ProBoy, All signs indicate that the Vegas market still has a lot of room to fall. Thats not to say you can't find a good deal, but you are going to have to pay a lot less than current market prices for it.

i think someone said you can't use student loans for rei

you could illegally... around 5k or so, nobody would notice that

Spex,

Again, great thread.

I know you really like 25% COCR and a 10% cap rate on your deals. However, as I have posted before these deals are very hard to find. Not impossible but very difficult and the areas, at least in my area, where they are possible are extremely hands on as far as management. And I wouldn't want to be doing that right away, as I have limited property management experience.

On to my question. I realize this is very investor specific, and it goes into a lot about what you talk about as far as realizing what your realistic expectations and goals are, but in your opinion and expeirence are there area any properties, deals, etc. that you would buy that would not meet your COCR and cap rate criteria.

How do you weigh other factors like appreciation, equity, terms, etc. into your investment decisions? Would there be any circumstances where you would buy a property that did not fit your COCR investment criteria?

Again, I realize this goes back to understanding yourself and realizing what it is you want as a Real Estate Investor, and I know I want to do something in real estate but just don't know where I fit in.

Thanks

Well, I know my way around basic renovations and stuff. And there is a part of me that enjoys that kind of work, although not a huge part. But I wasn't always that way. My dad and I renovated a house together when I was in high school. I learned a lot there. Mostly I learned through my first rental property. I did all the work - replaced all the plumbing, lots of cosmetic, framed some doors, etc. Most of the time I had to learn as I went - which translates into doing everything twice.

If you're worried, just hire an inspector to go through the house with you. He'll tell you everything that is wrong and how serious the problem is. It should cost maybe $300 to have the guy inspect. Just about every property will have some problems, so you have to expect that at least some work will be needed.

I'd also say that if you can make $200/hour grinding then there is no sense in you spending time trying to learn how to make renovations. When I started out I didn't include the cost of my time. It seems to me that it would cost you far too much to spend time making renovations. IMO, its way better for you to hire a professional for $50 per hour and spend your time playing poker.

Another thing is that you have to consider is what your goals are. Determining what kind of COCR and cash flow you need will help a lot for knowing which properties to buy.

I pay some attention to the neighborhoods. Obviously I'd rather have a property that is close to schools and libraries. But there are other more important criteria for determining value. The vacancy rate in an area is important. You'll deduct vacancy as an expense when you determine a price.


I live a pretty low-key life style. We don't spend money on a lot of extravagent things. Partly that is just the kind of people we are. Partly that is because my tenants wouldn't appreciate me pulling up to collect rents looking like the guy from Monopoly. For a while I had a BMW, but I felt like people treated me just a little different for driving it, so I got rid of it.

We don't spend a lot of money on consumer goods. In fact, we dont' even have cable. I've got lots of hobbies and TV is just too big of a distraction. I used to spend like 2 hours per day watching TV until I decided to get rid of it.

I've never been a guy that is out to make money just to see how much I can accumulate. I've always had a very specific idea of what I want my life to be like. I'm working now to create the financial situtation that will provide that life. I'm almost there.

I don't give a ton of money to charity. However, my wife and I do spend a lot of time volunteering. I serve on a few local boards and my wife works as a child advocate for kids in the court system. We volunteer our time rather than our money.

I really know anything about the LV market. I know that some very smart people on this forum feel that the best time to buy in LV is about a year from now.

As to renting, be sure to read through this entire thread. Then ask specific questions if you have any. I think that there is a lot of good info for noobs here already. Of course if you don't understand something I'm happy to help.

For a rental, no. I am comfortable with risk. However, I don't gamble with my investments. Gambling is for the casino.

I have done negative cash flow deals before. However, those were very unique situations and in just about each one I was capturing a significant amount of equity when I bought the property. Plus, I planned to later use the proceeds from the sale of the property to buy income producing RE.

