him succeed when others failed.  I had him remind me of what I shared with him that he felt was so valuable.  Once he told me, I felt it still rings so true that I would share it again.

At that lunch back in probably 2005 or 2006, the height of the silliness we were seeing in real estate pricing, Mike wanted to know how to acquire more units.  I cautioned him that his focus was wrong.

It’s not about how many units you own.  It’s about being sustainably profitable.

Unit fever is a disease that has wiped many owners in both good and bad economies. So don’t aim to have 50,100, 200, a thousand units.  Rather do the math and aim to only own profitable units and create scalable infrastructure before getting big.

Jul 06
A member writes on ApartmentAssoc@YahooGroups:

I’m curious how many of our members are aggresively buying right now.  I just did a quick check of Milwaukee neighborhoods I already own in and there are lots of decent looking properties out there cheap.

You are correct, there are a lot of very cheap properties on the market.  The lowest prices I’ve seen in my career (1977 to date)  Money is also the cheapest I’ve ever seen. Vacancies are very low as well.  The best time ever to buy… perhaps not.
So why aren’t these things flying off the market into the hands of new owners as soon as they are listed?
There are a few reasons.
  1. If you buy a foreclosure DNS (building inspection) will make you get an occupancy permit.  Somehow this always  turns into a painfully expensive experience, with you having to do a bunch of things that result in really limited benefit to anyone.  We had one occupancy permit that the plumbing inspector made us replace the 1 1/2 drains with 2″.  These were clearly original or near original pipes as they were steel with cast iron fittings.  So $2200 later the tenant can drain their bathtub 10 seconds faster?
  2. Another issue for most owners is that it is a cash market today.  Many banks will not even accept an offer that includes any financing contingency.  If you can’t show you have all the funds in the bank the day you make the offer, oh well take a walk.This is all over the nation.We bought a commercial property in Florida last month.  Original asking was 450,000, which was lowered after six months to $395,000. In the month prior to us purchasing the bank had an offer of $375,000 with the bank financing 70%, another offer of $350,000 with a 14 day third party finance contingency also based on a 70% loan.  Both offers were rejected.  We paid $210,000.  So the bank could have gotten $165,000 more if they financed or $140,000 more had they waited 14 days for someone to get a loan commitment.
  3. Rental housing is harder than its ever been. This, despite some of the best occupancy rates in the last 25 years and as a result, rents that are finally rising a bit. Why?
    Cost just keep spiraling out of control.  I was talking to a good friend today who has been in the business for twenty years.  Neither he nor I could figure out how any owners that have much of a mortgage could survive today.Look at a water bill on a duplex with NO USAGE.  Today, it is 131.75 for three months.  Add some sewer and water and your quickly up to $300 or $400.

    Let’s say you pay $40,000 for the house.  You’ll be taxed as though the house was worth $100,000-$140,000 or more.  I bought one in 2009 for $20,000.  The place was listed with a broker .  I never met the seller prior to closing and have never seen him since.    I appealed the $112,000 assessment.  They lowered it to $104,000, claiming it was not an arm’s length transaction.

    Maintenance costs have gone up as well.  For example a couple of years ago you replaced one or two smoke detectors at $5 a piece.  Today they have to be the more expensive hush units and you have to add a CO detector or two or three.  But these are one time costs… right.  On an average unit prep we have to replace far more than half the detectors.

  4. “Smart” economist are say the bottom in our market still is six months to a year away.

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