Author: Tim Ballering

Categories
Strategy

Expected value calculations for investment decisions

Sometime you read something so fundamentally interesting that you wish you were the one smart enough to figure it out so you could write about it yourself. Here’s one of those. 

Expected Value Calculations – Millionaire’s math

Most people don’t think in terms of EV, and it’s costing them a lot of money.

If you’re not familiar with EV, you’re probably asking, “okay, what is EV, and how can I use it to make more money?”. Even people who are familiar with EV have sent me emails asking how they can apply it to business to make more profitable decisions.

Read the full post by Billy Murphy at ForeverJobless.com

Categories
Apartment Association Investing Strategy

The how of large rehabs in marginal neighborhoods.

You look at conversions such as the knitting factory being turned into loft apartments on the near Southside and you wonder ‘How could they afford to do this, in this market?’

The answer is Low Income Tax Credit Financing.  A brief overview is you design a project, go to the state (WHEDA) and apply for tax credits.  If all goes well you and you are approved,  receive federal income tax credits.  There is a formula based on the amount you spend, the number of units that are reserved for occupants below the county median income and a bunch of other factors.

These credits will be far in excess of what a normal investor/developer can personally use.  So they “syndicate” the tax credits to an investment group.  The investors get income tax saving in exchange for the money you need to put the project together.

It is a very competitive application process.  It is a very intense process. It is a fairly expensive process.  If you are looking for an easy dollar, you are looking the wrong way.  I speak from the experience of having tried and failed at obtaining tax credit financing to create accessible infill housing on the near north and near south sides of Milwaukee a bit over a decade ago.

But if you can break into this market you can do well, while doing good.

So it was a decade ago and I haven’t tried since, so why bring it up today?  The July Apartment Association meeting features Keith Broadnax of Great Lakes Capital Fund, one of the tax credit financing investment groups.  Years later I still find this was an intriguing opportunity. Maybe someone in attendance will become the next Gorman and Company.  😉

When: Monday, July 15, 2013 at 7:00 p.m.

Where: The Best Western, 1005 S. Moorland Road, Brookfield 53005

Who:  Keith Broadnax of the Cap Fund

Cost:  Free for current AASEW members, $25 for guests and expired members.

 

 

 

Categories
Purchasing Real Estate Recovery

Real Estate Bubble v. 2.0?

Two articles caught my attention today.  The first from the Calculated Risk blog:

“As more inventory comes on the market, buyer urgency will wane and price increases will slow and even decline seasonally in many areas this winter. IMO this will be another step towards a more normal housing market.“

The second from the Wall Street Journal:

“Although rates are rising, fears that this will derail the housing recovery are overblown. There is still plenty of demand for the housing market’s limited offerings before the word “bubble” should enter the discussion“

 

 

 

Categories
Apartment Association Opportunities Our industry Resources Strategy

An insane opportunity for real estate investors

In my embarrassingly long time at rental real estate, I started in 1977, I have seen low prices, I have seen low interest andI have seen easy money, but never all three at once. If real estate investing was a horse race this would be the trifecta.

Today there are really powerful opportunities as interest rates are at record lows, real estate prices remain depressed and there is actually money available for the right deals and the right borrowers.  As far as depressed pricing you can purchase properties today at the prices they were going for in the mid 90’s but now those properties have vinyl siding, new windows and good roofs.  Interest rates? HUD has 35 year, assumable, fixed rate multifamily loans available at silly low rates.  LTV of 83%. I think they are even non recourse.   Friday the rates for the 223 (f) were posted as 2.95%.

Find the right larger deal today, get it financed under these terms and you could quite honestly be set for life, barring of course our government doing something really stupid and destroying the entire economy.

AASEW president Joe Dahl has arranged to have four leaders in Milwaukee area lending speak to the Apartment Association tomorrow Monday May 20th.

The meeting is free for current AASEW members and $25 per person for those who are not members, but at $99 a year who would be in this industry and not be a member.

When: Monday, May 20th, 2013 at 7:00 p.m.

