Real Estate: What's Your Style?

[Nate]

I have no real estate experience, but want to consider it for the future. I'd like to pose a question, for fun. You can play if you want.

If you were going to "do real estate" but for the rest of your life could only venture into one type, what would it be, and why? Acceptable answers would be things like, development, rentals (complexes or single-family or whatever), flipping, commercial, warehouses, heck, tax liens... etc. etc. Feel free to be broad, or more specific.

No need to complicate things; I know your answer might be, "Don't be dumb, it depends on so many factors!" I get that, just play for fun, if you want.

 

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[Runum]

If you want more input it would be more helpful if you answered the question first.

 

[RBefort]

Tough to say...I would enjoy flipping if I just had everything in place and someone to manage it all under me. I like the thought of chunks of cash coming in and possibly getting a home run. If I had less tolerance for risk, I'd just buy a bunch of rental properties and have a management team. I have no experience either, but have been trying to get my a$$ to read/study it

 

[Nate]

Flipping sounds awesome; I'm sure there is a lot of work to be done of course.

Runum, I don't really know, that's why I asked. But since you pressed I'll just say that although I don't know much about any of them, on the surface of things it is rentals that catches my attention. In particular, it seems to me that the more units you can get in one space, the better, ie. the scale of worst to best would be: single-family homes, duplexes, triplexes, 4-plexes and on, then apartment complexes. My take, at least.

 

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[GuestUser8117]

I would do house flipping and real estate development. Sounds like a good "carreer" to me. I would start to fix/rehab a house, sell it for a profit, save the money, buy a land and build something.

 

[Lights]

Rentals if I had a choice, but this isn't an educated opinion.

 

[Runum]

I have been a REI for 7 years now. I have several rentals and they usually provide nice cashflow. I have also flipped a few mobile homes in my time. Nice to sell them on payments and get a monthly check in addition to the down payment.

REI is also a pain when things aren't working right. I lost 50% of my tenants last May for various reasons. I had 5 vacancies and 2 major rehabs going all at once. Bleeding lots of cash and working insane hours for two months to get everything back to normal.

Many of my competitors lost their investments due to banking on appreciation and no cashflow.

REI is making a comeback in my area. Valuations are recovering and I have most of my holdings up for sale at "for profit" prices. May sell, may not sell but the cashflow still comes.

Lots of different ways to make money in REI. Lots of different ways to lose money to.

Still have a couple of pain in the butt tenants but will remedy those in about 2 months.

Multi-family will definitely perform better over the long run but you have to get tenants that can get along or you will be refereeing all their petty bickering.


You might want to check out Bigger Pockets for more REI info.

https://www.biggerpockets.com/forums

 

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[DeletedUser2]

Multifamily

Period.

150-500 unit size.

because at that size you can

1. get cheap government funding, thats a license to Print money
2. 4.5% interest rates NON recourse
3. 35-40 yr loan amortizations.
4. professional level management
5. GREAT 20% PLus Cash on Cash returns due to the leverage. (that means a 5 yr payback on risk capital)
6. due to the size, and scale, you can great hands off management for most all of it. and still have enough money left over to go play ALOT.


The only other one is a Note Investor,
the only down side for me there, is the all cash, no leverage (well not much) that you can get on notes.


Z

 

[Nate]

I have been a REI for 7 years now. I have several rentals and they usually provide nice cashflow. I have also flipped a few mobile homes in my time. Nice to sell them on payments and get a monthly check in addition to the down payment.

REI is also a pain when things aren't working right. I lost 50% of my tenants last May for various reasons. I had 5 vacancies and 2 major rehabs going all at once. Bleeding lots of cash and working insane hours for two months to get everything back to normal.

Many of my competitors lost their investments due to banking on appreciation and no cashflow.

REI is making a comeback in my area. Valuations are recovering and I have most of my holdings up for sale at "for profit" prices. May sell, may not sell but the cashflow still comes.

Lots of different ways to make money in REI. Lots of different ways to lose money to.

Still have a couple of pain in the butt tenants but will remedy those in about 2 months.

