yeah, well you've definitely got me interested to speak with my lawyer again about some of this stuff. I appreciate your comments.

Well for example are there things you would avoid in general? For example although gas stations can underperform a lot, sometimes ppl dont take stabs at putting something new on the site bc of contamination issues.

Right, but its not the buyers that are afraid of contamination. Its the BANKS that are afraid. The banks will be the one taking the bulk of the risk. The bank won't loan on these properties because they know that if they end up owning the place, it'll be impossible to move it off their books.

This goes for every form of commercial RE. The LENDERS set the criteria for what is possible to do. So you're asking the right question, but for the wrong reason. I wouldn't be interested in gas station, but not because I don't think there is money to be made, and not because I'm worried about contamination per se. I wouldn't be interested because I'd never be able to close the deal because its too much risk for the lender. I'd end up on a wild goose chase trying to find a lender that'll do the deal. In commercial REI it is very important to have a grasp of what kinds of deals you can actually close, otherwise you'll waste a lot of time trying to chase a ghost deal.

thoughts spex?

Thanks for the answer bout CRE but I wasnt really asking bout that.
So if your deals are financed, are there structural issues that in general that are too much trouble? Or are yr decisions on extreme conditions discretionary?

Both are are good. The first comes down to how well you can negotiate price.

The value added to a property can be small or monumental.

Take condo conversions for example.
Or land developments.



Don't think of real estate as either of the two / which is better. It's situation dependent.

That's obvious but perhaps I worded this poorly. I was referred to within the context of his own work. From reading his posts, seems he does have an angle and preferred market. Most RE developers/ investors usually work within a niche they understand and within those niches have areas of the project where they really look to maximize return.

If he only wants to talk about things qualitatively guess I am barking up the wrong tree.

Spex,

It seems that you own some MHP's and it sounds like apartment buildings. Are you worried about selling these when it comes to retire or cash out? I know you have mentioned that you are most concerned about cash flow. Do you plan on needing to sell off these or pass them on to family?

Per sqft in my area comparable duplex/triplex properties sell for less than SFH's and seem to move slow. I only have a few rentals and am looking for another that can be easily converted to SFH when I am through for a higher sale. Do you put much stock into resale of cashflow investments or just search for the best flow and figure you will get what you can when you are through with them?

The comment you quoted was regarding flipping. I'm not a flipper, I'm only a buy and hold investor. I was just relating what several of the established flippers that I know do. So with regard to flipping specifically, I guess I don't really know the answer to your question for sure. Maybe ask Tien or GiddyUp, they'd probably have more sophisticated response to these questions.

If you're talking about my business model of buy, fix, rent, refi, that is another story. But I think the difference b/t market inefficiency and added value is kinda splitting hairs. Really, they amount to the same thing. The reason you can add value to the property is because you can get the property so cheap to begin with, and the reason you can get the property cheap is because it needs repairs. Am I missing something, or does this clarify things for you?

Ok, I think I'm with you now. You want to know what types of problems are fixable, what degree of effort different types of fixable problems with take, and the expected return of different types of fixable problems. Right?

It depends a lot on what property type you're looking at. If its a single family home or a small rental (<6 units) you are looking for structural problems. That is because all these properties can be bought with regular SFH financing. So there is a lot more competition for these properties. Also, generally having great cosmetic qualities are generally NOT going to be worth the investment. You want to do BASIC cosmetic stuff (mostly paint & carpet). But in order to get properties that show a good cash flow, you gotta go find properties that are distressed so you can get the low price you need.

If you're looking at apartments, MHPs, or other residential commerical property, you are primarily looking for properties that are POORLY MANAGED. You get more bang for your buck for your cosmetic improvements here because you have some economy of scale so you can negotiate better prices. Plus, each tenant added will be worth more money to you than the SFH tenant.

On the other hand, you DO NOT make much money in this asset class by buying properties that are extremely distressed. that is because the property will be valued based on INCOME ONLY as opposed to the SFH which will be valued based on comparable sales. Distressed commerical property will gain very little by fixing the foundation, for example. You have to fix the foundation to keep the building standing. However, unless you can translate that foundation repair into more net income, fixing the foundation will add basically no value to the property (or, another way to look at it is that it will turn an unsaleable property into a saleable property).

