Are the property owners from this site in trouble?

[Dhappy]

Crazy Dan, thats what my family and friends who are still working a job call me.They say I'm crazy and will fall on my butt because I buy working class houses and mobiles on land.They all say buy a 150k house in a great area and put 20% down and get a good loan. They don't care that I can buy 9 houses and mobiles on land for 150k cash and own them outright and cashflow like crazy.

I'm the black sheep of the family that has not had a job in 13 years. I always here at family get togethers when are you going to get a job and they laugh. I show up in my 2002 dodge paid for cash pickup and park next to there $600 a month BMW that is sucking them dry. They are so far in debt to keep up with the jones that they can hardly breathe

 

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[hakrjak]

Hak, it hasn't crashed. People just pulled their homes off the market.

So the only homes that are selling are those where people HAVE to sell.

I beileve that by defintion is a market crash -- When people only sell when they have to sell, and when people who can't get the price they want are forced to pull their houses off of the market. People sell for the price they want to sell at during a market boom, which is not happening right now.

Every market has it's local niches, but to claim that any market has is completely immune to the bubble & ensuing crash in Real Estate seems a little delusional to me. Who knows, maybe there's something in the water out there on the left coast ... Reminds me of when people were buying 1 bedroom condos in Vegas for $500k, and saying "Because it's Vegas -- these condos will always be worth $500k or much much more! It's Vegas for god's sake!" ... Most of those condos today are worth around $200-250k.

:banana:

- Hakrjak

 

[EastWind]

union, i'm not into real estate, but i don't think that I agree with the notion that inflation in the future is a problem. If anything, anyone into real estate will be pleading for inflation. inflation will translate into higher price for your house and higher rent too. thus if you carry a loan, you get to pay it off with cheaper money! if anything, i believe "deflation" is the real problem for any real estate investor outside of back breaking interest rates and property taxes.

 

[hatterasguy]

But believe me, someone with 33 rent houses shouldn't be living in a $2MM house and driving a Rolls. Let's say they NET $400 per month per door - this would be excellent and is probably unlikely. $400 x 33 x 12 = $158,400 per year. That ain't rich and won't afford you an MTV Crib.

My partner owns now I think about 60 rentals, 30ish of them are SFH's with an average value of probably $300k. Some worth more some less. He owns them all outright, doesn't owe a dime on any of them.

He lives in a paid off $500k house, which he is selling to move into a $1m beach house that is as you can probably guess already paid off. He drives a paid off 6 year old Silverado, and a paid off 2 year old Mercedes E class.

Notice a theme here? Not crib's but certianly an extremely comfortable life style where you don't have to work if you don't want to. He spends most of the winter in his paid off vacation home in FL floating in the pool.

To me it sounds like MJ's friends were living beyond their means. I'm sure their good people but they made a mistake with their lifestyle.

 

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[MonTexan]

Very true Hat, "paid off" can get you a long way toward a nice passive income. That's an amazing net worth. Was it built from the ground up in rental real estate?

Just think what they could leverage into in the current & upcoming RE market: 30 x 300k + 30 x 150k = $13,500,000 equity. They could control some seriously big apartment complexes while still keeping their debt:equity ultra low.

I'm sure they are swimming in opportunities right now. But maybe they just want to chill in their new beach house....nothing wrong with that!

 

[kwerner]

Damn Hat, that's impressive. You should ask your partner if he'll contribute a "success story" to the forum.

 

[hatterasguy]

Very true Hat, "paid off" can get you a long way toward a nice passive income. That's an amazing net worth. Was it built from the ground up in rental real estate?

Just think what they could leverage into in the current & upcoming RE market: 30 x 300k + 30 x 150k = $13,500,000 equity. They could control some seriously big apartment complexes while still keeping their debt:equity ultra low.

I'm sure they are swimming in opportunities right now. But maybe they just want to chill in their new beach house....nothing wrong with that!

He could but he has no desire to do that. He lost his shirt in the 80's on a big commercial complex and went bankrupt. My point is that he overextended himself and the last crash got him. This time around he hit it just right.

All he does is build houses and invest the money in very well bought rentals. He only does a few things, but does them very well.

Actualy I think is equity is quite a bit higher than that. A lot of his property's are worth quite a bit. If I had to guess I would say $15m-$20m is probably a good range.


