Real estate vs. a business - Posted by john

import · August 25, 2011, 9:47pm

Re: Lets get to the meat of the matter - Posted by john

Posted by john on August 25, 2011 at 21:47:52:

That’s great feedback. I’m not offended at all. I love a spirited debate.
I run a business and own real estate, although my business is not a
restaurant type I know of people in my area (D.C.) that are doing well in
the franchise/private ownership model. I’m not saying it’s easy and
apparently everyone on this board is terrified of running a traditional
business on the street. Maybe your right that it’s too hard, too much
work, all consuming etc. so I’m glad to hear your feedback on your
experience. Either way we are speaking the same language in that we
want other people to create wealth for us!! We just disagree on those
people are. I say employees, you say tenants.

P.S. I own two commercial properties that are 100% passive investments
(tenant pays for everything) absolutely no work but the return is small
(8%).

import · August 25, 2011, 10:38am

Re: Lets get to the meat of the matter - Posted by Chris in FL

Posted by Chris in FL on August 25, 2011 at 10:38:08:

JT,

Well said! There is wisdom in experience!
Reminds me when two experienced investors/wealth builders told me not to mess around with stock options, but I was smarter than them… Two years and $40K later, I sure did wish I listened to their wisdom from experience!!!

import · August 25, 2011, 12:42am

“You don’t know what you don’t know” - Posted by Jeanne

Posted by Jeanne on August 25, 2011 at 24:42:34:

Curse of the youth. John, listen to J.T. and heed his advice. You won’t, and you’ll be wiser in a few years.

import · August 29, 2011, 11:04am

Re: Real estate vs. a business - Posted by john M

Posted by john M on August 29, 2011 at 11:04:22:

Natalie,

What can you tell me about wholesaling? How do you guys do it? What is
your particular strategy?

import · August 24, 2011, 11:34pm

Re: Then why are you here? - Posted by Chris in FL

Posted by Chris in FL on August 24, 2011 at 23:34:03:

ROFL!!! [Rolling on floor laughing]
Jeanne, that is hilarious!

Best wishes,
Chris in FL

import · August 24, 2011, 4:50pm

Re: Then why are you here? - Posted by john

Posted by john on August 24, 2011 at 16:50:09:

I’m not looking to offend anyone here, I’m just trying to get some
opinions why your personal view of real estate is a better form of
leverage than say owning a business. Don’t complain to me, challenge
me, make me think, lets converse. Tell me what you are doing that
excites you.

P.S. I do own some real estate

import · August 23, 2011, 3:28pm

Re: There Will Always Be Doubting ToMmies - Posted by john

Posted by john on August 23, 2011 at 15:28:49:

I don’t know anyone quitting their day job just because they have several
rental properties. They might cash flow a few hundred here and there,
but let’s be honest this isn’t a cash cow type of business. When your 70
years old and have the properties paid off sure it’s a good cushion for
your retirement, but nothing more and nothing less.

import · August 25, 2011, 12:55am

Re: Real estate vs. a business - Posted by Jeanne

Posted by Jeanne on August 25, 2011 at 24:55:25:

If I may toot Chris’ horn: http://www.creonline.com/success-stories/ss-364.html

The lesson is to figure out what works where you live and if that changes, adapt.

import · August 24, 2011, 8:49am

Re: Real estate vs. a business - Posted by arlanj

Posted by arlanj on August 24, 2011 at 08:49:12:

You have it figured out. It is amazing.

import · August 24, 2011, 11:59pm

Plugged toilets and 2am phone calls… - Posted by Chris in FL

Posted by Chris in FL on August 24, 2011 at 23:59:10:

I love it when people hear I own rentals, and say "I don’t want to unplug toilets, and get annoying calls at 2 in the morning! If everyone knew what I do, the rental market would get way too competitive!

Do they really think anyone calls me at 2am? Not only has it never happened, but my phone is two walls away from my bed and I wouldn’t even wake up if it did ring. Toilets? Truthfully, I have unplugged them in my own home more times than in my 30 rentals. I did a few in the early years, though. Now, all it takes me is making a phone call… When I am feeling really lazy, I don’t even do that. I just give the tenant the phone number to one of my guys, and tell them to call and set it up at their convenience… Pretty soon, I may notify all of my contractors, make a list of who to call for what problems, turn it loose on my tenants, and see if I can get my phone calls under 5 a month, not because the phone calls bother me, but just to see if I can!

