(10-20-2015, 11:44 PM)Dash Global Wrote: Equity and Refinancing is glorious when used right. I am starting to get my head back in the real estate game and develop a more concrete plan for my goals.
This is a great article that illustrates how one can build wealth with equity and refinancing.
http://www.biggerpockets.com/renewsblog/...n-dollars/
I am going to want to do a combo strategy of buy and hold and rehab and sell.
Just read it over and it has good ideas. I'll just add a few thoughts based on my experience SPECIFICALLY IN CALIFORNIA, HAWAII AND JAPAN.
The examples they give there are for very low valued properties. Again, since I've only worked in high cost areas, I don't know those markets but many property managers and banks won't even fuck with a property that small since it's not worth their time. So what that means is the property managers you do deal with won't be the most professional and/or they'll be great managers but suck at getting you paperwork (which is important if you want to be analyzing your cash flow on an ongoing basis). Also, the article doesn't go in depth about possible evictions which can COMPLETELY KILL YOUR CASH FLOW. If a tenant decides to stop paying rent one day, it's not like you can automatically kick em out. You gotta go thru a very lengthy process which can take up to two months (that's two months with NO CASH FLOW from that unit) and you'll have to pay about $500 to $1000 in legal fees.
OUch!
So while the scenarios they're describing might be feasible in another lower cost state, in high cost areas like California and Hawaii, forget it.
Also, it described buying a property for 20% less than what it's worth? Not sure who'd do that? If they're talking about a bank, perhaps a short sale. I don't fuck with those so can't give an educated answer but from a broker perspective, one of my old friends USED to specialize in them but told me they're a bitch to do. Could take MONTHS to close. Plus, there could be a lot of repairs needed so you'll need to sharpen your handyman skills and have the right ppl in place to give you good advice. Oh btw, those ppl aint' gonna do it for free. As an example, a foundation inspector in Cali charges $300 to check out the foundation. Not that much but if you're writing offers on a crapload of deals, that shit adds up.
Now a lot of ppl won't even order a foundation report. (in fact in other countries, they'd look at you like you're crazy) Here is a real life example of a deal I was involved in. My guy had a roofer, general home inspection, termite, and they all checked out. Well, the foundation guy came in and said that in 3-5 years, there might be $50k to $100k worth of foundation work. This was a property selling for about $500k and seller didn't budge. So yeah, foundation is pretty fucking important.
The 1031 exchange they talk about is legit.
The thing I don't like is how they assume an automatic appreciation. That's what fucked many ppl in the subprime crisis. They thought prices would go up forever.
Now is appreciation a worthwhile strategy? of course it is but i personally look at it as icing on the cake. I prefer cash flow.
You've mentioned bigger pockets on here a lot so I trust they give good knowledge. I hope they go into detail about the kind of shit to analyze in your cash flow. Things like vacancy factors, replacement reserves, utilities (if it's metered or not), etc.
IF YOU DON'T KNOW ACCOUNTING (WHICH I NEVER KNEW FOR A LONG ASS TIME AND SUFFERED LEARNING THAT SHIT), DON'T FUCK WITH REAL ESTATE UNTIL YOU DO!
I REPEAT, LEARN ACCOUNTING, GET THAT SHIT DOWN ASAP.
They say $200 per unit in one simple sentence. Well, one vacancy, one major repair, a higher than expected interest rate can easily kill that $200 per unit.
What I did like (although they didn't really go into detail about it) is when they mentioned "force the appreciation on the apartment" That is what's good about apartments and commercial real estate vs residential real estate. YOU HAVE MORE CONTROL over the value vs residential since the underlying income is what appraisers use vs the comparable sales method. The latter being more of a sheep strategy since if everybody is pushing prices up, your property goes up (think china) whereas sophisticated investors generally go for commercial properties because you can control your expenses, you can raise the income, and divide that all by your personal CAP RATE, and presto, there's your value.
But what they also don't mention in the article is that many good commercial properties are off market. In fact, just the other week, a client gave two different values for his property. On one, he gave his opinion based on getting a loan ($4 million) but if he were to sell it, he'd want $5 million.
Why?
Because where else will he put his money? And this is very common with older commercial owners.
So in theory, you might actually pay a premium for a good property, not a bargain as the article suggests.
There's one dude, Dave Lindahl, who wrote a few books on commercial real estate investing and apartment investing who I think has a great system. He uses basic marketing strategies to go after the owners directly.
It's like pickup, it's a numbers game.
Anyways, hope this post didn't come off as negative but rather, just sharing real life scenarios from the battlefield as it's those tiny details that can make or break success. You can totally do the strategy they suggested, just make sure you know ALL THE DETAILS, not just the macro strategy they talk about.
(10-21-2015, 12:07 AM)JJ Roberts Wrote: Am in the middle of closing a large property deal right now
Actually we should turn this thread into a resources guide
I will start
This podcast is essential for property investors partocularly if your interest is in the UK market
http://naughtynomad.com/2015/05/21/how-t...tionships/
Even if it's not, there is a lot of useful free advice here
The hard part about investing in the UK for non-residents is you guys have a huge capital gains tax for non-residents if I'm not mistaken. That's a big deal killer for a lot of ppl. What is good with the UK is you guys have leasehold so for someone who wants a huge tax write-off and their country allows depreciation for UK properties, that's good since you can get 100% depreciation. Hawaii also has leasehold properties.
The problem with that though is while the depreciation benefits are nice, the cash flow isn't that great (from the properties i've seen)
I'm speculating here but I think London might suffer from the same problem that other primary markets like Manhattan and San francisco have. There's so much demand for those cities that the cap rates have been compressed so low that you gotta put in a lot of money just to get a tiny return so the whole play is appreciation. As mentioned above, appreciation is OUT OF YOUR CONTROL unless you happen to be able to control interest rates, job growth/migration, bank lending requirements whereas with cash flow positive properties, you can at least control the income and expenses.
How to make a million dollars in Real Estate
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