All Topics / Overseas Deals / Made in America – a new model with a common sense approach

Viewing 14 posts - 1 through 14 (of 14 total)
  • Profile photo of BoughtWithEquityBoughtWithEquity
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    @boughtwithequity
    Join Date: 2013
    Post Count: 68

    Shared housing presents an opportunity for larger than normal returns in residential investment real estate.  We created a model that is working for us in Atlanta and I'm wondering if the same thing will work in Australia.  In our markets, many tenants no longer have strong enough credit scores to qualify to rent an apartment.  A lot of folks have had job losses, divorces, health issues or any myriad of problems that have caused temporary financial hardships that then adversely affected their credit scores.  We purchase & repair houses in the metro atlanta area and then create shared housing with them.  The net rents are usually 2 to 3 times what we would net renting the home to a family.  We buy our own and joint venture with other investors to turn properties around.  We have one australian owner who had struggled with a rental in atlanta for over 3 years with anemic results.  Like most properties, it was sold on a pro forma that predicted 15% returns.  He has averaged about 2% without accounting for vacancy losses.  With shared housing, his net will triple and vacancy & repair costs are minimized.  We've built a business around it.  Some say it is a short term fad but I disagree.  I initially started doing this in college in the late 80s, did some of it again early 2000 and switched everything I own or buy to shared housing in 2008.  

    Our renters come from every walk of life and we deals with rentals from $300 to $1400 a month on average….for rooms or terrace suites.  We include utilities.  We get married workers who have been transferred to our market, new transplants to the market, recently divorced people and some just wanting to save money by doing this instead of renting an apartment.  What we do is pretty personalized but I wonder if anyone else is doing this in other markets.  It definitely works here and is producing double digit returns.

    Profile photo of EngeloRumoraEngeloRumora
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    @engelorumora
    Join Date: 2010
    Post Count: 618

    Thanks for your post BoughtWithEquity,

    Are the properties rented on a room per room bases?

    Can you please send a pro-forma on an average deal done?

    I like the model and know of someone doing the same in Toledo OHIO. 4 bedroom houses around the University. Instead of the $650pm in rent he charges $250pm per room to mostly students.

    Amazing figures.

    Thanks for your time.

    EngeloRumora | Ohio Cashflow
    http://ohiocashflow.com/
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    Profile photo of BoughtWithEquityBoughtWithEquity
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    @boughtwithequity
    Join Date: 2013
    Post Count: 68

    Yes, we rent the rooms separately to different people.  All of the tenants are thoroughly screened & vetted and we try to match them by personality & lifestyles.  It's pretty common around university towns.  I started switching everything I do to shared housing back in 2007 but I've been doing it off and on since college years in the late 80's.  It's a tougher thing to set up but the returns speak for themselves.  I love that fact that there is always rent being paid by someone in the house and I avoid all of the vandalism & theft that can occur with an empty house.  The rents in the house in the above example went from $900 as a single family to $2,300 as shared housing (gross rents)  The net rent now is almost double what the property grossed before – when it was actually rented.  I think you have been buying 2/1s or 3/1s in your market?  I think if memory serves me correctly.  It can work with shared baths.  I've had 3 different rents in a 3/1 although I favor at least two baths.

    I've been in Atlanta for over 20 years and know my market very well.  I tend to hunt and land deals that the venture capital & hedge funds avoid or off-market deals that they can't source.  I'm pretty sure my model will work in other markets.  Bear in mind that these aren't the "boarding" houses that Freckle might allude to.  The US economy has very serious cracks, no doubt there at all.  Those of us with the fortitude to do something different will profit very well.  A 2bed/2ba property we are buying for about $30k with $10k in renovations will rent for about $1,300 gross a month and nets $550/mo after utils and all expenses.  Our front end partner will see an obscene return on it when we sell it off to a passive investor for about $60k and gets a guaranteed 10% return for 18 months.  If it doesn't hit, we reach in our pockets and pay him back.  We are doing this on a small scale and it seems to be working well.  Happy to chat and compare note!  Andy

    Profile photo of BoughtWithEquityBoughtWithEquity
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    @boughtwithequity
    Join Date: 2013
    Post Count: 68

    Is anyone doing shared housing in Australia?  I would think it would work there….it's interesting that rents are quoted there by the week. Is it collected that way too?  That would be a huge headache I would think!

    Profile photo of EngeloRumoraEngeloRumora
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    @engelorumora
    Join Date: 2010
    Post Count: 618

    Thanks Andy,

    I didn't even think about about the property never being vacant as there will always be some tenant occupying the house. This is great stuff.

    When you rehab do you cater the rehab for the shared housing strategy? Wouldn't this limit the exit strategy to only be able to sell to an investor only?

