Real Estate Investment Thread

AladainAF

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Any other REIs here? This thread is for investment discussion around real estate, so it won't get mixed up with the home buying thread.

Wife and I are going to pick up our first commercial property, got a great line on a property. Any generalized advice here? We already have a few homes, but want to move away from Residential - in fact, we've toyed with the idea of selling ALL our investment houses, and buy a 3 story office complex instead. Everyone says that commercial is leaps and bounds better and more profitable than residential. I can kinda see it. Residential has treated us really well, but dealing with the occasional shit tenant, or tenant that bitches about every little thing takes it's toll, especially when you try to be a good landlord.

We're going to use our usual property manager, who charges 6% fee or gross income of the property for commercial property management, which I understand is a pretty good rate.
 

Poster

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6% seems a little high to me, I usually see 3%-5% range for unaffiliated managers. But I think that might be a matter of scale (we lend on mostly $10mm+ properties).

Did you consider purchasing an apartment complex instead of an office property? Tenant improvement packages and leasing commissions can really eat into your cash flow on a suburban office type property.

A former coworker of mine is getting close to your position - he owns close to a dozen condos, duplexes and quads that he and his father manage directly. They are thinking of selling all the individual units and reinvesting in a small-ish apartment complex.
 

AladainAF

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We did have a nice line on a 8-unit complex (small) but located close to downtown Austin. The problem is the students, and dealing with the city of Austin regulations is a nightmare. We would collect decent rent but decided it's just not worth it. We really want office space or retail.

We're limited atm to putting about 500k down on something, though if we sold our residentials we could put 1.2-1.5M down on something really nice. Not sure though if you can get into an apartment complex with that, at least not in Austin.
 

Sludig

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Any advice for how good buying a first house for rental income fairs against vs just normal investing? Houses in our neighborhood for sale and seems like that might be nice to do, but then again while home prices still going up, I still feel like we are best the top of the bubble in CO.

My area houses were like 225k roughly before boom. Shot up to 250 when we bought and now most are going for 300-320 ish. Rent is always being tied as being so insane state wide.

Even renting for say 1800-2000 on a 1700 mortgage. I'd imagine breaking even after taxes fee etc, aside from the long game selling it down the road for all that free equity I imagine that puts me at risk for the eventual bubble pop and not end so great if a 330 home drops back to 260.
 

Khane

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That really depends on the rental market where you live. Around here rent prices are fairly insulated from housing market prices so if the property is going to make money now, it's going to make money after a crash as well (if we're speaking in terms of multi-family rental properties). Single family "investment" properties have a different set of issues and I don't view them as investments at all.

When people lose their homes because they took out a mortgage they couldn't really afford, the market tanks, they lose their job, and suddenly their life is gone they still need a place to live. This is why a multi-family property works better from an investment standpoint for me than a single family property. People who lose their homes because they can no longer make that $1800/mo mortgage payment have to downgrade to a 3 bedroom apartment for $1100/mo for instance. I'm not going to charge less for rent just because some people are having a hard time unless I can't fill the units anymore. I can't see that happening unless you own a luxury complex and luxury suddenly becomes unaffordable on a massive scale (because of a crash). The price of rent for a unit in a multi-family home is always more affordable around here than the price of rent for a similarly sized single family home. Much more affordable in fact.

When the economy is good someone who likes the privacy of a home but doesn't want the hassle of owning might rent out your single family property at a price that makes a profit for you. But that's a luxury tenant in my view and tied to economic forces. I, personally, don't find that to be a good investment. Though many people on this forum disagree with me.
 

AladainAF

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Any advice for how good buying a first house for rental income fairs against vs just normal investing? Houses in our neighborhood for sale and seems like that might be nice to do, but then again while home prices still going up, I still feel like we are best the top of the bubble in CO.

My area houses were like 225k roughly before boom. Shot up to 250 when we bought and now most are going for 300-320 ish. Rent is always being tied as being so insane state wide.

Even renting for say 1800-2000 on a 1700 mortgage. I'd imagine breaking even after taxes fee etc, aside from the long game selling it down the road for all that free equity I imagine that puts me at risk for the eventual bubble pop and not end so great if a 330 home drops back to 260.

I personally would still like some cash flow. You will get some in your scenario, but not much if I'm reading it right. Also, if you do buy a house for rental income, do expect to have to put 25% down, or you're not going to get a very good rate at all and that's going to eat into your cash flow a lot.

We put 25% on all our properties, and rent them out for $1550, $1350, $1600, and $1400 respectively. The $1550 was my first home and is paid off, but the other three we pay around $550, $1k, and $700 per month for the mortgages (15 year). The cash flow is nice, and helps a lot especially needing to pay for repairs or reinvesting into other properties.

Khane brings up good points too, although in our specific case, we were able to get several properties before the boom and are under 40% LTV on many of them with huge cash flows (considering they are single-family homes). So even if the market tanked, we could still afford to make attractive rents without worrying about the cash flow situation to "weather the storm".
 

OU Ariakas

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We have 5 properties all about 1/2 the size of Aladain's. I'm doing the entire P&Ls for them in a few weeks and will post my findings.

I have definitely seen the problem with a higher percent of shitty tenants in lower prices houses and it eats up a significant portion of the cash flow. We are contemplating selling a few and becoming silent partners in larger multi-family properties.
 

Siliconemelons

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sorry if this is not the place...

but where is the best place to buy some land in the middle of nowhere that you can develop on (build small house etc.) just normal real estate? are there places you just buy from the city/county/state whatever?
 

