From the BiggerPockets Blog

 BiggerPockets Blog »

Jump to Forum View All

Click a category below to view different forum categories.

BiggerPockets

General Info

BiggerPockets Q&A, Site Questions, & Announcements

1504 topics, 14361 posts — Last Post 04/16/14, 04:34PM

BiggerPockets Exclusive PRO Area

116 topics, 837 posts — Last Post 04/16/14, 04:46PM

New Member Introductions

10848 topics, 85280 posts — Last Post 04/16/14, 05:47PM

Real Estate Success Stories

392 topics, 6102 posts — Last Post 04/16/14, 05:35PM

General Real Estate

General Real Estate

Buying & Selling Real Estate

5906 topics, 46587 posts — Last Post 04/16/14, 05:43PM

Renters

640 topics, 5791 posts — Last Post 04/16/14, 05:28PM

Get Foreclosure Help - Help Stop Foreclosure Forum

316 topics, 2557 posts — Last Post 04/16/14, 03:58AM

Home Owner Association (HOA) Issues & Problems Forum

237 topics, 1608 posts — Last Post 04/16/14, 04:51PM

Do it Yourself

653 topics, 6258 posts — Last Post 04/16/14, 05:42PM

Reviews & Feedback

Real Estate Deal Analysis and Advice

3656 topics, 29318 posts — Last Post 04/16/14, 05:10PM

Real Estate Guru, Book & Course Reviews and Discussions

1129 topics, 11532 posts — Last Post 04/16/14, 09:34AM

Ask About A Real Estate Company

736 topics, 7286 posts — Last Post 04/15/14, 02:45PM

Real Estate Investing

Real Estate Strategies

Wholesaling

5586 topics, 43652 posts — Last Post 04/16/14, 04:18PM

Rehabbing and House Flipping

3322 topics, 30896 posts — Last Post 04/16/14, 05:43PM

Real Estate Development & New Home Construction

551 topics, 4678 posts — Last Post 04/14/14, 01:02AM

Innovative Strategies

699 topics, 5992 posts — Last Post 04/16/14, 04:12PM

Tax Liens, Notes, Paper, & Cash Flows Discussion

863 topics, 6654 posts — Last Post 04/16/14, 02:24PM

Rent to Own a.k.a. Lease Purchase, Lease Options

690 topics, 4862 posts — Last Post 04/16/14, 05:35PM

1031 Exchanges

143 topics, 1052 posts — Last Post 04/16/14, 05:39PM

Foreclosure Investing

General Foreclosure & Pre-Foreclosure Forums

1686 topics, 11281 posts — Last Post 04/15/14, 03:20AM

HUD, VA, and Tax Sales

414 topics, 3086 posts — Last Post 04/16/14, 04:08PM

REOs

1212 topics, 10563 posts — Last Post 04/15/14, 01:08PM

Short Sales

1533 topics, 13117 posts — Last Post 04/15/14, 07:10PM

Landlord & Tenant Forums

Landlord & Rental Property Questions

7187 topics, 70517 posts — Last Post 04/16/14, 05:47PM

Mobile Homes & Mobile Home Park Investing

636 topics, 5127 posts — Last Post 04/15/14, 09:59PM

Investor Basics

Starting Out

7677 topics, 60277 posts — Last Post 04/16/14, 05:49PM

Investor Psychology

430 topics, 6092 posts — Last Post 04/14/14, 06:53PM

General Real Estate Investing

4710 topics, 37145 posts — Last Post 04/16/14, 05:21PM

Real Estate Investor Marketing

1728 topics, 14076 posts — Last Post 04/16/14, 05:33PM

Commercial Real Estate

Commercial Real Estate Investing Forum

1408 topics, 8971 posts — Last Post 04/16/14, 02:36PM

Multi-Family and Apartment Investing

1101 topics, 9165 posts — Last Post 04/16/14, 12:58PM

The Business of Real Estate

Real Estate Technology and the Internet

Real Estate Technology, Social Media & Blogging

638 topics, 4883 posts — Last Post 04/15/14, 01:41PM

Business Basics

Goals, Business Plans & Entities

827 topics, 7526 posts — Last Post 04/15/14, 07:32PM

Real Estate Finance & Legal

Financial, Tax, and Legal

Tax, Legal Issues, Contracts, Self-Directed IRA

2781 topics, 19978 posts — Last Post 04/16/14, 03:06PM

Property Insurance

309 topics, 2041 posts — Last Post 04/16/14, 02:16PM

Personal Finance Discussion

328 topics, 2710 posts — Last Post 04/16/14, 05:04PM

Loans, Mortgages, Credit Lines

Private & Conventional Lending Discussion

2824 topics, 19661 posts — Last Post 04/16/14, 05:14PM

Creative Real Estate Financing

1207 topics, 8759 posts — Last Post 04/16/14, 03:55PM

Crowdfunding Real Estate

