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REAL ESTATE Working an Apartment strategy... Need Advice

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LamboMP

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Aug 13, 2007
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Right now, I'm building my apartment investing strategy. I'm starting from nothing. When your starting out, and trying to build a big enough portfolio to be able to leave the "rat-race" and live off the cash flow, how do you determine at what stages in the portfolio building to

a) sell your buildings
or
b) keep them for your portfolio.

I've been pondering this question for a few days now. Can anyone chime in on what stages did you decide to sell your buildings, and then what stages you starting to keep them for your portfolio?

Thanks for your time,

MP
 

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SteveO

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My opinion is that you need to build a large enough portfolio before you hold any. At first, the strategy should be to build the size to an acceptable holding level. If you are buying in rent growth areas and obtaining value added deals, sell when the profits look good and move the money to another deal. This way you can maximize the profits. Once you build to a couple hundred units, you can tuck some away and start again.

This is the fastest way that I have seen. Otherwise it is a long slow process of growth if you buy and hold.
 

Runum

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LamboMP, great questions. ++++ speed. I hope it's OK that I ask a couple of more along that line.

SteveO thanks for answering the question. When you are just beginning you are only dealing with one or two deals at a time. Typically, how long is it from the time you sell one deal until you move into another deal? What do you do with your capital during the down time to keep it working for you? Does this period of time make you more anxious about the future? Do you have solid leads or deals before you sell a deal? Sorry for pestering you, just want to learn from the best.:cheers:

Greg
 
OP
OP
L

LamboMP

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Aug 13, 2007
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So, when reading your story, you noted that after 2.5 years, you were able to leave your job. So by reading this, you were able to build to an acceptable holding level after this time, and you started to keep your buildings? Correct me if I'm analyzing that wrong.

MP


My opinion is that you need to build a large enough portfolio before you hold any. At first, the strategy should be to build the size to an acceptable holding level. If you are buying in rent growth areas and obtaining value added deals, sell when the profits look good and move the money to another deal. This way you can maximize the profits. Once you build to a couple hundred units, you can tuck some away and start again.

This is the fastest way that I have seen. Otherwise it is a long slow process of growth if you buy and hold.
 
OP
OP
L

LamboMP

Bronze Contributor
Aug 13, 2007
334
178
63
Toronto
LamboMP, great questions. ++++ speed. I hope it's OK that I ask a couple of more along that line.

SteveO thanks for answering the question. When you are just beginning you are only dealing with one or two deals at a time. Typically, how long is it from the time you sell one deal until you move into another deal? What do you do with your capital during the down time to keep it working for you? Does this period of time make you more anxious about the future? Do you have solid leads or deals before you sell a deal? Sorry for pestering you, just want to learn from the best.:cheers:

Greg
Greg,

From reading Volucci's book, the time in which you buy and the time in which you sell depend on the apartment cycle.

You want to buy in phase 5: bottom fishing,

and sell in phase 2: recovery peaking.

Once you have money from one deal, you will do another deal, and eventually have enough capital to do more than 1 deal at once. This is from what i've understood

I hope that helps.

Best,
MP
 

SteveO

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When you are just beginning you are only dealing with one or two deals at a time. Typically, how long is it from the time you sell one deal until you move into another deal? What do you do with your capital during the down time to keep it working for you? Does this period of time make you more anxious about the future? Do you have solid leads or deals before you sell a deal?
This really depends. I have sold and releveraged into larger deals during a recovery cycle. It just depends on the situation and what is happening at the time. I realize that this answer is vague and doesn't help a lot.

I certainly have a full understanding of the location that the exchange is going to go to. It is good to be aggressive in determining the next deal. A seller will be more interested in you if you are in an exchange.

So, when reading your story, you noted that after 2.5 years, you were able to leave your job. So by reading this, you were able to build to an acceptable holding level after this time, and you started to keep your buildings?
No, I actually won't hold a building unless it is over 100 units. I had an acceptable income from the apartments at the time that I left my job. There was a lot more time that was afforded by not having a job. This lead to more opportunity.

Keep in mind that I have frequently purchased properties with negative cashflow. So, I did not always have enough money coming in from rents to sustain my lifestyle. I had to keep money available to feed the "kitty" on occasion.
 

andviv

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This is one of the points that I think most people miss when working on their plans. If you need $7K a month to sustain your lifestyle then you have to a) replace that by getting monthly income of $7K, or b) reduce your lifestyle to just require $3K a month and then replace that lower income needed to free up your time and keep moving into bigger/better deals. Problem is, option b requires sacrifices that most are not willing to make.
 

DavyB

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Sep 12, 2007
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Steve,

Were these negative cashflow situations at the beginning of your apartment investing experience or later on after you had developed a chunk of change to work with? It seems that having negative cashflow would be somewhat more risky, or less of a margin for error, especially when one does not have a tried-and-true method/track record developed. Would you recommend starting out with a negative cashflow situation? I realize this is somewhat subjective, depending on the expectations for value-add opportunities and appreciation, but I'd like to get a gauge of your general sentiments on the topic. Thanks for all of your expertise...invaluable.

Dave
 

SteveO

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Steve,

Were these negative cashflow situations at the beginning of your apartment investing experience or later on after you had developed a chunk of change to work with? It seems the having negative cashflow would be somewhat more risky, especially when one does not have a tried-and-true method/track record developed. Would you recommend starting out with a negative cashflow situation? I realize this is somewhat subjective, depending on the expectations for value-add opportunities and appreciation, but I'd like to get a gauge of your general sentiments on the topic. Thanks for all of your expertise...invaluable.

Dave
I did have some negative cashflow situations early on. Most were positive though. Whenever I had a negative cashflow situation, there was always a plan and money somewhere to pay for it.

I realized the value of distressed sellers a few years ago and usually go after properties that are in the red now. Sometimes the lenders will hold money for me that will feed the negative cashflow for a while. This has worked well for me. The trick is to be able to have your own pro forma that you know will work. It is more risky but the risk is minimized by the experience and homework.

Every seller and agent are going to tell you that there is upside in a deal. The upside is not always there. You need to be able to figure out when it is.

I would not start with these types of deals until experience is there. Although, sometimes one will come along and slap you so hard that you can't say NO! :banana:
 

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