The price of income producing RE is determined by the cash flow. So my properties don't appreciate in the same way that single family homes or duplexes do. As I've pointed out, $1 additional income is equivalent to $10 additional equity if you can sell the property at a 10% cap rate ($1 = $20 at a 5% cap rate). I only care about finding properties where I can add significant value in a relatively short period of time. I 'force' appreciation by making improvements, renting, and lowering expenses. So I don't really care too much about MARKET appreciation.

There are never situations where I'd buy a property that didn't meet my approximate 25% COCR criteria. However, 25% is a target more than a rule. I could be pursuaded to take a lower of a COCR if the circumstances were right. Usually the circumstances being right would mean that I'm either getting a trully fantastic price or I'm getting fantastic terms. But a great property at a great price doesn't help me that much if I can't beat the stock market by a lot. Basically I want to make money. Having too many hard and fast rules can hinder you in that regard.

Didnt have time yet to read the entire thread but will do later.
For a little shorter than a year I've decided that i really don't like poker and want to do something else for a living.
However i still want to be rich and i need 4-6k a month for living expenses.

I have 2-3 hours a day i have to spend on poker and about 2 hours a day for school.
So i could fit in 1-2 hours a day of real estate i guess.
Im still in the learning fase just reading some books Tien recommended to me.

So my question basically is, is it realistic to combine real estate with school and poker at first and when i can make money with it just combining it with school. I really enjoy going to school so quitting it is not an option.
I do have 20-30K disposable money atm for this experiment.as long as its +ev i dont mind risking it.
Also how hard is it to get into it at age 20.

I want to make several points. Take them for what they're worth. If they don't help you, then disregard them. You don't need to defend yourself to me.

First, your schedule seems pretty lax. You are 20 years old and you work 5 to 7 hours per day. Getting rich is hard. If you want to be rich you have to think like a rich guy. Basically, you have to look at your life, figure out where your time is best spent (in terms of maximizing wealth), and do more of that and less of everything else. That is how you get rich. I'm sure that you don't want to hear that. But its true.

Second, I dont' know where you live or what your situation is. But I can't fathom that a 20 year old kid needs a minimum of $4k per month to live. That is crazy. I know a lot of rich guys. I'm a relatively rich guy. You might find this hard to believe, but most rich guys don't spend a lot of money. In fact, most rich guys are pretty cheap. Thats because part of how you get rich in this world is by saving a lot and investing a lot.

If you spend 6 hours per day playing cards, and $1500 less per month, you'd have the makings of a great career as an RE investor. You'd have a significant bankroll to get started at much lower risk. After a few years of investing you could scale your poker back to only 3 hours per day. After a few more years you can quit playing poker entirely. A few years later you can hire out all the management of your RE portfolio and THEN spend your time going back to school for the joy of learning.

Right now, I'd advise you to spend more time working, cut back your expenses, and save money. And spend a few hours per day reading about REI. If you doubled your hours per day playing cards and cut out $1500 per month in expenses and read RE information for 2 hours per day, you'd be ready to start investing in one year. Your banker would see your huge bankroll, look at your tax returns and see your income, listen to your expertise on matters related to REI, and write the loan. I doubt he'll care if you're 20.

Spex - awesome thread. I really appreciate all the time you've put in and i've definately learnt a lot. Thanks.

I live in the UK and have a good chunk of excess cash (£120k ish; thanks poker!) lying around that I would like to start investing a bit more actively. I totally buy in to what you say about successful real estate investing depending on buying well and focusing on cashflow and a good yield. Inspired by this thread I've decided to start developing my knowledge and maybe build up some contacts in anticipation of being able to react to an impending slowdown (crash?) in the UK property market. So I thought I would go along to an auction in a couple of weeks to get a feel for how they work. I don't know about the US but here only about 15% of property is sold at auction, much of it being distressed sellers looking for a quick sale.