Multi-family will definitely perform better over the long run but you have to get tenants that can get along or you will be refereeing all their petty bickering.


You might want to check out Bigger Pockets for more REI info.

https://www.biggerpockets.com/forums

Now that is some fantastic information! Honestly, with my VERY limited knowledge of anything related to real estate investing, my gut has been telling me for a while that the answer to my question is exactly what you are saying. I am sure there are many ways to skin a cat, but I think multi-unit (the more the better) rentals is the way to go. Now... start saving up

 

[PopEmersen]

1. get cheap government funding, thats a license to Print money

Exactly how is this accomplished? I've been doing flipping and REI project managing for a few years but this is the first time i've seen this. Can you give more info at all?

 

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[CryptO]

Multifamily

Period.

150-500 unit size.

2. 4.5% interest rates NON recourse
3. 35-40 yr loan amortizations.

Z

How much money would you need up front for a development like that, 10% ???

Personally the route I'm aiming for is single unit flips then building up capital to buy land and develop on it.

 

[DeletedUser2]

Originally Posted by zen*******

1. get cheap government funding, thats a license to Print money
Exactly how is this accomplished? I've been doing flipping and REI project managing for a few years but this is the first time i've seen this. Can you give more info at all?

HUD has a 40-D program. don't be fooled its not easy the first time. the first deal could easily take 6-8 months to finance.

BUT once you have been approved you can do thousands.
A friend of mine bought up over 4000, units in a 3 yr time span, after he got into the program.

they require between 12-17% down
they will finance the rest.
and the cool secret? the US is losing about 2M apartments (compared to the demand) a YEAR, and they don't have enough people getting into the program to offset that (talk about demand)

the nice part is, when you have non recourse, governmental financing, and can get great cash on cash yield. its easy to raise the money from investors to cover that 12%.

example,

in Jan we looked at a deal that only required a 1.1M downpayment for a 5.5M property that would have given a straight 20% Cash on Cash return, day 1.


like anything, if your willing to do the work, its out there.
Ping me if you want the guys Name and number in Dallas who deals in these loans.

Z

 

[tamo42]

I get sellers to give me rentals

 

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[GuestUser8117]

I have been a REI for 7 years now. I have several rentals and they usually provide nice cashflow. I have also flipped a few mobile homes in my time. Nice to sell them on payments and get a monthly check in addition to the down payment.

REI is also a pain when things aren't working right. I lost 50% of my tenants last May for various reasons. I had 5 vacancies and 2 major rehabs going all at once. Bleeding lots of cash and working insane hours for two months to get everything back to normal.

Many of my competitors lost their investments due to banking on appreciation and no cashflow.

REI is making a comeback in my area. Valuations are recovering and I have most of my holdings up for sale at "for profit" prices. May sell, may not sell but the cashflow still comes.

Lots of different ways to make money in REI. Lots of different ways to lose money to.

Still have a couple of pain in the butt tenants but will remedy those in about 2 months.

Multi-family will definitely perform better over the long run but you have to get tenants that can get along or you will be refereeing all their petty bickering.


You might want to check out Bigger Pockets for more REI info.

https://www.biggerpockets.com/forums

Hey Runum, based on your experience, what REI strategy do you think is the most lucrative? Rentals?

 

[AnneC]

I've been in REI over 10 years, am a licensed broker, and actually have an MBA in Entrepreneurship and Real Estate Development. Between fix and flips, rentals, wholesales, and short sales, we (hubby and I) have done over 50 deals. We own rentals, from SFH to 4 units. We've owned mobile homes (Lonnie Scruggs deals). We own tax liens. We've done development. Normal transactions, creative deals... it feels like we have done them all: owner finance, sandwich lease options, subject-to, etc. I actually have a short sale closing in a few hours.

We are selling all of our properties because the market is hot here, and we want to cash out to focus on our Fastlane business. Right now, I want to be more hands-off and high return, so I am still doing tax liens and maybe hard money lending. But the more I think about it, maybe I should stick around and be a REI guru.

