We are fully-occupied, 9 out of 9, and running smoothly.
Panzera Realty has been our property manager for one year as of the 1st of November. Comparing the year ending 1 November 2016 to the year ending 1 November 2015, we have a 20% increase in rent collected and a 22% decrease in overall expenses. We are making money and saving for a future re-model.
Moving to Ohio
I have decided to return to Ohio. I plan to start a business there, but haven’t decided what yet.
Kineomen
I arrived on 14 September in North Carolina as scheduled. We purchased a foreclosure in Graham, North Carolina for $65,000.
707 Brookgreen Terrace
Graham, NC 27253
We closed on the house on 6 October. The house will be used to for employees of Simple Kneads bread until summer, then we will rent it as an investment property. We expect to spend about $11,000 in repairs and improvements, plus about 6 weeks of sweat equity in order to make it marketable. Once prepared, it will be worth about $95,000 to sell or about $800 per month to rent. The rental market in Graham is high compared to the purchase prices.
“The Terrace”
Simple-Kneads Gluten-Free Bread
Selling bread, pushing every sales channel to expand the market share.
Vino de Coco
The wine is FDA approved and they have partnered with a liquor company to help distribute the product in the US. I still plan on going there in person as soon as possible.
We had to pay a lot in retroactive taxes because the county finally decided that we have to pay property tax based on the “new” value of the building, the amount that we paid when we bought in July 2013, instead of the amount that the previous owner was paying.
Other than that, the quarter went smoothly. Three tenants moved out, but the units leased quickly. We are 8/9 occupied currently with the ninth expected to lease quickly.
The insurance company mandated a routine inspection and we passed, probably largely thanks to all the repairs and maintenance that we’ve done.
Simple-Kneads Gluten-Free Bread
It’s going well.
Kineomen
I will arrive on 14 September in Raleigh, NC to work with them full-time.
The Stock Market
It keeps creeping up. I’m still out.
Vino de Coco
Nothing significant to report. I still plan on going there in December to see in person.
This is the first quarter that I can say things are going as we expect at 695 Riverview Drive. All 9 units are occupied. All 9 tenants are current on their rent. The manager, Panzera Realty, produces a reliable, accurate report each month. The bottom line shows it as well. With reliable tenants and much of the deferred maintenance from the previous owner completed, we are saving for future improvements, or possibly cash for another purchase.
The following pictures are from the stairway maintenance project I completed in December.
The old steps were uneven. The wood was beginning to rot and the nails were coming out.Removed the old steps and patched the side of the building with stucco mortar.Reassembled with new wood.Finished the railing.
Simple Kneads Gluten-Free Bread
Simple Kneads is really taking off. They are gradually adding retail and food service distribution and as of 31 March, they are selling bread directly from the website. The bread is selling fast and the vendors and customers are happy.
I am still “all-cash,” and have been since December 2013. Per my previous post, I continue to watch 4 specific indicators. The first 2 indicators, Total Market Cap / GNP “Buffett Indicator,” and economist John Hussman, are hard-negative and I am therefore not looking into the market. I’ll wait for a better opportunity.
Click here for a recent commentary by John Hussman. He is very technical, and currently pessimistic, but he is consistent in his analysis and he makes sense. From week to week, he uses the same indicators week to week rather than chasing news headlines, and he uses only indicators that have a strong correlation to future results in the S&P 500 specifically. He has incorrectly predicted market crashes in the past, but he discusses these failures in his commentary. He doesn’t claim that there will be a crash. His claim is that because of overvaluation, the potential long-term upside is too weak to justify the exaggerated short-term risk of such extreme valuations.
Vino de Coco
I plan to visit the company in the Philippines in December–all business of course!
The new new management company is doing really well. This is our 4th—my brother Thad started, then Renting Ohio, then North Point Asset Management, and now Panzera Realty. Changing managers 3 times sounds like a lot and sounds like we might be the problem and not the manager, but each manager has been better than the previous. We have found that timely and effective maintenance is the #1 most important thing, followed by accurate accounting. They all charge basically the same price.
Notice the new pavement in the parking lot. Also, the front lights are now on a dusk to dawn sensor, so they are on all night.
Simple Kneads Gluten-Free Bread
The team in North Carolina is growing and the company is taking shape as it begins to hire employees. Sales began in August and, though there are challenges, demand for the excellent quality gluten-free bread makes meeting those challenges well worth the effort. It is now available to buy on Amazon, and will soon be available directly from the company website.
Kineomen
Nothing significant to report!
The Stock Market
With my available money, I am still “all-cash,” and have been since December 2013. However, I spent about a week last month nerding out on the internet to sort through all the news, economists’ opinions, indicators, and general stock market chatter to find some sources that I can understand and trust to make sense of the market and use to make confident, informed buy and sell decisions. I came up with four sources that, in order, tell first when to pay attention, then once the market is primed for buying, what to buy. Those four items are listed in this post.