Anyway, this particular lot caught my eye at the forthcoming auction:
http://www.wilsonsauctions.com/prope...w.asp?id=12991

(background: It is in a small village on a tourist route around Loch Ness in the Scottish Highlands. Its about 3 hours from where i live)

It seems to me that this could be a good buy at up to £175k on the basis of the existing shop & flat lease to 2015 yielding £17.2k? Plus opportunities to get a small rental amount on the refurbished 3rd flat. I'd be very interested to hear what kinds of thought processes you would go through and factors you would consider on an investment such as this. I'm not a complete noob as I do have 1 apartment i rent out, but I'd really appreciate an insight to the things an experienced real estate mind would be thinking about that I might not be.

Also - Any scottish 2+2ers reading this and might be interested in trying to learn a bit more together, shoot me a pm.

My first main concern would be the viability of the lease for the retail space. It is important that you go visit the space and speak with the owner of the store. Obv I dont' know this area at all. But my sense is that this is a relatively smallish town. If that is the case then I'd be concerned that if the current retail tenant decides to move or closes, you'll be stuck for finding a quality tenant.

Along those lines, it is very important to examine the current leases before you purchase the property. In the US a buyer must honor leases that are current at the time of sale. You'll likely be stuck with the lease until 2015. So you want to know what it says. Particularly, you're interested in how common area maintenance is handled. Who is responsible for snow removal and trash pick up? Who pays for maintaining the parking areas? Basically there is no real 'standard' lease in retail space like there is a sort of standard-type of lease in residential rentals. So it would be important to know what the current leases say.

It is supremely important that you know the traffic flow past this location. Ultimately the value of this, or any other retail property, lies in the number of people who see it. In the U.S. you can normally call the county or city zoning/planning department to find out the number of cars passing.

Parking is important for any retail space. This might be more true in the states because Americans don't walk. But still, I feel that the parking layout will be a huge factor in the future rentability of the space.

You need to find out what the zoning designation is for this property. That will guide you in terms of what kinds of businesses can be put in this spot in the future. You probably don't want to buy the place if the zoning designation highly restricts the types of business that can exist there. At the same time, if you've got a grandfathered zoning designation - we call it a nonconforming use - then that might be a good thing. That is because if you can guarantee a tenant that there will be no competition within X distance it might make your property more marketable. But it depends on the business.

Another thing to consider is that at least one of the apartments is rented for $55 per week. Weekly rentals are fine in and of themselves. However, tenant turnover is a major expense. Having weekly rentals will ensure that your tenant base is transient. In the U.S. weekly rentals are relagated to the world of seedy motels. So another thing to consider is that you have some responsibility to protect your retail tenant from having a lot of shady people hanging around his store. There is only so much control that you have over that point, but renting by the week is probably not going to give you a great tenant base. At least that is how it is in the US.

Another thing on those weekly rentals is that the $55/week rent is probably a premium rent that people pay to rent weekly. If rent weekly maybe you can bring in $220 per month. If you rent yearly, maybe you can only bring in $195 per month. I assume that the landlord is paying all utilities at the property. In my experience, utilities will cost about 15% of gross rents - that is for gas, electric, water, sewer, trash. Something to consider.

Finally, exits from the property are extremely important. Depending on the factors above, this property could be very difficult to sell later on. This property is most likley up for auction for one of two reasons: either the seller MUST sell ASAP or the seller CAN'T sell any other way. If its the latter, you should probably avoid.

Its hard to say what a good price would be because we don't know what the expenses are. And we don't know the value of the extra land or the FMV of the property itself. So that is something that you'll have to find out. But I can tell you right now that with the info given, and in terms of pure cash flow, if the property grosses 17k per year, I probably wouldn't be interested unless the price was around $85k. If you have other plans - like developing the extra land or something, then maybe you'd pay more.

Spex. I figured I could give another question a shot, seeing that you might have reasonable experience with this.

