These questions are primarily regarding commercial properties if you are taking those type of questions:

What sort of Cap rate and potential to increase rents would you be looking for in multi tenant commercial properties?

If a commercial tenant was paying on time on a month to month basis and his business could not handle a mark to market rent increase, would you raise the rent anyway or start marketing the space while he operates at below market rent?

If you were to put together a Limited Partnership and act as General Partner for a 50 unit commercial project what compensation in terms of percentages of cash flow and gain on sale do you think would be fair?

spex x,

Thank you immensely for all that information.

By commerical, I assuming that you're meaning primarily retail space? I'll start my response by saying that I don't really like to invest in retail space. There isn't anything wrong with it or anything, I just never really took to it that much. It probably has something to do with the fact that I haven't ever been able to find any really good deals on retail properties. I haven't owned any in some time. At this point I doubt that I'd consider branching into that market even if I did find a good deal because I'm already trying to move my investment into more passive instruments like notes and mobile home parks and maybe storage if I can ever find a bargain.

Anyway, in general I wouldn't consider a property that couldn't offer a minimum 10% cap rate and a 25% cash on cash return. I'm sure that these criteria are the primary reason that I haven't gotten much into the retail arena. But those criteria would be the same for multi tenant warehouses and storage.

Personally, I'd probably allow him to operate while I market. I dont' know that there is a clear right answer though and I think it depends a lot on the preference of the investor, his/her money investors, the business owner, and more importantly the market.

Well, first, I wouldn't do a deal in a limited partnership. Thats probably why I've only got 50 units after 15 years rather than 150 units. I don't work with partners at all. For some stuff I've got investors that take a lien position on the property.

Sorry I can't be of more help to you.

spex,

I'm aware its illegall, but I wouldn't put an absurd amount in from the college loans, so I would not get caught, and I'm cool with that.

Ya my parents can cosign, thremp actually corrected himself on the other thread...

As far as condos go, I figured it might not have as big of a chance for profitablitly, but I don't have to worry about anything like needing a new roof, leaky pipe etc. Maintenence fees I view as kind of an insurance policy when with a condo... instead of probably paying 150 dollars a month or maybe paying 1k for a few months, I could just consistintly pay 250 a month... PLUS I don't have to deal with the headache of doing maintenence on a home.....

acceptable logic?

online, what do maintenance fees cover in an condo? structural issues (roof, foundation, exterior painting, exterior plumbing issues) and lawn care?

the average homeowner spends very little on those areas each year. a $200 lawn mower and a roof every 20-30 years will cover much of it.

iver never owned a condo but i believe all of the upkeep that you would expect to pay on the interior is your responsibility.

What is a cap rate and how is it calculated?

What rate of returns are you using for your residential properties?

Are these all after tax numbers? In general, how much do taxes bite into your returns?

What area of the country do you operate in?

How many hours on average do you spend looking for and completing a deal?

What do you guesstimate your long term returns have been through RE investing?

Do you think your RE investments would beat a buy-and-hold investment portfolio over your career if you instead made $25 an hour playing poker those hours you searched for deal and managed properties and just invested the money in passive investments?

What are the most serious and most common risks of RE investments and how do you minimize them?

Do you have other investments other than RE to balance market risks?

How do you see RE investment strategies going forward? Will taxes and gov. regulation continue to decrease profits or will RE be more attractive than a passive stock market strategy?

Thanks and love the thread!
--Jeff

Can't you buy a duplex instead or do you live in an area where it must be a condo. A duplex would probably be better. In any case, in any investment I think that you have to look at your overall financial picture. I think that your plan will only be valueable if you take the money that you otherwise would've spent on rent and invest it elsewhere. That way you come out ahead even if you only break even on the condo over 5 years. But as a pure RE investment (i.e., considering only the income from rents), this would not be a deal IMO.

spex,

thanks alot for your help and time in responding to me.... just because of 250 dollars a month (and minus some money in other expenses) this would be a bad investment?

Cap rate (capitalization rate) = NOI / purchase price
where NOI (Net Operating Income) = gross income - expenses before debt service

The rate of return that I need depends on the property. My minimum criteria are 10% cap rate and 25% cash on cash return (ROI). Those criteria are not set in stone - I consider each deal on its own merits. For instance, I might accept a lower cap rate if my COCR is real high.

Those are before tax numbers. As I said in the OP, taxes are simply too hard to discuss here. My tax liability is irrelevant anyway because it would be very difficult to duplicate for someone starting in REI.

Good question. I check all of the local MLS listings and Loopnet several times per week. I don't often buy properties from these venues, but I like to keep abreast of whats on the market. I go to lots of REI club meetings and I share a meal with other investors, bankers, RE brokers, etc, a few times a week. I don't know if all of that amounts to looking for properties or not, but thats how I find them.

The time it takes to make a deal depends more on the seller. If he needs to close really really fast, the property is higher risk, and thus, the price will be much lower. But normally the whole process takes about 6 to 8 weeks all told. Not that much time is actually needed to review documents and such. What takes time is conflicting schedules - inspectors, lawyers, city officials, etc. I dunno, it depends on the deal.

I dont' have a clue. Sorry, I guess that this would be something that you guys would want to know if your're starting off. But I jsut don't know how to calculate it. Its high.