    Also, I am confident that you are buying in solid B class areas as I know that a similar strategy in a lower class area of Kansas City couldn't work as the tenants would kill each other hahaha

    Thanks and have a great day.

    EngeloRumora | Ohio Cashflow
    http://ohiocashflow.com/
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    F@#$ THE REST WORK WITH OHIO CASHFLOW TO INVEST

    Profile photo of jayhinrichsjayhinrichs
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    @jayhinrichs
    Join Date: 2011
    Post Count: 1,177

    Andy,,  the Aussie's are much smarter than us… they charge by the week because???? well there are 52 weeks in a year.   If you rent by the month you get 12 months of rent or 48 weeks worth… Now that that light bulb went off I bet you will start charging your tenats by the week as well. Hell give them a small discount, your collections go up and your return is another 10% higher…. Brillant those Aussies.

    Profile photo of tommytuckertommytucker
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    @tommytucker
    Join Date: 2010
    Post Count: 82

    I’ve thought of doing this recently although I’m not in a position to do it. I’ve known various working migrants and uni students over the years who’ve stayed share housing. This would work particularly well for fully furnished places I reckon, though one would assume only in the more densely populated areas rather than fringe suburbs.

    Profile photo of EngeloRumoraEngeloRumora
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    @engelorumora
    Join Date: 2010
    Post Count: 618
    jayhinrichs wrote:
    Andy,,  the Aussie's are much smarter than us… they charge by the week because???? well there are 52 weeks in a year.   If you rent by the month you get 12 months of rent or 48 weeks worth… Now that that light bulb went off I bet you will start charging your tenats by the week as well. Hell give them a small discount, your collections go up and your return is another 10% higher…. Brillant those Aussies.

    We sure are a smart bunch,

    Good on ya mate ;)

    EngeloRumora | Ohio Cashflow
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    Profile photo of BoughtWithEquityBoughtWithEquity
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    @boughtwithequity
    Join Date: 2013
    Post Count: 68

    I can't for the life of me imagining collecting weekly rents unless I lived in the unit.  I have a few renters that I let pay bi-weekly at a slightly higher rent.  With over 400 doors in the program now, it's tough enough running around town collecting what we've got.  Fortunately, most of these units are with private homeowners where we just rented a room, two or three in their homes.  We have just started pursuing multi-family units like this tri-plex being offered for about $60k….shared housing will turn this one into a real performer. Plus, the hedge funds stay away from multi family but it's perfect for shared housing:

    https://www.youtube.com/watch?v=I77d2n8Hmtc  (open market listing)

    Engel – The model will work even in the worst parts of KC as I used it here in SW Atlanta which has the same kinds of tenants.  I actually started my program there in 2008 to get around all of the damages, vandalism & evictions I started running into.  We rarely do anything in those kinds of areas today but I am starting to look at the Ft Mac area of Atlanta again as there is a 488 acre redevelopment coming that way.  In terms of renovations, everything I do in investing is geared towards shared housing.  On the renovations, we stick to more expensive ceiling fans, nickel hardware, nicer faucets & hand sprayers in the showers, 6-panel doors & solid flooring where we can.  My guess is that you would be doing the same things for a retail buyer in KC as you would for a renter.  Most times, we can reuse carpet with a good cleaning. If I were in KC, I would take a spin into some of the newer housing near the churches to get a feel for what your renters will be comparing you against.  Nothing I do is geared to a retail buyer as the properties are worth more and sell for more as rented & performing investment properties than they would retail.  We sell them off with a 10% net rent guaranty and that pretty much determines the sales price.  The units can always be taken to full retail with granite countertops and the works at the appropriate time.  I'll spend a little more on hardware, lights, faucets and use designer paints to pull it all together.  Accent walls make a huge difference and the renters notice.  

    There are other advantages.  We keep control over and often furnish the common areas of the house.  We'll put $1k or $2k  into the rehab budget for used furniture, depending on the size of the unit.  My Mom always said once you sit in it..it's used!  If we rented the house outright, we lose access over it. With shared housing, we can key in and see what's going on at any point in time……and we do so.  We let all of our renters know that we'll be by at random times to keep everyone on their toes.  Some of the nicest looking/sounding renters turn out to be the biggest druggies or drunks.  We have almost none of that.  

    You'd be surprised at the quality of many of our renters:  lawyers (no jokes), nurses, executives, sales reps, a ton of divorced people with destroyed credit.  The apartment communities won't rent to those with bad credit but we take the time to look at the cause.  Every walk of life is renting from us…..and most of our rents are $750+ some as high as $2,500 (private terrace in gated community) with most falling in the $500 to $750 range.  These all includes utilities with a cap ceiling depending on the size of the house.  Most of our renters appreciate an all inclusive rate and any overages are now split pro-rata among the occupants….they are in a much better position to police util usage than I am.  You have to have a cap to kill the free rider problem or renters wasting utils because they feel like they are paying for it.  

