Inspired by Beck's $500 question - Posted by MaxC

Real Estate Investing Self Storages
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Posted by Lin (NC) on November 28, 2008 at 07:49:31:

Well, it’s mostly because I haven’t asked enough people. Previous banks (small local banks) I’ve worked with aren’t interested, so it’s time to go out and find new ones. I think for a few months there the ones I had talked to were taking a “wait and see” stance and just weren’t funding new projects. I think we have a clearer picture of how things will shake out than we did in September, and it’s probably time to begin asking again.

I’ve also had some vacancy issues (25% at one point), so that isn’t helping.

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Inspired by Beck’s $500 question - Posted by MaxC

Posted by MaxC on November 25, 2008 at 09:38:19:

Let’s play Beck’s game, but make a “big kid” version.

I give you $200K cash tomorrow, and your job is to double it in two years. What do you do?

Rules

  • it has to be something any reasonably intelligent twenty-nine year old could do
  • has to be done in a minimum amount of time during spare time (No getting a J.O.B.)
  • It can be related to mobile homes or not, doesn’t matter

I have two non real estate answers:

  1. Buy stock in a beat up company that could survive the recent stock market carnage. Like Citibank or GE. OK, that was the whimpy answer.

  2. Buy a small troubled IT services company for $200K, turn it around and sell it in 2 years.

I’d put $50K down, and use most of the rest for marketing and sales. I’d have the seller finance the additional $150K. I’d be all about cutting unprofitable services and customers in the first 3 months. For the first year, I’d be selling the most profitable and sustainable services and in the 2nd year be looking for a buyer, while continuing to nurture a sales environment.

The plan would be to turn a break even company into one that cash flows at least $100K in the 2nd year. That should sell for 4x cash flow. Especially if the services the company focused on were “hot services,” like security, business continuty, or hosting.

Does it look like I got myself a J.O.B? Kind of. I’d budget full time for the first 2 months and then 10 hours a week after that.

What would you do with the $200K?

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10 hrs a week?? - Posted by Lin (NC)

Posted by Lin (NC) on November 26, 2008 at 11:33:27:

I like your question, but do take issue with your projection of 10 hours/week. I know nothing about IT, but I do know a little something about residential RE and comm’l turnarounds. Anyone I know who’s been involved with a turnaround project has underestimated the number of hours (mostly involving relatively little skill) it takes to do a turnaround. I don’t think you can count on 10 hours a week for anything but your personal finances, and maybe you should budget more than that if you ever plan to be wealthy.

For a turnaround with an upside of $200k in 2 years, I’d expect full time hours (probably more) for at least 1 year, and 20 hours the next. If your project can afford to pay that out to an assistant, fantastic! That’s my gripe with cash-on-cash returns calculated on labor-intensive turnaround projects, and even Lonnie deals. Your time isn’t entered into the equation most of the time, but if you expect to get paid, it better be there!

Lin

That’s my experience.

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Re: 10 hrs a week?? - Posted by MaxC

Posted by MaxC on November 26, 2008 at 12:37:08:

Yes, high CAP rates that don’t factor in your own time are bogus.

I didn’t say it, but I’d bring my operations guy from my current gig to run day to day.

What would you do with the money?

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What I’d do with the money - Posted by Lin (NC)

Posted by Lin (NC) on November 26, 2008 at 13:36:40:

Yeah, I didn’t mean to kidnap the subject with my ideas about time commitments.

I wish somebody had handed $200k to me in 2007! I wouldn’t be struggling with cash flow issues while $600k in real, true, indisputable (and fantastically conservative) equity sits in real estate that I bought last year. It took me 5 years of twiddling thrumbs to have that banner year, so you all have some perspective.

Like many investors on this particular forum I am very hands-on and we’re much more cognizant of how we use our time than we are savvy about how to use $200k.

Actually right now I’m not that interested in taking on debt. Greg Meade, who occasionally posts here, has bought some dandy cash flow with lease option parks and practically $0 out of pocket (that I can tell), and I’m modelling my 2009 strategy on his.

To give you some background, I bought a 16 unit apartment complex last year for $295k. It nets $60,000+. I borrowed the 20% down payment on credit cards. And I haven’t been able to find a cash-out refi to pay that back. Crazy that I’m sitting at a 40% LTV (probably better) loan that I can’t refi! My credit score is still excellent. I know I need to keep asking…But I’d buy one of those again, in a heartbeat. They don’t come along every day, for sure.

OK, but to REALLY answer your question, weird as it might sound, I’m pretty sure I wouldn’t need $200k to double my money, in fact, I’d probably ignore that deal, in favor or another one that didn’t require any cash in. I’ve heard it over and over again, but the best investors have never had their own cash to use.

I am so busy micro-managing the pretty small cash flow I have, that I’ve neglected growing my business. Just today I started calling on apartments, self-storages, and mh parks to find myself that primo lease-option deal that hits the sweet spot.

So, to sum up, I’d be looking for a nice, smallish deal - a MHP or apartment complex ($2m plus) to lease-option, now that I have plenty of landlording and turnaround experience under my belt.

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Re: What I’d do with the money - Posted by james(CA)

Posted by james(CA) on November 28, 2008 at 01:16:51:

Hi Lin, Can you elaborate on why you are unable to refi?

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only for the hard-core anal-retentive… - Posted by Lin (NC)

Posted by Lin (NC) on November 26, 2008 at 13:44:14:

OK, the original question was how to get $400k from an investment of $200k. My answer to the question was how I would try to earn $200k on a moderate size real estate investment with as close to $0 into it as possible.
Lin