Any Appreciation Investors Out There?
Investor · San Jose, CA · Member since 2016 · 26 posts · 9 votes
Any Appreciation Investors Out There?
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votesI think it depends on if your in the business or you have a day job and your investing as a side line or as an alternative to other main line investments like stocks bonds and closely held companies.
It seems to me those of us who do this for a living appreciation and or really forced appreciation is the play.. either buying cash flow properties that have been miss managed ( probably like what@Cody L. has done in Houston turning them around raising value through better financials refinancing them.. that's quite popular..
Or others that are like myself developers.. we take raw land create subdivisions and build homes and work on a X factor not a rate of return factor.. IE with leverage we are usually at least 2X on invested capital on a 12 to 18 month cycle...
But like all things we are not perfect.. we tend to talk about the perfect projects on BP but anytime your doing this at any volume your going to have your bummers..
However for most folks the logical and the financial constraints dictate buying rental properties that will make the mortgage with the minimum down.. that's the measuring stick.. and for non appreciating ( historically anyway) markets like you see most turn key companies work in.. there needs to be positive spendable cash above all cost other wise why buy it... other than a forced savings.
Many folks could simply buy some other kind of business and do well.. we all know those who own business's and have done very well... especially if they have a business that can be sold.
Friend of mine in San Francisco sold his court reporting business for 10 million cash... But then bought 2 shopping centers one in Rocklin CA and can't remember the other and a nice 2 million dollar home next to me in Napa... so its not only real estate many ways to make money.
Real estate is just a place to put extra savings unless your going to go into the business.
Then you have agents and commercial agents like @Russell Brazil and myself its all we do. So we are in it daily and you tend to gravitate to what you like and know.. my wife is one of the top brokers in the Portlandia market.. and just selling real estate ( which is a long game) but can be quite rewarding financially and she digs it and is really good at it...
To me there is the thought process of being financially free and I get that people want to retire I tried the retire stuff a few times over the last 20 years it lasted about 2 months.. for me its the art of the deal.. and frankly most of my social life I could not way stop working be bored to tears.. so buying cash flow rentals is not something I really aspire to personally.. helping people buy them I do.. but not owning them.. NO tolerance for tenants anymore or PM's
45 Replies
- Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes9y
Ok @Jay Hinrichs let's have some cities, and types of properties you like in each market.
- Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes9y
Originally posted by @Jay Hinrichs:
@Will F.@Andrew Johnson I have been funding out of state cash flow for investor for going on 15 years now... my simple advice for them.. buy the best you can... and have a way to scale to 10 doors asap... this mitigates the buying in the hood disasters.. it mitigates expense of travel to visit your collection of real estate.. And bonus is to invest in a market that you may actually like to spend time in or near so you can have some fun free time as well.
My new target for out of state is in the micro neighborhoods the kids are clamoring to get into and you have both cash flow and appreciation and really nice forced appreciation.. this is happening in many markets... pay to play Is a little heavier but there are some pretty cool projects to get into and new construction opportunites that are really nice.. better than west coast for the same dollars spent in terms of returns COC with reasonable priced leverage.
Some good advice here. The problem for most as I see it is the Siren's call of cash flow. Markets you may actually like to spend time in and places in the nicer neighborhoods (not Beverly Hills or anything, but nice, good, solid, B class neighborhoods) all show lower cash flow on paper day 1. The misinformed newbie tells themselves "I'm not a speculator, so I'm going to go where the cash flow is the highest" ... and blindly following this mantra inevitably guides them deep into the worst ghetto's in the country, where they buy a property for sub $50k/unit, they confuse price with value and think they've gotten themselves a great deal and great investment, never once asking themselves why a property would sell on the open market, turnkey retail, for less than what a car costs and way below the property's replacement cost, and then they very quickly discover the answers to these questions they never asked and find themselves in trouble. This sort of value trap is a tale as old as time ... following Jay's advice above would hopefully avoid a lot of this ... I still prefer local as I can control my financial destiny a lot better, and the same advice above also applies locally too BTW as well as out of state.
To be fair, the other extreme happens all the time too, buying a property in hopes that it will shoot up in value the next year, without doing their research, without considering the many other factors, over leveraging, and not having alternate profitable exit strategies in place. This will get folks hurt financially as well ... and as much as I love appreciation, there is a right way and a wrong way to go about getting it.
