Steve- teach us all about real estate

[steveny]

California beach and ranch property. Sitting on the beach properties until the market improves. As it stands now, I have buyers/traders but at a 50% (or close to) discount - too bitter a financial pill to swallow.

Tentative tract map for the ranch property (5 lots on 30 acres with ocean views) approved by the county so all anyone would need to do is start the build. Don't have the capital and getting financing sure is tough now. Got anything you want to trade?

FTW, I've used PropertyTracker.com software to evaluate investment property so far. Seems to be pretty good.

Tract housing is done and won't recover. The current tract houses will be split up into apartments as no one will be able to afford owning large homes anymore.

Few if any new tract homes will be built and the current price levels of tract homes have 50% more downside to shave off over the next few years. Maybe more after the tract home neighborhoods are infiltrated with tenant housing.

It has happened in the cities with houses which were over built in the past. This time it's coming to the burbs.

With that being said. There is a tract home development which I feel is a pretty good deal. The developer has 50+ million into the project, clubhouse is built, all the streets are in just waiting for houses, some townhomes are built and ready to sell. They can't even sell it for 4 million. So if they can't sell it for 4 million what is something like that selling for? What will be the competitions price for lots if the market recovers. Just because they have 50 million into it doesn't mean the buyer is going to get 50 million out of it. But I still think there is a great deal of profit in the deal if someone could hold it to see what the market demands for housing. I feel the market is going to want small affordable homes easy to maintain and pay for upkeep.

 

[queenlives]

Look at comparable that are in the same condition as the house is currently in. Then offer 20% less than the comparable price.

Look at houses that are comparable which are repaired and ready to go. Then be ready to list your house repaired for 20% less.

Get competitive bids for repairs. Add 20% to the highest one and expect to pay that amount. Add that amount to the price you are paying for the property then subtract 20%. If you don't come out with the right number walk away. No sense in spending time and not making money.

If you lost money in the market last year you can flip the house and offset the gains against the losses in the market as long as no one lives in the house and you don't rent it. This is per my accountant.

Use an attorney, they are cheap compared to the cost of not using one.

If you are concerned then buy title insurance. It's relatively inexpensive compared to what problems with the title will cost.

Know what you are getting into and what the hell you are doing before you do it.

thx much, steve.

 

[steveny]

After reading this thread again, I realized that I probably should have refrained from joking around. Sounds like the OP really wants to learn.

The truth is, Steve should probably write a book, but I doubt a book would be able to detail the knowledge required to maximize returns in purchasing and managing investment property. It's more than just collecting rents and fielding calls - there's also construction and construction management, dealing with the city and inspectors, building a local network to source deals, deal structure and finance, an intimate knowledge of the local building code to know where there's wiggle room, and the ability to effectively manage your time and the people around you. Steve's success is built on 25 years of hard work in the field.

I have personally purchased, sold, financed, managed, constructed, and entitled various forms of real estate, and I'm still learning every day. Guess who manages property for me...

Yup, this guy:

Yeah we are slaying 'em out here for ya. Kicking ass and taking names keeping our eyes open for trap doors.

We need to take down this new project Mike. The return is awesome and the CMA's are coming in low as they are compiled with all the foreclosures.

 

[Ryanmcd2]

Steve is doing this the right way, too many people want a "Nice" home, to me give me a few 100 section 8 homes that cost 50k each and give me $800 a month cash flow.

 

[steveny]

Steve is doing this the right way, too many people want a "Nice" home, to me give me a few 100 section 8 homes that cost 50k each and give me $800 a month cash flow.

800 in cash flow on each house, right? it easier to keep people happy that expect nothing anyways.

I have some really nice houses and the tenants expect their asses to be kissed just because they pay 2k a month in rent. nope!

 

[Ponyboy]

Tract housing is done and won't recover. The current tract houses will be split up into apartments as no one will be able to afford owning large homes anymore.

