Investing 102

[CarlC]

Todd, I too have become a landlord by renting my Dad's old home. It required a LOT more work and cash than yours but the financials were hard to ignore.

During remodeling several people per day come to the house wanting to buy or rent, and there was no sign, advertisement, etc. An on-line rental availability map showed that there were only two similar rental rental properties in a 1.5 mile radius, and outside of that the neighborhood gets really ugly. Hence, premium rental income and a selective tenant process is much easier to get.

If all goes well in 26 months all of the cash outlay will be paid off. Like cars my labor is "free", but for me it's the price of admission and sweat equity since nothing had been done in the house since it was new in 1953. If I had to pay someone to do it all it would have been hard to justify.

My friend and I are now looking at purchasing a commercial building as a combined rental and storage (for us) facility. We both want a place to go after we retire to keep ourselves busy, and our current home properties won't allow expansion. By leveraging the home rental there should be little out-of-pocket expense but a good long-term ROI if the commercial tenant rent can cover the bulk of the loan.

There are advantages and disadvantages in property rentals. Both revolve around the tenant. Get a good one and it's a good deal. Get a bad one and it's a real PITA, especially in California where the tenant has significantly more rights than the landlord. Texas is much more landlord-friendly. To lure in the tenants that I wanted a few more things were added to the property than planned, but they are upgrades that over time will pay for themselves. So far the tenants have been good.

If one can afford to purchase and fix a property for rental it's a great time to do it if the income can cover costs. I don't see home prices going a whole lot lower in most markets, people are always going to need rentals, and as home values rise from the ashes, the appreciation is a great nest egg. Just like stocks though, it has to be the right property, in the right area, with the right tenants, etc., so due diligence is needed to make sure it's not a money looser.

[GregWeld]

Thanks for sharing Todd.... And Carl!!

Real estate should be a part of everyones plans if they can swing it -- or have the stomach for property management. It's certainly a smart strategy for a real estate professional like Todd.

I don't want the potential hassles of the actual management - so choose to invest in LLC's with professional management. There are also real estate ETF's (exchange traded funds i.e., stocks) where an individual can invest - collect a dividend - and have the possible upside appreciation. Just google Real Estate ETF's and you should get all manor of hits for this type of investment.

The property I carry the mortgage on in Oregon --- has yet to find a tenant -- and this month marks the one year anniversary... EMPTY. So it's not all roses and perfection. When my brother in law bought the property -- I asked him point blank - "can you afford the mortgage with NO TENANT" for a year or more?" The answer was "EASY". While it's not my problem - I just collect the payments - I'd prefer to see the investment for Jay go the way it was "planned". Eventually he will get a tenant and things will be fine. Commercial buildings/tenants are a LOT different than "renters" in a house. He's had offers -- but the tenant improvements are baked in the offer and a couple have been over 100K before the tenant will move in. He's not interested in putting out that kind of cash up front but has taken a serious look at the proposals.

I tried for over a year - to buy a commercial building that I could lease out a portion -- and keep 2500 square feet for my own use. The numbers just don't work and the vacancy rates for light industrial are quite high and the prices have NOT come down in order to make them work. Any investment like this must have full consideration of the NEGATIVE CASH FLOW that can be a part of these purchases. They're not like stocks -- if things don't go the way you planned - they can be "white elephants" and you must be able to carry the costs out of pocket. If you're smart - and a little bit lucky - you can get a rental with a great tenant that stays for years... and if you're really lucky the value can double or triple -- all while paying a nice tax benefit (if the idiots in Washington DC don't ruin that).

[Vegas69]

Originally Posted by CarlC

Todd, I too have become a landlord by renting my Dad's old home. It required a LOT more work and cash than yours but the financials were hard to ignore.

During remodeling several people per day come to the house wanting to buy or rent, and there was no sign, advertisement, etc. An on-line rental availability map showed that there were only two similar rental rental properties in a 1.5 mile radius, and outside of that the neighborhood gets really ugly. Hence, premium rental income and a selective tenant process is much easier to get.

If all goes well in 26 months all of the cash outlay will be paid off. Like cars my labor is "free", but for me it's the price of admission and sweat equity since nothing had been done in the house since it was new in 1953. If I had to pay someone to do it all it would have been hard to justify.

My friend and I are now looking at purchasing a commercial building as a combined rental and storage (for us) facility. We both want a place to go after we retire to keep ourselves busy, and our current home properties won't allow expansion. By leveraging the home rental there should be little out-of-pocket expense but a good long-term ROI if the commercial tenant rent can cover the bulk of the loan.