Where: The Best Western, 1005 S. Moorland Road, Brookfield 53005

More info about the meeting and the Association at:

http://apartmentassoc.org

Categories
Strategy

76 words that can ruin your business

all, another, any, anybody, anyone, anything, both, each, each, other, either, everybody, everyone, everything, few, he, her, hers, herself, him, himself, his, I, it, its, itselfmany, me, mine, more, most, much, myself, neither, no, one, nobody, none, nothing, one, one, another, other, others, ours, ourselves, several, she, some, somebody, someone, something, that, their, theirs, them, themselves, these, they, this, those, us, we, what, whatever, which, whichever, who, whoever, whom, whomever, whose, you, your, yours, yourself, yourselves and I would add “thing“

Pronouns –   They confuse coworkers, cause mistakes and in general put your business more at risk of failure.  Rather than say “him” say Joe. Rather than “there“, say the west wall of the living room.  Say a few more words now to save a long discussion about what went wrong and who is to blame later.

Categories
Apartment Association

Guest message from Joe Dahl, Apartment Assoc, President

Fellow Members,

As you have heard me say many times the association is at a critical point, and we must unite together or become powerless separately. The board has adopted an aggressive agenda and will need all hands on deck to make it a reality. The status quo is no longer acceptable and I promise the association will be more active and involved during the next election cycle than we have been in a long time. I am worried about many things including expansion of the Rental Inspection Programs and possible use of Eminent Domain by the City of Milwaukee. I have no doubt the City has both on its mind but I promise the association will give them hell every step of the way.

To ensure the association is in a position to protect our rights we must increase both our membership and business sponsorship’s. I want you to invite every landlord you know to our upcoming May 20th meeting. This meeting will feature some of the top lenders in the area and should be an informative and worthwhile conversation. I need everyone of you to work on behalf of the association and help us gain strength in numbers. Many of you have answered the call and your energy has been felt and is making a difference.

After the last meeting a number of members spoke to me about the importance of supporting businesses that support us. This is a topic I am passionate about and have spoken to frequently. If any vendor you use is not a business member of the association I want you to invite them to our next meeting as a guest of the association. I want them to experience first hand the energy and passion of our organization. I believe this is the best way to get them to see the value of being a part of what we are doing. Please email me if you will be bringing anyone and take a moment to introduce them me at the meeting.

For the past 4 months I have been negotiating with both Home Depot and Sherwin Williams about offering our membership a discount on their products and joining the association. I am happy to announce that representatives from both organizations will be at our next upcoming meeting and we will be announcing the details of the partnerships.

If you can only attend one meeting for the entire year, this is the one you do not want to miss!

Our industry is only as strong as our association and our association is only as strong as our membership. I look forward to seeing all of you at the meeting.

All the best,

Joe Dahl
President
Apartment Association of Southeastern WI
Meeting Details:

Financing Real Estate in Today’s Market.

When: Monday May 20th, 2013 at 7:00 p.m.

Where: The Best Western, 1005 S. Moorland Road, Brookfield 53005

Who: Panel of local lending experts.

Cost: This meeting is free for current AASEW members, $25 for guests or expired members

Categories
Fair Housing Support Animals

Service & Companion Animal ADA/ Fair Housing Update

HUD has released a final rule on service animals and companion animals as they relate to ADA and fair housing.  Read the full HUD Final rule on service animals.  Below is an excerpt of the most pertinent part.

Housing providers are to evaluate a request for a reasonable accommodation to possess an assistance animal in a dwelling using the general principles applicable to all reasonable accommodation requests. After  eceiving such a request, the housing provider must consider the following:

(1) Does the person seeking to use and live with the animal have a disability — i.e., a physical or mental impairment that substantially limits one or more major life activities?
(2) Does the person making the request have a disability-related need for an assistance animal? In other words, does the animal work, provide assistance, perform tasks or services for the benefit of a person with a disability, or  provide emotional support that alleviates one or more of the identified symptoms or effects of a person’s existing disability?