    You won't see shared housing sweeping the nation…so what!  It's filling our pockets, keeping our units filled at over market rents, minimizing our expenses and getting double digit returns.  I'm sure you can find someone in KC to partner with to develop this.  Not sure how many units you have there now but try switching one of to this and let me know how it goes.  I am eyeing Memphis as another market for us and Phoenix is already in the works.  You'd be amazed at the number of non-performing investment properties that investors are bringing to us now.  I'm seeing properties in metro Atlanta that haven't been rented in years.  It's probably the same in most markets.  Whatever your model, know it well and have boots on the ground!

    Profile photo of EngeloRumoraEngeloRumora
    Participant
    @engelorumora
    Join Date: 2010
    Post Count: 618

    Hey Andy,

    Thanks for your detailed post and clarification.

    I like your model. Keep up the great work.

    If your ever in KC it would be great to catch up.

    Have a great day.

    EngeloRumora | Ohio Cashflow
    http://ohiocashflow.com/
    Email Me | Phone Me

    F@#$ THE REST WORK WITH OHIO CASHFLOW TO INVEST

    Profile photo of jayhinrichsjayhinrichs
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    @jayhinrichs
    Join Date: 2011
    Post Count: 1,177

    Andy the reason the Aussies can collect weekly rent is very simple.

    The renters are not like our renters here in the US that are so credit challanged The Aussies by and large do not use or accept cheques their tenants all have electronic banking so they just set up electronic transfers for every friday or whatever day of the week that is agreed upon and the money just shows up… Now our tenant base especially in the Mid west and South and in the class of property most turn key guys work with as you know probably half do not even have a checking account and can't get one.. They pay rent through Money orders delivered to your office or cashiers checks or CASH.. And they rarely pay on the same day every month… 

    I think this is one of the things that frustrates AU investors is when the rent is due on the 1st they want to see funds in their account on the second that is what they are used to and of course its just a learning experence here in the US.. AS you know the majority of Property managers either pay at the end of the month for rent colleceted at the first or they pay the next month as by law they need collected funds ( good funds) before they can send checks or transfer money from their client trust accounts.

    Profile photo of zizziz
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    @ziz
    Join Date: 2002
    Post Count: 90

    The Aust tenants do not necessarily pay weekly but it is accounted for weekly. Similarly not all rents are direct debits we still have tenants who pay cash or cheque in person. There is also a direct deposit facility that is often used. In various states there is legislation which forces the RE to provide various payment options.

    The RE office is generally local to the property with and is a manned office generally 9 -5.

    Back to the original poster.

    Shared houses are defiantly in our market but they are illegal unless the owner lives at the property and the number of non related people does not exceed certain numbers (state dependent) Along the lines you have outlined it would definitely fall fowl of the law unless the house is a council (county)  approved boarding house.

    Profile photo of BoughtWithEquityBoughtWithEquity
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    @boughtwithequity
    Join Date: 2013
    Post Count: 68

    All  great point Jay.  Our foreign partners do get frustrated by getting rents after the 21st of the month.  Many of our tenants do pay by check now but our bank usually holds the funds for 5 to 10 business days…even though I believe by law they aren't supposed to hold that long.  I think 5 days is pretty standard now.  The longer time appears to be for a couple of specific banks who are having issues.  Some of my renters want to & do pay electronically but it's rare. Alot of our renters have damaged credit.  When we did more work inner city, almost everyone paid in cash or money orders…..which we still have to confirm were legit…you'd be amazed at how many phony money orders we got in those days.  We don't work with that type of clientele these days.  Most of our rents today are pretty solid and just wanting to save money by renting affordable housing.  It's a win-win for everyone.

    We don't do boarding housing or "SRO" (single room occupancy) housing…our concept is shared housing where the tenant gets a private room but gets to shared the rest of common areas.  All utilities are included and we usually furnish the common areas for renters use.  In most areas, we are limited to no more than 4 unrelated people living in a home.  Happy Investing!  Andy

    Profile photo of jayhinrichsjayhinrichs
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    @jayhinrichs
    Join Date: 2011
    Post Count: 1,177

    Its all about what are standard business practice's in a given market or demographic… And understanding how our banking works here…. the concept of such a huge amount of americans that cannot get bank accounts is probably pretty foriegn to the AU investors.  And like you said the amount of fraud is rampant.. Title companies and closing attornies by and large will not accpet CASHIERS checks anymore and will only accept Wire transfers for settlements.. Too many fruadulant chashiers check. then the fruadster gets put on title and its a mess.

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