All Forum Posts by: Scott Lewis

Some cities are more prone to boom/bust cycles than others.  I think the most important factor is the length of time between an observable supply shortage and new supply coming onto market. 

Some cities have higher (and longer) regulatory burdens than others. Miami, with its unique ecological situation, is in this category.

Some cities have no raw land, so they must build up. Residential towers take a lot longer to build than SFR. Miami is out of raw land (the everglades and the ocean aren't going anywhere)

Both factors combine to create a Miami real estate market that is much more volatile than other cities. If you can't find anything that makes sense, maybe the market is experiencing an unsustainable shortage right now. Eventually builders will build more sqft in the city, and that oversupply will send prices crashing back down to an equilibrium level (or overshoot to become cheaper than equilibrium)

I haven't looked at Miami in a long time, and I don't have a sense for what the situation is right now, but I'd listen to whatever the numbers were telling me rather than force it.

Hi,

I'm Scott. I'm working on starting a wholesale business, but I want it to be good. I want it to solve problems for people, and I want both sides of the transaction to be satisfied after the deal closes. And if I want it to be good, it can't bad. So if you could tale a couple minutes and share your worst story of dealing with a wholesaler, I'd be super-pumped (and be one more step on my way to doing something not bad). THANKS!

I've priced a decent number of complex deals, with one catch. they weren't for real estate. they were mainly for various types of complex financial derivatives that were unique and so you could not use a comparative approach (cap rate based valuation is comparative, imo).

It sounds like you are going to repair the asset so it no longer loses money (duh!).

after you have repaired it, what will it be worth? whats a similar unit going for in the area. you can use comparisons for that. (stabilized value)

then what does it cost to fix up the complex so it is stabilized? (repair-cost)

your taking a chunk of risk that there may be much worse problems than you anticipate. you need to get compensated for that. how much is fair for that? (repair-risk-compensation)

next you are spending your time on this project. you need to be compensated for that too. how much is fair for you? (time-compensation)

next it seems like you may have a lot of risk of having to deal with stressful situations. maybe evicting people that haven't been paying rent. maybe worse stuff. you need to be compensated for that (stress-compensation).

and the last item is opportunity cost! if you do this deal, are you going to be less able to another similar deal? if yes, than you need to be compensated for that too. if not, then i wouldn't include it. (opportunity-compensate)

so if we do: 

(stabilized value) - (repair-cost) - (repair-risk-compensation) - (time-compensation) - (stress-compensation) - (opportunity-compensation) = indifference price

we get your indifference price. this would be the value that you would be indifferent if you got or lost the deal. lets say the stabilized value is $1M. and the sum of all your decrements was $500K. gun to your head you would do the deal $499K and would pass $501K. not you have to try to maximize your excess value.

lets say you think a $480K offer has a 100% of being accepted. a $450K offer has a 50% chance of being accepted and $400K offer has a 30% chance of being accepted. what do you offer?

480K gives you 20K excess value. 450K gives you a 50% at $50K excess value, which is worth $25K to us (.5 * 50K), and $400K gives you a 30% shot at $100K of excess value, which is worth $30K to us (.3*100K). in this little play example, i set your offer at $400K and hope for the best.

anywho, again, no experience valuing multi-family units, but i do have some good experience valuing stuff that is difficult to value.

what would people need to work with a newbie wholesaler? What would you look for to convince you that the newb had the potential to provide real value down the road? someone that reads a book /attends a seminar and wants to get rich quick wholesaling, probably isnt worth the time bc they prolly fail and quit within 3 months. i've been working to set up an infrastructure that can create value for motivated sellers and investors, and I want to be able to create value for other people from day 1. If you don't see a real estate heavy resume, what can make you want to give someone a shot at working with you?

i agree with the other posters about the language. It seems like they are just explicitly restricting people from using the home as a live/work space. "within in unit" specifically makes me think it is live/work restriction rather than a restriction on leasing. Like if you wanted to run a house keeping agency or a one person law office or some other business out of your house, you can't. It makes sense that an HOA would considering restricting that bc it could create non-resident traffic. If they wanted to forbid you from leasing out the house, wouldn't they make a seperate clause for that? rather than just tack it to these other things (business, commercial, manufacturing, etc).

Hi,

What's the most painful part of process for flipping, wholesaling, or investing? Whats the biggest bottleneck that gets in the way of doing a chunk better? pretty new to everything here. I'm living in Nashville right now, but really interested in everybody's issues across the country that they want gone.

sorry for the long-term lurking. ;). thanks for all the wisdom so far!

scott

gold is not going to replace cash for a few reasons. It has many competitive disadvantages to cash.

1. denomination problems. $20 dollar bill is a $20 dollar bill, even if the corner is cut off. Gold coins found from periods of gold use (roman et al) are often shaved down. a gold coin that is not  whole is a big problem, as a gold coin only has its own intrinsic value not extrinsic value given by a state. It is costly to carry a scale around with you to weigh coins every time you make a transaction. A strong central state backed currency eliminates this inefficiency.

2. Tungsten. It is easy to counterfeit gold. gold plated tungsten has a density very, very similar to gold. go to alibaba.com and search for gold-plated tungsten. A thriving market exists only to supply con-artists passing gold-plated tungsten off as gold to naive gold buyers. You cant carry an acid test kit and drill around with you to drill and test every payment you receive. But your dollars have good anti-counterfeiting measures.

3. History is in the past. Previously it was very, very hard to maintain rule of law through a physical territory. With inventions like printing presses, telegraphs, and internal combustion engines maintaining the rule of law over distance became alot easier, and states (countries, not TN or AL) are now able to ensure the veracity of their paper currency. The limitations of state power that  made gold the optimal currency are gone, prolly forever.

If there was a revolution (to anarchy?) or a nuclear war or some other apocalyptic event that destroyed the rule of law, having some gold is prolly a great idea, but those scenarios seem to have a low probability of happening to me.

kerry,

loved those sites! the uw-madison site especially!

thanks!