35 topics, 455 posts — Last Post 04/14/14, 02:14PM

Real Estate Professionals

Real Estate Professionals

Real Estate Agents

1205 topics, 7949 posts — Last Post 04/16/14, 05:46PM

Bankers, Lenders, and Mortgage Brokers

440 topics, 1917 posts — Last Post 04/15/14, 07:37AM

Contractors

263 topics, 1663 posts — Last Post 04/16/14, 05:49PM

Local Real Estate

Local Real Estate

Local Real Estate Networking & Recommendations

1982 topics, 11569 posts — Last Post 04/16/14, 03:50PM

Americans & International Real Estate

161 topics, 566 posts — Last Post 04/14/14, 11:19AM

Foreigners Buying in the USA

62 topics, 409 posts — Last Post 04/10/14, 06:27AM

Canadian Real Estate

64 topics, 426 posts — Last Post 04/16/14, 08:34AM

Marketplace

Real Estate Marketplace

Real Estate Marketplace

14984 topics, 53858 posts — Last Post 04/16/14, 05:25PM

Real Estate Events and Happenings

162 topics, 2440 posts — Last Post 04/16/14, 05:45PM

Off-Topic

Off Topic

Off-Topic

2902 topics, 32399 posts — Last Post 04/16/14, 03:07PM

Housing News & Real Estate Market

913 topics, 8339 posts — Last Post 04/16/14, 01:11PM

BiggerPockets Real Estate Investing Summit

97 topics, 1751 posts — Last Post 04/10/14, 02:27PM

BiggerPockets Resources

End of year rant

10 posts by 8 users

Signup

Wholesaler · Stockton, California


Is it just me?

I look at most multi-family deals I come across - and most are in California - but all the same ...

Why do "investors" pay 2x or more for buildings?

Examples ...

Small town - 14k pop - 7 unit; sellers paid $499k; for sale for $299k; 2-0/1 @$425/mo, 2-1/1 @ $450 and 3-2/1 @ $525; 50% expenses, 1 unit vacant needing rehab before renting - worth by my estimation about $200k at tops using seller's numbers and rehab estimates.

Same town - new development on riverfront (remote area on the Sacramento River) put $5.525M into 12 units (all 3/2) short sale for $5.5m hard money @ 12%. Nice unit config but worth around $675k by seller's numbers if generous with cap rate

My town: 11 units @~$595k as a short sale; 4-1/1, 7-2/1; 3 section 8 tenants paying the highest rents so some upside in rents; paying both resident manager and management company (upside if get rid of resident manager); paid $600k; short sale for loan balance plus arrearages totaling ~$595k; now in foreclosure and still wants full asking. I put value around $390k by seller's numbers

My town: 190 units in best school district asking $9.5m, 21% vacancy, worth ~ $4.5m at 6% cap rate. Upside if vacancy filled. ($9.5m was a drop from original $12.5m)

My town: 29 units @ $1.63m all 1/1 at market rents; no remodeling since built in early 60s so not a lot of appeal to tenants. In best school district, but not big enough for families.

Nearby town: 32 units, paid $1.250m in 2007; asking $3.5m - decent mix; most rents at or close to market; only vacancy is resident manager's unit; good condition; etc. 5.96% cap rate but no foreseeable upside

With my investors wanting 9-12% COCR, I'm not finding anything worth buying. Half of the ones I find have negative cash flow to boot.

RE friends have said it was San Francisco Bay Area people applying San Francisco numbers to their investment, so they accept negative cash flow, and paying too much. I can do better with 8% dividend paying pipeline companies.

So, am I crazy?

I know, I know - look elsewhere.

Mary



· Apopka, Florida


The problem is you live in the perfect storm of investment hell known as California with low interest rates. Lots of people made $ millions in a 4 decade real estate investment paradise. People are used to investing with the assumption that 10% annual appreciation will bail out even the worst decisions. And lots of money made in various frenzies is still sitting around.

With interest rates negligibly low there's no value in waiting for the next boom. It's going to be hard to find what the rest of us think of as good deals there for some time.