I think there's a misunderstanding of nomenclature. The acreage, before the RE bust, lists for 500-800k a lot. There's a house on one of the lots that appraised for 1.6 million. House is about 3500 sq feet w/ 2 car garage. Each lot is a miniumum of 5 acres.

So it's a "tract" as the county calls any multi-home subdivision a "tract." I hope I explained that well enough.

 

[steveny]

I think there's a misunderstanding of nomenclature. The acreage, before the RE bust, lists for 500-800k a lot. There's a house on one of the lots that appraised for 1.6 million. House is about 3500 sq feet w/ 2 car garage. Each lot is a miniumum of 5 acres.

So it's a "tract" as the county calls any multi-home subdivision a "tract." I hope I explained that well enough.

yeah I cought that after I posted. I was speaking of 500k homes 10 feet apart. That's over with.

 

[pvmike]

California beach and ranch property. Sitting on the beach properties until the market improves. As it stands now, I have buyers/traders but at a 50% (or close to) discount - too bitter a financial pill to swallow.

Tentative tract map for the ranch property (5 lots on 30 acres with ocean views) approved by the county so all anyone would need to do is start the build. Don't have the capital and getting financing sure is tough now. Got anything you want to trade?

FTW, I've used PropertyTracker.com software to evaluate investment property so far. Seems to be pretty good.

Are you saying that you own this land and you're looking for construction financing? Residential construction financing is difficult to find right now. Commercial construction financing is available from a few of the Asian banks at a reasonable rate, but they want to stay away from residential construction for now. That'll probably change in a couple years.

 

[pvmike]

yeah I cought that after I posted. I was speaking of 500k homes 10 feet apart. That's over with.

I don't think that's necessarily the case, at least out here.

 

[JonBoy]

Very timely thread for me as well. I'm looking at a few homes that are in good shape but relatively small (<1200 sq ft). I can get them running fast and cheap (less than $5K per house - no major issues with anything, just cosmetic work) as they weren't really damaged, just a bit scarred on the walls and floors. Three of them are in foreclosure and needing under $70K to purchase. I can also rent them for about 40% more than each mortgage ($550 mortgage, $750 rent) without issue.

Just trying to figure out how far to let myself hang in the breeze...

A friend of mine has 36 houses so far and has a repair/remodel guy he's found to be extremely reliable without needing constant supervision. So, reliable help isn't a problem, especially with easy stuff like paint and new floors (laminate, for durability). This friend is 35 and can live on his rental income (comfortably) already. He's shooting for 70 properties before he retires. He already has some full time employees helping him maintain the homes.

Any pitfalls you can see with my idea, from a birds-eye view? I know you recommend building wealth by what gives you cash flow, not just by what something is "worth". I'm a bit leery of a relatively large commitment like this but really, unless I get a few of these houses, the hassle isn't really worth it to me (I can consult and make that kind of money in a five or six hours).

I'm basically trying to build a bit of a portfolio that works for me where I can see and touch it, rather than just relying on 401(k) and "typical" monetary investments for financial security in the future.

 

[Ponyboy]

Are you saying that you own this land and you're looking for construction financing? Residential construction financing is difficult to find right now. Commercial construction financing is available from a few of the Asian banks at a reasonable rate, but they want to stay away from residential construction for now. That'll probably change in a couple years.

The tract is zoned residential. Financing is tough right now and even with the amount of assets I have, some banks just don't have the money. If they do have the money, it's not at a very attractive rate (which is understandable). And to be very frank, I don't want to expend that much capital:

- in an RE economy, that I think, in Cali that is going to get worse before it gets better.
- and allocate that much money on a speculative venture with a lot of risk.

Did I mention the economy sucks too.

 

[steveny]

Very timely thread for me as well. I'm looking at a few homes that are in good shape but relatively small (<1200 sq ft). I can get them running fast and cheap (less than $5K per house - no major issues with anything, just cosmetic work) as they weren't really damaged, just a bit scarred on the walls and floors. Three of them are in foreclosure and needing under $70K to purchase. I can also rent them for about 40% more than each mortgage ($550 mortgage, $750 rent) without issue.

