Shared Top Border
sdcia_head3.jpg (14795 bytes)
SDCIA Message Board
Sign up Latest Topics
 
 
 


Reply
  Author   Comment  
taddyangle

Avatar / Picture

Senior Member
Registered:
Posts: 2,067
Reply with quote  #1 
Hello,

I have been brain storming some options with my wife on a couple of properties we own.  Trying to figure out the best course of action and looking for feedback.  

#1 - we own a condo in Palm Springs that we normally use a few times a year and rent to snow birds in the winter.  No loan.  We cover most all costs, so out of pocket is $1500 annually.  We have owned the property 15 or so years.  Value id $150-160k.

I was originally thinking we would 1031, but at this time I am hard pressed to think were it makes sense to move this money given how real estate seems so inflated every where these days.  So after talking this out we think the best course of action is to sell and then use proceeds to pay off a loan on another property.  The sales proceeds would be about $5-10k short of paying off the loan, but we would come up with the difference.  This would then save $950 a month.  To me that return sounds pretty good.  This particular property is worth $500k so I then think when we would want to resume buying (next recession) we could take a loan out on this property and then buy.  I think this is the best course of action, so looking for feedback on this one.


#2 - we are selling a town home in the out lying areas of SLC.  It is a generic town home just like all the others in the out lying cities of SLC.  Nothing special and always takes longer than it should to rent.  It has been easy enough to manage and the return is 6% but I really worry that these are the typical types of properties that take a huge hit when the market corrects.  We 1031 into this property 12+ years ago and would need to 1031 out of it.  Should sell for $260k and current loan is $50k.   I think the tax hit would be too great to sell, and we would like to 1031 into something to avoid the hit. We were originally thinking we would buy a vacation rental in SW Florida, but we just returned and I did not see anything appealing.  So at this point I am not sure what to do.  This property will be vacant in 2 weeks and I was planning on listing in 3 weeks.  Others in same complex have been under contract in 3-14 days.  Any feed back on options is greatly appreciated.

Thanks!!



__________________
------
taddyangle

Avatar / Picture

Senior Member
Registered:
Posts: 2,067
Reply with quote  #2 
On #2, re market seems so inflated in the places we have looked that we will end up keeping this property. 
__________________
------
rickencin

Avatar / Picture

Senior Member
Registered:
Posts: 1,062
Reply with quote  #3 
I like how carefully you try to use your money or equity.  
Back a century ago:

“In a previous chapter on finance were set forth the dangers attendant upon the indiscriminate borrowing of money. It is inevitable that anyone who can borrow freely to cover errors of management will borrow rather than correct the errors. Our railway managers have been practically forced to borrow, for since the very inception of the railways they have not been free agents. The guiding hand of the railway has been, not the railroad man, but the banker. When railroad credit was high, more money was to be made out of floating bond issues and speculating in the securities than out of  service to the public. A very small fraction of the money earned by the railways has gone back into the rehabilitation of the properties.  When by skilled management the net revenue became large enough to pay a considerable dividend upon the stock, then that dividend was used first by the speculators on the inside and controlling the railroad fiscal policy to boom the stock and unload their holdings, and then to float a bond issue on the strength of the credit gained through the earnings. When the earnings dropped or were artificially depressed, then the speculators bought back the stock and in the course of time staged another advance and unloading. There is scarcely a railroad in the United States that has not been through one or more receiverships, due to the fact that the financial interests piled up load after load of securities until the structures grew top heavy and :fell over. Then they got in on the receiverships, made money at the expense of gullible security holders, and started the same old pyramiding game all over again.” Henry Ford, My Life and Work, 1922, p. 175


__________________
Rick
javipa

Avatar / Picture

Senior Member
Registered:
Posts: 3,380
Reply with quote  #4 
This stock manipulation scenario is pretty much how Joseph Kennedy got rich.  He didn't do it by over-leverage exactly, but mostly through market psychology manipulation.

I don't personally invest in the stock market, since I have no control over anything whatsoever.

