Month: June 2016

BiggerPockets Musings

Posted on by Anubis

If anyone is thinking of getting into the real estate investment business, the website http://www.BiggerPockets.com is a must.  Its a basic how-to guide that I wish was around much earlier in my real estate career.  Its basically a forum with how-to guides on how to buy, rent and flip properties.  For the most part, invaluable wisdom that you used to have to pay for a few years ago.  Now its free.  However, like any internet forum group, it forms its own group-think mentalities that just have a hard time wrapping my head around.  See, below:

Tom Olson from Highland, Indiana

replied 3 days ago

I can only tell you from my perspective owning over 100 rentals currently (mostly in NW Indiana) and being on the construction end of over 500 for me and other investors and helping clients find over 400 over the last 8 years that this price point will not perform over the long haul better than the 60k-120k areas.
However what I can guarantee is that you will have more brain damage with more properties to get to the same financial freedom # these houses look like 15-30% cap rates on paper but at the end of the day (if you get a large enough statistical snapshot) you will find that you will end up with a true 10-12% cap with 2x (or more) the headache the other thing to consider is upside and downside of the cyclical market in general… The homes in the 85-150k range in my opinion have a better chance to raise in value over time because they are in more desirable places (everyone wants what everyone wants and no one wants what no one wants) I’m not saying this is how we invest for cash flow but it certainly has to be part of the conversation
I also believe that in an area like Indiana where the land is so cheap the price of the homes do not go down as much (in this higher price point )in a down turn. However in those areas where the houses are 30-40 now you will see homes at or under 10k meaning (in my opinion higher risk) out of the 104 rentals we have only 5 are in these lower price points and we have 4x the turn over and 5x the repairs which really screws up your equations….. If you do invest in these areas and want accurate #s to go off of just make sure you adjust your vacancy to 10% and your maintenance to 12% and most property managers I know want 10% for management For these compared to the 8% you can get in the higher price points…. Hope this helps give insight. I know and love Shawn and I know he is trying to help as am I

If I can be of any assistance let me know
Good luck

Tom Olson

Now, Im sure Tom is a great guy.  But, like many users of the site, he’s fallen into the group-think trap.  He’s also an older more-established investor thats been around for awhile.  What worked for him, worked for him.  It doesnt necessarily mean to take his advice as the word of god.

For starters, 20 years ago, anyone who wanted to invest in Northwest Indiana would have been laughed at, and rightly so.  Gary, IN is still to this day one of the murder capitals of the US.  Does it work now?  Sure.  No one can afford to live in Chicago anymore, and prices and taxes are cheaper on the other side of the border.  Did anyone even consider this 20 years ago?  No.  Because owning anything east of the border was investment suicide.  A few years pass, some investors take some risks like Tom here, and PRESTO, instant money maker.  Toms advice, like anyones, is based on his experience.  And his experience doesnt always work for new investors.

This comes from a BiggerPockets.com thread regarding investment in $40,000 or less rental properties.  Its chocked full of people talking about some “$40k” rule where you immediately dismiss a property if its valued that low.  As someone who buys at tax sales in Indiana, I was perplexed to read over and over again how stupid I am for investing in such terrible properties.

Jay Hinrichs Developer, Real Estate Broker, from Lake Oswego, Oregon

replied 4 days ago

@Mike D’Arrigo    this topic is brought up once a week on BP

If you live in the area IE within 30 to 40 minutes of the asset and you want a job.. then by all means these can work.

if you live on the west coast and want to sit in your barcolounger and rely on PM and your tidy tenant then your going to lose your %@@ on these type of 30k homes.  flat out guaranteed.. you will as a out of state investor end up selling to some wholesaler like @John Babcock who will then sell to some TK company or other investor..

FOLKS remember 50% of all these homes come from Failed landlords.. plain and simple that’s a fact.. If you live in the market and want to make it a job then that’s fine

I have cleints I fund that own hundreds of these and they work them.. BUT no PM  they self manage it all they have their own rehabbers etc..

so really depends on who is the buyer

This guy for instance.  You’d think the world was ending in Muncie, Indiana where I currently hold all of my properties.  Im sure Jay has lots of idiot clients that mismanage their rentals, but losing my ass guaranteed?   Pretty bold statement Jay.  Got any data on that?  No?  Just a gut-feeling huh?  Thats what I thought.

