Investment/Rental Properties - Megathread

I'm no slum lord but I have rented before. Officially speaking, and I'm sure you know this, most states have anti-discrimination laws when it comes to race/religion/etc. However you can do background checks which mostly useless but you make the renter pay anyway so why not. All it will reveal are 18+ official criminal charges. It's not like you are hiring some private eye to dig up dirt. I've also done credit checks on people and I highly recommend doing that.

Overall I did make money, but nothing to brag about. I think when it comes to real estate, and this is where I just am guessing a little based on experience, you either own lots of it or big commercial complexes(malls/office buildings). My experience is that owning just a few properties which make so-so profit is more hassle than it's worth. But consider that I have a different full time job. I suppose if I tripled the units I own and quit my job it might equivalent, but that's just not what I want to do with my life, even if the "sell them all and be rich in retirement" is better than my 401k and private investments now.

Anyway, stories aside, I probably make 15% annually. Obviously what you can charge is completely dependent on where you own.

Single 50 year old male with 2 cats is my golden tenant

Picasso_sl said:

Single 50 year old male with 2 cats is my golden tenant

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Single 50 year old male with a full set of tools and 2 outdoor only cats.

Bro and I have been kicking around the idea of investing in a high rise tower project with a developer that we've done a few projects for. Their institutional investor backed out, because everyone's terrified of Alberta's economy right now with the oil downturn. To make a long story short, the developer is bringing land worth about 5 million in to the deal, and they're looking for investor groups to split another roughly 9 million in cash equity 4 ways equally. Then there's a roughly 50 million dollar first mortgage, and another 10 million mezzanine loan that may or may not insist on getting a cut of the overall deal in return for lower rates. The deal would be structured such that the developer and their partners who brought the land worth roughly 34% of the equity would get 50% of the cashflow and potential return on sale down the road, while the cash investors with 66% of the equity would get the other 50%. I don't know if that sort of a split is within a common range, I'd imagine that each of these deals is custom fit for the development and people involved. We don't necessarily have a huge concern with the split, as they've already done a lot of working in finding that piece of land, getting rezoning approved, and so on. At this point it's very, very turn key.

The main reason that we're even looking at it from an investment side is that we'd also of course like to do the mechanical installation on the building construction. If we jump in to bed together, they've committed to sole source the mechanical. The exact details of how we come to a negotiated price on the mechanical scope is yet to be worked out, as the mechanical design itself is still being completed. If we weren't fucking desperate for work, we'd likely not be considering investing that kind of money in a single project. My cut would be somewhere around half of my current investable assets (not including my own property, and my equity in the business). So it's a very, very big pill to swallow. But having this project on the books for 2017 and 2018 will probably be the difference between breaking even for a couple years without having to do a massive number of layoffs for office staff or potentially losing a few hundred k a year even after laying off half the office.

This isn't some guy that we met on the street putting this together. The project we're looking at investing in is a 30 story, 220 unit, institutional-class apartment project basically directly beside the provincial legislature and in the middle of the government office district. The project itself is a slam dunk. Their projections for rents, vacancies, etc are all pretty realistic from what we can see. And we just met with the construction manager this morning, who we've also had a long relationship with, and they're one of the other investing parties, and by all appearances the construction budget is very doable. At this point they're actually about a million dollars ahead having locked up about 35-40% of the construction costs. The same developer we just finished a 207 unit apartment project for earlier this year that was a forward sale to some German family. They're also building a 30 story, 600,000 square foot, AAA office building that's nearly complete. On that one they partnered with a hedge fund from down East. So these guys know what they're doing. And my family's relationship with one of the partners goes back nearly 20 years through various business associations etc.

So long story short, these aren't guys who are going to set out to fuck us. But! They are smart guys, who are professionals at negotiating deals like this, and they're going to do as well for themselves as they reasonably can. My brother and I have only ever gone in for a few hundred K on a couple other, much smaller projects where the deals were a lot more simple. Our dad in his day did get involved in some development as well, but never anything nearly this big. We're meeting with him this afternoon to see if he's interested in participating, and to pick his brain a bit. But otherwise, where should we turn to for advice? Would our accountant or lawyer be worthwhile talking to? A business broker or financial advisor?

I have a pretty good feeling about the investment, overall. If they were just asking for a couple hundred k from each of my brother and I and doing the project wasn't a consideration, we'd probably invest. Best case scenario is a 10-15 year investment with a 12-15% IRR, maybe higher depending on the real estate market and timing. A realistic worst case is that we get all or most of our original investment back 10 years later, but no return other than doing the job and keeping people employed. Obviously the absolute worst case is that we lose our entire investment and the mortgage company comes after our other assets, but that just isn't going to happen.

Fuck I wish I had some finance and business education!

The presentation package we were given to review the project, financials and that kind of thing was drawn up with an institutional investor in mind (pension or hedge fund), they admitted as much when we met with them the other day. They've changed their strategy to pursue private investors instead because of the fear of Alberta's economy with the oil downturn. As far as fairness goes, that's all in the eye of the beholder I guess. There's no cut and dried way to value the risk that they took on buying the land, rezoning and so on. They've definitely put more work in to this point and assumed said risk, but with the way the deal is structured they don't have to put any more skin in the game and are nearly risk-free from here on out.

Oh and at this point there are no terms. No legal agreements or anything like that have been drawn up. That won't happen till they've got their 4 cash investors lined up, at which point they'll start setting the official agreements up.

Oh yeah, that side of things we'll simply have to let our lawyers worry about when the time comes. Not a fucking chance that either my brother or I can evaluate any of the fine print. We're more concerned with how the rough structure of the deal stacks up. We're with Denton's, not Saul, so I have every confidence that they'll cover our asses. And that we'll pay through the nose for it.

Cad_sl said:

Going to do a test run of 5 properties and let it ride for a year, and see how it goes. Do I only rent to white people?

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Really? Every white person I've interviewed in the last month had a history of drugs, or was on them at the time of the interview. One guy we called for a follow up interview, and his old lady said he was in rehab. One guy emailed us stating that he was in drug court, but needed a break.

Every businessperson that I know that is doing well at rental property looks for college educated as a renter, as well as credit rating and occupation.

edit: Actually, there was one white guy that had his head together. But he wanted to make more money a day that I pay myself.

OUAriakas_sl said:

Khane, do you have experience with commercial investment properties? What type are you suggesting in place of residential? Warehouse? Strip Mall? Something other than that?

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I have no personal experience with commercial real estate. The only knowledge I have comes from a few guys I golf with that are big players in the commercial real estate business. They all prefer warehouses when it's a good building with a good lease because there is just way less maintenance and overhead on a warehouse but typically storefront properties are more lucrative even with the extra headaches (HVAC seems to be the biggest issue they have with buildings, in most bigger building it's nonstop maintenance on the systems apparently). Two of them only deal with major retail chains. They buy property, then shop it out to major chains like CVS, Walgreens, Dunkin Donuts, etc. The types of business that very rarely fail in any location and pay good money. They do entirely new builds. In fact the fuckers have been doing one right next to my damn house for the past 6 months. Nothing like constant noise from a lot being cleared then a building going up starting at 7AM every damn day.

Lol. Cad you disgust me.