---------------------------------

Taddyangle,

You might consider moving up the food chain, instead of simply trading in one rabbit for another one.  If it was me, I would trade into (more) multifamily units. 

This is...
* safer,
* more predictable appreciation,
* more consistent cash-flow,
* higher return on equity
* higher leverage,
* broader amortization of overhead costs

$250,000 will leverage you into a cash-flowing, $2.5M-dollar, project without a hassle.  However, if you're into hassles, you can do better than that, and create more cash flow with the same amount of money.

__________________

"Obstacles are those frightful things you see when you take your eyes off your goals." --- Henry Ford "

"149 Ways (Plus One) To Find Motivated Sellers and Get Them To Find You" >>>Click Here To Download 

kdog171717

Senior Member
Registered:
Posts: 104
Reply with quote  #5 
You can buy a $2,5 mil. Multi family with 10% down?
javipa

Avatar / Picture

Senior Member
Registered:
Posts: 3,380
Reply with quote  #6 
Quote:
Originally Posted by kdog171717


You can buy a $2.5 mil. Multi family with 10% down?



Absolutely.  You can do even better, if you're willing to hustle, and/or put up with hassles. 

You can make almost anything happen, if you've got a motivated seller in front of you, and you don't have interference from a real estate agent. 

'Agents' are two-syllable words for 'unnecessary overhead' as far as I'm concerned.  But you've got to be able to analyze numbers (know what's supposed to be happening, in order to negotiate profitably.)


Most investors don't have the capacity, or willingness, to learn how to profitably find, much less leverage (negotiate) themselves into (bigger) deals, and/or think creatively enough (or look for the right problems to solve) to bring these deals together.

I'll give you a real example of how it can work...

There was a 49-unit project in Sacramento that was experiencing a 30% vacancy.   

The owners were making 'every' amateur mistake, including failing to manage their managers.  Of course, the owners were in over their head (as this was an inherited property), and now they just wanted out (with some money). 

The problem was that banks analyze the performance of a given project in order to assess risk, and offer rates and terms accordingly. 

As you might imagine, the financing rate and terms the bank was willing to offer was atrocious on this under-performing project. 

Never mind it took a strong buyer, to qualify for the atrocious financing; overcome its costs; turn the property around; create and maintain a better performance history, and replace the expensive, high-risk financing with something cheaper, and more profitable; and then either sell for a profit, or hold for cash-flow, etc.


The buyers in this case, weren't interested in meeting the bank's financing hurdles and bury 30% down, and show cash reserves, and pay a high rate of interest over a short amortization schedule. 

Instead, they explained, to the seller, the financing hurdles they faced, based on the project's poor performance (not mentioning the seller's incompetence) and showed them how they could net more from the property by accepting terms. 

The terms were essentially taking over the project as-is, with no money down, with a promise of cashing the seller out once the project was stabilized, and the buyer could refinance with a more reasonable rate and term.  


In this case the 'down payment' was a proven track record of successful apartment management, a promise of more net equity, in return for 100% seller financing, at a more reasonable interest than what the buyer could get with a new purchase money mortgage. 

Additionally, the buyer negotiated the no-down terms by explaining that it made less sense to make two down payments to buy the property; 1) to buy the property and 2) to fix the property.  The seller agreed with that logic.

Meantime, even though the buyer got into the project with a very small amount of money up front, he still had to invest money to cover the intervening negative cash flow, while the project was being stabilized. 

--------------------------
I happen to know experienced investors who've negotiated 120% financing on bank-owned units. 

That is, the bank offered 100% financing, plus financing for the rehab, and turnaround, in order to get rid of a non-performing, portfolio asset. 


Anything's possible with a motivated seller.  But you've got to be willing to solve problems, and meet and overcome hassles ...and act fast.  You can't steal in slow motion.

__________________

"Obstacles are those frightful things you see when you take your eyes off your goals." --- Henry Ford "

"149 Ways (Plus One) To Find Motivated Sellers and Get Them To Find You" >>>Click Here To Download 

taddyangle

Avatar / Picture

Senior Member
Registered:
Posts: 2,067
Reply with quote  #7 
I appreciate the feedback.

