All Forum Posts by: Wes Shive

@Naveen Desai interesting that you're spread pretty far and wide. Are you partnering with various investors who are local to the respective areas? Are they doing the legwork to acquire the properties or are you doing so remotely? Do you have an opinion as to which place has more potential going forward, So FL or Plano?

@Peter MacKercher  great stuff thanks for the detail. Sent you a PM.

@Shaun Reilly  according to your analysis, sounds like the "middle" option of 11 homes at 91k is the one to avoid. Fair to say you're an advocate of either investing in the higher end or the lower end depending on your time and effort constraints/preferences?

@Joe Villeneuve , very interesting. How are these being purchased? I'm guessing these aren't market prices, which sort of distorts the picture. What's the long-term upside to holding these properties?

Maybe I'm beating a dead horse but anyone care to elaborate on their picks? (Numbers, reasoning, etc.?) @Ricardo S. @Tim Bishop @Eric Odum @Peter MacKercher @Jay Hinrichs 

Keep the answer coming, but this is less of a poll and more of a query of actual reasoning behind your picks. If you have further to elaborate please do!

@Matt Rothwell Perhaps I wasn't clear but this isn't purely hypothetical nor am I suggesting unlimited funds. I just didn't want financing concerns to complicate matters. Everyone has access to capital in different forms. Keeping things all cash simplifies the answers.

Keep in mind the ultimate goal is total ROI, so how much you pay for a property absolutely has an effect on performance of your investment dollars.

First off, Happy Friday!

This question has been asked before, but let me clarify and put some parameters around it:

"Where would you invest for long-term buy and hold (5-10 years) if you could go anywhere in the US, assuming your goal is total ROI?"

Include an expected ROI from rental income. If you have an idea, include expected ROI from appreciation. More important than an ROI number on the appreciation side would be an assessment and reasoning of the potential.

Assumptions:

1. You don't have the concerns that go with managing property from a distance.

2. You have and must use (so we compare apples to apples) a good property manager anywhere you buy.

3. For the sake of keeping everything normalized, you would buy and hold all cash.

4. Cost basis must be at market price (i.e. no wholesale deals or value-added methods of picking up the property). Must include transaction and rehab costs to get property rent ready.

5. One expense ratio does not fit all. Use a ratio from 40-60%, but state what ratio you use. Adjust for knowledge of what the expenses would be (i.e. older properties have more expenses, taxes are higher/lower in certain states). Expense ratio used should include everything (vacancy allowance, mgmt fees, taxes, insurance, maintenance, etc).

6. Exclude extremely subprime, crime-ridden areas. If you don't want to walk down the block during the day, it's out.

7. Residential, 1-4 units only.

Selfishly, I'm posing this question because I've been looking into non-local markets myself. I don't have an answer to kick things off with. Instead I'll provide an example based on investments I made a few years ago.

Answer (back in 2010):

Palmdale, CA SFHs. East Palmdale, slightly better return but West Palmdale, lower chance of buying in the wrong neighborhood. Driving around the area will lower most but not all of that risk. East Palmdale SFHs pretty much fit the 1% rule (West Palmdale more like 0.9%).

Typical East Palmdale 3bd/2ba, 1300sqft, 1980-1990s build, SFH about $90k at MLS prices. Expected cost basis of $100k, including some rehab. Market rent of $1000/mo. Apply 40% expense ratio = rental income ROI of 7.2% of $100k cost basis.

Expect capital appreciation of at least 50%, as high as 100%, in the next 5-7 years. Based on the following observations and assumptions:

1. Economy will recover in a 5-7 years. Expect 10 years as a possibility but unlikely.

2. Construction cost of a new 1300sqft home is at least $162k ($125/sqft). Being that's the cost of a new home without land, it is a good basis for the intrinsic value of the property + land. $150k valuation in 5-7 year is reasonable if not conservative. Passes the "sniff" test.

3. Current (2010) market prices are 65-75% OFF their 2006 highs. This means that said $90k ($100k ARV) SFH, based on comps, was valued at least as high as $300k in 2006. An expected 5-7 year value of $150k would still be 50% off 2006 highs. Again, IMO, a safe expectation.

4. 1% rule properties anywhere close to Los Angeles are tough to find. Investors will provide support at current prices and probably far beyond.

There you have it. It'd be nice to keep prolonged back and forth debates to a minimum but follow up questions are great. If you disagree with someone's numbers or assumptions, post your own!

@Peter Mckernan , further clarification about why you're posting would be helpful. Is there specific advice you're looking for regarding this rental?

Welcome @Brandon Snyder I grew up not too far from Torrance (PV). My parents live there still, and I'm in West LA currently. Welcome! Listen to all the podcasts, read, read, read, and start analyzing investments. Get comfortable with Excel :)

@Jesse Alcaraz , great to see someone from Downey. I manage some multis there. What sort of properties do you invest in and are you wholesaling on a regular basis?

@Kristine Osborn , while I think your situation may be a great way for a new investor to get into landlording/real estate investing, it sounds like you'd be stacking the deck against you. In this situation, if you can get out from under the house and be okay with the loss, then IMO that is probably what you should do. One way to look at it would be to ask yourself if you would buy the home at the current price you can sell it for (less transaction costs) for the purpose of a long-term investment? If the answer is no, then there you have it.

Having an investment property (and this is now an investment property even though you used to live in it) where rents barely cover the mortgage is probably a situation that 99% of investors on BP would want nothing to do with. Once you factor in property taxes, maintenance, and insurance, it will probably be hugely negative in terms of cashflow. Furthermore, hanging onto the home in hopes it may appreciate (not saying you're doing/thinking this) is your only potential upside in the near term, which is highly speculative.

The ARM going floating in 2 years could also be a timebomb. If interest rates start to run up, your mortgage will as well. If you decide to keep the house, could you refi to a 30yr fixed with a better rate?

Another thought is have you considered doing a rehab on the home? If you have the funds (or can borrow them) and doing so would increase the value SIGNIFICANTLY beyond the current market price plus cost of a remodel, it may be something to consider. Keep in mind that that process is a learning experience in and of itself. Best of luck!

I don't believe in luck. I believe in chance. Luck is just chance going the way that we want. If you take your luck to be "average" then you have the same chance of being lucky as unlucky. It tends to cancel out for the most part. Also, there are a lot of things that we DO have control over that we think we don't or aren't even aware of.

I absolutely think it's possible to hit $100MM in assets through real estate investing. It's obviously incredibly difficult and requires (mostly) unbroken focus and making good decisions a huge majority of the time.

Aside from the obvious (being intelligent, hardworking, learning from successes and failures BOTH, etc), the key is leverage. Not just leverage in the form of loans, but leverage in the form of investors, hiring key people, using the right systems, etc. I think one must think about it as a pyramid scheme. The more you can get everything (properties, people, money) under you, the more each of your decisions and actions are magnified. You can create self-reinforcing cycles of the various aspects of your business that are doing the work for you and growing the business for you. And if you're taking a piece of everything and reinvesting it, then yes, I think you can get to $100MM.

Disclaimer: I am far from a $100MM-aire. But I also don't necessarily have that goal :)

@Brenda A. There is nothing legally wrong with talking to the owner directly. However, you cannot do a transaction and cut out your agents.

You should be aware though that it may be frowned upon (especially on the selling agent's side) to talk to the owner directly without asking them (selling agent) first. If you think there is some particular advantage to talking with the owner directly, then ask their agent first.