So that is why cosmetic improvements will make you more money in the apartment complex. You make cosmetic improvements, raise rents, get more tenants, then you'll seriously improve the bottom line. In commerical REI, you want to find properties that have high turnover, poor quality tenants, outdated cosmetics, bad or no landscaping, few tenant services, etc. Those are things you can fix easily to create value quickly. But in SFH, you primarily want to buy the property super cheap so you can fix whatever is wrong and still be able to get your money out and still have a postive cash flow.

I plan to wait until the market is real high and then start selling them off. For single family deals we are always considering the upside over time. We intend to sell them in 10 years or whenever the market recovers. In the mean time, and this is IMPORTANT, we are getting a significant cash flow from the units. Even if in 10 years we only got the cash out that we had initially invested, we'll still have made an excellent ROI on the cash flow alone (like 25% pretax yield or so).

For commerical property it is different b/c it will be valued based on income. For those, I'm VERY concerned with creating a bunch of equity right away. First off, I can tap that equity to buy more property. Secondly, I can get all my money back out of the property quickly. Thirdly, the equity adds to my net worth, which makes me less risky to lenders. Fourthly, the added equity is my primary retirement vehicle. I haven't decided at this point if I'll sell the properties, or keep them. Most likely, I'll sell everything except the mobile home parks (which are not management intensive anyway) and hire out the management to someone then live on whatever income the properties produce.

Honestly, I love this ****, and I'm pretty sure I'll never retire.

So... what are you guys seeing for commercial loan rates for rental properties? I was curious if they have descended much what with a 30-year conforming being at record lows.

Spex,

Ever looked into small scale developing?

Be is creating MHP or campgrounds or turning raw land into lots, Lakeshore development?

Seems like there is a boat load of money in developing if you have the right connections. There is a group around me that seems to do fantastic in devlopment of sub divisions. I understand that the owner of road/utility construction co. and a RE guy have a stake in it.

I don't know what kind of risk/profit share % they have but I don't see the RE investor bringing much to the table in the partnership except the vision.

I'd be very interested in hearing other peoples experiences here lately as well. I haven't done too much digging, but in just looking around online it looks like 25-30% down is the norm now and with rates much higher then for regular home buyers, around 7-8% or so. I believe they ascended not descended! In 2003 I paid 6% with just 10% down for a investment prop

Steve

Yeah, in fact, I'm developing a small mgf home subdivision right now. What I do is when I find a good double-wide home for sale for a good price I buy it, buy a lot in the subdivision, run the utilities, build a foundation, then stick the double wide on top. Shazam, you turned an unfinancable trailer into a piece or real estate. Then I lease/option or seller carry the sales price. Most of the time I seller carry then I sell the notes to other investors.

The risk in developing depends largely on what type you're doing. Building custom homes is relatively low risk because you've already got a buyer. Building spec homes is somewhat more risky which is why all the builders are busto right now.

I shopped around just last week a bit, and the small banks are lending at about 6.5-7% in my area. I don't typically work with the national lenders because the conduit loans are too inflexible for my needs. Would a deal close at that rate? Who knows? All the banks want 70% or less LTV exposure, but I'm still finding banks that will accept 20% seller carry back on top. But just about all the national banks right now wanted 25%+ CASH out of the buyer's pocket to consider any deal. Most of the time that sort of deal won't fit into my criteria.

[QUOTE=spex x;9508684]As you can see, its important to have a solid budget in mind for doing repairs.QUOTE]

Spex,
How much do you hold to the budgets you set? I don't belive you have touched on coming up with a budget much and could probably shed some light to first timers.

I feel this is an area where people go wrong in renovating to flip or increase rents. I see people pull a number out of their arse and call it a budget. Then because they see the idiots talking about sticking to budget on TV shows they treat this number they pulled out of the arse as it is magical.