Naturaly I am quite happy to be working with him and plan on copying his business plan!
[ame]http://www.amazon.com/Millionaire-Next-Door-Surprising-Americas/dp/1563523302[/ame]
He wasn't in this book, but he might as well have been. He is a perfect example of what they are talking about in this book. Pretty much you need to make a lot of money in your business, and be as cheap as the day is long so you keep it.

 

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[Russ H]

I beileve that by defintion is a market crash -- When people only sell when they have to sell, and when people who can't get the price they want are forced to pull their houses off of the market. People sell for the price they want to sell at during a market boom, which is not happening right now.

Every market has it's local niches, but to claim that any market has is completely immune to the bubble & ensuing crash in Real Estate seems a little delusional to me. Who knows, maybe there's something in the water out there on the left coast ... Reminds me of when people were buying 1 bedroom condos in Vegas for $500k, and saying "Because it's Vegas -- these condos will always be worth $500k or much much more! It's Vegas for god's sake!" ... Most of those condos today are worth around $200-250k.

:banana:

- Hakrjak

As in times past, Hak, you can choose to define words in any way you wish. Buy a house, rent it out for a few years, then sell it and call it a "flip"? Yep, for you it's a flip. For me, anything held longer than about 6 mos is a rehab. Or something else.

Same w/bubbles and crashes. Out here, we just call it normal RE cycles. That's how I made my money-- bought houses in down cycles (1995, 1998), sold them in up cycles (2002, 2005). Talk w/any CA RE investor that's been doing serious REI for at least 35 years out here, and they'll tell you that RE here is cyclic. Up, down, up, down.

They will also tell you this current down cycle is bigger than those previous, just as the run-up part of the cycle was bigger than those previous.

A "Crash" implies that the fall is so drastic, that recovery is impossible.

And a "Bubble" implies that something blew out of proportion, then blew back to normal levels.

You could certainly bend the view on CA RE to fit your definitions.

All I've tried to do is give you the perspective from long-time CA RE investors. Not from me (I'm a baby in this biz). I'm talking about what I've learned from people whose families have been RE investors in CA for 2, 3, or more generations.

One of my clients grandfathers even owned some of the railroads. Another currently has over 10,000 acres in TX. That's some serious RE.

They bought in down cycles.

-Russ H.

 

[Cat Man Du]

All I've tried to do is give you the perspective from long-time CA RE investors. Not from me (I'm a baby in this biz). I'm talking about what I've learned from people whose families have been RE investors in CA for 2, 3, or more generations. [/COLOR]

Always follow the " OLD MONEY " it's old..... because it knows what to do!

 

[Niche]

Not one of the big fish you were after but the crisis does not seem to have affected me much either
I am into buying and letting so a little different from the flipping houses business

Because of the location of my properties, I have not had any problems letting

 

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[randallg99]

union, i'm not into real estate, but i don't think that I agree with the notion that inflation in the future is a problem. If anything, anyone into real estate will be pleading for inflation. inflation will translate into higher price for your house and higher rent too. thus if you carry a loan, you get to pay it off with cheaper money! if anything, i believe "deflation" is the real problem for any real estate investor outside of back breaking interest rates and property taxes.

exactly the same game US gobument is playing... you better believe we are in an era of deflation.

and sid- define "trouble"

 

[Sid23]

and sid- define "trouble"

TROUBLE = owning real estate that is no longer paying for itself through rents. For many, this cannot continue forever before they lose the property...

 

[unicon]

East and others:

To understand inflation you must first divide the domestic economy into:
A) Private Sector
B) Public Sector

The whole economy has been borrowing and consuming leading to a mind boggling 10 trillion trade deficit. This is the opposite of producing and saving. The trade deficit means we are out of money but have been printing and borrowing for years leading to the dot.com bust and real estate bust.

Americans are not spending because they are out of dollars, and foreigners are not sepending because they are hoarding dollars. Our borrowing needs are and have crowded out investment all over the world.

Inflation is the expansion of the supply of money and credit, precisely what the public sector (govt) has been doing, first attempting to prop up housing domestically and then exporting inflation to foreign countries.

Deflation is contraction of the money supply in the private sector. The government public sector has sucked all the money out of domestic and foreign sources for non productive purposes. Consumer prices are however inflating. Real deflation or credit contractions, can actually lead to inflation as the Fed creates additional money to replace credit lost due to defaults. New money will not reflate bubbles just burst, but go straight into commodity and consumer prices, increasing the cost of living.