If the answer to question (1) or (2) is “no,” then the FHAct and Section 504 do not require a modification to a provider’s “no pets” policy, and the reasonable accommodation request may be denied.  Where the answers to questions (1) and (2) are “yes,” the FHAct and Section 504 require the housing provider to modify or provide an exception to a “no pets” rule or policy to permit a person with a disability to live with and use an assistance animal(s) in all areas of the premises where persons are normally allowed to go, unless doing so would impose an undue financial and administrative burden or would fundamentally alter the nature of the housing provider’s services. The request may also be denied if:

(1) the specific assistance animal in question poses a direct threat to the health or safety of others that cannot be reduced or eliminated by another reasonable accommodation, or

(2) the specific assistance animal in question would cause substantial physical damage to the property of others that cannot be reduced or eliminated by another reasonable accommodation.

Breed, size, and weight limitations may not be applied to an assistance animal. A determination that an assistance animal poses a direct threat of harm to others or would cause substantial physical damage to the property of others must be based on an individualized assessment that relies on objective evidence about the specific animal’s actual conduct — not on mere speculation or fear about the types of harm or damage an animal may cause and not on evidence about harm or damage that other animals have caused. Conditions and restrictions that housing providers apply to pets may not be applied to assistance animals. For example, while housing providers may require applicants or residents to pay a pet deposit, they may not require applicants and residents to pay a deposit for an assistance animal

Categories
5-Day Notice Act 143 Omnibus Bill Evictions Leases & Rental Agreements Tenant Screening

Use a Year Lease or Month to Month?

For most of my career I felt strongly that M-T-M was the only way to go if your tenants were lower income.  About a year ago I rethought this.  Okay I constantly rethink a lot of things we do on nearly a daily basis, it’s called optimization,  but this time we did a trial test of year leases.  I feel a lease for a term may be best in today’s environment, but have not recommended it across the board for other owners we work with.

My argument against year leases was that you could not compel them to pay the lost rent for the balance of the lease if they skipped out, yet had to keep the tenant to the end of the lease even if you would prefer they were gone.   The exceptions of course are nonpayment and documentable lease violations.   With a month to month it is 28 days without cause and 14 days with cause- no right to cure, speeding the process..

The following are possible advantages of using a year lease even if your tenants are marginally collectable at best:

Screening:  Tenants that refuse to sign a year lease because they don’t plan on being at one address that long are not worth renting to.

Collections: In a M-T-M  a 5 day can only be for rent due, not for other unpaid charges.  With a lease the 5 day can include unpaid deposit, late fees, utility charges etc.

Bad behavior:  In a M-T-M you can use a 14 day with no right to cure.  This does not lessen your burden of proof and does not make the 90 pound pit bull “puppy” leave any faster.  In fact it often causes the dog to stay for the remained of the tenants’ occupancy.  You can also give a 28 day notice without any reason (or 30 or 60 if that is what you have in your written agreement.)

In a year lease you can use a 5 day.  Sure they have the right to cure, but if the same breach occurs again with in the lease period you get to use a 14 day with no right to cure.  The five day has sped up the resolution of some issues tremendously.  Take the pit bull example. If the dog is gone within five days, never to return – great.  If on day 6 the dog is still there you can file with the court.  This can calm the other tenants and neighbors quicker because you seem more on top of the situation.

Yes, the tenant can argue that the breach did not exist.  They could argue  that with a 14 day notice under a M-T-M as well.  That is why using a 28 day without cause was a method that worked for M-T-M.  But you really do not want to be evicting willy nilly anyways.  That makes you look bad and harms your bottom line.  So adequate proof is not necessarily a bad thing.  Plus if you find a dog on April 4th and decide to give the tenant a 28 day rather than duke it out with a 14 Day you have to put up with them until May 31st and then file an eviction on June 1st if they are still there. So it could be late June when they are finally gone.   With a lease you could be in court as early as 18th or 19th

For me today it is use the year lease and document, document, document any breaches.  Then, if you need to go to court to evict be prepared to some sort of stipulation.  In the dog example you may wish to give them a move out that coincides with the last day of the month conditioned upon them keeping the dog elsewhere for those 12 days and paying the rent.