For example they say they got 20K for a property and they are sitting at 14K and realize they are gonna come in low and spring for nicer fixtures or increase landscaping to make it nicer and maybe increase rents a little bit and neglect the fundemental thinking of getting the best ROI. On the contrary, they set s ridiculusly low budget don't get an inspection and find something that cost them more money, have no back up plan and neglect to do some very basic things with huge ROI because it had to be taken out of the budget.

[QUOTE=kjander;9802521] Right, good points. If you're not sure about how to set your budget, just get a contractor to help you out. Normally REI club newletter advertise contractors that specialize in flips. Otherwise, you can just make a general list of repairs. Take it to several guys and get some soft quotes. Use the highest as your basis for setting the budget. After some practice you'll get good at eyeballing stuff.

It is also helpful in your first several properties to use an inspector. Make sure and go through the house with him and ask tons of questions. When he's looking at joists, ask him what he's looking for. Ask tons of questions, and you'll start to get a good sense of what is what.

Hey Spex,
I was wondering if you would offer some input on my situation.

I am 18 and attend college full time. A broad basis of my goals would be saying that I want to learn as much as I can about REI and apply it to increase my income. Last summer before college I did an unpaid internship at a a Real estate investment business. They specialize in rehabbing. School is closing out for the year and I just sat down with the owner again today to discuss some options for this summer.

Their basic business standpoint is: They have downsized some in terms of # of employees it is just the owner Justin and 1 employee. Apparently the downsizing were recent (within the last 2 months) and not related to finances. He said they are doing a lot more wholesale deals now and want to set something up with me for the summer.

We discussed it at length and basically decided on the following: I would come in 1-2 days a week for the next couple weeks as I get back up to speed with what the business is doing. I would work directly with the owner for around 6 hours each day that I work. We'd just kind of get in a routine of doing this and doing that until I get the hang of everything on my own. He said then that we would work out some sort of compensation on probably a commission basis of closings that I am involved in.

I view the commission compensation as 3 possibilities. 1. I could make more money than I would at any other job with my age/experience. 2. I could make roughly the same amount of money. 3. I could make less than minimum wage.

I view the opportunity as a great learning experience especially to be working hand in hand with Justin (the owner).

What do you think of this situation? How should I approach it? What should I expect/ask for in terms of compensation considering a commission %? How long would be acceptable for me to work without compensation, taking into consideration that I worked around 100 hours last summer for them without compensation?

Really any thoughts you want to offer on this in terms of what direction I should take would be greatly appreciated.



Jordan

You're spending a fortune on college in order to make yourself more marketable to employers. That is a smart thing to do IF you're going to go work for an employer. Its always smart to spend time and money acquiring the knowledge you need to succeed in your chosen field. But, if you're going to start flipping houses for a living, then the money spent on college coursework might be wasted.

So lets compare. On the one hand you're PAYING someone to teach you about stuff that likely will not enhance your income. On the other hand, you're being offered the opportunity to learn how to make as much money as you want in a field that you want to work in.

I'd say that you'd be getting a good deal to work for free compared to college courses. The fact that you're getting paid anything is gravy. Its a good deal. Take it.

Thanks man,
I couldn't agree more with the words you wrote. I do plan on having another career in my life. I am studying to become a CPA. Thanks again for your insight.

Jordan

spex, I have been reading some real estate books. But they both kinda seem useless and not really enough about cash flow, market indicators, all that typa stuff.

I have been recommended a book through reiclub.com "1 minute to property rental richness" (the title is supposed to be sarcastic because he says it takes time and hard work) by Michael Rossi (do you know of him), would you recommend others to really get me going?

What every investor needs to know about cash flow" is good

investing in real estate 5th edition by mclean and eldrid is good

Anything by john reed is good.

Wall street journal complete REI guidebook' is decent.

Spex,

Where did you learn about the landlord portion of RE? Got any book recomendations? Where did you get your forms? I know you have stressed to take care of problem tennant by the application process but if problem arise have you had experience with wage garnishing and reporting to credit beaurues?

How about renting out something that is unlicensed? I have an unlisenced place that a family member is going to be moving out of this summer would you be as stern with those tennants or would you fear then reporting the lack of a lisence(It is unlisencable)?