· Durham, North Carolina


Very similar to stock investment situation, a high dividend stock typically has no growth potential, while a growth stock yields no dividend. In the anticipated new high tax environment, investors would prefer higher growth to dividend.



Wholesaler · Stockton, California


Thank you for your replies.

Do these people blindly "invest" without knowing what they're doing? Multi-family properties do not appreciate - you can force "appreciation" by decreasing vacancy, raising rents or lowering expenses - thus increasing income, but not by a bubble in the market.

If it was rare for people to blindly throw money at an "investment" I might just shake my head - but this seems to be all too common (and what's with the HML???).

I do note that none of these have sold, so I'm not the only person who refused to bite. I guess I can wait and put an offer in at the foreclosure sale or at the estate sale when they have depleted their funds feeding their alligators.

Mary



Real Estate Investor · Whittier, California


You can go into any area pick the worst listings in the area and ask why would anyone buy these properties. If your not looking at properties that have sold and closed, those asking prices don't mean anything. Even if somebody was crazy enough to make an offer, they'll probably never get financing.

I am from southern Ca. And have left the state in the last 10 years because of the inflated prices and terrible cash flows. Once you start buying at 10-15k per door, it's hard to go back and pay 100k a door and receive a terrible cash flow.



Real Estate Investor · Fukuoka, Queensland


That's crazy in any market. Here in Japan we've been "spoiled" by close to two decades of zero appreciation (although, if you ask the big boys, they seem to speculate on this changing shortly) - we've been trained by circumstance to look for pure cashflow (10-15% pre-tax), with any possible appreciation only the icing on the cake. Any other scenario is pure gambling from my perspective. I prefer poker, to be honest.



Real Estate Investor · New York


I have picked up several duplexes & SF homes at tax lien auctions up here in NY. These were originally purchased (by absentee LLC's) at a relatively high cost & although winterized etc they sat empty for 3-4 years & they let the taxes go into arrears.
The only reason that makes sense is that it was a tax loss strategy. (Canadians are into a slightly similar but very profitable strategy here in the depressed section 8 Buffalo area).
But my buys were certainly NOT @ the inflated valuations you are seeing in CA, in fact we stole them.

However, if you see them starting to move @ the high valuations it maybe a money laundering scenario rather than a tax loss strategy. (insert sarcasm here :).



· Washington, Washington D.C.


You should look at DC. Take for example, a 1BR/1BA condo my friend rents in Clarendon/Arlington (suburb of DC). He pays $2,200 a month to rent the unit (he's an idiot).

Sounds great right? Well that 1BR/1BA cost $435,000, has about a 1% property tax, and monthly HOA of $320.

I then got into an argument with my friend the other day because he thought it was a "great investment" and the condo owner is "making so much money off of him." I plugged the numbers into my sheet and the owner is losing thousands of dollars a year to let him live there. No telling what will happen when the artificial job market in DC bottoms out (i.e. inefficient government jobs supported solely by tax payers) and outrageous rents like paying $2,300 for a 650 sq ft 1BR unit are no longer realizable.

That place has a CAP rate at about 3.0%. And this is typical of the "nice" areas of DC. Go to the ghetto/warzones, and you can maybe find CAP rates of 6%. DC real estate is outrageous, I'm really scratching my head as to how REIs in the area make any money.



Real Estate Investor · Dallas, Texas


Originally posted by Will K:

I then got into an argument with my friend the other day because he thought it was a "great investment" and the condo owner is "making so much money off of him."

Will - your story of the conversation with your friend made me laugh, scratch my head, and feel sad, more or less at the same time. Some sort of financial literacy course seriously needs to be taught in high school! Too many people only think to the depth of "spend some money for a condo, get an extra 26k of income", without thinking about how the numbers would work. This is worse than Rent-PITI=cashflow, this is virtually Rent=Cash flow thinking. What amazes me the most is that in order to be able to afford 2200/month, I'd imagine your friend has at least a decent to good job that takes some brainpower. It's wierd how people can be smart in one way, and yet so not smart in others.

The only way I can see for a landlord not to get absolutely slaughtered on such an investment is if they have owned it for many years (decades probably) and bought at a much lower price. And even then, it would make a lot more sense to sell if there is such a disparity between the value of the property and what it rents for.



Wholesaler · Stockton, California


Happy New Year all,

I'm glad to hear that I'm not alone - when you get a response from a realtor that the price I'm thinking about is not rational enough times, one begins to think it's me that's crazy and not the seller (or their even wackier realtor).

Mary





Sign up