In short, ignorance is what is risky. Having tunnel vision and focusing in on just one factor, while ignoring other important ones is what is risky. Lot's of different ways to make a profit, and they all need to be considered even if one may be much dominant over the other, because any one of those factors can also sink you if you don't give it due consideration. If you can find a way to structure a deal to get them all to play together in harmony, though, you're going to make some good money.
- Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes9y
My take is that it depends what's more important to you: your balance sheet or your P&L?
Equity is "nice", but doesn't pay the bills. It's just illiquid "wealth": nice to have, but not very useful. Makes you lawsuit bait, as well, to those who make their living taking wealth away from others.
Cash flow builds as your portfolio grows and, in the end, what I personally want is to recover the retirement I lost between my divorce and the crash. Starting over is not easy in your late 50's and I'm 62 now.
- Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes9yDavid Faulkner I do remember the mid-2000s buying frenzy in Orange County. I lived there before moving to San Diego. There were so many sub-prime mortgage companies exploding in growth. Property values were rising, people were buying condos just based on FOMO. I had more than one friend that were planning to move out of OC in 1-2 years but bought anyway because, well, the property would rise in value 10% a year and it would only cost 6% to sell. I know my sample size is narrow and anecdotal but the core driver was the assumption that past appreciation was tantamount to a guarantee of future appreciation. And, of course, jealously of friends who bought 1-2 years prior and had seen their home values increase. Living through that "first time buyer FOMO" can't help by influence my thoughts on investing for appreciation based on past performance. Irrational speculative frenzy vs. intelligent investing for appreciation can have more to do with timing than anyone would like to admit. Well, at least over the short to mid-term timeframes. I see smart people saying that demand will never relent in the Bay Area so scarcity will drive prices continually higher. I see other smart people saying that price growth is unsustainable in that (and other) markets. Someone will be the genius that is right. Someone will be the idiot that "clearly didn't understand market dynamics". Or Kiyosaki is right and you need to sell it all and buy gold!
- 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@David Dachtera if balance sheet and equity are not important why is my bankers in all the states I work one of the first things they ask for.. they want to see if I have any true NET worth.. not a bunch of leveraged up non liquid assets that are really contingent liabilities ...
I think those that drink the cool aid of equity is not important just don't understand the next steps to creating wealth etc... Equity is everything at the end of day... Cash flow is nice.. but what happens when it stops... Ask all those apartment owners that saw 30 to 40% vacancy rates.. YOU see that all over Chicago.. half to fully vacant buildings ... bet they would like some equity.. see you can spin it both ways.. but give me a monster balance sheet and equity over 10k a month cash flow or 20k a month cash flow any day.. that easy to replace with a job..
- 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Karen Margrave No can do on public forum I am not about to give up my secret sauce and all the money time and effort I spend pioneering markets... :) its all out there on the web or the folks on BP can do what I do and fly 100k miles a year spend 60 nights at the Hilton looking researching kicking the dirt and then figure out were to invest :)
- Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes9y
Originally posted by @Jay Hinrichs:
@David Dachtera if balance sheet and equity are not important why is my bankers in all the states I work one of the first things they ask for.. they want to see if I have any true NET worth.. not a bunch of leveraged up non liquid assets that are really contingent liabilities ...
I think those that drink the cool aid of equity is not important just don't understand the next steps to creating wealth etc... Equity is everything at the end of day... Cash flow is nice.. but what happens when it stops... Ask all those apartment owners that saw 30 to 40% vacancy rates.. YOU see that all over Chicago.. half to fully vacant buildings ... bet they would like some equity.. see you can spin it both ways.. but give me a monster balance sheet and equity over 10k a month cash flow or 20k a month cash flow any day.. that easy to replace with a job..
I didn't say equity was not important, I said it depends what it is important to YOU, the investor.
Obviously, equity is important to you. Perhaps you have a way to convert equity to income when cash flow stops, I dunno. If you have that, perhaps it's blog post time. High vacancy in the current market is more the exception than the rule, though, due to the housing shortage. Here where I am in the far-flung suburbs, vacancy rates are in the 0% to 1% range. The only way I got this place was because the property manager is in my Renatus group.
