All Forum Posts by: Bryce Y.

Hey guys I made a post recently saying I was going to move to Austin specifically for REI, but now I am reconsidering. I checked out the RENC website and this is what worried me:

If you are looking for buy and hold investments, you’ll need to understand a few things about Austin. First off, because of property taxes, most investors don’t cash flow on rental property unless they put down a sizable down payment. We jokingly say that Cash Flow + Austin = Oxymoron.

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We use a strategy called Get Rich Slow or GRS. The basic principal for us is that we don’t care much about cash flow, although we do like to break even. But what we do care about is appreciation and in Austin, with the projected growth and by buying in the right place, you’ll definitely feel the appreciation. We get excited not when properties bring in $1,000/year in cash flow, but when they bring in $10,000/year in appreciation. Now that will make a significant improvement in your standard of living especially if you intend on keeping the property for a while.

Now, I haven't made a decision as to what type of REI I want to do simply because I have no experience. However, cash flow is very important to me, because at some point I want to do REI full time and cash flow is essential for that. My tentative long term plan is to work my way up to larger MFDs via flips and 1031s etc. The lack of cash flow due to high property taxes (about 1.8% I think I read somewhere) really worries me. I'm all for appreciation but I view that as an added benefit with cash flow being number one. Can any Austin (or Texas) investors chime in?

Vegas also crossed my mind. Prices are really down there and cash flowing properties seem to be abundant. However, when the economy recovers, I am concerned that the increase in prices will cause these cash flowing properties to grow less and less. While appreciation is a huge upside, I would still value cash flow more since cash flow can pay my bills whereas market appreciation cannot be controlled. Being a popular place for out of state investors also seems to be a negative. I think I also read that the Vegas flip market wasn’t very good (?).

The only reason I say Chicago is because I seem to see a lot of investors on this board posting about great cash flowing deals there.

Bleh, I know I am really overthinking this, but this is a big decision for me, and I’d like to get it as right as possible. Thanks in advance.

Lynn - Thanks. You bring up some really good points. I wasn't aware of the whole income after expenses thing for self-employed person. As for finding a good loan officer, my best bet would be small banks and credit unions, correct?

Michael - If I change my mind and come out to Kentucky I'll be sure to let you know! Sounds like you work for a pretty awesome company. I did health and welfare before and I'd be lying if I said I didn't hate it. Just so monotonous, not to mention the time outside work to study for exams. I'd love to chat with you, but it says I can't send a PM until we're colleagues. How do you become colleagues?

Thanks. Yes, actuarial work is extremely boring to me, especially since I don't want to do it as a career. I haven't really kept up with the job market, but it is something I will look into. Do you think the benefits of getting a "good" job to get cheap financing outweighs the benefits of learning faster (with a job in the RE field)?

Also, do most banks require you to be working at your current job for a minimum amount of time before they will feel comfortable lending? Can you just pop into the bank after you get your first paycheck and request a loan?

After reading a lot on RE (thanks BP) over the past year, I have decided to move to Austin (90% sure) to pursue REI sometime this year, as it is currently impossible to do here in Japan (I am a US citizen). A little background. 26 years old. No actual experience, just a lot of reading. I have a good monetary cushion (don't want to say the amount, but it is more than enough to live on for at least a year without a paycheck) that I plan to use to get settled and begin investing. Since I have no real experience, I don't know what type of REI I want to pursue. Buy and hold, flipping, mobile homes, etc. all look interesting and I'd be open to any of them.

I guess I just wanted to ask you guys what I can do right now before actually moving, other than continuing to educate myself. I was thinking of getting my RE license to save on closing costs as well as get MLS access. Is it possible to get study materials from abroad?

Also, once I get there I will need to get some kind of job, but would prefer to get a job in the RE field so I can support myself as well as get educated at the same time. What jobs are available for someone like me with no experience (I have a degree in math with some actuarial experience)? I was thinking working for a property management company or something. Is this feasible?

That’s all I can think of for now. There will probably be more later. Of course any other advice would be appreciated as well. Thank you!

Where can I find this? Thanks.

The 13% number was set by my grandmother, who has since passed away. She really wanted to keep the management within the family and hence offered an above-market rate. None of the other shareholders wanted to do it, so my parents (reluctantly) took the job.

I am not 100% sure on the way property management companies work, but I assume that if a toilet gets clogged, they make a phone call to the handyman, and send a check to the property owner. And this is outside the set 8-10% I am assuming. Please correct me if I’m wrong here.