There are advantages and disadvantages in property rentals. Both revolve around the tenant. Get a good one and it's a good deal. Get a bad one and it's a real PITA, especially in California where the tenant has significantly more rights than the landlord. Texas is much more landlord-friendly. To lure in the tenants that I wanted a few more things were added to the property than planned, but they are upgrades that over time will pay for themselves. So far the tenants have been good.

If one can afford to purchase and fix a property for rental it's a great time to do it if the income can cover costs. I don't see home prices going a whole lot lower in most markets, people are always going to need rentals, and as home values rise from the ashes, the appreciation is a great nest egg. Just like stocks though, it has to be the right property, in the right area, with the right tenants, etc., so due diligence is needed to make sure it's not a money looser.

You bring up some great points. I've heard the CA nightmares from clients over the years. Luckily, Nevada is a landlord state. You can have them out within 30 days of missing a payment. I always say that you pick your tenant when you buy a property. What looks good on paper doesn't always reflect in the real world. I didn't get this one on the market either. The neighbors Dad came over and said, I want it before I was half done fixing it up.

Originally Posted by GregWeld

Thanks for sharing Todd.... And Carl!!

Real estate should be a part of everyones plans if they can swing it -- or have the stomach for property management. It's certainly a smart strategy for a real estate professional like Todd.

I don't want the potential hassles of the actual management - so choose to invest in LLC's with professional management. There are also real estate ETF's (exchange traded funds i.e., stocks) where an individual can invest - collect a dividend - and have the possible upside appreciation. Just google Real Estate ETF's and you should get all manor of hits for this type of investment.

The property I carry the mortgage on in Oregon --- has yet to find a tenant -- and this month marks the one year anniversary... EMPTY. So it's not all roses and perfection. When my brother in law bought the property -- I asked him point blank - "can you afford the mortgage with NO TENANT" for a year or more?" The answer was "EASY". While it's not my problem - I just collect the payments - I'd prefer to see the investment for Jay go the way it was "planned". Eventually he will get a tenant and things will be fine. Commercial buildings/tenants are a LOT different than "renters" in a house. He's had offers -- but the tenant improvements are baked in the offer and a couple have been over 100K before the tenant will move in. He's not interested in putting out that kind of cash up front but has taken a serious look at the proposals.

I tried for over a year - to buy a commercial building that I could lease out a portion -- and keep 2500 square feet for my own use. The numbers just don't work and the vacancy rates for light industrial are quite high and the prices have NOT come down in order to make them work. Any investment like this must have full consideration of the NEGATIVE CASH FLOW that can be a part of these purchases. They're not like stocks -- if things don't go the way you planned - they can be "white elephants" and you must be able to carry the costs out of pocket. If you're smart - and a little bit lucky - you can get a rental with a great tenant that stays for years... and if you're really lucky the value can double or triple -- all while paying a nice tax benefit (if the idiots in Washington DC don't ruin that).

Our commercial market is super saturated with tenants being lured from old properties into new. I don't know much about it but I'm sure there is money to be made, there always is somewhere.

I like your idea on the ETF and I know you have brought it up to me in the past. At this point I'm going to be the grunt but I'll certainly keep it in mind for the day I can take advantage with more liquidity.

County 1 $109,500 10/31/12
County 2 $248,000 07/11/07
County 3 $119,950 02/01/99

I purchased the above property for less than it sold for new in 1999. Interest rates are really the lowest they have ever been. The taxes are $1155 a year. Windows of opportunity are only open so long. This is likely a once in a lifetime opportunity for me. I fully intend to take advantage of it.

[frankv11]

california is definitely a tenant's state. I bought a triplex at trustee sales recently. 2 units were occupied and 3rd one was vacant (was told by neighbor) by the time I got trustees deed and recorded. some one had moved in and demanded cash for keys and so did the others ( rediculous amount otherwise I would have payed out). in california tenants get a 90 day notice before you can even begin eviction process. I will not buy rent controlled real estate , that is another ball game
so any how , got an eviction lawyer working on it.
3 units 1B - 1B each, 2000sqft , 10,000sqft lot
plan A
Rehab them completely. refi and hopefully get all my investment back while generating about $1000.00 a month.

plan B same as above but add another unit. zoning and lot size allows it. need to work out numbers w architecture and $$$ / sqft etc....

I got a pretty decent deal so I think there is enough room to get all of my initial investment and I'll do 90% of the work my self.
It is really hard to get to get a deal at auction like todd said. people are paying market value and above at times. A lot of Hedge fund money out there, I hear.
If you know the game and stay persistent it pays off. hoping to get out there again soon. just not to sure where market is going and don't want to get caught at the peak of the " W "

[GregWeld]

Originally Posted by Vegas69

Windows of opportunity are only open so long. This is likely a once in a lifetime opportunity for me. I fully intend to take advantage of it.

