All Forum Posts by: Lesley Resnick

Today Lesley loves cash flow.  

Future Lesley loves appreciation and equity, except you can not spend it.   

My strategy has not changed.  Buy good assets and leverage them with low cost long term loans.  The best assets (A+), don't cover their debt service, i.e. the 3m house that rents for 10k a month.  This would be a terrible investment, since you would have to take money out of your pocket every month to own the property.  

In the words of Warren Buffett, "my hold period is forever."

I expect my daughter will inherit my portfolio.  Now if anyone wants to buy it above market, everything is for sale!

I have been slow to adopt new strategies, I never jumped into the AIRBNB business, I wanted to to see how it played out with the municipalities (HOA). The other problem is you need top properties to make it work, ocean front, TPC golf course. It is the hotel business, not real estate.

I have one pad-split type property, down from 4.  The first and only one remaining has turned into a home run.  This led us to convert 3 other properties to that model.  It is a tricky model and high touch.  If you need to live in one of these places, something has gone wrong in your life.  With a a roommate or a family member to share the rent, you could have your own place and not share with strangers.   

I wait for my pitch and swing for a double.  Home runs are rare and can lead to bad outcomes.  If an amazing opportunity came up, I would jump in with both feet.

You must chase 2 objectives.  Long term strategy and goals are just that, long term.  Second, listen to the market, don't second guess or try to predict it in the short term.

I check the daily forecast, but keep an umbrella in my car just in case.

Pad split is neither good nor bad.  It is location and market driven.  

There is an insatiable need for affordable hosing in most cities including Jacksonville.  I currently have one.  I had four at one point and converted them back to sfh.

Challenges to be aware of:

1.  LOCATION is the most important criteria.  Is there public transportation, the bus.  Is it walkable?

2.  How close are you to the local Walmart, dollar store?

3.  Do you have enough parking?  Otherwise you will be constantly battling with the neighbors.

3.  What is the zoning?  There are very few places in a city that you will find the correct zoning for the pad split model/  However, most cities do not have any significant enforcement.  

4.  The neighbors will make all the difference.  Of they call city and the police, you will spend a lot of time managing that situation.

These criteria are mostly same for SFH.

In Florida and in many states wholesaling is in a gray area. The wholesaler is selling something they don't own.  If they have an equitable interest then is less gray.  There is little regulation of these transactions, caveat emptor.  There is money in RE so it attracts sharks.

It is not their job to make you profitable.  There job is get as much of an assignment fee as they can.  As a practice they will come up with rehab figures that are impossible.  They will leave out entire systems.  The house is 80 years old and the plumbing has never been updated.  It works now, but it will fail in the near term.

Their seems to be this notion that, since it is a wholesale deal it is a good one.  On face value a deal should stand on its merits, not just assume it is good or you can trust anyone else's assessment.

The best advice is find someone to help you.  It should not be your mothers neighbor who sells "high end residential house."  You are looking for someone who has done a lot of transaction in this world, preferable some with their own money.  If they know the wholesaler from other transactions, even better.

The idea that I am a successful smart person and I can do this on my own, is a recipe for disaster.  

I regularly work with investors who insist on chasing the last dollar.  In other words, they get a solid offer and want to hold out for a better offer.  Your most profitable deal is the next one.  Deal flow is more important than any individual deal.  In a overheated market holding out, may work out.  In most markets that is not the case.  There is a cost to holding a property and longer than absolutely necessary.  There is always the possibility of the pirates braking into the property and vandalizing or stealing the appliances.

I would suggest that the first real offer is the best offer.  Obviously there will be people who want to offer you less than you have invested in the property and then ask, "why don't you want to sell your house?" 

 I think it is even simpler.  You are talking about a good tenant.They exist in all categories.  Clearly a good tenant is more profitable than a bad.  No spreadsheet or "rule" will acount for the difference.  If "Karen"  moves in, she is going to make you miserable not matter what.  We have gotten calls about squeaky closet doors in the extra bedroom.

On the other hand I had a tenant for 3 years, I met him when he moved in and again when he moved out.  He treated the place like it was his own.  There was nothing to be done for the rental turn.

Regrettably, background and a credit report will not tell you if they will be a good tenant.  IT is more art than science and you will never know until it is to late.

You make some excellent points.  Through out history there has always been a high Gini coefficient.  It will continue to cycle through time and location.  It is even more prevalent in the third world.  The enlighten strategy is to make sure that the the poor have enough not to revolt and redistribute wealth themselves (Russian Revolution, French Revolution, etc.)  The lower socioeconomic classes in America have been promised the opportunity to raise themselves up.  That opportunity has largely kept the peace.  

