All Forum Posts by: Matt Mason

I see what you are saying, but I probably disagree that the high priced markets have more risk of an economic collapse.  I know it seems that way at first and most people think that prices across cities are predisposed to eventually equal each other.   

However, looking at recent history (last half century), the risk was being in lower priced inner cities of the rust belt like Detroit, Cleveland, Buffalo and not in higher priced markets like SF and Manhattan.  Maybe this trend will suddenly reverse, but it is certainly going the other way right now as American society becomes more stratified and the middle class is squeezed.

I do agree it is not smart to bet solely on appreciation and there is certainly risk that the past trends will not continue. Value add and forced appreciation are almost always great strategies. Also, nothing wrong with cash flow and I have some CRE investments in the middle of the country that have a higher initial cash flow, but lower chance of market appreciation. I seem to be one of the few that appreciates the diversity if being in some higher priced markets and some lower priced ones (albeit for different investment types). I do try to avoid markets that have no real growth though.

@Manch Hon, we are still waiting for a local company to hit it big and go public.  One startup was My Space and Mark Zuckerberg stated the difference between the LA and Silicon Valley startup scenes was evident in the difference between Facebook and My Space. Ouch.  We'll see if a company like Snapchat can actually make it and end that stigma.  For now, we'll have to settle for major offices of SV companies like Google, Yahoo, and Tesla.

In CA we def get beat up as a poor place to do business and I think that is true.  I hear when companies move, it is often because their employees cannot afford homes more than taxes or even excessive regulation.  However, the business formation, venture capital is def second to none. It is exciting to be in a place where the future is created.

Yes, the BK Tim Horton's tax inversion was debunked pretty thoroughly on CNBC this morning.  They may even pay slightly more taxes after the move/merger for a few more complicated reasons.

On evidence that the Bay Area is losing its cache in the tech world, because there are other centers like Austin and Boston, I couldn't disagree more with J Scott on this particular point (I think he generally gives great advice).  The tech industry is much bigger and applying itself into many more areas of our lives.  Just think - taxis = Uber, autos = Tesla, hotels = Airbnb, business reviews = Yelp, real estate = Zillow, business networking = Linkedin, shopping = Amazon, and it goes on and on..  The fact that there are now other tech centers doesn't diminish the Bay Area tech growth.  Tech is getting to be to big a part of our economy to be in one place.

Los Angeles now has the second most startups to Silicon Valley, but it is a very very distant second.  I can't even name a startup in Austin (Dell doesn't count as it is a dinosaur at this point), but most of the ones I named above started in Silicon Valley.

On appreciation, I still think it is a great buy to go in on certain areas on dips even if it is expensive.  I'd be careful now though, but overall I'd rather be in an area pumping out new companies with limited supply where I can consistently raise rents with limited vacancy.

The way I look at it is you want to be in a property that has the greater likelihood of increasing in value even if I have to take a lower cash on cash return initially.  I would never do negative cash flow but I want to know what value add projects or renovations I can do even down the line later to make higher returns.  I personally like a mix of higher cash flow real estate and some more growth oriented RE as well (although I try to find both as much as possible).

If initial cash on cash returns were everything then it would be the same as saying the higher dividend stock is always better.  Maybe or maybe not.  Stocks are more complicated and I think real estate is too, but a lot of people just don't see it that way.

Please don't use turnkey provider set ups for your pro-formas.  They have to understate the expenses and overstate the returns to market their deals to newbies.  They almost always understate repairs and leave nothing for cap ex., which is absolutely ridiculous.

Ned Carey gave you some good examples of why you need a cap-ex. budget.  That roof, water heater, and dishwasher don't last forever.  You have to include a yearly cost for those numbers.  Otherwise you will be in for a shock.

Your repairs number at $780 a year might get you through one turn if you are lucky, but then you don't have anything in your budget to cover anything else.  Doesn't make sense when you think about it.  Try to really think about each scenario when you out together your numbers.

I think the triangle area is one of the best areas in the country for future economic growth. If I were you, I would go to the local REIA to get educated and meet some local people in the know. Maybe look at 2-4 units too.

You are not going to get a cash on cash in that market that is similar to some of the Midwest markets, but you are probably better off in the long run in a market like the greater Raleigh area, but that doesn't mean you can go after any piece of real estate like this.  Pay attention to areas that are gentrifying and the so called Path of Progress.  Also, you may have to look for more value add plays in your market.

Good luck.

@Christopher R. , you need a line for Capex.

Don't use a cap rate for a SFR. They are really for commercial properties not 4 or less units.

Your cash on cash return is more like 3% not 32%, although with Capex I think you are negative.

To me, self storage is so easily replicated and built, you need to understand replacement cost if you are going to understand if this is a good investment.  @J. Martin 

it is not like the Bay Area.  These self storage areas can go up quickly in a place like most of Florida and that would likely impact the investment materially.

@Mark S. 

I really think the vacancy is probably too low for a C class in the middle of the country unless you are in a market that has a really low vacancy, which is not typical.  Also, if you are using property management, they will charge you a lease fee for releasing.  Finally, you'd want to capture eviction costs here.  In a C class you should at least plan for some.

Others with more experience in this type of investment in this general area of the country can comment and add more, but that is how I would underwrite it.

Your offer price should have nothing to do with whether you can see the units before hand.  Get the property under contract assuming they are just like the other unit.  Once you view them, if they are not up to the standards of the other unit you saw, then either negotiate a lower price or back out.  It is that simple.  Just make sure your offer is contingent upon inspection and viewing all the units.

What if the property had 10 people thinking about making offers.  You think if you were the owner, you would want to trudge people through your tenant's units 10 different times?  No.  That is why this is standard practice.

Yes, it is common practice to put in an offer before seeing all the units, but make sure your offer is contingent upon seeing all the units.  Once your offer is accepted, I would view all the units and then if everything was good, I would then hire the inspection.  As others have said, no way would you go through with the purchase where you haven't inspected all the units.  No harm in getting it under contract as long as you have all the applicable contingenices in place.  Your broker/RE agent should have explained this to you.