All Forum Posts by: Scott E.

For sure. The point of this post is to discuss the opportunities ahead. I don't spend all of my time researching. But I do spend at least an hour a day. It's important to keep your hand on the pulse, especially in these market conditions.

That's a fair point. The people who buy these buildings are no doubt very sophisticated and have massive teams behind them who understand economics better than any of us.

But just because they are sophisticated and have teams doesn't mean that whales can't get burned too. Unless these owners and developers have a massive emergency fund, OR if their bank can offer some time of a modification or a forbearance on the debt, I don't see a way out.

 Scary. This is where the opportunities will surface. But how bad it will get or how long it will last is not clear...

Well said. I'm feeling the same way. I've talked to some commercial brokers who say deals are still selling. But lately properties are generally selling to either owner-users, or buyings trying to place 1031 funds.

Every day I spend some time in the morning getting up to speed on the latest state of the real estate market by reading various news outlets, listening to economists, looking at data around inflation/inventory/rates, etc. There are 2 things that I've gathered from the last couple of months that everybody seems to agree on:

1. Nobody knows for sure where the residential real estate market is headed.

2. Everybody seems to agree that there is serious pain ahead in the commercial real estate market.

As far as I can tell, the challenges in commercial real estate are centered around a few factors:

 -Many loans coming to due in 2023 (about $270 billion worth), meaning owners will be forced to refinance or sell this year.

 -Vacancy rates are high (specifically in office and retail, also depending on the region). AND interest rates are high. Meaning that if an owner is forced to refinance when their loan matures, they will get stuck with a much higher payment on a property generating much less income due to vacancies.

 -Vacancy rates in office are already showing some serious blows to office valuations. It may be an anomaly but just last week it was reported that an office building in San Francisco worth $300,000,000 in 2019 is expected to sell for $60,000,000 today. Ouch. Link

 -The vacant office space is causing a ripple effect. If a 100,000 square foot office building is sitting 35% vacant in the heart of Manhattan or San Francisco, that is not just a problem for the office building owner. The surrounding retail shops who depend on those office employees as customers are hurting as well. And if they don't have as many customers, they are less likely to be able to afford their rent. Which is not good for the owners of those retail buildings either.

-According to various reports, real estate accounts for ~25% of US banks books and as much as 65% for smaller banks. If commercial real estate owners start walking away from their buildings, these smaller banks could also be in big trouble.

As of now they say most debt on commercial real estate is being paid as agreed. But this feels like a "calm before the storm" to me.

Would love to hear the perspective of those who are wiser than me on what the future holds in commercial real estate. I can't help but think that we are about to experience a lot of pain and a lot of opportunity in commercial real estate.

You've got a sound plan. And a realistic plan. 10 properties in 10 years is totally doable.

One of three things needs to happen to follow this plan and generate enough cash flow to quit your job:

1. Buy at a DEEP discount now by finding very motivated sellers, offering cash, things like that

2. Wait for prices to come down ~20% before buying (not a guarantee that this will happen)

3. Buy at todays prices, and refinance when (or if) rates come back down.

Unfortunately deals just don't cash flow like they used to. Sellers are stuck on their high prices, and rates are still too high (relative to where they were a year ago)

Came to say what @Larry Turowski said.

You should ignore those arbitrary rules when you're getting into house flipping. Underwrite every single deal, because every deal is very unique. After you do this enough times it'll only take you minutes to do a rough underwrite on a deal. Here's the formula:

ESTIMATED SELLING PRICE (ARV)

 -Purchase price

 -Purchase expenses (inspection, survey, etc)

 -Rehab cost

 -Misc soft costs (designer, architect, engineers, permit)

 -Loan costs (interest payments, points)

 -Other holding costs (utilities, landscaping, pool maintenance, etc)

 -Selling costs (commissions, closing costs, staging, buyer warranty, etc)

=PROFIT

You don't want to get rid of that 3% first mortgage, so a cash out refinance is out of the question. Use a HELOC to tap into your equity.

Regarding the rest of your question, my feedback is to spend a LONG time considering where to park this money. You say you're early in your real estate journey. Well you've done great so far getting to what sounds like around $1M in equity. Don't throw that money into a bad deal and risk losing it.

Take the next 6 months to study different strategies, analyze different sub markets. Browse around these forums, listen to the podcasts. Don't rush this next step. The market will probably get worse before it gets better anyway, so that's another reason to take your time.

Are you all cash in this deal up until this point? If yes, it'll be pretty easy finding a hard money or private equity lender to help you bring it to the finish line. And they wouldn't even be looking to split the profit. They'll just be looking for a ~12% return on their money from now until it sells.

(If you do go that route, you will need to forget about all of the people you've been working with who are dragging their feet. Find a good reputable general contractor who can help you wrap this house up in the next couple of months)

I was at a meetup last month and a company called "PadSplit" presented. Their whole business model is doing something similar to what you are describing. They cram as many bedrooms into a house as possible then rent by the room. Tenants share bathrooms and kitchen.

Personally I think it's a recipe for disaster renting 6 bedrooms out to 6 strangers who have to share common areas (even though yes, you'd get way more per month in rent)