Our government has an interest in keeping inflation both secretly high and officially low. Cheaper dollars mitigate the debt burden. Inflation has been the governments silent partner. Our debt cannot be repaid. Inflation needs expansion. Government loves inflation, it is a way of taking money from the people without people realizing it. Creates artificial demand not from increased production, but from inflation.

All dollars hoarded in China and Japan are going to come flooding back to the US bidding up prices of whatever is nailed down. Default risk will take a back seat to inflation risk. Only people in position to end the madness are foreign governments. If we didnt have China, consumer prices would already be off the charts (inlation exported). Flows will reverse, China will merely repossess all those goods they sold us on credit and prices will rocket upward.

Inflation is a destructive force in a market economy and Fed is the engine of perpetual inflation. Compounding the problem is the velocity of money and the rate it changes hands, such spikes in velocity signal terminal stage of currency. When exported inflation comes home prosperity turns into poverty. An economy that lives by inflation will die by it as well.

Despite all of the above the free market forces are working to bring into balance but doing nothing is an unacceptable alternative of govt. Absent government inflation we would have deflation, nobody would be any worse off, nothing to fear from falling prices. As consumer prices rise relative to asset prices, purchasing power is destroyed.

The realignment of asset and consumer prices is an essential adjustment of a bust, absolutely necessary.

Everything government is doing is the opposite of what it should do.

 

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[Antonio.]

Things around the board have been pretty quiet lately as far as real estate goes. I'm wondering if some of the most successful people on this site who own substantial amounts of property (SteveO, RussH, GLC56, etc) are having major issues with their holdings? I'm certainly not saying this to criticize or ask anyone to share personal details, but I think we all hold those people to such high regard on this site and could learn a lot from how they are dealing with the current crisis. Especially if it is hitting home on their apartments, B&Bs, etc. Again, just a thought and certainly no need to respond if they don't want to.

Best,
Sid23

GLC65 [deleted unsubstantiated claim]

 

[hatterasguy]

Really he went under? Last I heard he was doing OK, not great but keeping his head above water.

That sucks, but I'm sure he will come back.

 

[randallg99]

That sucks, but I'm sure he will come back.

we always come back for more.... we're gluttons for excitement.

 

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[hatterasguy]

Yep, going bankrupt isn't end.


He is a player, I know a lot of people like him. In 10 years he will have more money than he ever had.

 

[hakrjak]

we always come back for more.... we're gluttons for excitement.

You got that right. When I make a Real Estate deal I get the same rush I get making bets in the Casino. Only difference is -- the odds are in my favor, and the rush lasts longer

- Hakrjak

 

[hatterasguy]

I like to think of it as a mini vacation.


Their is nothing like putting together a good deal, its fantastic.:smx1:

 

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[Cat Man Du]

TROUBLE = owning real estate that is no longer paying for itself through rents. For many, this cannot continue forever before they lose the property...

Woooooooooooo.....Hoooooooooooo.

My adjustable mtg. on my Re-Fi. just reduced the interest by $190 a month + my taxes went down $700 a year! $3,000 ROI hike with nothing on my part!!:banana:

 

[Sid23]

So someone possibly went under. That is exactly why I started this thread. I'm still confused how someone with so many assets goes under. Especially with low overhead.

 

[Sid23]

J - Thanks for the reply. Its so basic when you think about it, so sometimes I can't wrap my head around that. Its really just I owe more than I have and when that continues too long, you are in trouble.

I always wondered why the developers I used to work for didn't want to own many units (they preferred to develop, build then sell the finished product to someone who wanted to hold), but I see now why that "can be" an effective strategy. Granted, they don't have the passive income, but they also don't have any issues with under-perfoming assets right now.

Some great advice that my old boss gave me was to always have multiple business platforms because you never know what will be in favor at a given point in a cycle. He developed new apartment buildings with his own funds, served as a "fee developer" for companies, held a few smaller apartment properties, consulted/advised for pension funds and had a nonprofit arm. So even in the worst of times, he at least had cash coming from once source. He is suffering like anyone right now, but he appears to be able to hang on until things improve.

Sounds like what you are doing Jason with the fix/flips, mobile homes, staging and website. Very smart!

 

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[hakrjak]

So someone possibly went under. That is exactly why I started this thread. I'm still confused how someone with so many assets goes under. Especially with low overhead.