We have made steady improvement on the apartment building.
The parking lot is resurfaced and it looks great.
Notice the new pavement in the parking lot. Also, the front lights are now on a dusk to dawn sensor, so they are on all night.
We have good paying tenants, and have received all of our rent due since April.
Since July, we have averaged 8/9 occupancy.
We currently have 7 occupied. I remodeled one of the two empty units and we have people lined up to rent them when they are ready next week.
The market rent has increased to at least $650. We may look to get $675. When we purchased the building, average rent per unit was $465. If we rent the vacant units for $650, our average rent will be $560. That’s a 20% increase over 2.5 years!
I am in the process of hiring new management (again), and I am excited to have an experienced professional on board.
Simple Kneads Gluten-Free Bread
Devaunt and Tristaun have been working full-time to develop the business in Raleigh, North Carolina. It has been so successful that they have brought Nick Rapkoch in full-time as well to help with marketing and distribution. This short summary does not do justice to what they are doing in Raleigh. Simple Kneads is the real deal!
Click the picture for the Simple Kneads website.
Kineomen
I visited Devaunt and Nick in Raleigh in August. We ate mostly gluten-free bread with lots of butter, and we talked about real estate and business. Loaves of gluten-free bread were everywhere. I felt like we were drug dealers and that was our product. Tony Montana said, “don’t get high on your own supply,” but I don’t think that applies to high-end bread.
Currently, their time is taken up on their best opportunity, which is Simple Kneads. I came away from the meeting recognizing that I have to get my traveling out of the way before I commit to starting a business or another real estate venture. My current real estate investment is enough for me for now and I am on a steep learning curve.
The Stock Market
In December of 2013, I decided to get out of the stock market completely. That money has been sitting in cash ever since, gaining near zero interest. On the day I sold, the S&P 500 closed at 1775 on 13 December. Today, it closed at 2090, up 17.7%. I owned VWIAX mutual fund at the time and I sold it for 61.46. Today, its value is 62.17, up just 1%. I missed VWIAX’s dividends of about 3.5% per year, so I actually missed out on a total of 8% of gains. The market is not up as much as I thought it was. I don’t feel so bad about my decision.
I have decided to consider stocks again for my retirement accounts using the strategy of “buy fear, sell greed.” Phrased a different way, I want to “do the right thing as an investor by standing behind good companies when nobody else will.” I do not believe that now is that time. Investors have not been really burned since 2008. Confidence is high. Money is cheap, in fact almost free to borrow. Cautious, pessimistic investors who haven’t bought into the current market look like fools for their missed opportunity. Most of the bad news has been around for a while. There is ongoing conflict in the middle east. China steadily gains ground while each country fights to devalue its currencies. Russia acts more and more boldly each year. Washington plays brinkmanship games with the federal budget. Economists continue to warn that holding interest rates at zero is a short-term band-aid that is causing the next “bubble.” Investors are numb to it and blindly throwing their money at stocks. I ask people why they are in stocks and I hear, “well, I wasn’t, but it just kept going up and I didn’t want to miss out.” Who can blame them? What else are they going to do, put it in a savings account for 0.1% interest?
It’s easy to put money in stocks right now. It feels safe. Therefore everybody is doing it. Therefore, I’m still staying out! … So then why write this whole thing? I have been out of stocks for two years.
Because now I know what I’m looking for:
I am looking for the time when the market “needs investors’ confidence.” The economists will be talking about years of recession. Investors will be just recovering from the gains they lost. The news will be talking about the “new norm, where stocks aren’t safe, and maybe even the dollar isn’t safe.” When everyone is down and out, that is the time to be positive. That is the time to use a good system to pick the winners that will see us through.
Vino de Coco
Same same. Tim Bowles is in the Philippines. It has been fun to be a part of the venture. Tim is quite a salesman and I think that coconut wine will succeed. Maybe I’ll go visit!
I am currently reading the book Multi-Family Millions, and it is transforming the way we look at our property. The author, David Lindahl, has been successful on a larger scale in exactly the type of property that 695 Riverview is. He calls what we are doing—creating value by turning over to higher quality tenants and higher rent—“repositioning.” Important note: Zell did not recommend this book to me. I discovered it, and read it first, and I deserve all the credit for any positive outcome that comes from it! Click the book below to link to it on Amazon.
Reading the book after having owned the property for almost 2 years highlights our successes and mistakes from the past and enables us to make better decisions in the future. For example, the book points out that multi-family commercial properties generally make more money than their smaller residential counterparts. I ran the numbers before we bought and that is exactly why we chose it. The numbers are far better than smaller properties in terms of cash flow. Despite the issues we have had, we have never had fewer than 6 tenants at a time paying rent and that money has been crucial. Bottom line, we bought a great property with a lot of potential and the book reinforces that fact.