If you have good land (like, not full of trees and rocks and ****), and would like to develop that land into a trailer park, how much would you approximate the cost to be to pull water and electricity to 50 trailer lots (with those measuring machines for electricity).. If you think my question is far to wide, and cannot be answered, where do you suggest I look to get an answer?

It depends quite a bit on the cost of construction in your area and on the site itself. If the site is in the country you'll probably need well and septic would would be big bucks to install for a 50 unit park. Plus you'd need quite a lot of land in order to have an adequate leach field. You might even need a water purification system. We're talking big money. You can get that info from your local health department.

Another factor to consider is that properties with septic are much less marketable than properties on city water/sewer. The sewer lines are the big thing. If you had a well but were on city sewer, that'd be ok.

Also if you're in the country you've got to pay the utility company to run their service out to you. The companies in my area charge by the foot. I can't remember what the cost is, but its significant.

another major problem is that there is an enormous amount of red tape involved in developing a MHP. The plain fact is that communities do not want more trailer parks. The city cannot stop you from building a trailer park so long as you can get the zoning that you need (which you can't without a fight and likely a lawsuit). However they can make your life so miserable and your park so unprofitable that you'll give up. Part of the reason that MHP investing is so attractive is that you've pretty much go a monopoly when you buy a park. Cities just don't want more trailer parks.

All told, IMO, depending on your area and specifics, I'd estimate development to run $20,000-$30,000 per lot and about 3 to 5 years. That is start to finish. So developing 50 lots would cost about $1M and 3 years of your time minimum.

Then you'll have an empty mobile home park. There was a time when you could count on people to pay to bring in their own mobile homes. Those days are gone. Very few banks finance mobile homes any more. These days park owners have to pay to bring homes into the park and finance people to buy those homes. You can get repos from the few banks that still finance MHs. Many cities require that homes brought into the city be 10 years or newer. You can get a decent 1998 repo, torn down, hauled, and set for around $14k. Of course, you can sell that home for maybe $20k on a note. Some MH manufacturers offer short term financing to MHP communities to retail homes, too. But you've got to get buyers that can get a loan for the MH, which is hard to do.

So you're looking at putting out $1.4 million do develop 50 units. And that's if you can ever get approval from the powers that be - which you won't. Basically, this long response is to tell you that its too expensive and difficult to develop MHPs.

So you dont have any taxable income flow but you have a large amount of cash (looks like 450k). What i would do is a Pledged Asset Loan Program, where you borrow against your money in your mutual funds, allowing you to keep the money in the mutual funds and get a greater value than the interest rate you pay. This assumes you can beat the market for more than like 6%. For me thats easy, I assume bare minimum I am beating it for 25% (though my track record says 50%) and with a 6% interest rate I am better off keeping my money in stocks and borrowing against it. This has big advantages such as you dont need a down payment at all. That allows you to deduct more money in mortgage interest from your taxes but also means you are leveraging yourself more (something I like). The big thing I like about it is that my net worth doesnt go down at all when I buy a house, I simply pledge some of my stocks to it and since my money is in stocks anyways it doesnt matter.

Anyways this is what I would do, if I were you, it makes sense in your situation as well. And if you cant beat the market for 6%, get better at that ***** man! Its not hard to get at least 10%.

REMEMBER: Borrowing money and paying interest on it is good if you can get a higher return rate on your money than the interest rate. This is a basic business term called 'leveraging' and is VERY powerful.

spex, I have a commercial RE question, mostly just out of curiosity. there are several storefronts in my neighborhood (brooklyn, nyc) that have been vacant what seems to be a long time (in one case, 4+ years).

what's going on with places like this? I just don't understand how stuff like this doesn't drive down storefront rents in the area over time, and moreover who is actually taking the hit on these vacant spaces. is the hit worth it if it keeps prices propped up?

