All Forum Posts by: Account Closed

@Jay Hinrichs

The permitting process is insanely laborious, long and expensive here in california.

I really don't see how they plan to address the housing shortgage with so much redtape, processing delays, and outrageous fees

I just spent nearly 200k in engineering and studies for only permitting 2 new homes in Topanga, CA, and the plan check only will last one year and half

It took me more than one year to permit a simple warehouse in South LA in an industrial area

Now buying cash would make sense if you could double your money in 12 to 18 month after subdividing, but i have yet to find such deals 

@Jay Hinrichs

yes, all the banks anywhere in the world want to see the permits before releasing the funds; the difference is that in France it is usually a quick, simple and inexpensive process to obtain the permits and you can make it contingent to your purchase contract; that means that you will only invest the earnest money and the engineering / surveying fees, which are usually very reasonable. Permits are usually cleared in about 4 to 6 months and are free of charge.

The developer usually charges a 5% deposit to the buyers; once 70% of the lots are reserved the money is held in escrow but used as collateral / downpayment by the bank 

I hardly see any interest in running this type of development if it has to be financed all cash; any leveraged conventional investment in a rental or rehab would yield a much better cash on cash return with less risk 

@Bill S.

thank you for the input; 

Lending is indeed the biggest problem; with no financing the operation would be pointless.

I just read below that Colorado savings bank offers inexpensive subdivision loans; about 5% up to 80% ltc... but this sounds too good to be true

https://www.bisnow.com/new-york/news/construction-...

I see you are from Denvers; Since you have some experience in this business have you tried to look into the local land development market? 

I think Colorado and Arizona could be an attractive place for this type of investment, given the population growth and new sfh construction numbers 

Does any BP member has professional experience dealing with large scale land subdivision projects? I found very little information about that subject on the forum.

I've ran a few successful subdivision projects back in Europe (France) and developped some parcels in California, and would be interested in learning more about the subject.

These operations can if executed properly, be very profitable, but i have yet to confirm if it is feasible in the US, anf if there is demand for shovel ready lots. 

In my home country, land subdivision can be very lucrative as it usually requires little money down and the cycle is usually faster than construction (less than a year). It also bears significantly less risk than ground up construction.

On the financial side, lenders will usually only require 15%-25% down, but will ask above 65%-70% pre-sale before underwritting. Pre sale proceeds bring more equity in the deal and if that's not enough mezzanine debt can  be raised through crowd funding or other private lenders; as a result almost 100% of the developer equity can be cashed out if structured properly. These deals normaly need to be above $2million to make sense as engineering, utilities and road works need scale to make economic sense.

I am not sure if this deal structure would even be legal in the US, and if this type of projects would be profitable. 

Some places like Texas, Utah, Colorado have huge population growth, so i guess it could make sense in those places..

Any info welcome

@Russell Brazil

What you are suggesting is that the market is perfect and provides equal combined yields to investors through appreciation and rental incomes anywhere in the country. While that may be true in some extent, the market is far from being perfect, otherwise nobody would make money, and the very concept of opportunistic investment wouldn't even exist.

A smart investment is to buy low and sell high with a calculated risk, and i find that very few understand that simple concept.

The reason why large cities have so low cap rates, is that domestic and foreign investors mostly focus exclusively on these overhyped cities and speculate on endless appreciation despite poor fundamentals, low yields and overpriced assets. 

Actually, the Detroit area for example yielded an average 18% appreciation + 17% average cap rate for the past 12 months; That's a combined 35% over the year, and the market still has a long way to go given the ridiculous price to income ratio and price per sqft, and the demographics and economy are steadily recovering since the past 5 years

On the other hand the LA market gained about 8% and an average rental yield of 6%; the market is grossly overpriced and incomes aren't growing

Smart investors should head were recovery is underway and distressed assets are, not where the hype is

@Bryan C.

depends what datas you refer to

I think attom datas, rentrange, Cushman and wakefield have some good informations about yields, vacancies, rent growth etc

https://www.attomdata.com/news/heat-maps/best-mark...

http://markets.businessinsider.com/news/stocks/Ren...

http://www.cushmanwakefield.com/~/media/marketbeat...

If you want to look at the fundmentals, look for reports like these

https://www.localmarketmonitor.com/index.cfm?event...

or go to the census.gov page

 https://www.census.gov/quickfacts/fact/table/cleve...

@Mike D'Arrigo

yes indeed, thank you for the input

I've given a closer look, and it looks like an attractive destination for rental investments; 13,1% average yield and 4,5% vacancy

There is also Kansas city MO and Columbus OH which offers very similar metrics, with growing populations; just slightly more expensive, but also higher incomes

@Account Closed

Of course, i look for the perfect market; who doesn't

well, if i only had invested in market i know and where i have connections, i wouldn't have made much deals by now, never left my home country and i would never leave California, the land of low yields

I think by educating yourself, talking with local developers, investors and re agents, you can get the informations you need in little time 

Cities like Detroit, Toledo, Cleveland, Pittsburg are probably better fits for short term investments like rehabs; poor demographics and high property taxes are not really appealing for long term rental investments; 

What do you guys think about Jacksonville, Florida for rentals? 

@Michael Swan

indeed... 3,39% in Detroit, 2,23% in Cleveland...

thank you all for the inputs

i found these interesting reports if it is of any interest to you

This study from Fitch analyzes most US markets and determines how overvalued or undervalued they are

https://www.fitchratings.com/site/structuredfinanc...

This one compares housing supply vs population growth vs price growth

I find the graph at the bottom of the page particularly interesting 

http://lenkiefer.com/2016/05/22/population-growth-...