If the legislature gives us the same 5 Day rights under a M-T-M as we have under a year lease I may reconsider the use of leases, but I am not sure as I feel pretty strongly today that it is a bad sign if a tenant is unwilling to sign up for a year.

Ideally the legislature will also give us the right to use crime free addendums again.  That will help owners deal more proactively with disruptive behavior problems

Categories
Government Behaving Badly Industry stats Investing Milwaukee Recovery

Will the elimination of residency requirements affect us?

Our properties are in Milwaukee and I am scared.

The proposal to eliminate residency requirements for municipal employees will pass and will further weaken the demand for housing in Milwaukee.  The result will be more abandonment of homes in older, lower value neighborhoods as owners in the outer band of Milwaukee make concession to sell or rent homes vacated by the exodus of city employees.  You read the city can’t afford to bulldoze the stuff that needs to be torn down today.  Where will this leave us? Will we be the one city in the nation New Orleans and Detroit can look down at as a failure?

Another aspect is much of your income do you spend within a few miles of your home.  I buy most of my groceries a mile from home.  I shop at the Walmart that is a mile and half from home and the Target that is a mile in the other direction.  As people move out there will be less sales in those stores and they will require less employees resulting in more of my tenants going from barely making it to failing.  City workers in general make an above mean wages so this will be a dramatic impact.

You live in the suburbs or your properties are there so you think this will be a good thing.  But in reality you should be as concerned as me.  Suburban school districts will have to expand their schools to accommodate the influx of former Milwaukee residents.  That will adversely impact your taxes.  The only alternative will be to  diminish the quality of the suburban  schools as they become more crowded and understaffed.  All the while they will be shuttering MPS schools

School teachers that wish to remain teaching in Milwaukee should be the largest group opposing this as the first group to leave will be city employees with children who are not satisfied with MPS. This will reduce job opportunities at MPS.  Carmen and I lived in Milwaukee for a while, but ruled Milwaukee out when we bought a new house due to problems her daughter and son had at MPS.  We moved to Greenfield.  Schools are good and safe. But I am so close I can walk to Milwaukee in ten minutes.  We have a very responsive police department.  Our water and sewer rates are much lower than the city  that provides the service ironically.

City workers in general will see layoffs, reduced opportunities  and lower employment as people leave.  They will now have to fight for jobs with those who already live outside of the city, but would not take employment in the city as they did not want to or cannot for economic reasons move to Milwaukee. So although they are the ones pushing for this they too will be paying a price.

You are saying:  “Sure Tim, I agree and would love to contact my Senator and Representative but I’m too busy unplugging toilets and fixing broken windows to keep up with politics”  Well. fear not.  You can find who your state legislators are at:  http://legis.wisconsin.gov/Pages/waml.aspx

Categories
WE Energies

Fun with WE Energies’ improper billing practices

WE Energies calls today.   They demand one of the staff gives them a tenant’s Social Security number or they are going to bill us.  There are two problems with this.  First a public utility cannot bill an owner if the owner gives them the name of the responsible party and more importantly third party disclosure of another person’s personal identifying information is illegal and just plain wrong in this day and age of ID theft.

Our frontline clerk says sorry, we’re not allowed ot give out tenants’ Social Security numbers.  The WE “Customer Service” person says if they do not get the soc they are putting the bill in our name in that case.  Our staffer hands the call off to her supervisor. The supervisor has an identical conversation and says “Here, Tim take care of this.”

So I pick up the phone and the first thing I do is ask the WE rep “What is your name and Social Security Number?”  Her response is as expected “I’m not going to give you my Social Security number!”  Okay so your Soc should not be shared, but our tenants’ should…hmm.

She obviously did not get the Social Security number and we equally obviously will not accept the bill