What they are both getting at is that lower priced homes tend to have more upkeep and repair costs.  In other real estate news, duh.  I understand that these boards are for teaching and learning, but sometimes it devolves into a weird pecking order where older more successful landlords shit all over younger people like myself.  I hate to tell Tom and Jay, but Im not paying $120,000 for a house in Indianapolis just to make $300 more a month in rent.  Rather I buy a property in Muncie’s tax sales for $10k and put $10k into it and leave it a solid rental for 20 years than pay retail in Indianapolis.

Like any group, they hate people that push the envelope of the group-think paradigm.  Jay and Tom need to pull their heads from their asses.  Real estate professionals have been spoiled to long with the “fix-and-flip” attitude.  People approach real estate investment from all sorts of angles and with varying amounts of resources.  Calling some recently graduated college student and idiot for buying a $30k home isnt productive.  You can make money off of them if you know what you are doing.

I bought an 8-unit apartment building in Muncie, IN for $20,000 early last year.  For all intents and purposes, people on this forum would have called me retarded.  Fifty thousand dollars worth of rehab later the units are rented out and the building is pulling in nearly $50k A YEAR.  Dont tell me it cant be done.

Now if you’ll forgive me, my barcolounger is calling.

 

 

Are we going to do this shit again America?

Posted on by Anubis

I am thankful enough to live in a place where I have no idea what 50 dead bodies looks like all lined up.  Throughout my travels in the world, I’ve seen the occasional dead person, but never more than one at a time.   Throughout my travels on the internet, I’ve seen the pictures of what a large caliber weapon can do to a persons body.  But, I am not naive enough to deny that pictures can only show so much.

Nor am I particularly interested in finding out what that looks like today or any other day.

But I find myself writing about a mass shooting again.  This time, the largest in US History.  This time, in a gay night club in Florida.  The who and where are different, but the story is relatively the same.  Lone wolf buying American weapons. Democrats will blame gun control and Republicans will blame Islamists. Rinse. Repeat.  Eventually someone gets called a Nazi and the debate devolves from there.  Nothing is done, nothing is solved.  Its another morning in America.

This country has become a place so polarized, its almost beneficial to just keep your mouth shut.  Not only are opposite political beliefs morally repugnant, but the people that spout them are now evil.  Im not sure when this happened, and if you ask either side they will give you a different answer and date.  The Democrats will says Bush after 9/11.  The Republicans will say it is either Clinton or Obamas fault.  Neither are right.  Both are right.  It just depends on which news station you tune into I suppose.

Its easier to put up a funny meme calling Donald Trump Hitler than it is to sit down and debate his immigration policies.  We live in a Twitter world now.  Characterize your arguments in 144 characters or less.  Or perhaps a political cartoon that doesnt take much thought or effort to post to Facebook?  Obama’s going to take your guns?  Seems reasonable enough, click share.  Trump’s creating death squads?  Better re-tweet it before the meme gets stale. Either way, nothing of substance is said.  You think you are having a discussion, but so long as you remain behind a keyboard, its impersonal, brutish, and short-lived.

And it got me thinking, what is it I exactly believe, because I honestly dont think I’ve ever written it down.  Its rather easy to label me, just from Facebook posts alone.  But there are caveats, asterisks, and lots of “buts”.  So I thought I’d list them here, not just for a meager audience, but for me.

