All Forum Posts by: Ryland Taniguchi

 It's the Buffett adage, "Be fearful when everyone is greedy and be greedy when everyone is fearful."

Whenever property values drop below replacement costs, it has historically always been a good bet to go all-in if the job market remains in tack long term. Also hard to lose with cash flow.

The Phoenix will crash to extreme lows again during the next global banking meltdown. Lot of California goes to Phoenix when the market goes up and runs away when the market crashes.  I also looked at Vegas and Miami but didn't feel like the fundamentals were as strong as Phoenix in 2009-2011.

 Not just gurus but also groups that find deals, loan hard money and take the listbacks. I see people getting smashed every day when I talk to investors. 

If you do, we can do a BRRRR combo non-recourse loan. The first loan is a hard money loan for the rehab. The second loan would be a 30-year fixed lower interest asset-based non-recourse loan.

I have a great tax lien certificate strategy where I am making 90%+ IRR on but it is so good and so limited I can't share it. Lol Sorry. I also run three hedge funds and we return 8% to 11% to accredited investors on non-recourse 50% LTV hard money fund. It go 1/3 wealth preservation.

I am now buying BRRRR in Tacoma, which is an hour from where I live in North Seattle. Systematically getting 10 BRRRR a year at 70%+ IRR. I got a 1/3 cash flow through BRRRR.

Because I get such high returns in my wealth preservation strategy with almost no risk, it doesn't make sense for me to get less than 200% IRR annualized on urban development. I get in and out of the development projects in 12-months.

So I like to find urban houses zoned LR2 or LR3 in Seattle where you can knock down the house and increase the density to build 3-4 1500-sq foot townhomes. So I like to use unit lot adjustments to get 3 lots for free. I take the risk and use the hedge fund money to acquire the land. Then the fund will pay for survey, architect, engineering, geotech, landscape design and permit intake fees. So in a recent deal, the cost was $185,000 that I use the hedge fund cash for the downpayment. There is a 3-5 month review period on these type of development. I will then partner with someone about 2-months after I submit for permits and remove any uncertainties about the development. The last project I just did I sold 70% of it to a partner for $300,000. Because it took only 8-months, I got an IRR of 250% annualized.

The partner takes over the project and guarantees the loan... They take over all the risk. But on my last deal, they will get a return of close to 100% IRR as they will double the $300,000 into $600,000 in 9-months. Also, they will have a 1500 sq ft 3-story in Seattle for less than $200,000 that cash flows for $2800/month. Pretty safe all around.

So I already locked in my 250% IRR and will make another $150,000 on my 30% equity, another $150,000 being GC/builder and another $60,000 as the listing agent (but I have my real estate team do all the work). I got 1/3 of my portfolio in accelerated wealth.

Right now I am only investing in Seattle but looking to expand the hedge fund into another market where it's possible to flip and get 150% IRR.

You can see that about 85% of my money is safe and after I partner on the development deal I have no risk to the hedge fund. This strategy works if the market goes up, down or sideways and my blended return is 90%/3 plus 70%/3 plus 200%/3 or 120% IRR. In addition, I can increase my IRR for my portfolio after a market crash.

This approach that is safe but high yield is how I am now managing $45 million and it is on track for me to manage $200 million in the next 12-months.

In the hedge funds, we only take out a salary after $2 million in profit and it's minimal between $60,000 and $150,000. So basically all the profit goes back into the fund and adds extra layers of protection for the investors. It is a Reg D rule 506(c) filing. With the new JOBS act, you can know advertise a rule506(c) but it is the fund managers responsibility to verify that someone is an accredited investor.

 Depends what area for permits.

Seattle and some Eastside STFI are super fast.

For urban townhomes, the 10-week review period for non SDR or full design review is back logged by 8 weeks. So it's taking 18 weeks now.

Tacoma has been horrible. Been taking 5-months for gut-out rehab permits. 

Anything in Non-Incorporated King takes ridiculously long so much so that I would never buy anything in Non-Incorporated King

My attorney says LNI (Labor and Industries) is targeting flippers this year. Not just GC with a lot of employees. I believe LNI increases costs here by 40% to 50%. So much for affordable housing.

Kind of adding to the point about whether you can beat the market rates. From my experience you can but at the expense of time to complete the project. With hard money costing 8% of ARV per six months, I would rather pay market and get it done faster. Also, time greatly factors into the velocity of money and IRR. All things considered, better to pay the market rate and get projects done fast. In Seattle at least, you can only pick two of speed, quality and affordability. Quality is a given. So it's either speed or affordability.