Spex -

Like turnipmonster, I also live in NYC. Although lately it seems like I suck at poker, I do have about $150K in cash from my trading career. I'm a bit nervous about being so liquid as inflation is essentially destroying that wealth. The only market I can think of that is deflationary is the housing market so I'm interested in tying up some money there as a hedge (also I rent my apartment which is a huge waste every year). Although $150K may go far in some parts of the country, here it won't buy you 350 square feet. Any advice on how to play this one?

Thanks,
RiverDancer

If you could buy a house for 63K and rent it for $140 is it a snap buy?

If no, why not? what other factors need to be taken into account? how do you calculate maintenance expenses?

Not knowing anything else about this property than what you've said above, I'd say that it is a snap pass.

This question makes me think that you haven't taken the time to read through this thread. Read the thread closely. If you already have read the thread, then I apologize. But I'm pretty sure that this topic has been covered. If you're still confused then post your questions again.

Well, have you considered moving? Personally, I wouldn't want to live in a city where you couldn't possibly afford to buy a home with a solid middle class income and a large chunk of liquid capital. I'd move.

Honestly, I can't imagine a scenario where a landlord would NOT want to rent his property. But there is probably something going on that isn't apparent to the man on the street. Maybe its a tax benefit. Maybe the spaces are odd shaped. Maybe the property has been caught up in a lawsuit. Maybe the spaces aren't really on the market for whatever reason. Maybe the spaces are rented but not by a retail business. Maybe the landlord is too stubborn on his price or lease terms.

The vacancies could hurt rental rates, but only if the spaces are actually up for rent. If they're not up for rent for whatever reason, then they are just off the market and don't increase supply.

Spex-

Do you have any experience in package deals? I have come across an investor who wants to sell off his entire portfolio of properties at the same time (about 25 properties total). Have you every put together a deal similar to this? Or do you know of any ways to structure the deal? Things to look out for? How does it differ from just buying a simple duplex? Is there anything special that should be put in the Purchase Contract, Deed of Trust, or warranty deed? Anything else in specific to consider?

Thanks

IMO, package deals seem really hard to pull off successfully. The DD just seems very difficult. Consider 25 inspections, 25 appraisals, 25 of everything. Yuck.

There won't be one deed for all 25 properties. There will be 25 deeds and all the associated 25 recording and *****ng fees, etc. I've never bought more than 2 properties at once, but my guess is that there will also be 25 different mortgages with all those associated fees. So it seems like the transaction costs for the package would be a lot higher than if you just bought a single property for the same price as the package.

I dunno, unless you are getting a smoking good deal for buying all 25 together, I would think that buying a package of 25 is not too much different than buying 25 individually. Honestly I'm not sure though because I've never done it.

They have any trade floors in Indiana?

I don't know. You are the one that asked what your best move is in this your situation. You didn't tell me anything about needing to have a trade floor. If you want to buy cheap real estate, my advice is to move. If you'd rather have a trading floor and expensive real estate, then great. I'm not sure what you want to hear exactly. You're in probably the toughest RE market in the world. What do you expect?

Look pal, I put a lot of my time an energy into this thread in order to help people. If you don't want my advice, then via con dios. I don't appreciate your sarcasm after you asked me for advice. Thats not right.

Your best bet is to buy an REO package. I am just getting my feet wet with REO's...AKA trying to secure a few more million in funding before I start making offers. You need proof of funding for REO's before the banks will even look at you.

That said if you have the funding I'd definately look into this. I know you can get properties cheap this way. Most likely way cheaper then any other method of getting properties. I'm talking like 35 cents on the dollar cheap.

But this is not for a newbie or part time investor because most likely you'd keep a few then wholesale the rest off to other investors with a 10% markup or something. You need cash investors ready to go to flip these too or otherwise your stuck fixing up houses slowly then renting them/flipping them. You would have to have quite the operation in order for this not to kill you in holding costs. I am in the process of setting up this operation now if your serious about this PM me. Also if anyone else is reading this and has dealt with REO packages please PM.