Just trying to figure out how far to let myself hang in the breeze...

A friend of mine has 36 houses so far and has a repair/remodel guy he's found to be extremely reliable without needing constant supervision. So, reliable help isn't a problem, especially with easy stuff like paint and new floors (laminate, for durability). This friend is 35 and can live on his rental income (comfortably) already. He's shooting for 70 properties before he retires. He already has some full time employees helping him maintain the homes.

Any pitfalls you can see with my idea, from a birds-eye view? I know you recommend building wealth by what gives you cash flow, not just by what something is "worth". I'm a bit leery of a relatively large commitment like this but really, unless I get a few of these houses, the hassle isn't really worth it to me (I can consult and make that kind of money in a five or six hours).

I'm basically trying to build a bit of a portfolio that works for me where I can see and touch it, rather than just relying on 401(k) and "typical" monetary investments for financial security in the future.

Sounds good to me. Make sure to get estimates for repairs before you take the plunge.

Laminate flooring is great but vinyl plank flooring is THE BOMB. Even the worst tenant can't destroy it. Nuclear war, roach and vinyl plank flooring is all that's left.

It's near impossible to be on the road to success and also stay inside your safe parking zone. Look at the Monopoly board. Land on free parking. There is nothing free about it. It costs a lot of lost opportunity to sit on the free parking spot while others are zipping around the board and buying up the properties. Once you come off of free parking there is nothing left to land on that won't cost you money. free parking IMO = jail. It's the same damn thing, nothing is getting done on either space. EDIT. Unless you play the game lotto/socialism style and put the banks money in the middle and the player gets that money when they land on free parking, but we all know life isn't that easy now is it.

 

[JonBoy]

Sounds good to me. Make sure to get estimates for repairs before you take the plunge.

Laminate flooring is great but vinyl plank flooring is THE BOMB. Even the worst tenant can't destroy it. Nuclear war, roach and vinyl plank flooring is all that's left.

It's near impossible to be on the road to success and also stay inside your safe parking zone. Look at the Monopoly board. Land on free parking. There is nothing free about it. It costs a lot of lost opportunity to sit on the free parking spot while others are zipping around the board and buying up the properties. Once you come off of free parking there is nothing left to land on that won't cost you money. free parking IMO = jail. It's the same damn thing, nothing is getting done on either space. EDIT. Unless you play the game lotto/socialism style and put the banks money in the middle and the player gets that money when they land on free parking, but we all know life isn't that easy now is it.

Thanks for the reply. I'd never heard of vinyl plank flooring. Just looked it up and it sounds like a great product. Price wise, it seems comparable to the laminate flooring as well, plus just as easy to install.

Good point on the "no free parking". I'm cautious by nature but I'm also open to opportunity. I just have to circle an opportunity about twelve times before I take a leap of faith. Except, by that point, there's nothing that requires faith - I "know" what I'm dealing with.

 

[steveny]

Thanks for the reply. I'd never heard of vinyl plank flooring. Just looked it up and it sounds like a great product. Price wise, it seems comparable to the laminate flooring as well, plus just as easy to install.

Good point on the "no free parking". I'm cautious by nature but I'm also open to opportunity. I just have to circle an opportunity about twelve times before I take a leap of faith. Except, by that point, there's nothing that requires faith - I "know" what I'm dealing with.

There is no way to cover all bases. anything can happen, usually does, and probably will.

The vinyl plank flooring is way easier to install than laminate. Only tool required, a utility knife.

 

[eddiensx]

Something else to be aware of is, if it cash flows big, it may not appreciate as fast, just because it breaks even in the beginning, doesn't mean it is a bad investment, if done right it can really appreciate.

Here is an example.