OU Ariakas

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sorry if this is not the place...

but where is the best place to buy some land in the middle of nowhere that you can develop on (build small house etc.) just normal real estate? are there places you just buy from the city/county/state whatever?


You should try to find a realtor that can help you out that specializes in that sort of land. Don't go with a single family specialist in your neighborhood because they don't understand that market. Also, you can check auction websites or even a site like Zillow and just zoom into the areas your are looking to buy around.
 

OU Ariakas

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Trump signs the biggest rollback of bank rules since the financial crisis

Guys, I am wondering if this has loosened the restrictions on banks to make 0 down refinance loans for distressed properties that will allow us to go find the bank good deals without needing skin in the game in the form of a down payment. Anyone looking into rental property that understand what the rollback means to regional banks and their lending requirements?

AladainAF AladainAF Blazin Blazin
 

Blazin

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While I own several properties it’s not something I’ve read up on sorry. I don’t however think that is even remotely a good idea even if they allowed it.

I’m very anti debt and my rentals are all 100% paid for. Debt free lifestyle not for everyone but borrowing more than 70% seems a poor choice regardless.
 
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Khane

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When I look at the current market and see things like 80/20 mortgages still being given out, watch people take loans for far more than they should ever qualify for with no down payments and see my own mortgage change hands 3 times in the last 5 years I start to wonder if the Dodd-Frank regulations really do anything other than make us, the normal buyer, have to sign more useless fucking paperwork.
 
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OU Ariakas

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I get the caution from both of you and i'm actually very risk averse when it comes to investing and have the cash to support all rentals for 2 years in the event of 0% occupancy which is why I am a little more aggressive with the loans while we build a small base of properties. These are the scenarios I find myself in:

I find a rental in the area that is either a foreclosure or dilapidated property selling for 50k. It needs 15k in renovations and will be worth 80k once complete. In this scenario the 80/20 rule says that I should only need to put down 2k because, in the event of me defaulting, the bank still has enough equity in the property to sell it quickly at no loss. They used to do this all the time; however, after the housing crash there were requirements around 'skin in the game' that required the mortgagee to be in for at least 20% (13k in the example) of the loan because it was still deemed too risky for the bank. I get them being risk averse with people that have a track record of default or bad books, but these banks can look at my P&L's and all the past deals and should be 100% confident that they wont be left holding the bag. And even if I did default we are back to a scenario where they own a renovated property that has 20% or greater equity already in it that they could turn around for a 'loss' and still be in the black.
 

AladainAF

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sorry if this is not the place...

but where is the best place to buy some land in the middle of nowhere that you can develop on (build small house etc.) just normal real estate? are there places you just buy from the city/county/state whatever?

If you buy a nice amount of land, make sure mineral rights convey (unless you really dont care about that). It's expensive but a fun fact I didn't know about until relatively recently is that the USA is the only country in the world (or otherwise one of very very few) where private ownership of mineral rights exist and mineral rights trump surface rights.

Here's a source for you for land shopping, or to at least get an idea: United States Land for sale, United States Acreage for Sale, United States Lots for Sale at LandWatch.com
 
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AladainAF

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I find a rental in the area that is either a foreclosure or dilapidated property selling for 50k. It needs 15k in renovations and will be worth 80k once complete. In this scenario the 80/20 rule says that I should only need to put down 2k because, in the event of me defaulting, the bank still has enough equity in the property to sell it quickly at no loss. They used to do this all the time; however, after the housing crash there were requirements around 'skin in the game' that required the mortgagee to be in for at least 20% (13k in the example) of the loan because it was still deemed too risky for the bank. I get them being risk averse with people that have a track record of default or bad books, but these banks can look at my P&L's and all the past deals and should be 100% confident that they wont be left holding the bag. And even if I did default we are back to a scenario where they own a renovated property that has 20% or greater equity already in it that they could turn around for a 'loss' and still be in the black.

In a case like this, I'd just buy with 50k cash and avoid a loan altogether, especially if you're going to flip it.

Also, this part here: "but these banks can look at my P&L's and all the past deals and should be 100% confident that they wont be left holding the bag" does not matter. For residential, I think they are still going to look into income and nothing else, and make you follow ALL the federal regulations. TBH, I'm not sure theres any difference between banks, brokers, or whatever for mortgages anymore. I think they all follow the same rules and same playbook. Now if you're talking commercial, they are not bound by any federal rules other than some standard fare stuff, so you can get much more creative. But for residential, that shit won't happen.

In fact, if you had a 200k home paid off, and you wanted to buy a 100k home with zero down, BUT you wanted to put your 200k home up for collateral (a ridiculously stupid thing to do that would be extremely in the banks favor) they would decline it.
 

Unidin

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Of course they'd approve that assuming you have the income to pay it back. You'd just be putting a mortgage on your primary residence and using the proceeds to buy the new home.

Unless you're talking about trying to do that with no income. Then they'd be stupid to approve it. They'd be foreclosing on it pretty damn quick when you couldn't make the payment.
 
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At the beginning of my career as an investor, I also needed advice. I had money to invest, but I didn't have enough knowledge in this area. And I wasn't interested in the advice of my neighbors, I needed people who would really understand this. I did not want to become just one of the cash home buyers. I was lucky to find this platform with connected investors. Here you have a direct connection with buyers, sellers, investors, etc. The sharing of experience, ideas, and professional advice helped me a lot here. When you do not have knowledge in this area, it is better to find professionals who will teach you. Good luck with your project.
 
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