All Forum Posts by: John Nachtigall

It is a math problem

Bid for someone else to do it $7000 (or whatever)

If you do it

Add up the contractors.   Lets say the painter, handyman, etc. add up to $5000

24 hours (3 days, 8 hours a day as an example) of your time = $2000 difference / 24 hours = $83 an hour

Plus in the real numbers and decide if you time is worth more or less than the result  

 no problem.   Syndication are how 99% of all commercial real estate is owned.   They are just a group of people who come together to invest in what is usually a commercial property.   Not just multifamily but office buildings, industrial, retail etc.    any commercial building of size is owned by a syndication.   They are SEC regulated.  Any billionare who "made his money in real estate" was most likely a syndicator.  

The general way it works is that the syndicator (general partner) finds a deal.   He finds investors (limited partners) to invest.   In exchange they get part of the profits.   Because they do most of the work the snydicator gets and outsized portion of the profits.  General link below

https://www.crowdstreet.com/real-estate-syndication/

So the advantage is you can own part of a large commercial building without getting involved in any management.   For example I own part of a storage facility in Texas, a 5 start resort in Vermont, and an office building in Kansas City.   All run by experts in those areas.  But it is risky, because is the general partner is wrong or bad....well you probably lose everything.

Hope that helps

I am going to go in a completely different direction here.  For a newbie , the best investments, in my opinion, in order

1. 401k/IRA broad market (S&P 500 or total market) index funds. Historically grow at 10% with dividends reinvested. Tax deferred so you get all the compound interest. Instantly liquid (although I would advise buy and hold for 40+ years). Can be bought free in small increments. Cost of ownership is a few cents, literally. Require no knowledge or skills of any kind and no maintenance or vetting. One downside is that you can only do $19k a year. The other is that it generates no immediate cash flow. But since the objective is to build wealth, not cash flow that is not really a con.

2.   Syndications:   You get all the advantages of commercial real estate without needing skills or knowledge.   For a newbie who has no idea how to vet, buy, staff, maintain, or dispose of a commercial property syndication provides an opportunity to invest in those properties.   You even get the tax and cashflow.   The con is you are paying fees and a promote to the experts who are running it.   You also have minimum standards to invest, you need to be accredited.  And most importantly you have to pick the right sponsors, so you do need knowledge in how to pick the right partner.  

3. Direct Investment (less than 4). I honestly dont think there is enough difference between SFH and MFH (<4) to make a big difference. In general they both give cashflow and appreciation. They both have great financing available. They both are scaleable to a level that most people will never exceed (50% of landlords have 1 property, 25% have 2-3). Cons are illiquid, require large amounts of capital (relatively), require knowledge and/or ability to run, and maintenance/capital improvements mean a reserve fund is required. Also requires at least moderate credit.

4.  Commercial Real Estate:   Objectively better than smaller units (<4).   better scaling, cashflow, appreciation etc.   You are less at the whim of the market, they are valued on cap rate not market trends so you can force appreciation easier.     Not great for the newbie because they have little to no experience.   Even larger capital and reserve funds required.   Financing is harder.   Analysis of deals is harder.  Ability of a newbie to syndicate a deal legally is very hard.    

5. Wholesaling/flipping/anything you buy on late night TV:   I am not going to get into wholesaling.  There are legions of posts arguing.   In my opinion anytime you need to find someone who is "desperate" for your strategy to work it is not something that fits my moral compass.   Flipping requires capital, experience, ability, skill, and some luck.   How can that be prescribed to a newbie.

That is my opinion. 

 

I know I am jumping ahead a few steps, but I think it will be interesting to see how their rental portfolio is handled.   It is quite extensive (according to them) and obviously since it is real property it can't be moved offshore out of the reach of US courts.   I would assume their turnkey business is suffering from the bad publicity, so the rental cash flow would represent most of their income going forward.  

They have been very adamant about using LLC to shield them from judgement. Will they keep the properties, hoping the LLC will prevent any recovery? Or will they sell them now before any judgement, and move the money offshore. Given they are strong advocates of leverage, and use class C properties that usually don't have a lot of appreciation, if they liquidate they probably can't earn anywhere near the same returns off whatever they net.

Are we going to comment on the irony that his latest video is titled “Building a Team”?

I feel like we need a contest on an appropriate subtitle.   For example

Building a Team: Civil and Criminal Attorneys are different

Building a Team: How to not to vet your business partner

Not very good I know, I am sure you guys can do better 

Well this clinches the "American Greed" episode for sure

I am an introvert also, I feel your pain.   Here is my off the wall suggestion.  A few things are always true, businesses are always looking for good people and successful people like to help people they view as similar to themselves.   