My father acts as the handyman for most of the repairs, and his time is not billed. It is more or less included in the 13%. Add to the fact that they have a vested interest in doing good quality work and I think that’s at least some justification for the higher rate.
I hope I don’t come across as defensive about this even though it may sound that way, just pointing out what the situation is.

Maybe a solution might be to reduce the rate to the market price of 8-10% and have my dad bill his time? But I can almost guarantee that the one headache shareholder would make an issue of this, either claiming that the hourly is too high or my dad is writing down more hours than actually working, etc.

Thank you for your replies. I just got done talking to my parents. It seems they are now leaning away from doing a CPR (subdividing) because they would likely be taxed as developers due to the fact that they already did a similar project before, about 6 years ago. But here are the revised numbers that they told me. They estimate they can get about 25% more for subdividing, so about $5 million total. They estimate costs would be about $300,000, and the process would only take about a year to complete. So the numbers look roughly like this:

$5,000,000 – closing costs 8% ($400,000) – cost of subdividing ($300,000)

= $4,300,000

Compared to the $3,760,000 if they sold now, it’s a difference of $540,000. Split 5 ways it comes out to $108,000.

If they invest the $752,000 they’d receive now for selling, at 10% interest it comes out to $75,200, a difference of only $32,800. Obviously they’d receive compensation for doing the conversion, but it’s hard to imagine it’d be enough to make it worth doing.

However, like I said earlier, they probably won’t go this route, so the question comes down to what to do about this shareholder that wants out. Like I said in my earlier post, this guy is a real piece of work. He would conceivably go out of his way to make things harder for everyone, hence wanting to get bought out at full price.

The solution that seems to make the most sense is to just keep things status quo. The building is owned free and clear by the family members, and the market is kind of in a slump right now, so they can afford to just wait it out and sell when the market improves. However, for some reason, this guy wants out now. The other shareholders seem to think nothing of buying him out at full price. The only resistant ones are my parents. The more I think about it, the more I think perhaps they should just buy him out to just get him out of the picture, since it is almost certain he will make waves in the future. He definitely would take this to court and cause headaches for everyone.

Yeah, this guy is a real prick. He has a grudge against a few of the family members and especially against my parents. Hence he likes to make things really difficult if for no other reason than to feed his ego. He is a real headache to work with.

Hey guys, I have a question about an apartment complex my parents are thinking about selling. This apartment complex was gifted by my grandfather to his 5 children, who are now equal shareholders. He built the apartment himself. One shareholder wants to get out, either by having the others buy him out or by selling the whole apartment altogether. Here are some numbers. If you need anything else, just ask and I’ll ask my parents.

Year built: 1960~ (will double check)
Units: 24 or so (will double check)
Monthly gross rents: $24,000

A realtor said he was confident that if they sold now, they could get about $4 million (yes that’s right, this is in Hawaii where housing prices are retarded). However, my parents are thinking about doing a CPR, or basically subdividing and selling each unit separately as a condo. They have already done this before with one property and realized a much larger profit as a result. The risk is that it’s more costly and risky because it takes a long time (a few years) and the market could change during that time. But they do have some experience and seem confident they can do it again.

I mentioned earlier that one shareholder wants to get out. Well this guy is a real pain and really difficult to work with. He wants to be bought out at full market price ($800,000). My parents currently manage the property for about 13% of rents, and he constantly complains that this is too high, maybe rightly so, but they have a vested interest in the property so they do a good job. Right now the apartment is 100% occupied and the tenants are mostly all good/long term. My dad also does a lot of the handy work himself.

For the other shareholders, none are investors and so none think like real estate investors. They are very risk averse and generally want to take the easiest pain-free route (sell for $4mm). They are very worried about doing the CPR and coming away with less than the $4mm they would get if they sold now.

So here are my parent’s options as I see it:

1. Sell the property for $4 million.
2. Buy out the shareholder that wants to leave in full, so my parents would own 2/5 of the apartment, then possibly CPR (subdivide) or just hold.
3. Parents step down as managers and hire a management company for 8-10% of rents.
4. Get bought out themselves, either for full price (unlikely) or at a discount.
5. Buy out everyone else (or maybe 1 or 2 more shareholders) and CPR, thereby realizing a bigger profit if everything goes according to plan.

Sorry for the long post. I am a real estate newbie myself, so I guarantee I’m missing a ton of things, so I really could use your help. Thank you!