Conversely, we made some big mistakes. First, we tried to self-manage the property. It was way too much for one person to properly handle without being fully-committed. The book adamantly advocates hiring a property manager. He is right, and it took us 8 months to learn that the hard way. The book also says to hire a good property manager and lays out exactly what to look for, how to hire, and how to ensure results.
The second mistake that we made was to delay resurfacing the parking lot because it costs a lot of money. The book recommends to start by fixing the exterior in order to change the perception of the building within the local community. It is absolutely worth the money in order to attract better tenants. We have learned that from our 2 worst tenants—who we evicted—and who each cost us a lot of money. We are getting resurfacing estimates as we speak and the job should be done by the end of July.
With the amount we plan to spend on improvements this year, it now appears that we may not be profitable in 2015. A lot of the maintenance that we have completed until now has been backed-up maintenance that was deferred by the previous owner, and we have moved on to improvement projects. The increased value of the property due to the improvements and rent increase is easily making up for the few thousand dollars that we are in the red in terms of actual cash flow.
Gluten-Free Bread
Gluten-free bread from Shiloh’s Five Loaves is now being marketed as “Simple Kneads.” Tristaun and Devaunt in Raleigh are rapidly transitioning from the “stand-up” phase to the “distribution and profitability” phase. The new website speaks for itself. Click on the picture to visit it:
Click the picture for the Simple Kneads Website.
Kineomen
Devaunt and Nick have been busy networking in the Raleigh area and sifting through opportunities to find the next Kineomen investment (Simple Kneads gluten-free bread being Kineomen’s first investment). Devaunt has focused primarily on Simple Kneads, while Nick has taken on some clients as a business consultant. I am still a relatively small investor working to develop ideas that I could take on as my own project.
Coconut Wine (Vino de Coco)
When I originally invested in Vino de Coco, I hoped that I would eventually get a chance to learn more about the business and gain experience from them as a start-up. I finally got a chance to meet Tim Bowles, the Vino de Coco co-founder who was our contact for the investment. His stories are fascinating. I decided to keep my investment with them and consider a future partnership.
Summary: 9-unit apartment building near Columbus, Ohio and Ohio State’s campus that I bought with my brother, Thad in July 2013. As of 1 April 2015, it is managed by North Point Asset Management.
Recent
Management: switched property manager from Renting Ohio to North Point Asset Management (NPAM). So far, NPAM is doing well. However, Renting Ohio seemed great in the first several months, so I will reserve my evaluation for now.
I left this review on Renting Ohio’s business Facebook page. Look for my name under 2 star reviews. Or download here. I made the review extra negative to get his attention so that he would send documents I needed for my taxes. It is truthful and accurate. He ended up helping with the turnover as much as he was able.
Switched from a dumpster in the front yard to much more sightly–and less expensive–bins for trash removal.
April 2015 photo of the building. The dumpster is gone, and there are bins under the archway, but we haven’t yet planted grass where the dumpster was.
Rounded off to the nearest $500, we show a loss of $13,500.
Almost $9,000 of expense is depreciation of the building. The accountant currently handles the depreciation schedule. For a rough calculation of cash flow: ($13,500) + $9,000 in depreciation = ($4,500). Bottom line, negative cash flow!
There are 3 key items that we expect to be different in 2015, in our favor, that will improve the bottom line:
1. from January 2014 to April 2014, we did not have a professional property manager and basically were not marketing at all. We had 3 empty units. At $500 per month per unit, for 4 months, that is $6,000 worth of vacancy. They were filled within 6 weeks of hiring a manager in April. If just 2 of the three were occupied, that’s a $4,000 improvement for 2015.
2. In January of 2014, we had a pipe freeze and burst in a vacant unit. It wasn’t discovered until the manager (Thad) entered the unit to install a space heater. He was too late; the pipe had burst 30 minutes prior. The water to the building had to be shut off, and the unit had to be gutted carpet to drywall. This cost about $2,000 and was totally preventable.
3. We spent $3,500 in October to an electrician to make the building compliant with its aluminum wiring. This was a one-time cost to improve a problem that existed when we purchased the property. It can be easily prevented in the future by hiring a competent electrician and ensuring that he knows about aluminum wiring and installs appropriate equipment. Aluminum compatible fixtures are only slightly more expensive.
A reasonable expectation for 2015 cash flow is: ($4,500) + $4,000 (improved occupancy) + $2,000 (no frozen burst pipe) + $3,500 (no expensive electrician bill) = $5,000 positive cash flow for the year.
There are some items I didn’t list that are negative, but they are roughly equal to the unlisted that are positive. The 3 items I listed are by far the largest.