You answered your own question: Of course it depends on goals. Are you looking for short-term profit? Long-term passive income? Do you need cash now or are you looking for a place to park your savings? What are the source of your funds and how quickly can you access them? If you need to get a conventional loan, and are up against cash buyers, then good luck getting a hot MLS deal. How much do you have in reserves? How much experience do you have? Are you hands-on or know good contractors? Do you like overseeing projects or managing tenants?

And it also depends on your local market. What are rents? What types of properties are selling? In some neighborhoods, it only makes financial sense to flip. Where are you source of deals? If you're only looking at MLS deals, your margins are going to be pretty thin, but if you are holding long-term and have reserves, it matters less.

I agree with Runum: "Lots of different ways to make money in REI. Lots of different ways to lose money too."

We made about $70k on our first property, which was a super creative "no money down" deal. We subsequently lost over $50k on our first fix and flip (school of hard knocks!). We made over $100k on a different property. It's been a tremendous learning process along the way, and it never really stops.

If I could make a suggestion, it would be pick one thing and become an expert at it. Then, add to your toolbox. I think I'm an expert on fix and flips. Fortunately, after the first disaster, every subsequent fix and flip has resulted in profit. I'm also an expert in short sales, smaller rentals, and some development, but I don't know the first thing about giant multifamily (and really don't care to learn).

If you are going to fix and flip, start by wholesaling or birddogging. That way, you learn how to analyze a property with much risk.

If you want to do rentals, start with a small SFH or get a 2-4 plex where you live in one unit and have tenants that pay for the mortgage. That works great if you're young and single... maybe not so much if you're older and married with kids.

I prefer SFHs because there's generally less maintenance and no bickering. Multis generally look better from a cash flow perspective, but then you add in lawn maintenance, snow removal, overall quality of tenants, and the intangible factor of headaches when you get a bunch of people living under one roof (complaints about smoking, dog poop, loud music, blah blah). Plus, SFHs tend to appreciate more quickly, and you can find more buyers for your exit strategy. We use a property management company, so that's another reason for my decision. If I were managing them myself, I would probably prefer the convenience of having everything under one roof. By the way, we managed our own properties when we started, and you should, too. That way, you learn what you need to know.

You can read all the books in the world, troll a bunch of internet forums, and pay for guru seminars. That's not saying you shouldn't do these things. Definitely take the time to educate yourself, so you can minimize mistakes and risk. I can't even begin to count how many books I've read or seminars I've attended. But eventually, you need to get out there and just do it.

 

[Nate]

AnneC, that is some fantastic information, thanks for taking the time to post it when you don't have to. Your point about sticking to one aspect and becoming a master at it really hit home for me because that is what I've done with my own business, intentionally turning down other ideas in order to put more time and money into what I do well.

Some aspects of REI seem so intense, I would imagine you don't go through it, and all the paper work without a RE agent of some kind, and maybe even a lawyer for some of it, is that right? I don't know much about that area, because I haven't even purchased my own home, despite the means to be able to do so for years now. I'm single, so the thought of paying a mortgage vs. living with three friends and paying $300 per month is hard to get away from. Plus, for personal reasons I decided when I do buy my own home I will live there alone and not have roommates. Your 4-plex idea is intriguing though.

In regards to fixing and flipping, you mentioned "wholesaling and birddogging". I'm not familiar with the terms, was wondering if you could elaborate?

 

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[GuestUser8117]

speed + AnneC, Definitely helpful

 

[Michael W.]

HUD has a 40-D program. don't be fooled its not easy the first time. the first deal could easily take 6-8 months to finance.

BUT once you have been approved you can do thousands.
A friend of mine bought up over 4000, units in a 3 yr time span, after he got into the program.

they require between 12-17% down
they will finance the rest.
and the cool secret? the US is losing about 2M apartments (compared to the demand) a YEAR, and they don't have enough people getting into the program to offset that (talk about demand)

the nice part is, when you have non recourse, governmental financing, and can get great cash on cash yield. its easy to raise the money from investors to cover that 12%.

example,

in Jan we looked at a deal that only required a 1.1M downpayment for a 5.5M property that would have given a straight 20% Cash on Cash return, day 1.


like anything, if your willing to do the work, its out there.
Ping me if you want the guys Name and number in Dallas who deals in these loans.

