All Forum Posts by: Vikram C.

To some extent this is an issue of credibility and trust. Many large businesses have separate ownership and management. Management often gets compensated at least partly based on performance. In the past, this has led to abuses by management where they have "calculated" market value in an unreasonable way to inflate their short-term performance. This was a transfer of wealth from owners to unscrupulous executives. That's why I am always very careful with mark-to-market accounting while evaluating a stock.

Jeanne, the buyer IS the owner of the house when he buys the house during the foreclosure of a 2nd position lien.

The way it works, at least in non-judicial states, is that the trustee is actually allowed to sell the house (not the note) during a foreclosure auction. The trustee sale does two things: (a) it forecloses the right of the borrower to pay the lender the overdue amounts and bring the loan back into good standing, ergo "foreclosure" and (b) it extinguishes all junior liens on the property.

The net result is that the auction buyer has acquired title to the property but it is subject to all senior liens.

I'd like to thank Brian Levredge for helping me evaluate candidates when I got about 600 resumes last year. His insight was invaluable because many of the candidates came from a construction and contractor background and I know very little about such people.

Bryan, RE prices do not typically drop 25% during a 90-day period. I have not really done any analysis of how often it has happened in the past, but I suspect the number will be pretty close to zero. I am sure it can happen if there is a nuclear attack or some such major catastrophe.

But compare that to buying an apartment building in the popular suburb of Elk Grove, CA, and then finding out that it was slowly becoming a ghetto. Your tenant quality and rents start going down and it may never recover. These types of things are much more likely than the kind of catastrophe that would cause a short-term investment to take a big loss.

I think any investment strategy is going to come with some risks. I do believe that an expert investor has lower risks with short-term flips than with long-term buy-and-holds. Short-term flips do have more work involved, though, but their ROIs also tend to be higher. There is no single correct strategy for everybody, but for the OP the short-term one may be the better way to go to accomplish his goals.

I bought 8 figures in houses in my first year. This year is probably also going to be in the 8-figures, but we should hit 9 figures next year. The amount you buy really depends on your skills and resources.

Here's an interview of my business partner for any new person who wishes to read it:

http://www.biggerpockets.com/renewsblog/2011/01/11/justin-schnettler-biggerpockets-interview/

Not sure about all 50 states.

The leak has to be reported to the state environmental office, so I suspect it is a state reg. States seem to have a trust fund set up to help home owners with some of the expenses in the event of a leak.

BTW, our tank was 42 inches in diameter so the costs I indicated relate to that. The excavation was for about 50 tons of soil.

We decided not to go ahead with the transaction, but here's some information for anyone who encounters this issue in the future.

1. The quote for soil testing to identify leaks was around $650. If a leak is found, it has to be reported to the government within 24 hours.

2. If there is no leak, it is advisable to remove or fill the tank. Removing the tank is about $2,000 and filling it is a bit cheaper.

3. If there is a leak, you have to remove the tank and also excavate the soil and refill with clean soil. The quote for that was $16K to $18K. The government in many states reimburse residential property owners for a good chunk of that expense, but it can take up to a year to get that money.

On the whole, this was a good learning experience.

Bryan, I did not say a flip is always less risky than a buy-and-hold. I said that it has inherently less risky characteristics in the hand of an expert because it has less macroeconomic risk and a less complicated valuation process.

In the hands of an idiot, I am sure one can lose money just as easily with a flip as with any other investment strategy.

This has been the opposite of my experience, and I did a LOT of flips after the tax break expired. I accounted for the expiration and the impending price decline when I ran the numbers and reduced my buying price accordingly and was able to sell my houses with a low holding period.

While I am sure that there are others who may not have done their homework and had higher holding periods, I think these are avoidable issues. In addition, if you buy right, you can always exit a flip at a somewhat lower price and still make a decent return. Compare this to a buy-and-hold where you screw up. The economy goes down the drain and your vacancy rates rise. Or interest rates climb and therefore so do CAP rates when you try to sell.

From a risk standpoint, I think flips are simply less risky in most ways compared to long-term strategies. In fact, that is one of the main reasons I flip houses. I am quite concerned about the long-term prospects for the economy and do not wish to be involved in it until things become clearer to me.

Guys, this is not a debate about whether a buy-and-hold investment ever makes sense. It obviously does to millions of people throughout the world. If you look at my posts, you will see that I was not denying that buy-and-hold investments have a place in the investment world. Instead, I was addressing several things that were brought up by other posters:

1. First, the OP said that he wanted to convert $500K into $2 million and has an aggressive ROI expectation. My suggestions were designed to address his goals. Buy-and-hold investments are simply not designed to create huge ROIs and are therefore not ideally suited to his needs.

2. Second, some posters suggested that flips are riskier than buy-and-holds, which is simply wrong. As Will has pointed out, macro risks increase with time. Risk is just another word for uncertainty. The longer the time, the more the uncertainty. Bryan, I am surprised you do not find this obvious.

3. Third, I suggested that the OP start by partnering with others instead of doing it himself. I am a very experienced investor and even I went down this route when I got started in RE. It simply made more sense to me to partner with someone with local knowledge and RE experience until I became an expert myself. Some of the others are suggesting that the OP do it himself instead of partnering with others. That is a legitimate strategy and I do not disagree with it - but you have to admit that it takes more skill to learn RE than to identify another person who is already good at it.

4. Fourth, I should mention that the primary risk with an investment, whether stocks or RE, is the risk of overpaying. This risk is related to the difficulty of valuation. The more complex something is to value, the higher is the risk that you may screw up. The type of flips that I do - single family homes that are new - is one of the easiest types of assets to value. You just have to look at the comps and it does not take a lot of skill to figure it out and any error tends to be + or - 3% to 5% instead of a big error. A long-term strategy may seem easy to the experts, but it in fact requires the synthesis of a variety of variables. You need to look at rent rolls, lease agreements, economic and demographic trends in the city, vacancy rate trends, etc. (In addition to the higher macro risks.)

Bryan, I am surprised that you are disagreeing with me on the things that I have mentioned. Maybe you thought I was opposed to buy-and-holds as an investment strategy, but I am not. I merely think that for the situation of the OP and given his goals, short-term strategies are the way to go.