Gluten-Free Bread
Shiloh’s Five Loaves is a gluten-free bread company based in Raleigh, North Carolina. Devaunt LeClaire of Kineomen is the business brains behind the operation while his brother is the baker.
As of early April, Tristaun was busy in the newly-leased building with the newly-installed equipment doing test runs baking bread while Devaunt was out coordinating sales. Busy, and progressing close to on schedule! New picture next time…
Kineomen
I became a Kineomen investor in November 2014. Shiloh’s Five Loaves is Kineomen’s primary investment project currently. Kineomen recently proposed a real estate business in Ohio and I am considering a small project this fall to test the viability and get the ball rolling.
Coconut Wine (Vino de Coco)
Coconut wine based in the Philippines. Click the picture for Vino de Coco’s website.
Click on the picture for Vino de Coco’s website.
No real update. Seeking repayment of loan. Plan to make a full attempt at repayment this summer.
Summary: 9-unit apartment building near Columbus, Ohio and Ohio State’s campus that I bought with my brother, Thad. It is managed by Renting Ohio since April 2014.
Recent Updates
In October, electrician John Kelly completed all electrical work required for compliance with the aluminum wiring in the building. It was expensive–about $4600–but had to be done and now it can easily and effectively be maintained by hiring electricians qualified to work with aluminum.
Switched from a dumpster in the front yard to much more sightly–and less expensive–bins for trash removal.
For the months May-December that Renting Ohio has been managing the property, we averaged 13% vacancy. This counts for 2 months of unpaid rent as vacancy. This tenant is being evicted.
December 2014 was the first month with no unscheduled maintenance fees.
With two new leases signed, we stand to be fully occupied 1 February!
Gluten-Free Bread
Shiloh’s Five Loaves is a gluten-free bread company based in Raleigh, North Carolina. Devaunt LeClaire of Kineomen is the business brains behind the operation while his brother is the baker.
On schedule to deliver its first loaves of bread to Raleigh-area stores in February!
Kineomen
I became a Kineomen investor in November. Shiloh’s Five Loaves is Kineomen’s only investment project to date. More to follow.
Coconut Wine (Vino de Coco)
Coconut wine based in the Philippines. Click the picture for Vino de Coco’s website.
No update. The company is doing well (I think), but not pushing information to investors. Seeking repayment of loan.
Summary: 9-unit apartment building near Columbus, Ohio and Ohio State’s campus that I bought with my brother, Thad. It is managed by Renting Ohio since April 2014.
Profitable? Yes. August 2014 was a profitable month and “normal” enough to be repeated and sustained. I populated the spreadsheet that I use to evaluate properties with the numbers from August. Accounting for 11% vacancy, the expected cash flow is $255 / month. Maintenance and improvements have cost a lot, but are starting to taper off. Rent is steadily increasing with the market and with the improving condition of the building.
Riverview Cash Flow Spreadsheet
Recent Updates
Hired electrician to ensure safety of aluminum wiring. (~$1500)
Switched from a dumpster in the front yard to much more sightly–and less expensive–bins for trash removal.
Met the owner of 675 Riverview, a neighboring building with the exact same layout. Shared contact info, ideas, and got some tips. In August, he resurfaced his parking lot, painted lines, and it looks great, but costs $7500 to have done.
Installed a bike rack with brother’s help. ($150)
Touched up the paint on the white trim on the front.
Determined that the dilapidated fence is the neighbor’s fence, not ours.
The dumpster was an absolute eyesore and had to go.
Gluten-Free Bread
Shiloh’s Five Loaves is a gluten-free bread company based in Raleigh, North Carolina. For more information, I can put you in touch with co-founder, Devaunt LeClaire. The investment window is open until 31 October 2014.
Coconut Wine (Vino de Coco)
Coconut wine based in the Philippines. Click the picture for Vino de Coco’s website.
I lent money to this company in October 2011 with a friend. We have yet to be repaid, but the company is doing well as far as we can tell. They are currently seeking investors. I do not plan on investing further.
Stock Market
I sold all my stocks in December 2013 have been in cash since. After reading How to Make Money in Stocks by William O’Neill of Investor’s Business Daily, I determined that if I were able to make money in stocks, it would always be a gamble and it takes a lot of time just like any other investment. I decided I want to invest in things I am familiar with personally.
Reading the book after having owned the property for almost 2 years highlights our successes and mistakes from the past and enables us to make better decisions in the future. For example, the book points out that multi-family commercial properties generally make more money than their smaller residential counterparts. I ran the numbers before we bought and that is exactly why we chose it. The numbers are far better than smaller properties in terms of cash flow. Despite the issues we have had, we have never had fewer than 6 tenants at a time paying rent and that money has been crucial. Bottom line, we bought a great property with a lot of potential and the book reinforces that fact.
