All Forum Posts by: Victor Menasce

Real estate is a business like any other business. It follows the laws of supply and demand.  Don't think cities. They're too big. Demand is a very local phenomenon. Some areas experience high demand, and others nearby can experience very low demand. I recommend investing in areas that experience high demand. 

In some cases, there is a lot of money to be made where a boundary exists between a hot neighborhood and a not-so-hot one. Buy on that line, and move the line. But you have to buy on a movable line. If the boundary is fixed (like a municipal boundary or a school district), then it's not going to move anytime soon. But if the boundary is arbitrary and historical, then it could be moved with enough development. 

A single home probably won't be enough. But if you redevelop 5 or 10, then the market will recognize that the boundary has moved. You can create huge value that way. 

A sheet of drywall will cost you about $10 regardless where you install it. But the value of that sheet of drywall is determined by the neighborhood you place it in. Put it in a location that has high demand.

Here's the math. It's not that different than a rehab, only with a larger construction component. 

I recommend never do a spec house in an area that is selling for less than $220 per square foot. It's hard to make the numbers work. 

The land has to cost you less than $20 per square foot of finished product. So if the land is 3000 SF, and the footprint of the house is 1200 SF, then the land has to cost 1200/3000*20 = $8 per SF or less. 

Hard construction costs should be $95 per SF or less. In your climate you'll be building full basements. Don't forget the servicing costs for 6 utilities (gas, electric, water, sewer, phone, cable). If your city has impact fees for new construction, you need to include those.

You want to make $40-$50 per SF in profit. 

Here's an example budget for a 1500 SF home with unfinished basement (not included):

Land: $24,000

Soft Costs (Architect, Engineering, permits, property taxes, insurance, loan interest)  $50,000

Hard Construction: 1,500 * $95 + 750 * $65 (basement) = $192,000

Sale Price: $330,000

Transaction Costs: $30,000

Net Profit: $58,000 (just under $40 per SF)

It's very difficult to amass enough capital by savings alone. My projects usually need equity of 250k each for about a year until we refinance. It would take me years to "save" that much money. But I can usually raise that amount in about 30 days from other investors. Learning how to raise capital is a critical skill that changes the game forever.

The rehab would need to be less than half of what you're being quoted. Anything more makes the deal weak. If you assume a 5% discount to sell it quickly, you're now at $114k. Subtract 10% for transaction costs. You're now at $102k. Subtract 25% profit margin (I only do 30% or more). You're now at $72k. Subtract your holding cost (8k?) Subtract purchase of $54k. You're left with $20k for rehab. Anything more doesn't work.

Andrew Lacy I have a colleague who is both an attorney and broker in Philadelphia. If you're interested in an introduction, send me a message and I'll connect you.

You can owner occupy 25% of it. But that doesn't mean that it will qualify for the FHA-203B program. Check with your lender on their underwriting rules. You may also find the basic rules on the FHA website. There are also FHA products for multiunit buildings. But they usually require 20% equity. They also demand strong accounting history.

I've known Phil Grove since 1993, and I've gotten to know his wife quite well in recent years. They're good people. Phil does invest in marketing his educational products. Some of that may come across as a little slick. But he also is the real deal. He has a technology background and used to be responsible for marketing of microprocessors at Motorola to companies like Apple. His products were used in the Mac family. He's deeply analytical, and he does the homework when developing a system for use within his investment business. His knowledge is deep and he is very creative in structuring deals. He is also president of the local reia, and has expanded the Austin reia model into a few other markets such as Houston and San Antonio. Hope that helps.

The Orlando market consists of several markets with different characteristics. In Orlando proper, you can only sign 12 month leases for residents. Short term leases attract hotel tax and the economics don't work. Seasonal and short term rentals are in neighboring communities like Kissimmee. But be aware that short term rentals have attractive rents during high season if marketed properly, and can experience periods of high vacancy during shoulder and low season months. Orlando is also a city where school districts matter a lot. Areas like Metro-West and Dr. Phillips have excellent schools and rental vacancy rates are near zero. Not true of other areas. Regardless of the city, real estate is intensely local. My business is headquartered in Chicago, and I live in Ottawa, Canada. I invest in several US markets. Strong local knowledge is critical to investing successfully, even doing it from afar.

Hi Andrew Lisi I'm a Canadian investor with projects across the US. Chicago is our central base of operation. On July 15th I'm hosting a one day property tour of our portfolio. It's mostly investors from Canada. My partner and I have sizable holdings in Chicago. We have space for 2 more people before we're full. There is a small fee to attend, just to cover our cost of putting on the event. I think you would learn a lot. We're not selling anything. It's purely an educational session. We'll be starting the tour at our head office on Diversey Ave. If you're interested, you can register at: www.greatcanadiantakeover.com/tours.html

Real estate investing requires skills in 5 areas:

1) Find the deal

2) Analyze the financials and put together a business plan

3) Raise the Capital

4) Construction

5) Flip it or refinance it.

I see many investors come into the business because they have a construction background and they think that is the whole job. In reality it's only 20%. If any of the other 4 elements aren't right, the project won't work. Make sure you get a well rounded education in these areas and partner with people who have the skills you're missing.