 You mean the farmers market in Queen Anne? Lol

 Like most investors, I used to think the GC was the problem. But after trying to save costs by running my own GC with 39 employees, I know realize that the problem is the risk management. It is actually a bargain to get bids from GC who don't know how to price their risk managements.

The problem is actually the investors that don't any of the risks involved with construction and don't know what they don't know.

 I think it is always a good time to buy real estate BUT ONLY IF you take a diversified portfolio approach that hedges all your bets. It's like hedging in the stock market where you can win if the market goes up, down or sideways.

The diversified approach looks like 1/3 wealth preservation or super safe strategies like 50% LTV performing notes on cash flow properties or tax lien certificates. Minimum rate of 6% IRR.

1/3 in cash flow properties with a minimum IRR of 18%.

1/3 in accelerated wealth with a minimum IRR of 60%. These are flips and development.

The blended rate of return of this is 6%/3 plus 18%/3 plus 60%/3 or 28% IRR with 70% to 80% not at risk if the market crashes. You can't wait to time the market and no one ever gets it right. Best approach is to hedge all bets for all scenarios. In this portfolio, the wealth preservation does well in deflation. The cash flow properties does well in hyperinflation. The accelerated wealth takes advantage of the velocity of money.

 Thanks for asking and probably good to clarify. Mean different price per square foot for a rehab for different types of rehabs. For example, in my market right, from constantly asking every experienced Rehabber what they are paying in Seattle

$35 per sq ft for cosmetic rehabs in Seattle. That includes paint, carpet, countertops, flooring, tile, etc.

$75 per sq ft for gut-out rehabs. That includes new roofing, new Windows, new siding, lots of new framing, electric, plumbing and Hvac.

I have heard of experienced vets getting the cosmetic rehabs cheaper now but seems that no one is beating the gut-out $75 per sq ft. These numbers reflect today's construction market in Seattle where labor shortages are crazy and regulation is borderline socialististic. Only 4-years ago, I was paying $15 per sq ft for cosmetic rehabs and $40 per sq ft for gut-out rehabs. 

The same guys that used to work for me at $18/hour with no benefits are now asking me for $75/hour plus benefits. Many of the commercial builders are paying $125/hour for union electricians. Construction market has gone crazy.

My general point is that it is not cheaper to GC the rehab myself after I factor all the risk management costs. But Seattle might be an extremely liberal anti-investor state and our cost of risk management maybe substantially higher here than in other areas. 

Seems like a rehab that costs me $28,000 in Memphis TN is costing me $75,000 in Seattle for the same scope of work:

A little bit my background. I run 3 hedge funds currently and have worked 3 years as a framer and finish carpenter. I have done more than 300 construction projects and development projects. I also studied for my certificate in Construction Management at the University Of Washington. Nevertheless, I made so many mistakes in construction this year that cost me over $400,0000.

1) Mistake #1. Don't be your own GC on rehabs. I have now been a GC four times over the last 16-years. What I learned is that the cost of risk management is the same as the cost of direct labor and materials . The risks of being a GC include aesbestos fines, lead based paint fines, OSHA safety compliance, safety training costs, employee issues and complaints, HR risks, labor and industries risks, worker injury, litigation costs, construct defect management costs, quality warranties, settlement fees, construction delay penalties, work redos, workers milking the clock, inadequate project management and inadequate construction management 

2) Mistake #2. Know construction contract law inside and out. In Washington state, the GC has no rights pretty much to go after subcontractors. The GC cannot lien a property without the proper disclosures in the contract. A subcontractor and any employee in my state can lien the property easily. Have a construction lawyer prepare all of your contracts.

3) Mistake #3. Don't get the wrong supervisor. Just because someone knows construction very well, does not make them a good construction supervisor. The mistakes is costly and compounds. You need a supervisor that knows how to motivate construction workers. They set the pace, use vacations as worker incentives, and use job location placements as incentives.

4) Mistake #4. Better to hire a GC and get solid construction contracts to keep them accountable. Better than being your own GC and subcontracting out the work. 

5) Mistake #5. In the long run, you cannot do rehabs cheaper than the market averages per square foot. You may do it cheaper in the short run but just like driving without auto insurance, it works until you get into a car crash. After the car crash, it will cost you more to try to do things cheaper.

6) Mistake #6. Don't hire your own labor force. Maybe it's my state but more workers opens the can of worms for more regulation.

7) Mistake #7. You build your construction crews in the winter. During the summer, it is impossible in a hot market to build a crew in a hot construction market.

8) Mistake #8. Don't be a GC for other investors. It is suicidal because they most investors get crappy deals and underestimate the construction costs by 50%. Then they will blame the GC.