All Forum Posts by: Vikram C.

Without leverage, RE is a lot less attractive. I'll probably put it in stocks, although I may flip SFRs for a couple of years before doing that if unlevered ROIs remain at current levels.

Hey Bryan. This must have been one of my first posts on BP that you have resurrected. Remember my other discussion about strategic flexibility? I am no longer interested in apartment complexes and therefore don't need to worry about the DCF not channging due to higher interest rates.

I have no idea what you just said. :(

Toni, when you say you did the "due diligence," do you mean you put together the presentation for the investors? Did you get a loan secured by a first position lien or did you get equity funding that you could further lever using HML or other funding? The reason I ask these questions is because it will give us a clearer picture to give you more specific guidance on compensating the person who helped you identify the investors.

Investment bankers charge anywhere from 3% to 10% depending on the size of the deal. Mortgage brokers make less than that on smaller deals but their effort is less.

If the person is merely introducing you to someone they know, you may wish to pay a lower fee. If they are putting a lot of time and effort into getting the deal done, you may wish to pay an I-Banker type fee. You should probably also look into the legal aspects of paying a fee to someone who is neither a broker-dealer nor mortgage broker.

Let us know how much money they are helping you get and what their effort has been and we can give you better guidance.

Bryan, I think we have a really different idea about the underlying philosophy and purpose of business then. I am fairly sure if you speak to any large investment company, they will agree with my idea about value maximization. The other things - environment, customers, employees, etc. are means towards that one goal. They are not really the goals of the business.

In any event, I do not want to sit and debate this endlessly with you. I am sure readers have got both our perspectives clearly by this point and can decide what they wish to do for themselves.

Then we either disagree on the basic purpose of a business or we are using the word "amateur" in different ways.

To me, a professionally run business has one goal - to maximize shareholder value. That is the only goal for the business. If I owned a business that was managed by others, I would expect them to work towards that one goal. If I buy stock in a company, I carefully select companies whose managements are working towards that one goal. If the management of a company says that they want to do something that generates cash flows but with minimum effort, I and other investors will find it quite bizarre and unprofessional.

I also agree that any person should be free to make life choices for himself, including the choice to minimize effort. I call such people hobbyist or amateur investors because they are doing things for a personal goal.

When someone who is starting out in RE comes on BP and asks for our advice on which way to go, I believe I should give him advice that maximizes his chances for wealth accumulation. I do not believe I should give him advice such as "Do whatever you want. Each of us is different."

Are you suggesting, Bryan, that buy-and-holds have a higher ROI for some investors but they cannot get funding for it and therefore have to engage in a lower ROI strategy such as flips in order to generate cash to invest in the higher ROI strategy of buy-and-holds?

The ROI on a strategy has to be properly evaluated and should account all costs associated with the strategy. If you are a flipper, you must account for the cost of your capital when it is sitting around in the bank looking for a deal.

BTW, there seems to be some confusion that I am advocating a flipping strategy over a buy-and-hold strategy. I am not. I am just saying that all strategies are not going to be equally profitable for all people and someone who is starting out in business should focus on the one thing that works best for him.

Both flipping and buy-and-holds require capital, Bryan. Do whichever one you can create more wealth in, and focus on that activity.