Likewise, if you know of jobs undergraduates, etc. can get paying $10K to $20K / month, again, it may be blog post time. Many thousands of us professionals displaced from the work force would be all over that like white on rice. The last job I had before I was "retired" paid just under six figures - I have no degrees, I just happen to be one of a few hundred people in the world who do what I did as an IT pro. It's just not in demand anymore.
- Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes9y
Appreciation or cash flow depends on your market and personal situation. I suggest you know your end goal and work it backward. In my case, I go for both because every $500/month of NOI increase will give me the option of pulling out $80k of spendable money tax-deferred.
My investment formula is quite simple. Buy a non-performing asset for $1.2M. Put 25% down and obtain a 75% LTV bridge loan. Semi-stabilize it within 3-6 months, get it reappraised at $1.5-$1.6M, refinance to pay-off the bridge loan and pull partial of the equity out of the deal. Once fully stabilized within 2-3 years, I have the option to pull all, if not more, equity out as the assets are worth $1.8-$2M then. Rinse and repeat.
Cash flow is required to meet the lender's DSCR when you pull the equity out. Forced appreciation allows you to play with the house money. Then have the tenants buy you the buildings. Why do you have to pick one or the other? What's the point of having your cake and can't eat it? Change your mindset and things will change in front of your eyes.
Best of luck.
- Investor · Los Angeles County, CA · Member since 2012 · 962 posts · 279 votes9y
Yeah I'm not sure how hands on you guys are but it really depends on your current financial situation and how passive an investment you guys want.
I just think it's a lot easier to get burned out of state too--taken advantage by property managers, bogus lawsuits, ie replacing a roof--do you know the cost? what if it's $10-20k to replace a semi/flat roof in a snow area.... that's serious it's expensive and a liability. Are you going to follow up on it. Do you have someone you can trust on the ground to even see if the job was done decent... did they pull permits? Some dude falls off the roof? Are they putting a layer of silicone over the roof or doing a full tear out/torch down list can go on... Is the Property manager geting 10-50% cut out of the roof? There goes your "cash flow" out the door for 5 years
About 2008 man I remember when rental vacancy was 15-20% in southern california. Now it's 3% or less. I have difficulty looking into markets that are at less than 15% vacancy or worse they don't really have numbers because the area is so messed up economically
- Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes9y
Originally posted by @Will F.:
Yeah I'm not sure how hands on you guys are but it really depends on your current financial situation and how passive an investment you guys want.
I just think it's a lot easier to get burned out of state too--taken advantage by property managers, bogus lawsuits, ie replacing a roof--do you know the cost? what if it's $10-20k to replace a semi/flat roof in a snow area.... that's serious it's expensive and a liability. Are you going to follow up on it. Do you have someone you can trust on the ground to even see if the job was done decent... did they pull permits? Some dude falls off the roof? Are they putting a layer of silicone over the roof or doing a full tear out/torch down list can go on... Is the Property manager geting 10-50% cut out of the roof? There goes your "cash flow" out the door for 5 years
I have had similar experiences, though sounds like a bit less extreme, out of state. Thousands of dollars spent on repair after repair to fix electrical issues, only to find out that the repair didn't fix anything, so send another guy out. Turns out they were fixing stuff that was perfectly fine and the real problem was a faulty and oversubscribed electric panel ... only figured that out after process of elimination of repairing and replacing items that were perfectly fine.
OK, so send electricians out to bid on a panel replacement. Guy charges me $3k to change out the panel. Says he is licensed, says he pulled permits ... did he? No. The other electrician that was mad because we did not go with his rip off bid turned us into the city for faulty wiring. City came out, saw that the panel had been replaced without permits, and red flagged the home. We now have a home sitting vacant, in the middle of a Phoenix summer, past the ideal season to rent it, only it can't be rented because it has no power and the city will not let us turn the power on until we rip out a brand new electric panel, pull permits, and hire another electrician to replace it and get the job inspected and approved.
Mind you, this is stuff I would've been on top of, got references and checked out vendors, and followed up on had it been local. But silly me, hiring a PM because it was out of state, and assuming that they would actually do the job I pay them for and vet and hire decent vendors at a decent price, then follow up to make sure the job was done properly. If you ever wondered how a property that hit the 2% rule at acquisition and was owned free and clear can still produce negative cash flow for the year ... this is how :)
- Real Estate Agent · Pittsburgh, PA · Member since 2015 · 1k+ posts · 846 votes9y
B class rentals typically have a good blend of both. I prefer a combination with reasonable cash flow, but potential for consistent appreciation.