Z

Awesome. Think big get big. I'd love to do this. Makes the time Roi worth it.

 

[H. Palmer]

I have been a REI for 7 years now. I have several rentals and they usually provide nice cashflow. I have also flipped a few mobile homes in my time. Nice to sell them on payments and get a monthly check in addition to the down payment.

REI is also a pain when things aren't working right. I lost 50% of my tenants last May for various reasons. I had 5 vacancies and 2 major rehabs going all at once. Bleeding lots of cash and working insane hours for two months to get everything back to normal.

Many of my competitors lost their investments due to banking on appreciation and no cashflow.

REI is making a comeback in my area. Valuations are recovering and I have most of my holdings up for sale at "for profit" prices. May sell, may not sell but the cashflow still comes.

Lots of different ways to make money in REI. Lots of different ways to lose money to.

Still have a couple of pain in the butt tenants but will remedy those in about 2 months.

Multi-family will definitely perform better over the long run but you have to get tenants that can get along or you will be refereeing all their petty bickering.


You might want to check out Bigger Pockets for more REI info.

https://www.biggerpockets.com/forums

Runum, why don't you outsource your property management?

 

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[Runum]

Runum, why don't you outsource your property management?

Lack of trust. Poor service vs cost.

You manage the tenants and property/business or you manage the manager. Either way, it's not hands off.

 

[AnneC]

Nate, real estate agents and attorneys are not usually needed, unless mandated by state law or the specific type of transaction (eg: a bankruptcy sale or lawyer acting as trustee).

In a nutshell, birddogs find good deals for other investors, usually for a flat fee ($500-$1,000 is average around here). Wholesalers take it one step further by getting a contract to buy the property from the seller, for a set sales price. Then, the wholesaler would sell that contract (assign it) to another investor for a fee. Because there is more work involved, a wholesale fee will be much higher -- on average, I would say they are $5,000-$10,000 but have the potential to be much higher, depending on how cheap of a sales price the wholesaler can negotiate with the seller.

I would echo Runum's suggestion of checking out BiggerPockets. I haven't been on there in a while, but I personally know the guy who runs it, and can vouch for that site. I would also suggest joining your local real estate investor association, especially if you are looking at doing wholesales, birddogging, or fix and flips.

Your questions are very basic, so if you are serious about it, I would suggest you start by reading some books about real estate investing. There are tons on Amazon or just check out a few from the library. That way, you are familiar with the basic terminology of the trade: wholesale, assignment, deed, note, contract, title, etc.

 

[H. Palmer]

Lack of trust. Poor service vs cost.

You manage the tenants and property/business or you manage the manager. Either way, it's not hands off.

I just bought my first property and on the basis of the first three months of experience with a property manager, my impression is that your statement is true in my case as well. Haven't seen a cent of rent so far and no outgoing communications from the side of the property manager. I really hope this isn't turning into a nightmare.

Anyway, have you tried several property managers or have you done it yourself from the beginning?

 

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[Chazmania]

I love real estate as a cashflow source. It's quite tax friendly too meaning that just owning one rental allows for many write-offs that wouldn't be if you're just an employee somewhere. Flipping is a nice concept but if the market doesn't cooperate with your plans then it can get ugly quick. Also, if you're looking to unload a property and the mortgage banking laws are changing mid-stream (which they still are), you may have a great house to sell with no qualified buyer.

I like buy and hold residential housing that cashflows positive. What my wife and I are doing is setting up a base of rental income and I must say it's great opening the mailbox and getting paid!! I'm Dave and I'm a real estate addict!

 

[H. Palmer]

I love real estate as a cashflow source. It's quite tax friendly too meaning that just owning one rental allows for many write-offs that wouldn't be if you're just an employee somewhere. Flipping is a nice concept but if the market doesn't cooperate with your plans then it can get ugly quick. Also, if you're looking to unload a property and the mortgage banking laws are changing mid-stream (which they still are), you may have a great house to sell with no qualified buyer.