Between 2000-2002 I purchase 5 houses throughout the Hawaiian Islands. A friend of mine purchased 9 houses in Michigan during the same time period. His houses provided cashflow, income that he didn't need, as a matter of fact, he was earning so much he had rather high taxes.

My houses barely made the rent, but they are fixed 30 year mortgages. Now, even after the real estate decline, my houses are still worth 90% more than I paid for them. My friends houses are now close to his purchase price or lower on some. I have been able to raise the rent slowly, and now, I am under market on the amount of rent I am charging, but there is now cashflow, albeit modest.

Location Location location refers more than neighborhoods. You have to look at the economics of the town or state you want to purchase in.

Property taxes in Hawaii are about .5%, in Michigan they can be as high as 3% from what I am told.

Some states make non owner occ properties pay higher property taxes, which can be very high.

Don't buy a house that you would want to live in. The reason is you may run a real chance of becoming attached to the property, and it can cloud your judgement, and you start making emotional decisions instead of sound financial ones.

If you want something that will appreciate, look at the coastal area. Here is a tip.

There is a little town called Los Osos in California. There is currently a dispute about where to put the sewage treatment plant. The whole town is on septic. This town is on the ocean, and you can purchase a house for $200k. Once the sewer is put in the property values should go vertical and be comparable to the other towns around them. This should be a minimum 100% return once the sewer situation is fixed. I would say this is a 10 year time horizon, but I am following this closely and may purchase a couple very soon.

 

[docjohn]

Since this is the Steve RE thread:tongue: ? for the maestro,why not comercial? All of your discussions seem to be about residential.

 

[steveny]

Something else to be aware of is, if it cash flows big, it may not appreciate as fast, just because it breaks even in the beginning, doesn't mean it is a bad investment, if done right it can really appreciate.

Here is an example.

Between 2000-2002 I purchase 5 houses throughout the Hawaiian Islands. A friend of mine purchased 9 houses in Michigan during the same time period. His houses provided cashflow, income that he didn't need, as a matter of fact, he was earning so much he had rather high taxes.

My houses barely made the rent, but they are fixed 30 year mortgages. Now, even after the real estate decline, my houses are still worth 90% more than I paid for them. My friends houses are now close to his purchase price or lower on some. I have been able to raise the rent slowly, and now, I am under market on the amount of rent I am charging, but there is now cashflow, albeit modest.

Location Location location refers more than neighborhoods. You have to look at the economics of the town or state you want to purchase in.

Property taxes in Hawaii are about .5%, in Michigan they can be as high as 3% from what I am told.

Some states make non owner occ properties pay higher property taxes, which can be very high.

Don't buy a house that you would want to live in. The reason is you may run a real chance of becoming attached to the property, and it can cloud your judgement, and you start making emotional decisions instead of sound financial ones.

If you want something that will appreciate, look at the coastal area. Here is a tip.

There is a little town called Los Osos in California. There is currently a dispute about where to put the sewage treatment plant. The whole town is on septic. This town is on the ocean, and you can purchase a house for $200k. Once the sewer is put in the property values should go vertical and be comparable to the other towns around them. This should be a minimum 100% return once the sewer situation is fixed. I would say this is a 10 year time horizon, but I am following this closely and may purchase a couple very soon.

Yep, there are more than a few ways to play with RE. Around here is just like Michigan, slow and steady. I think Michigan has a lot more problems than this area which is good now but could turn quickly if things got worse. You can buy in the best location but that location can turn quickly. If you buy at the bottom there is more room on the upside than the downside.