I've got a (supposed) net worth of around $200k+, but unless a house I have under contract closes on schedule next week -- I'd be scrambling to keep from "going under"... Like J said -- it's all about the cashflow. If you have more bills than cash coming in -- You suddenly find yourself under water. And in this environment -- you can't exactly sell your assets very easily (Especially if they are Real Estate), and banks won't loan you money in the form of HELOCs on Investment Properties anymore -- So that equity is totally inaccessable unless it's in your home. Which most of us have already tapped to get money for our investments It's easy to panic when you see that water rising, so keeping a clear head in this environment is job #1.

- Hakrjak

 

[Cat Man Du]

As others have already said, the answer to that question is cash flow...

Factor in lower margins (vacancies are up, rents are down), over-leveraging (puts cash flow at greater risk), and living beyond your means (if your business is in trouble, for most people that means no paycheck), and you have a recipe for disaster, no matter how many units you own and no matter how much you might have in monthly income.

It's all in the leverage..... the old 1% monthly rule ... usually kept you out of this trouble, but many investors ..... counted on appreciation, which didn't happen.

With the adjustable mtg. loans re-adjusting now and next year... many of the loans ( interest rates) will go down in cost like one of mine just did. My re-fi just adjusted to $190 less per month and taxes adjusted down $60 per month. So, I'm paying $250 less per month or my CASH FLOW just increased $ 250.00 :coffee:

 

[hakrjak]

It's all in the leverage..... the old 1% monthly rule ... usually kept you out of this trouble, but many investors ..... counted on appreciation, which didn't happen.

With the adjustable mtg. loans re-adjusting now and next year... many of the loans ( interest rates) will go down in cost like one of mine just did. My re-fi just adjusted to $190 less per month and taxes adjusted down $60 per month. So, I'm paying $250 less per month or my CASH FLOW just increased $ 250.00 :coffee:

This has happened to several of my notes and I am loving it. Don't know how I was surviving before all of my cashflow just about doubled in the last year or 2.

Cheers,

-Hakrjak

 

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[Sid23]

With the adjustable mtg. loans re-adjusting now and next year... many of the loans ( interest rates) will go down in cost like one of mine just did. My re-fi just adjusted to $190 less per month and taxes adjusted down $60 per month. So, I'm paying $250 less per month or my CASH FLOW just increased $ 250.00 :coffee:

Just to play devil's advocate for a minute...did you project rates to go down further and that's why you took an adjustable rate mortgage? Would you still be in business if rates had gone the other way significantly?

 

[Cat Man Du]

Just to play devil's advocate for a minute...did you project rates to go down further and that's why you took an adjustable rate mortgage? Would you still be in business if rates had gone the other way significantly?

Nooooooooooooooooooo. I didn't project rates going down. I did expect them to go up and factored that in......While saying that had they gone up this time I would have had to re-fi into a fixed rate to stay above ground before the next adjustment. I simply took the adj. mtg. to increase my cash flow and of course you take a chance when doing

 

[Sid23]

Nooooooooooooooooooo. I didn't project rates going down. I did expect them to go up and factored that in......While saying that had they gone up this time I would have had to re-fi into a fixed rate to stay above ground before the next adjustment. I simply took the adj. mtg. to increase my cash flow and of course you take a chance when doing

So to continue my role as devil's advocate...

The reason many people are losing their properties is because of their inability to meet debt service and other requirements AND because they are not able to refi in today's credit market.

Isn't that what happened to the person discussed earlier?

So how would your situation be different?

 

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[Cat Man Du]

So to continue my role as devil's advocate...

The reason many people are losing their properties is because of their inability to meet debt service and other requirements AND because they are not able to refi in today's credit market.

Isn't that what happened to the person discussed earlier?

So how would your situation be different?

I keep a good amount of CASH on hand. While I wouldn' want to pay it down or off .. I have that option. Also, I purchased at a good price.... when I say I would be above ground..... It just means that my cash flow would barely be able to meet the PITI. I always try to leave a good distance between my rents and PITI to cover the expenses. Also, my other properties CASH - FLOW to a point that their income can make up what I need.

That's why I'm buying at todays prices to increase that cash-flow.:smx6:

 

[Cat Man Du]

Faith is taking the first step even when you don't see the whole staircase. -Martin Luther King, Jr

Faith........... The evidence of things not seen. The essence of things hoped for.