I am getting too old to leverage into a larger property, as I strongly feel I would need to add value to make it work, and this would involve me spending more time than I am willing to look for a deal, and then all the time to manage it. 

We have since decided to hold onto the SLC real estate.  

We are looking to move out of California (we live in San Diego), it is too crowded and too expensive. Now that the kids are gone, no sense to live in the suburbs.  Looked at moving near the beach, but I have no desire to pay the going rate for a home that is walking distance to the beach.  So we are off to Sanibel, Florida. 



__________________
------
Jeff

Avatar / Picture

Senior Member
Registered:
Posts: 1,589
Reply with quote  #8 

Quote:
Originally Posted by taddyangle
I appreciate the feedback.

I am getting too old to leverage into a larger property, as I strongly feel I would need to add value to make it work, and this would involve me spending more time than I am willing to look for a deal, and then all the time to manage it. 

We have since decided to hold onto the SLC real estate.  

We are looking to move out of California (we live in San Diego), it is too crowded and too expensive. Now that the kids are gone, no sense to live in the suburbs.  Looked at moving near the beach, but I have no desire to pay the going rate for a home that is walking distance to the beach.  So we are off to Sanibel, Florida. 


 

Go with my best wishes and fondness for our shared experience.  Please let me know how it all works out.

 

Myself...I am thinking of living in a van.


__________________
Please God, make the second million easier...
Paul

Senior Member
Registered:
Posts: 2,086
Reply with quote  #9 
Quote:
Originally Posted by taddyangle
So we are off to Sanibel, Florida. 




Good call! Sanibel and Captiva are beautiful places. I'd live there in a second.
javipa

Avatar / Picture

Senior Member
Registered:
Posts: 3,380
Reply with quote  #10 
Quote:
Originally Posted by taddyangle

I appreciate the feedback.

I am getting too old to leverage into a larger property, as I strongly feel I would need to add value to make it work, and this would involve me spending more time than I am willing to look for a deal, and then all the time to manage it. 

...


Timing 'is' everything I guess. 

Adding value does usually require some kind of personal investment.  Finding deals does also take time and energy, if not analytical and negotiation skills.  However, theoretically, you only have to do those things once. 

Same with management.  Once a project is stabilized (assuming you bought the right problems), the day-to-day management should be delegated to a manager, and you should just manage the manager.  Much less complicated. 

However, that does actually mean managing the manager.  They don't seem to manage themselves, much less a project well over time.  Without consistent attention, managers get lazy, inefficient and consequently more expensive and less profitable.  Been there and done that.

However, it's even worse with houses.

----------------------
Personally, I would not want to move anywhere near Florida.  I've lived in humidity, and Florida is a three-syllable word for '24/7/365 dampness.'  No thanks.  I mean to ask, "When is it never not humid?"

----------------------
There are many, many alternatives in S. Cal where there is way less congestion, great weather, and yet close to everything an 'aging' person could want.  Fallbrook is one example.  So is Escondido. 

I just drove through Fallbrook a few months ago, and it was absolutely beautiful.  I like hills and canyons and there's plenty of them there.   I looked at a secluded, treed property, with a small house hidden deep in the property.  Wild Peacocks were strolling down the roads.  It was magical.  And the price was just as 'magical,' as in, I've now got pixie-dust lung.  Nobody said a forested, secluded homestead, with mild weather, and wild Peacocks came cheap. 

I'll stop there with that horrible sales presentation. 😃
----------------------

Good luck in Florida.  Check for hurricane-proof windows, and double-check for termite infestations.

__________________

"Obstacles are those frightful things you see when you take your eyes off your goals." --- Henry Ford "

"149 Ways (Plus One) To Find Motivated Sellers and Get Them To Find You" >>>Click Here To Download 

Previous Topic | Next Topic
Print
Reply

Quick Navigation:

Easily create a Forum Website with Website Toolbox.

Policy