I don't like the appreciation game because I want my money up front. I could not care less what the buildings are worth 5 years from now. With history as my guide I feel the building will be worth a substantial amount more in the future. As an example, my mother paid $5.5k for her house in 1966, 43 years later it's worth 175k. My last personal home I bought in 1989 for 60k, with a lot of improvements it's now worth 575k. It's currently available for rent as I just bought a new house in a better school district.:smile:

Which brings me to your point of becoming emotionally attached to a house. For me after I moved there was about 2-3 days where I was a little sad. I put a lot of work into that place and won't be 20 something ever again so I won't be able to recreate the personalization I had over there which was done with my own two hands and not a check book paying someone else to create what I did. The good news is now I have a checkbook and can not only finish my dream home but I can pay someone else to do it AND I won't know where the mistakes are. :biggrin: I remember at my last house I put in the master bath. There was this one tile that was a little crooked. Every time I used the bathroom I would look at that tile. No one else saw that it was crooked but I knew it was. I was on the ladder installing it and knew it was off by a 1/16 of an inch. The conditions under which it was installed would not allow it to be perfect. It was high up on the wall and unless you looked at it just right you wouldn't have known, but I knew. My new house I have done a few things myself but the rest I am paying someone else to do. I won't know where the mistakes are this way. Maybe I'm just lazy in my old age? :smile: It really makes me feel good when I call other prime members on the phone and they have the same passion for perfect work and are often doing things on their home with their own two hands.

 

[steveny]

Since this is the Steve RE thread:tongue: ? for the maestro,why not comercial? All of your discussions seem to be about residential.

??

We have commercial space but nothing really exciting about commercial.

You can have your ass handed to you quickly if you lose a commercial space tenant.

 

[NSX-Stalker]

Hey Steve,

How can that vinyl flooring handle dog pee? I want to put it in 2 bathrooms and one of them is one we don't use but keep the dogs in during the day.

Thanks

Jason

 

[Big_D]

I wish I had more tolerance for risk. I can't seem to stick my neck out and join in the rental property game. I am still in that mode of trading my time for money... it sucks.

 

[steveny]

Hey Steve,

How can that vinyl flooring handle dog pee? I want to put it in 2 bathrooms and one of them is one we don't use but keep the dogs in during the day.

Thanks

Jason

The stuff in damn near indestructible. Go to Home Depot and check a peice of it out. You should see how the stuff sticks together. Once it's together it's like there is NO seam and it won't come apart.

 

[TripleL]

Just noticed this thread. I have been doing a work up on a new set of townhouses and have been pretty busy.........

Epic post Steve. Thank you

@neuralpathways - great thread idea. :subscribed:

 

[steveny]

I wish I had more tolerance for risk. I can't seem to stick my neck out and join in the rental property game. I am still in that mode of trading my time for money... it sucks.

If done right there is little risk. If done wrong the risk is unmanageable.

My biggest problem....people that come to me AFTER they have made the mistakes and want me to correct them. I can't fix upside down, unless they are willing to cost average. I keep some examples of people who have cost averaged and taken a leap of faith after they have been through the grinder. Those people do well.
Had a lady come to me last year who was crazy upside down. Properties going back wards 1950 a month. She bought the properties through a big national "cash flow" guru. He sold her a nightmare. She was gun shy and wouldn't buy any more to offset the loss. She just filed BK last month.

Another guy was in a similar position when he came to me. He took the leap of faith, cost averaged and now has positive cash flow.

Watch out for the so called guru's. They are all interconnected and prey upon those have have little knowledge. They make millions but not from cash flow, but from sales of property they bought cheap and turn for a profit. Usually they conceal the fact the property is being transfered from an affiliate.

We don't do this. When I recommend a piece of property you are buying it from the owner not from me. I sign the deal to me or assigns. meaning I will buy it if you don't. The deal better be good enough for me if I am going to recommend it to someone else.

 

[Searchin4acoupe]

GREAT thread - thanks Steve & neuralpathways.

How do you locate your deals? Some people market. Some people watch the MLS. Some people buddy up with banks. Some people just know know enough other people for the deals to find them. What's your angle?

As a follow-up, I suspect you pass up 10 deals (or more) for every 1 you buy?

 

[eddiensx]

I have been seeing some killer FSBO on Craigslist.

Hire an attorney to draft the docs, open escrow and buy the thing. You will save a fortune because you don't have to factor in a realtors fees.

FSBO means "for sale by owner".