Spex- Real estate investing is mostly local as you've reiterated here. However, do you have any opinions on the real estate market in a macro sense? You mentioned that you sold most of your portfolio. Did that have anything to do with where we are at in the business cycle?

You also said that you've looked into disabled housing. What about senior care? Is converting a large, expensive home to senior housing a viable way to get expensive homes to cash flow (given you get zoned legally as such)?

Do you have any thoughts about the future of real estate? For example (I believe it has been discussed ITT but), what do you think will happen with all these shopping malls going out of business?

In many markets, commercial development seems to be mostly class A apartment buildings. Does this concern you in any way? How is it going to affect the rental market as a whole? Early in this thread you mentioned that developers are dumb and just keep building and building and whenever I see a crane downtown constructing yet another building full of overpriced apartments for all these millennials who are NEVER going to buy a house I can't help but think of you.

My apologies for bombarding you here but seeing you bump the thread was an awesome Easter surprise as you've been tremendously influential.

I sold much if it between 2012-2015. I'm now starting to buy again and rebuild my portfolio. I bought 17 properties in 2019 so far, and I'm planning to buy 20 more. However, in those intervening years I spent a lot of time continuing to study and grow my thinking around REI, and I think I'm actually a much better investor for it. As to the business cycle and macro trends, I don't pay much attention to that sort of thing outside of general interest. I don't believe it's possible to time individual markets, much less macro-level trends. So the answer is no, that's not a consideration for me.

Having said that, I'll also say that I believe that the popularity of the 30 year mortgage is the major driver of real estate appreciation over the last 50 years or so. 30 year mortgages carry about 2x the risk that 20 year mortgages do, and about 2.5x the risk of a 15 year mortgage. The rise of 30 year mortgages is the result of bad government policy, as the FHA holds about 85% of home mortgages in the USA. I think that at some point a day of reckoning will come. Whether that is in 5 years or 50 is anyone's guess.

Yes, disabled housing and senior care go hand-in-hand. I've looked into both. I think their both excellent opportunities, although I haven't actually invested in anything in that space yet. Call it an intense area of focus for me. One thing that intimidates me is the idea that these businesses are much more hands on than the sort of thing I've historically done in real estate. Makes me a bit gun-shy just because I don't necessarily want to be the CEO of an operating company like that. I've done that in the past, and it's not for me.

Edit: On thing about the zoning for disabled housing is that the cities are required by federal law to allow disabled housing. They can't zone you out. They might try, but end of the day, they can't enforce zoning ordinances that would make disabled housing untenable. That's an important point. Senior living for non-disabled is a different story.

That's an interesting question. Actually I randomly met a guy in the airport who is a consultant that helps convert shopping malls into other uses. I went into psycho interrogation mode on this poor dude for about 45 minutes. My takeaway is that if you have the skillset, these properties are a big opportunity as turn-around project. sometimes he helps convert them to other uses (senior housing, etc. and other times the malls need to be extensively renovated to reduce operating expenses. But that's also a big money game, requires specialized knowledge, and they're highly complex projects. Frankly, it's above my pay grade.

As a rule though, I like to look for properties where a lot of value can be added quickly. I don't have the bankroll nor the risk tolerance to do $10M mall renovation deals, and I don't have the inclination to go raise investor capital to do them. I could do a $1M warehouse project or a $2M apartment complex though. The principle is the same. Figure out how to add value and flip the property.

As to the future of real estate, I have no great insight. I look at individual properties in individual markets and asses them based on known criteria.

For me, no it isn't concerning because I'm buying low income housing, primarily with subsidized tenants, which is more resilient to local market fluctuations in rental rates. In other words, I'm not really in competition with those builders because they don't want my tenants and my tenants aren't looking for high rise lofts. I'd say that over the years I've become more respectful about developers. I now think they're smart. I also think they're in an extremely high risk business. And they know that and accept is part of the life they chose. Fair enough. I personally wouldn't buy those types of high price, low yield buildings. People buy that **** because 1) they want to show off to their friends how pretty of a building they own, 2) aren't investing their own money, or 3) both. Man, I can't show off my properties. They ugly and they're in marginal areas that are very working class. I generally feel uncomfortable in those areas unless I'm carrying a gun even though I've never had a problem. I also get 30% COCR yields. To each his own.

Happy easter my friend.

What REITs are people here in and why?

IIPR. They are the leader in the pot space and last I had looked into them they were struggling to keep up with demand. Pot is still expanding in NA and it requires a massive amount of square footage.

Holy ****. Do you do seminars or ever take investors? [somewhat serious question, though I know the answers are most likely no and no.]

Correct. I do not. But I'll answer questions here.

Here's my take on REITs. I'm no expert and lots of people looking at this thread probably have 10x the insight that I do. Nevertheless, I'm going to talk out of my ass. I'm admittedly jaded about REITs and the people that work at them.

