All Forum Posts by: Joe Villeneuve

Quote from @Jo Bradley:

Quote from @Joe Villeneuve:

Quote from @Jo Bradley:

2 thoughts….For me, once I owned more than a handful of properties, the deals started coming to me. Most often, from other investors I know that are retiring. The more people that know you are in the market for houses, the better. That said, I never needed to market myself, it came along organically. Secondly being a landlord is a long game. if you finance real estate it is generally a slow income producer for many, many years initially while you wait for either market appreciation or loan pay down to give you more options. While I am thrilled with a $300 initial cash flow, if you are not maybe there are other forms of investment that might interest you more. You might consider buying a property with cash if you want to see bigger returns or selling one of your rentals to pay off the second one if there is enough equity in it. 

Using cash doesn't get you a bigger return.  A return is based on the difference between cost (which is the cash you put in) and the cash coming out.  If you put all cash in, it will take a long time to recover that cash, which means a long time to profit.  Paying all cash and thinking it makes you profits faster is an illusion.  Numbers with dollar signs in front don't lie.

You are right, the return on investment might be higher with financing, but paying cash increases your monthly cash flow dramatically which seemed to be the concern of the OP who was concerned with only getting a $300/mo return. If I finance a project, it takes me 15 years (conservatively) to pay off that loan. Assuming I credit myself the same amount I would have spent towards principal and interest, I recover my investment in less than 10 years if I pay cash.  Sometimes I pay cash, sometimes I finance, it just depends on the situation. 

Wrong.  Sorry.  You're using incomplete math.  The math is very simple.  Cash in, cash out.  If you pay cash, your monthly cash flow goes up, but your return is severely delayed because it doesn't start until you first recover all of your cash in.  Thinking that your cash flow increase when you pay all cash up front is an illusion.
Keep in mind, your cost as an investor is ONLY the cash you put in.  If you buy all cash you are paying full price, and have to recover all of that cost.  When you pay only the DP, and you have positive CF, the tenant is buying your property for you.  You ONLY cost is that DP, and your profit comes as soon as you recover that.  Your monthly CF is less, but the recovery of your cost is much faster.
On top of that, if you took that full amount and spread it over multiple properties, not only will your total monthly CF return on that same cash spent (now on more than just one property) be much larger, but your total property value from having more than one property bought with that same cash be much greater.  That also means, your equity build up increases faster because any appreciation applied is now applied to a much higher total PV.

I'm lucky, because plans is what I do. I just do my own. Not just because of permits, but I want to make sure the contractors know what they're supposed to be doing. I have seen a number of deals run into problems where the REI thinks the rehab is straight forward and either don't need permits, or do simple plans and are missing a lot of things like you mentioned above. Then, there's the inevitable lack of info for the contractors, which can lead to any number of problems, all "dominoing", one after the other.

I'm lucky, because plans is what I do. I just do my own. Not just because of permits, but I want to make sure the contractors know what they're supposed to be doing. I have seen a number of deals run into problems where the REI thinks the rehab is straight forward and either don't need permits, or do simple plans and are missing a lot of things like you mentioned above. Then, there's the inevitable lack of info for the contractors, which can lead to any number of problems, all "dominoing", one after the other.

Quote from @Jo Bradley:

2 thoughts….For me, once I owned more than a handful of properties, the deals started coming to me. Most often, from other investors I know that are retiring. The more people that know you are in the market for houses, the better. That said, I never needed to market myself, it came along organically. Secondly being a landlord is a long game. if you finance real estate it is generally a slow income producer for many, many years initially while you wait for either market appreciation or loan pay down to give you more options. While I am thrilled with a $300 initial cash flow, if you are not maybe there are other forms of investment that might interest you more. You might consider buying a property with cash if you want to see bigger returns or selling one of your rentals to pay off the second one if there is enough equity in it. 

Using cash doesn't get you a bigger return.  A return is based on the difference between cost (which is the cash you put in) and the cash coming out.  If you put all cash in, it will take a long time to recover that cash, which means a long time to profit.  Paying all cash and thinking it makes you profits faster is an illusion.  Numbers with dollar signs in front don't lie.

City appraisal has nothing to do with value.  It's a number the city uses for property taxes.  The owners should have fought the appraisal.  Tax appraisals should be based on actual comps.  They go for the highest they think they can get, hoping the owners don't fight it.

If the sellers are using that appraisal, they need to be shown the comps when you make your offer.  Just list the comps you are using to justify your offer.  They either accept it, of they don't.  If they don't, they'll be waiting a long time to get what they want. 

When they reject your offer, and they probably will, don't change it.  You're correct, and they aren't.  Just politely say your offer is still in place if they change their mind...then wait them out.  

Never offer more than the what the sold comps dictate.  Never, ever.  I'm sure someone will come up with some ridiculous rationalization using the word "appreciation".  to justify making a bad offer.  Remember, you don't want the property, you want the deal.  Any offer over comps isn't a deal...no matter what the rationalization.

The most expensive word in the REI vocabulary is "rationalization".

I always cringe when I hear or read someone saying this.  

If this is the way investors learn, then the person that made the most mistakes, must be the smartest person in the world.

Yes it's true, you CAN learn from your mistakes, but it's cheaper to learn from someone else's.

I hope you're saying you need both, and not forget the book smarts and just jump into the street smarts.

Quote from @Robert Frazier:

It isn't going to be SFH, it will be townhomes and condos. We're building for $120/sf in Boise.

The reasons are myriad, but it is economics. Builders make big expensive houses because they make more money on those. It is a set of choices we make, and now is a time to change those choices. 

Why?

Cost to build right now is way too high.  Material cost and labor costs have jumped so high in the past decade (and continue to rise) that the cost to build new now is usually reserved for the very expensive homes,...the ones where the client can afford the high costs.

The number one reason why low income, smaller homes are not being built isn't because there isn't a demand for them.  There is.  The reason is builders can't turn a profit on them.  The margins are so slim it's not practical, as in not economically sound, to even attempt them.

All the positive energy towards "helping to solve the housing crisis" isn't going to do much.  When/if the costs to build go down, you'll see the smaller starter homes come back.  Until then, those that want to buy them will be renters.

None. They include too many comps that have nothing to do with the actual ARV. Too wide a range of square footage, too wide a range of distance on a map, too wide a range of dates. Most of them compile these wide ranges, then give an average high and low, then leave it up to you to work with those numbers.

They make the REI think they might get the high one, and figure the average is the low, not realizing why these numbers are what they are. A huge factor in calculating the ARV is "time on market". This is NOT the time it took to sell from the date when it was first listed.

This is critical, and rarely taking into consideration here.

The time on market should be measured from the date the listing finally was listed at the  price it sold for, and the date it was taken off the market.  The date listed as "sold" isn't when it sold, it's when they closed.  The date it sold, is when the property was taken off the market.

When you see a common Sold comp, for a common sized property within a close geographical area, look at the times on market. When you see most of these comps closing fast, you have your ARV.