  • I believe the United States of America is the greatest country in the world, but I am not naive enough to believe we’ve acted like saints since 1776.
  • I believe that for the most part, people are fundamentally good.  But I have met truly evil people in this world, and I know it can never be a utopia.
  • I would most likely be defined in this country as a liberal, but I have some conservative viewpoints as well and I dont think that makes me a bad person.
  • I backed Bernie Sanders, but I dont think Hillary Clinton is literally Satan.
  • I think Trump makes an excellent businessman, but a terrible president.
  • I think everyone in this country has the right to life, liberty and the pursuit of happiness.  But I dont think this country has been or ever will be some libertarian paradise.
  • I think people who follow the teachings of Ayn Rand live in a fucking fantasy world and have no business in our democracy.  The same goes for Karl Marx.
  • I think service to this country should be mandatory, whether it be civilian or military.  I think people who have participated in said service should be allowed to vote in elections.
  • I think voting should be mandatory and that democracy isnt a spectator sport.
  • I think keeping citizens healthy is governments job.  I dont consider health care a right, but I do think the government should be responsible for its citizens.
  • I think our immigration policy is absolute garbage, but that it doesnt make me a racist for saying so.
  • I think if an employer is caught using illegal immigrants, they should be fined heavily.
  • I believe H1-B visas shouldnt be a thing.  Either be actively seeking citizenship and be a tax payer, or dont bother.  If you cant operate your business without foreign labor, then move your business to that country or shut it down.
  • I believe the market minimum wage is zero dollars an hour, and that doesnt work in this country.  I also think raising the minimum wage in this country shouldnt make you a socialist or a communist.
  • I think if paying someone a few dollars more to work a cash register adds a few cents to your Big Mac, thats your problem, not theirs.  Not wanting to live in abject poverty shouldnt be looked down upon.
  • I think people should know at the very least, the definitions for communism, socialism and capitalism before opening their mouths to comment on them.
  • I know that 99% of people that come to the USA do so to make a better life, and most US citizens would do the same if the tables were turned.
  • I think excluding certain races from entering the country is fundamentally wrong, but I do believe that certain political views are incompatible with democracy and asking those questions is just fine with me.
  • I believe that if you have no intention of participating in democracy then you have no business in this country.
  • I believe building a wall to keep an entire country out is pointless, silly, and those who believe it would work should be openly mocked.
  • I believe people should learn how amending the Constitution works before opening their mouth about the subject.  Doesnt matter what side you are on, its usually not going to happen.
  • I believe abortion should be rare, as well as legal.  But I understand the other side’s points.
  • I believe that every man and woman over the age of 18 should be able to own a firearm.  But I also believe they should be able to pass a background check while also proving they can safely fire and store it.
  • I dont believe an assault rifle is a decent weapon for home defense, but I dont think you should be banned from owning one as a responsible upstanding citizen.
  • I believe that so long as you can buy a weapon at a gun show with a background check, all concealed carry permits should be granted.
  • I think the Federal Government should be involved with who can buy guns, when and where.  But that is all.  I think the states should do the rest.
  • I think there is a group of people in this country that arent taxed correctly.  But I also think that taxing people isnt always an option for fixing a problem.
  • I think people that want a flat tax on anything dont understand how taxes or the economy works.
  • I believe anyone, foreign or domestic, who raises arms against the US government should be prosecuted for treason.  I dont care how good your point might be.
  • I believe all disputes, large and small, can be solved via democracy and justice.
  • I believe you cant run a government at all like a business.  The fundamental views of capitalism are at odds with the fundamental views of democracy.  People that say this either dont understand government, business or both.
  • I dont believe that businesses should be responsible for the health care of their employees.  That is the governments job as well as the employees.
  • I dont think all drugs should be legalized, but I think that the way we treat drug addicts in this country should change.  Addicts arent criminals.
  • That being said, I think trying to treat someone who just wants to do drugs until they die is pointless and only so many chances are given.
  • I think keeping US citizens on lists is pointless if you arent going to do anything about it.  I think anyone should be able to know what list they are on and how to get off of one.
  • I think you should be able to marry anyone of your choosing so long as they are competent and over the age of consent.  After that, you are responsible for whatever happens.
  • I dont believe the government should sterilize anyone, but I think at some point you have to argue to them about why you want a dozen children and how you are going to pay for them.
  • I think it is the government’s responsibility to have the most educated work force it can afford.  I dont believe that people should go hungry because they want a better education.
  • But I dont believe that all colleges should be free and without competition.  If you want to major in underwater basket weaving, you are going to pay for it.
  • I realize that some of these views might be contradictory of each other, or impractical.  But Im also up to changing these views if someone makes a solid argument.
  • I think this county’s best days are in the future, not in the past.

This is a short list.  Im up for a debate most days, but as of right now I am just so tired of this bullshit.