It should be fairly easy to find property managers in your area.   Same with wholesalers (call the we buy houses numbers) or maybe even realtors.   Call them or better yet go to the office in person and ask if they have jobs available, if so apply (I know this is hard as an introvert but tell yourself if it is a disaster you can just call the next number).  If no jobs then tell them you are looking for an internship position.   You are willing to work X number of hours each week for free.   At the end of 30 days you will be happy to leave if it is not working out, so they won't even have to worry about firing you.   I assume you have a real job, so it will probably have to be part time.   You may need to adjust your other work schedule to accommodate 

Now the key here is that you will be starting at the rock bottom.   Your first tasks will have nothing to do with real estate, they will be menial like getting coffee and running errands.   But in that time you will be making contacts and learning as you go.   If you do those jobs with gusto and enthusiasm you are going to get more important jobs.   Pretty soon you have a mentor.  

I am generally against unpaid internships, but to get your foot in the door it may be worth it.   After 30 days, if they want you to stick around that means you are adding value.  Now you are learning as you go and can start to negotiate money for your labor.  If it does not work out...there are other names on your list, try again.   

None of what I suggested matters, however, unless you have a burning "Why".   Are you motivated to change you life?   So motivated you will cold call people for a job?   So motivated you will work 2 jobs for awhile to get you foot in the door?   Decide what your "why" is and remind yourself of it every time they say no thanks or the door slams.   I know nothing about your life, but I assume there are structural issues like poverty that are holding you back.   You need to use your sweat and effort to overcome those.   It will not be easy, most fail.   But anyone can succeed, you just have to decide the "why" is worth the effort.

Good Luck

The Indy Star newspaper is continuing to cover this story.   Quite a few follow ups

https://www.indystar.com/story/news/investigations/2019/06/27/ex-fox-friends-host-clayton-morris-partner-bert-whalen-got-rich-tenants-lived-horrible/1351737001/

https://www.indystar.com/story/news/investigations/2019/06/28/ex-fox-friends-host-clayton-morris-real-estate-scheme-just-latest-indianapolis-mt-helix/1541027001/

Honestly stuff like this is why policies like rent control and point of sale inspections get enacted.   You see forum posts on this sit for stuff like "Should I put in Laminate or Carpet?", which for legitimate landlords is a reasonable discussion question.  

But these guys didn't have electrical wires and the roofs were literally falling on people.   To be lumped in with someone who would expose their tenets to such conditions is insulting.  But here we are with "3 common sense ways to protect tenets from bad landlords"

https://www.indystar.com/story/news/investigations/2019/06/27/3-ways-indiana-could-protect-renters-bad-landlords/1541103001/

I have no earthly clue how to solve the problem with the bottom 10% of landlords, but because of them costly regulations will be imposed on everyone.   And I honestly can't blame the government because if you look at this situation he did exploit the lack of regulation and enforcement.  It is a tough problem. 

i am not an expert in any of the loan stuff, but it seems like a math problem to me.

At some point the savings in the payment will cross over to the gradually "not decreasing" PMI. You could sit down with a spreadsheet and the amortization table and figure that out. Then make a decision

Does it cross over at 2 years...probably not a good deal

Does it cross over at 20 years?    Probably want to take them up on the deal

Just my $0.02

This is just my personal opinion and certainly there are more experienced investors here, but I think that catastrophic failure (bankruptcy) occurs when you try to get too cute with financial engineering.   Simply put people take risk for little to no reward.  

The bank is willing to lend you a large sum of money at a fixed rate of 3.7% for 30 years.   It is entirely possible that in the next 30 years that is less than the cumulative rate of inflation.  It also "forces" equity appreciation through debt payment.   This is an amazing financial deal.   

The other interest only loan introduces risk of interest rates increasing, no equity paydown, and a 10 year cliff.  in exchange for these risks you get an extra $500 per month in cash.   But this is not a $500 gain, it is actually just the same $500 you would be paying down equity (since the interest rates are the same).    So the actual benefit is having $500 in cash vs earning $500 in equity.   You get the $500 either way.

In my opinion, truly wealthy people don't care about how much cash in is their pocket, they care about how much real wealth they have earned and retained.   Cash flow is important, but your actual net worth is measures by assets - liabilities.   

Now I am sure someone will point out you could take that $500 and invest rather than have it as "dead equity" in the building.   Certainly high level professionals like syndicators use this kind of strategy on a regular basis.   They supercharge their returns by maximizing leverage and placing as little value in equity as possible, very little factor of safety.   I would just point out that it is a strategy that works...until it does not.   I would point to the ruins of 2008...which everyone seems to have forgotten.   None of those bankrupt people thought they needed a factor of safety either.   

So my opinion, take the fixed rate loan, enjoy the lower cash flow and the appreciation of your asset, and know that you are leaving some gain on the table for a large reduction in risk.