Home ownership has been a key part of that peace.  "I am not going to burn down my own house or my neighbors house in protest."  Doing so will effect me directly or indirectly.  If the neighbor and I do not have a ownership in the property, who cares.  I can go somewhere else.

Enter government participation in private single family RE, Fannie Mae, Freddie Mac, state sponsored programs.  The best rental neighborhoods have a large owner occupied population.  They take care of their property and call the police about crime.  The letter rating of a neighborhood becomes less important in these cases.

The other concept that has always eluded me, is that the poor are not a monolithic group.  They are fragmented, by geography, ethnicity, skills and education.  Politicians draw great power from this fact.

A rising or falling market will drive the quality letter of an area.  If the A neighborhood is unaffordable and the B is near by, I can easily travel to the A for resources.  

The opposite is true as well, if the A neighborhood is only slightly more expensive than the B, resulting from a weak market, then people will decide not to move to B as the quality people migrate up.   When you look at the bottom neighborhoods, the values are low and the owner occupants have moved to better neighborhoods.  Those areas sprial down creating a self fulfilling profacy.  

It is the cheapest money you will never spend, the seller covers it on MLS transactions.

If you are dealing with a wholesaler, you should use an agent with experience in the wholesale world.  If the agent does not know the wholesalers in town, you should find one that does.  While you will have to pay something it will be the cheapest money you ever spend.  The agent should keep you from face planting.  The wholesalers do not have your best interest in mind.  No matter how charming and warm they seem, their job is to extract as much from you as they can.  You only need to get burned once and you will see the value of paying for talent.  There is no regulation or enforcement of bad behavior by a wholesaler. 

Let the buyer be ware.

There are a lot of people out there with GOLDEN HANDCUFFS, a 3% 30 year mortgage.  They could sell their house at an appreciated value.  The next house would have a higher rate, they would pay a similar amount or more for a similar house.

Investors are a small part of the housing market.  Owner occupied homes drive the market and the home values.  If there isn't buying and selling across the board, then pricing and supply are effected.  

Its not just the rate, but the uncertainty of the future of the rates.  There is not much clarity in when and how much rates may change.  In this scenario, waiting for clarity may be a reasonable approach.  However, this should not be THE RULE.  Wait for the right pitch and go for it.  In time the market will come to you.  

I am bullish on AMERICA.  This is a long game.  If think you are retiring on any one deal, you are probably in the wrong business.  Over time and a disciplined approach, you will get there.

There are always good and bad deals to be found.  There is a lot of money on the sidelines waiting for clarity and some level of predictability in the economy.  I think that money coming into the RE market and the health of the overall economy will effect the market.  

Bear with me for a second while I geek out.  There is a principle in economics called financial repression.  The idea is that if a government has a large debt as we do, the government will allow inflation to stay above average levels and lower the interest rates.  The dollars become worth less than the dollars that were originally borrowed.  That is actually the classic definition of inflation.  It is money having less value, to purchase goods and services than during previous periods.  Increased price is a side effect.  When inflation runs high and debt service costs shrink, lower rates, the debt shirks buy the gap between inflation and the cost of money.  It gives politicians the appearance of doing something positive. 

In this scenario, the losers are people holding cash or cash equivalents, saving accounts money market, bond funds and highly leverage banks.  

The winners are politicians and government.  People holding leveraged hard assets, real estate with a loan will be protected from inflation as the price of your property rises.  The payments you make to the mortgage company will be made with less valuable dollars.  RE investors will benefit from the same gap. 

In short, financial repression is good for RE investors and not as good for main street.  The media will not be covering this sine it does not make a good sound bite and it is a complicated idea.

I do see better days ahead.    

 Passive is a tough to define.  It is only a tax status.  If you have a property in another city and strong property management and once a month you look at the report.

On the other hand, if you have a stock portfolio and you check it every day, read the annual reports and 10ks, it is time consuming.  It is considered a good practice to  regularly evaluate your portfolio for which securities to buy, hold or sell.  Should you be buying solar companies in the current political environment or oil and gas?  While that is an easy one.  Should you buy NVIDA, is it going to keep going to the moon or is competition coming from China?  Will there be tarrifs on chips next year?  Will they be allowed to sell thier chips in China.  Starting to feel pretty active to me.

The only truly passive thing to do is hold cash under your bed and that does not have much of a return.