ABSOFRIGGINLUTELY!


BUY 'EM AS FAST AND AS OFTEN AS YOU CAN! This is possibly the one and only time in your life for prices AND rates to be this low!

[CarlC]

I hear you on the industrial property prices Greg. They have not come down in Los Angeles Co. like home prices have. The one we had our eye in is in the same complex that my friend already owns one in (it's an industrial "condo" building), but a 2100ft^2 building goes for well into the $200k's + taxes + association dues. Ouch.

Todd got lucky on his tenant. I would have done exactly the same if that offer came but I had to take a different approach. The current tenants are a nice young couple with a three-year old son. Both have full time jobs and a good income. They paid cash for the move-in but have insufficient funds for a down payment for a home. With escalating home prices combined with how difficult it is to get a loan, if they can't qualify now, they likely won't any time soon. So, give them a few more property "upgrades" that they like (he even came over to help with one of them) to entice them in and hope that they will be long-term.

So, am I working on the Camaro today as it sits in a million pieces in the garage? No, I'm dumping data into Quickbooks for all of the remodeling costs, rent income, tax and insurance payments, etc. There's no free lunch.

I'm also a cheap SOB sometimes. I've never liked paying for things that I can do myself, and taxes was one of them. No more. My tax accountant is worth every penny. I go in two times during the calendar year, in addition to the normal tax season sessions, to do a "check up." Yeah, it does cost, but I'm certain that the money paid is more than offset by both the monies the accountant finds/saves me and the reduced stress of dealing with it. In other words, find a good tax accountant and save yourself money and the hassle factor.

[Bucketlist2012]

Originally Posted by GregWeld

ABSOFRIGGINLUTELY!


BUY 'EM AS FAST AND AS OFTEN AS YOU CAN! This is possibly the one and only time in your life for prices AND rates to be this low!

Boy, I may be moving to my forever Home in the next few years....Things are just too good right now with prices and rates..

I had planned to wait seven to ten years or so when I bought in February 2009...I am not ready but I may need to start getting ready.. Bernanke said he would keep rates low into 2015, but I think I may have to jump sometime late in 2013...Or at least sometime in 2014...

[GregWeld]

I have said in past posts that the key to REALLY making money is the ability to look around your own area of expertise... or knowledge... and see where there are POTENTIALS for investment. One of our members is in the oil biz - obviously he is keenly aware of what's going on there... Todd just posted about his real estate investing - and he is obviously an expert in his own industry.

Personally -- since I haven't worked for 20+ years I'm no expert in anything except how to manage the money we've already made... I'm also keenly into the high tech world, with friends etc in or invested in many of the start-ups that are central here in the Seattle area.

Having said that.... I was reading the paper today and spotted (and read) this article on something I know absolutely nothing about (I've been a proud member of AA for 28 years now). But I wanted to post it as an example of THINKING about investing -- and how you must look deeper and think larger picture around investing. Let me sum it up simply - APPLE sells lots of stuff... but in order to sell lots of stuff - they have to buy lots of parts to build their stuff ---- so if you can figure out what they're buying - there may be an investment in a supply line etc. THAT IS WHY I'M POSTING THIS ARTICLE.... because it reminded me of this kind of thinking.

Here's my bottom line --- personally I'm not interested in investing in any particular facet of this business -- but you can bet that I'm going to look in to the financial backers (VC's - angel investor groups etc) and I will look to put some money to work with one or two of them. When I say put some money to work -- I'm talking about 100 grand or so.... TINY for me.... but if a guy can get in on the bottom floor -- 100 can get you a 10 bagger... and then that's real money, I don't care who you are!

For investing 102 -- some of you might have enough that you want to speculate just a bit -- and maybe look into the grow light industry -- or hydroponics suppliers -- or??

http://seattletimes.com/html/localnews/2019809614_marijuanainvestor02m.html

[CarlC]

Can individual foreign stocks be purchased through an on-line brokerage service, i.e. Ameritrade, etc? Specifically I'm looking at perhaps purchasing a Japanese stock but I'm having a heck of a time finding a definitive answer. I have not signed up for an on-line broker service so if they are available through the standard channels I apologize for not digging deeper.

[GregWeld]

Carl,


It "depends".....


Give me a name or email me a name or PM me whatever...


There are a few Japan "ETF's"... and then there are also what are known as ADR's (American Depository Receipts). But without a name nobody could do any research for ya.