- Real Estate Investor · Williamson County, TX · Member since 2011 · 1k+ posts · 961 votes9yAt least one person I know of bought a property far NW Austin for 275k cash and rented it out for under $1900. $150 hoa. 2.4% property tax at least. Better than a CD because inflation hedge. My daughter's old college roommate asked for advise on an Austin condo...23 year old. I said it was nice and sent her a listing showing that that particular 1-1 condo was also for rent and that the rent would be cheaper than buying. She went ahead and bid over asking price. I guess that is an appreciation play.
- Investor · Solana Beach, CA · Member since 2016 · 25 posts · 17 votes9yChristine Kankowski Hi Christine. A couple of SD folks on bp have expressed an interest in creating a SD based REIA mastermind group. Any interest?
- 9yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
Originally posted by @Will F.:
Yeah I'm not sure how hands on you guys are but it really depends on your current financial situation and how passive an investment you guys want.
I just think it's a lot easier to get burned out of state too--taken advantage by property managers, bogus lawsuits, ie replacing a roof--do you know the cost? what if it's $10-20k to replace a semi/flat roof in a snow area.... that's serious it's expensive and a liability. Are you going to follow up on it. Do you have someone you can trust on the ground to even see if the job was done decent... did they pull permits? Some dude falls off the roof? Are they putting a layer of silicone over the roof or doing a full tear out/torch down list can go on... Is the Property manager geting 10-50% cut out of the roof? There goes your "cash flow" out the door for 5 years
About 2008 man I remember when rental vacancy was 15-20% in southern california. Now it's 3% or less. I have difficulty looking into markets that are at less than 15% vacancy or worse they don't really have numbers because the area is so messed up economically
My experience as a landlord in San Diego (maybe LA or OC was different) was there was no significant increase in the vacancy rate of rentals and no reduction in rent. How can this be as certainly people had hard economic times and moved either back home or into higher density living situations? It was due to bank inventory. The banks had a lot of properties sitting empty. Those ex-owners were now renters but many of their ex-homes were temporarily removed from the housing pool. Between the family and I we had 7 San Diego units (3 different areas) with no rent declines. Not a super large sample but large enough to extrapolate any increase in vacancy rates was small.
- Investor · Tampa, FL · Member since 2016 · 334 posts · 215 votes9y
Originally posted by @Jay Hinrichs:
@Karen Margrave No can do on public forum I am not about to give up my secret sauce and all the money time and effort I spend pioneering markets... :) its all out there on the web or the folks on BP can do what I do and fly 100k miles a year spend 60 nights at the Hilton looking researching kicking the dirt and then figure out were to invest :)
@Jay Hinrichs
I felt the same way as you.
Then a colleague of mine shared where he invests with me. He showed me block by block where the best areas are and which ones to avoid. Afterwards, I was so puzzled as to why he just gave all this information away. Was there some sort of catch? Was he going to sell me on something that I wasn't aware of?
So I flat out asked him - "if these deals are so good, why are you sharing them?"
He said "If I could buy them all I would. Since I can't, I'm happy to help you out! Plus, I know one day my good deed is going to come back to me. I don't do it for that, that's just how the universe works."
I've noticed that the most generous people have the most wealth and more importantly, seem the happiest. I strive to be one of them.
- Wholesaler · Philadelphia, PA · Member since 2016 · 35 posts · 20 votes9yI never bet on appreciation. Always buy for the current numbers, does it cash flow now. However I do try to get both. In other words only buy for properties that cash flow now but also buy in areas that have signs of appreciation. Good school districts, near boundaries of water, parks, other expensive neighborhoods, good job growth, universities , local cities developing the areas transportation and roads, huge commercial high end stores moving to the area, and he other things that tend to show signs of an area appreciating.
- 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Eric Delcol the difference between your friend and my little sub markets is I can buy all the great deals that come up. big difference
its the same thing here in Oregon at the court house steps.. there simply is not enough deals to go around by a long shot.. so when newbies walk up to most of us that have been doing it for years.. Invested hundreds of hours and thousands of dollars or more to put our systems in place then want to take us to coffee and learn how we do it.. its a polite no..