1) You find a niche market that is big enough for significant (say, $150M+) investment, where you can get 10%+ cap rates.
2) You buy a nice suit and get a preppy looking haircut. It also helps if you're a mid-40s to mid-50s white guy, but not strictly required. It helps further if you went to a good college because then you have what they call "pedigree".
3) You round up 50 local rich guys to put of 100% of the money to buy a handful of those properties. You up up minimal of your own money, only has much as is required by law. For this part you need to be charming and look people in they eye, have a decent handshake, have a predilection for country clubs, not not be a weirdo.
4) You take the rich guys' money, buy the properties
5) You take the REIT public.
6) You sell shares in the REIT to public market investors that will pay a 7% cap rate for the properties you bought at a 10% cap rate because you're soooooo obviously competent (I mean, you wear a suit after all), and because they investors don't want to do any work
7) You pocket the difference and work only enough hours to make sure that the company doesn't go to ****.

Dude raising money takes a lot of talent and a track record. Especially raising multiple millions. Plus finding a 10cap property on big properties like that deserves a huge paycheck (atleast in my market) but nobody here has a gun Maybe our markets are very different, a 7cap here is a deal you wouldnt have to put any money down and banks would be happy to finance 100% with a few tricks, I have never heard of a 10cap transaction ever in residential multifamily. I'm not the most connected guy yet thought Our tenants seems so much easier it makes real estate "easier" and "safer" so our returns are a lot worse I guess?

hi kekeeke, if you don't mind sharing, would love to hear about how this deal works, including tricks please .

These tricks wont work in the US. I'm in quebec and I don't know if they would even work in other province like ontario.

Our market here is 5cap. So lets say you find a building that nets 25k/y it will be worth 500k to banks. If you paid a 7cap for it, it means you paid 350k.

Banks finance up to 85% of the economic value of a residential building if you pay SCHL insurances fees, 75% if you dont want to pay SCHL. Anyway, 75% of 500k is... 375k. So technically with a few loopholes you COULD buy the building and pocket 25k (minus acquisition fees) even more with SCHL. You still need the 125k downpayment to close, BUT if you structure it well you can receive it back in a short amount of time(without refinancing).

The tough part is finding the DEAL.

thanks for sharing!

No problem, in the US I'd just buy and refinance, which seems to be the easiest "technique", not sure tho it's not my game yet.

Well, I raised $20M for a company (non-REI related) with no track record. As to talent....I dunno for sure about that. I've helped other entrepreneurs raise capital and there does seem to be some folks that just get it, and some that just don't. So perhaps you're right. Nevertheless, I've never seen any correlation between the ability to raise capital and the ability to be a good entrepreneur or investor. If there were then every tech company, venture capital, investment bank, etc. whose business model are essentially investing other people's money for them would be a smashing success.

A 7 cap property would barely show positive cash flow today, if at all. The only possible way to show positive cash flow is if your interest rate is lower than your cap rate. Interest rates for commercial are like 6.5% right now, which might vary a bit from market to market. As for residential, my residential properties, which is all i'm currently buying, are getting me 15%+ cap rates. There are dozens of markets in the US that I've looked at that can offer those cap rates. Also, nationally speaking, mobile home parks and self storage, and warehouses still offer those cap rates even now. Those are just the markets I know about. I'm sure there are many many others. Marijuana-related properties come immediately to mind.

If you can't find those deals in your market, then look elsewhere. But don't give me or yourself the excuse that you have to take the returns that the market offers. You don't. You can seek other markets or just not invest in RE at all.

I'm sure that it is *possible* to do these types of deals from time to time. However, banks don't like deals where the person borrowing doesn't have any money tied up in them. Banks generally get burned on these deals and avoid them like the plague in today's market. Although I admit that the nuance of any one deal can't be boiled down to a set of universally applied bullet points of do and don't. I further admit that I'm no expert on the nuances of every single market out there and markets do have a large role in this. So I'm sure that there are people out there that have done deals like this. Doing them consistently? mmmm probably not. Also, you'd likely be better off flipping that property than you would be holding it. In fact, you'd likely be better off getting the property under contract then flipping the contract to another investor at a small discount to market. You get $200k now with no risk, and he's happy to buy a property at 5% under market. But these deals are rarer than hens teeth.

[Edit: It does happen from time to time where the lending environment is such that you can do these no-money or cash back deals. We saw it in 2005-2007 as a recent example. So I'm not trying to say that they're impossible. However, in my experience with these it takes a *lot* of expertise to pull them off because the deals are always inherently complex and super rare. I'm not trying say it isn't possible. I think it's worthwhile for any investor to understand the technicalities. However, as a starting point in an REI career, I believe there are more fundamental things worth learning. It's like the difference between learning which starting hands to open with in Hold'em vs making a thin value bet on the river with 88 and two over cards on the board. You can teach a beginner about thin value bets, but if they're otherwise opening every had with garbage they're still going to lose their roll.]