Yes, I'm sure that my returns would kill that scenario. For instance, I bought a half full mobile home park for 12% cap rate and a 27% COCR at its current income. I then filled the other half of the park using other people's money. It took about a year to do working a few hours a week. AT $240 lot rent and 35% expenses, filling those spots increased my monthly cash flow by about $3,000 PLUS I get a peice of the notes on the homes PLUS another $300,000 in additional equity. I did that in one year (a good year, granted).

Then the next year I installed individual water meters at a cost of about $15,000. That increased my bottom line by about $800 per month (64% COCR) PLUS an additional 80k in equity.

Also, any management work I do is because I want to. I also do some of my own renovations and stuff as a hobby. I have managers that do the majority if day to day operations. A lot of my working hours are spent on bookkeeping and stuff, and looking at new deals takes up a lot of time.

Underestimating expenses by far. The best way to combat this is to get good realistic numbers from the seller. Also, you have to have an idea of what expenses you should be seeing on the paperwork. So education is important too.

[/QUOTE]
Do you have other investments other than RE to balance market risks?[QUOTE]

Yes. I have money in mutual funds. I also own a few position in local small businesses.

ick, very very tough question. I just don't really know. I can tell you this though: Government regulation and compliance is getting ridiculous. Taxes will always have an impact on REI. However, I feel that every investment type has these same risks.

If you want to comp REI w/ stock investing, I can't really help you. I don't understand stock investing at all. However, based on what I've read on this forum (and most of it I just don't understand), I can say that stock investing seems a lot harder than REI. REI is pretty easy if you're willing to learn and think creatively.

$250 negative cash flow less expenses is a bad investment. That is exactly what I'm saying.

Spex, what a really great thread. I appreciate taking your time trying to educate some new investors. (Including myself)

background:
I'm 21 and I have one more semester of college for my A.S degree. Originally I wanted to be a chiropractor. Things have changed and I want to do business/REI. Sure, I have read all of the Robert Kiyosaki books and heard people say how easy it is to make positive cash flow. RIIIGHT

You mentioned you were involved in development, and commercial re. Warehouses, strip malls, office space, etc. What are you opinions about returns in these categories, and are you in them still? What would it take me to get started in these areas

I have been looking to invest in single mobile homes, or even parks if I can get financed. (I am a student, and I farm and play poker for dough) Getting financed will probably be my biggest issue, due to lack of tax returns + steady job.

Problem: Analysis Paralysis!!!! Should I just start in 1 area and go from there, or..? In my experience residential has been a pain for the money. I've heard commercial offers the best opportunity for HUGE returns, is this true? Thanks man! Jonathan

Great answers and much appreciated! I wasn't referring to retail specifically, more like office and service. I agree 100% with your NOI requirements, the prices of most all deals where I live seem to bee banking 100% on appreciation and I am a cash flow guy. You make me feel sane!

The GP compensation I was referring to was if you raised money from limiteds to invest with your philosophy, what do you think would be fair percentages of cash flow and gain on sale for you to take? You may not want partners, but with your knowledge, track record and investment niche I bet their are lots of people who realize they can't do what you do but would probably love to do it with you.

At any rate, thanks for sharing, I particulary liked the mobile home finnacing idea. Good stuff.

I've found it to be more difficult to find great deals in commerical properties than in apartment buildings. I'm not currently into any retail, office or warehouses, however, I'm actively looking for storage. It does take a lot, both in terms of experience and money to get into the commerical arena. I'd recommend that you start much smaller and build slowly. Remember too that you don't have to hit a home run every time - doubles and singles are what wins games.

It takes a lot of time to get rich in REI. Anyone that tells you different is just wrong.

Financing gets easier if you've got money for down payments. You either need money or credit in order get a loan for RE - from a bank at least. In my experience, despite what gurus will say, its not possible to start in REI with neither money or credit. But if you've got about 20% to put down you can get a no doc or low doc loan at a slightly higher interest rate.

Obviously I love the mobile home idea - I've already suggested it to another poster in this thread. I think that is hands down the best way to start out.

Well, thats kind of what I like about the mobile homes. They're very very low risk if you buy them right. If you buy a MH for $1000 that will retail for $4000 easily, how hard will it be to get your $1k back out of it in a pinch? Not too hard.

Any commercial RE is NOT FOR BEGINNERS!! DO NOT ATTEMPT TO BUY COMMERCIAL PROPERTY WITHOUT PROPER EXPERIENCE. If you've got analysis paralysis now, why do you think that making a much huger investment would help that? Start out slow, gain experience and money, and build your confidence. The best way to start is to just start.

I understand and completely agree about starting small and then proceeding from there. How do you find mobile home parks for sale, and what "system" do you use for analyzing there value(and upside potential.) I have a good chunk of change for a down payment, 40 to 45K, I'm just not sure which way has the most room for "seed growth".
Isn't there certain codes for old mobile homes that is a standard, etc?
Do you post on any other REI forums? biggerpockets, thecreativeinvestor...

lets talk about the current real estate bubble. how do i go about finding the best possible deal for my price range? i am interested in bargaining skills with the bank and the seller of the house.

sorry for the basic question but how does one 'put in a bid for a home'? is it just calling the Realtor and making an offer?

what websites are the best for finding listings without inflated prices.