I like buy and hold residential housing that cashflows positive. What my wife and I are doing is setting up a base of rental income and I must say it's great opening the mailbox and getting paid!! I'm Dave and I'm a real estate addict!

Do you use a property manager?

 

[Chazmania]

Do you use a property manager?

No, I don't use a property manager and it's for the same reason I don't use a stockbroker. It's my belief that although it can be good to use 3rd parties, I feel that as the owner you still have to be able to understand every step of the business/investment and be competent in the role(s). If you know the process inside and out then you can truly evaluate what your "middleman" is doing and if they are doing it well. We all know that NOBODY will care about your money as much as you!

I've learned the hard way over the years to not think of real estate as an investment, but as a real business. Too many people get into trouble thinking that they can buy a building and then it's gonna run on auto-pilot. No way!! Housing is a complex business that only gets to run smoothly once the property stabilizes. I made that mistake years ago too and paid dearly (blood,sweat, and tears, literally) to learn the skillset to own and manage my rentals.

Now if you just bought a 30 unit building then you absolutely need help running that and there should hopefully be cashflow to support a management team, but if it's smaller deals, I suggest doing as much of it as you possibly can yourself for the education it provides and to keep a healthier profit margin.

 

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[RBefort]

Do you guys with rentals have a career on the side, or is your investing full time? Are you spending more time with your rental investments than working a normal career? I am torn between building up capital first to move onto more cash-flowing properties over time, or figuring out some other fastlane idea. Seems like Real Estate would just be even more time consuming; although, you get to work for yourself (which is one of my original goals). Anyone care to share more $$$ details (if you're a full time investor)? Looking at a blog and adding up the flips, it looks like 200-300k/yr profits from flips. While I wouldn't mind doing that in a heartbeat because it beats a cubicle, it's not exactly Fastlane matieral. I guess just scale up until you have a huge property with several units?

 

[Chazmania]

I'm still working while building up the property portfolio. I wish I could say it was just property income right now, and yes it is a pain in the a$$ sometimes doing both! All the more reason to know how to quickly handle issues that pop up. Getting things done quickly, correctly, and low cost is the key.

 

[Steve37]

HUD has a 40-D program. don't be fooled its not easy the first time. the first deal could easily take 6-8 months to finance.

BUT once you have been approved you can do thousands.
A friend of mine bought up over 4000, units in a 3 yr time span, after he got into the program.

they require between 12-17% down
they will finance the rest.
and the cool secret? the US is losing about 2M apartments (compared to the demand) a YEAR, and they don't have enough people getting into the program to offset that (talk about demand)

the nice part is, when you have non recourse, governmental financing, and can get great cash on cash yield. its easy to raise the money from investors to cover that 12%.

That's great info, thanks for posting. From your experience it sounds like loan processing times are significantly reduced once you've been approved by hud? Will ping you for the guy who brokers these loans.

 

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[roc]

I would say learn to flip contracts at first. You will learn how to determine repairs as well as values of properties. Landlording has a steep learning curve if you never done it before. Multis are great but again see my previous statement.

AND for everyone asking about property management companies, you will not find someone who really cares unless they are looking after a 100 units or more. Good luck Rocco

 

[roc]

Funny Zen, I just heard a lawyer speak about the program you mentioned, and how crazy it is to get the process approved. But he did mention the terms and rates and its scary good.

Multifamily

Period.

150-500 unit size.

because at that size you can

1. get cheap government funding, thats a license to Print money
2. 4.5% interest rates NON recourse
3. 35-40 yr loan amortizations.
4. professional level management
5. GREAT 20% PLus Cash on Cash returns due to the leverage. (that means a 5 yr payback on risk capital)
6. due to the size, and scale, you can great hands off management for most all of it. and still have enough money left over to go play ALOT.


The only other one is a Note Investor,
the only down side for me there, is the all cash, no leverage (well not much) that you can get on notes.


Z