For the record, this is what I do nowadays. Buy with cash, retrofit and lease up, refinance. Even then the banks don't loan on fair market value, they loan me 75% of the total cash I put into the deal, up to 75% of fair market value. There are a couple banks that will do 80% but on floating interest rate terms with no cap on the interest rate, which is an unacceptable amount of risk for me. I pretty much always have a variable rate right now because interest rates are so low nobody wants to do long-term fixed on commercial RE. I use one bank for most of my stuff, and they offer me a slightly higher opening rate that adjust every 5 years, but there's a negotiated cap on what it can adjust up to. I then buy interest rate futures to hedge against a big interest rate jump that will kill my cash flow. That's how I structure things now. I dunno if I'd call it a "technique" or whatever because that sounds like REI hype-man bull**** to sell seminars.

Spex good to see you are doing well. Will post a bit when I read through some more.

God plus 1+ to IRR.

Real estate is an inherently simple business using very simple math. Using IRR to make the numbers look better on the 5th year resale value is basically phantom value.

This is the formula I've gravitated towards and do solely now. Except we still buy with bank financing to purchase and get 75% of the construction costs in construction financing.

Properties have to be cheap enough though so that all this debt would fit in and the deal works profitably.

I'm in Montreal. Some of the neighbourhoods here offer close to 1-2 cap rates. Some properties are sold at 17-20x revenues.

Great to sell time to sell properties though. Nightmare to find properties but still able to do so.

There are small life companies that will loan you 75% LTV at interest rates below 5%, regardless of how much cash you have in the deal, non recourse. They’ll even give you a year or two of interest only.

Cool. I know some developers that get their financing from insurance companies. Never heard of anyone doing that for commercial or residential for buy and hold, and I haven't seen terms like that since 2007. If you have source that'll do what you describe then you basically have a fish at the table with a gigantic bankroll. Get what you can while the gettin is good.

So spex, what would you do if your market was at 5cap? You would invest in another state/country? Kinda funny I've been looking into panama for a while now, all my money is tied up tought. Panama looks so damn good god I would love to live there.

I'm telling you if you found a 7cap building in my market investors would beg you to let them invest in the deal, why is the US so similar yet so different? I find this amazing, maybe because we get taxed so much when we sell nobody wants to ever sell? Very often it's better to refinance at 85% LTV than to sell your buildings here because of the tax burden.. this + low interest rates + ''easier'' tenants = bad returns?

I think your C class tenants are our D class, maybe even your B class is our D, this affects the markets a lot for sure. But our market is basically 50$/door cashflow. 100$/doors you are crushing it. Funny I keep hearing stuff like 400/door in the US. Crackhouses are rare here

You could either invest in other markets or invest for flips rather than buy/hold. I mean, there are lots of things you could do. You could invest in mechanic's liens or judgements. You could invest in tax liens. I wouldn't invest in buy/hold at a 5 cap though.

Well, I *live* in a 5 cap market. But I *invest* elsewhere. Just to be clear. I don't think that the US is actually that different overall. there are good markets and bad markets for buy/hold investing. If you want to do buy/hold then you have to put the money into good markets, which may not be where you actually live.

The tax burden is a huge part of any real estate deal. In the USA we have some tax-advantage ways to defer and now even eliminate some of that burden, which keeps the market more liquid than it otherwise might be.

I don't think that you need to buy crack houses to make money in REI. I certainly don't. I work with low income tenants, and in working class neighborhoods. Many of those areas are high crime, and part of the trick is knowing the market well enough to know the good blocks from the bad blocks. And for sure when you get into these areas, it goes block by block. I own several houses on one street, and two blocks over it looks like a war zone, burned out buildings, and board ups, trash and derelict cars everywhere. I hvae no issue renting on my block, but I wouldn't find a tenant to save my life in the war zone 2 blocks away.

You really need to understand and internalize that not everyone in the market cares about the same things. Why does a tenant want to stay in a high crime, low income area? Because they grew up there, all their cousins and aunties, parents, and grandparents, and friends live there. Because their kids go to school there. Because it only takes one bus to get to work rather than 3 transfers. Etc. Many of my tenants are on Section 8 or other voucher programs. Because of that, they can rent anywhere in the city where the rent is at or below the Section 8 rental amount for that MSA, which means pretty much anywhere at all other than the highest prices areas. Yet, they choose to stay in the neighborhood they know and love and where they have a support network.

As for the investing community by and large, my experience has been that they overvalue the risk of a "bad" area, because they're middle class folks that assume that only crackheads and criminals live in those areas. They figure that nobody sane would want to live there. So they greatly mis-price the risk. When investors mis-price risk, that's how you profit in REI, and thats why I get crazy good yields and other people get 5% cap rates.

That principle can be applied to any area of REI, not just low income housing. When you invest in RE, you're making the bet that you are better at pricing the risk than anyone else in the market.

Why? Is it the weather, market conditions, or something else?

I've been thinking about buying a nice house in Colombia and renting it out to touristas.