Commercial Real Estate by Kyle Koller | September 28, 2009Income properties are, to many, the ideal investment. Not only does one receive rental income on a monthly basis, but he also gets to enjoy capital appreciation—or at the very least, a solid hedge against inflation. With favorable tax treatment throughout and available 1031 tax deferred exchanges, one would be silly to not at least consider real estate investment.
And so he does. Hypothetical investor Bob purchases his first income property: an 8-unit multi-family in sunny San Diego, California. He loves the fact that it’s in a great location, has a favorable unit mix, and there has only been one vacancy in the last two years—and that vacancy didn’t last very long. As far as Bob is concerned, he has made the perfect investment. How could he do any better?
Raise the rents!
Typically, investment properties in low-vacancy, heavily renter-occupied housing areas that incur vacancies about as often as the Chicago Cubs win World Series have one problem: their rents are too low. If the rents weren’t below market, they would incur significantly more turnover.
That’s the key word: turnover
Turnover is a good thing; vacancies, themselves, are not. What’s the difference? A vacancy occurs when a unit has been turned (i.e. “rent ready”) and it does not have a tenant, or a prospective tenant. Turnover occurs when someone moves out of a unit and another moves in.
Commercial Real Estate by Craig Grella | September 25, 2009It’s no secret that the real estate market is at its worst since the great depression. It doesn’t help that most of the media seems to set their sights on publishing only articles that highlight the latest crash or the biggest loan scandal. Defaults are rising, foreclosures are at an all time high and Realtors are leaving their jobs to pursue careers in acting.
It’s not really as bad as it seems though. At least, not in the long run. Boom and bust cycles are nothing new, and thankfully there has always been a boom that followed a bust. In part due to the investors who sweep with the time tested strategy of “buy low…sell high.” The time has come to prepare for the next boom cycle, and those who can invest now will find great wealth in the near future.
You may be saying, “Thanks for the tip, Craig. Tell us something we don’t know. Problem is, we don’t have any money to invest. How do we do it.” Great question. Let’s start by discussing how not to do it.
How Not to Get Money to Invest
A simple search on BiggerPockets for the term “bulk reo” yields over 400 forum posts and articles about buying or flipping bulk reo portfolios. Go out further by searching “bulk reo” on Google and you’ll find just under a half million results. Take a moment and read a few of them and you’ll notice many newbie investors stating their plan is to go out and search for the mother lode of REO portfolios, buy them at four cents on the dollar and then wholesale them at twenty five cents on the dollar. They all plead for other people to invest with them stating if they could just pool some money they could go out and take over Citibank’s entire portfolio. Mostly, those posts go unanswered or just get ignored, the would-be investor tucks his tail and moves onto the next brilliant money making scheme. That’s a great example of how not to do it.
I don’t mean to pick entirely on newbie investors because there are many seasoned investors out there using the same strategy. We all understand the math of “buy low and sell high” but it begs the question:
How is it that Sam Zell, even during bankruptcy, can raise $600 million to buy property in this market when you can’t raise a dime? The answer: he’s got a plan and you don’t.
That is… until now!
The other day, I was preparing to check my email when a headline on Yahoo!’s homepage caught my eye: 
Joshua DorkinMarty Boardman
Jeff Brown
Chris Clothier
Ken Corsini
Peter Giardini
Jason HansonKevin Kaczmarek
Douglas Lazovick
Jeff Logue
Sharon Vornholt
Richard WarrenMelissa Zavala
Michael Zuber
Meet Your New Landlord: Uncle Sam (aka Fannie Mae)
by Florence Foote | December 1, 2009Fannie Mae is a government sponsored private company, with its roots in the Great Depression. Unfortunately, mere government-sponsorship was not enough to keep the company afloat during the recent financial crisis, and the U.S. government had to go all in on its bad bet and seize the company to prevent its imminent demise. While the [...]