In General though so you don't think I am not a giving person.. this model plays out in virtually every major metro in the country... so go find the one you like figure it out and execute..
with the lower end rental markets.. well that's a no brianer NO one can buy all of those homes.. not even BLackstone ... but those deals are drying up as well as we know.. but there are still many markets you can buy cheapie homes.. just have to read on BP for few hours of those that buy sub 30k homes in the rust belt and other areas.. no major secret here.
But you probably missed the Duplex I GAVE away a few Christmas's ago to a BP member for a learning experience for the group here.. so I give in my own way. But I am not going to lay out chapter and verse were my honey pot is ..
- Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes9y
Originally posted by @Arthur Lyons:
I never bet on appreciation. Always buy for the current numbers, does it cash flow now.
However I do try to get both. In other words only buy for properties that cash flow now but also buy in areas that have signs of appreciation. Good school districts, near boundaries of water, parks, other expensive neighborhoods, good job growth, universities , local cities developing the areas transportation and roads, huge commercial high end stores moving to the area, and he other things that tend to show signs of an area appreciating.Arthur,
You don't have to bet on appreciation. You can force it. Don't buy looking at the current numbers. Look at where the numbers can be. As they say in hockey "A good player goes where the puck is while a great player goes where the puck will be." Just like those, who can figure out and invest in the path of progress, tend to reap the biggest payday thanks to appreciation/making the right bet.
No one in their right mind would buy an asset, put in their sweat and tear to make it perform and sell it to you with a nice cash flow. The numbers they present to you tend to be cash faux. That's how they can get a premium on their sale price. If you want the cash flow and the (forced) appreciation, you'd have to earn them. Just want to share my experience investing in one of the most expensive markets in America where six to seven figures could be made on just one deal.
Happy 4th of July to everyone!
- Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes9y
Originally posted by @Eric Delcol:
Originally posted by @Jay Hinrichs:
@Karen Margrave No can do on public forum I am not about to give up my secret sauce and all the money time and effort I spend pioneering markets... :) its all out there on the web or the folks on BP can do what I do and fly 100k miles a year spend 60 nights at the Hilton looking researching kicking the dirt and then figure out were to invest :)
@Jay Hinrichs
I felt the same way as you.
Then a colleague of mine shared where he invests with me. He showed me block by block where the best areas are and which ones to avoid. Afterwards, I was so puzzled as to why he just gave all this information away. Was there some sort of catch? Was he going to sell me on something that I wasn't aware of?
So I flat out asked him - "if these deals are so good, why are you sharing them?"
He said "If I could buy them all I would. Since I can't, I'm happy to help you out! Plus, I know one day my good deed is going to come back to me. I don't do it for that, that's just how the universe works."
I've noticed that the most generous people have the most wealth and more importantly, seem the happiest. I strive to be one of them.
Eric,
I'm one of those fools like your friend. I share deals with some local BPers in my market because my partner and I don't have the money to buy everything in our market. One of the BPers just got into a contract for a 12-unit building for $3MM. The other BPer who passed on a 10-unit building for $2M has been regretting it.
My partner and I made an offer on a 12-unit building this past week for $3.3M and got declined. We're now going after two 8-unit buildings off-market for $5.2M. Probable have to offer $5.4M just to have a shot at it. If they hit the market, we would have no shot.
I'm not the most generous person; I don't have the most wealth; however, I'm quite happy, and my friends love me. Keep striving.
Happy 4th of July to everyone!
- CA · Member since 2016 · 1k+ posts · 1k+ votes9y@ David Faulkner - your post made me laugh so hard.... not that I don't have sympathy, becasue I had a very similar experience with my OOS investing about 10 years... learnt my lesson and got out at $100k loss....Lol.. Same thing - repair after repair on any smallest tiniest issue... and nothing got fixed... Also got 2 friends coming as joint tenants... 6 month in, one moved out...the remaining only paid half of the rent... when he moved out, the pool was a mess.... I deducted $$$ from deposit to clean up the pool, and he sued me to court...I took a day off day, flow to Phoenix to appear in court and lost it....At the end of hearing, the Judge called me up close to him, and whispered to me: young lady, I am a landlord too... let me give you one advise,never fight a tenant !!!!!!! Lol.... After that lawsuit, I sold the property at $100k loss and went completely local.... Happy as happy can be ever since....
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