The plugged toilet and 2am phone calls business is the only one for me! I love it, and I wouldn’t trade it in if I could! Set my own hours. Work as much or as little as I choose. When I read gurus saying that they work because they want to, not because they have to, I thought “Who do they think they are kidding… What BS.” Fortunately, I wasn’t even 40 when I quit my full time JOB, to live off of my rentals, and found out I was wrong. I am buying more now, because if I just sat around managing my 30 houses, I would be bored to death (no lie). Tracking the numbers is my favorite part - watching the equity and cash flow grow! I am teaching my 9 year old now - he has a real knack for it… He is going to far exceed anything I have done in RE… He might work on 8 plugged toilets instead of 6 (LOL)!!!

Best wishes,
Chris in FL

P.S. - It is 1am… I am going to bed. I better find my phone, and keep it close by, in case that 2am call ever does come! NOT!

import · August 24, 2011, 7:43pm

Re: Real estate vs. a business - Posted by john

Posted by john on August 24, 2011 at 19:43:08:

The problem I see with most investors is that they see their mortgage
payment and they see their rent payments and say Yea it’s great that I
am making $300 bucks a month extra and in 20 years I will have the
property paid off. But my question is what is your Return on Equity?

How much did you invest, including down payment, repairs,
management, broker commissions, taxes, insurance, depreciation etc.)

Anyone can say they have a million dollars of equity 20-30 years from
now, but what did it take to get there. Was your Annualized ROI
investment 20%, or 10%. Then and only then can you brag about your
investment compared to other types of investments like a business or
the stock market.

import · August 23, 2011, 3:25pm

Re: Real estate vs. a business - Posted by ToMmy

Posted by ToMmy on August 23, 2011 at 15:25:39:

Hey budy! Whats your secret ? Where do you buy exactly?Give me some adresses and your phone number maybe please! I want to talk to you! I hate this:( everybody is making money exept me!:+( I need some personel advice I will travel if I have too!

import · August 23, 2011, 2:30pm

Re: Real estate vs. a business - Posted by Tommy_FL

Posted by Tommy_FL on August 23, 2011 at 14:30:14:

arlanj

I understand your secret theory and method but what state are you investing in. In a word, at what price level should a property be to generate cash flow. In Florida, prices have been going down steadily in general and rents are increasing. But again re is very local. What kind of neighborhood are you buying into? In SE Florida, the more you’re close to the beach, the more pricey it is but rents could be higher too. So what is the target price that will work in my backyard? 1 bed/1 bath rents for $700, a 2/2 can get $900+, 3/2 can get $ 1100+ Thanks.

import · August 24, 2011, 9:23pm

Re: Real estate vs. a business - Posted by Sailor

Posted by Sailor on August 24, 2011 at 21:23:53:

Yes, I’m serious & I’m legal. It involves planning, & I’m sure you’ll find lots of info on tax deferment in the archives.

Don’t get testy, John; get educated!

Tye
www.ShoeboxProject.org

import · August 25, 2011, 8:33am

Re: Real estate vs. a business - Posted by Natalie-VA

Posted by Natalie-VA on August 25, 2011 at 08:33:44:

There is no ROI to look at, because it’s a J O B as opposed to an investment.

I used to say, generally speaking, that I like my profit to match my rehab. For example, a 30k rehab should generate at least a 30k profit.

As time went on, I really didn’t want to do anything that didn’t generate at least a 30k profit, even if the rehab was only 15k.

I guess it depends on your position in life, your experience, what your time is worth to you, and how much crap you really want to put up with.

–Natalie

import · August 26, 2011, 7:55am

Not saying it is too hard… - Posted by JT-IN

Posted by JT-IN on August 26, 2011 at 07:55:08:

I’m not saying it is too hard to run a business, it is too encompassing for MOST ppl. Maybe you are the exception. But when I hear someone mention the [buzz words] comment of having others run the business for them this is a dead ringer for one not comprehending the price that one MUST pay personally as to time committment and involvement, as a general rule. [specific to the restaurant biz, or other labor intensive bizs mostly]. Again, maybe you are the exception, but I am merely keying on your comments heretofore.

Your comment: “We just disagree on those people are. I say employees, you say tenants.”

I don’t say anything about tenants, but since I have had a considerable number of BOTH [over 500 employees and many dozens of tenants, although owning hundreds of props… so I have had lots of props with NO tenants… see a diff…?] I will take the tenants over employees any day. You merely look at RE inv as tenants, and there is so much more to the RE biz than tenants. You merely show that you are a conventional RE inv, and this approach here is anything but conventional. Hence the name of the group: Creative RE Online. Investors who do things out of the box, in a non-conv manner, for the most part. Here you will read about RE deals that you will rarely read about in any traditional RE book.

Your comment: “P.S. I own two commercial properties that are 100% passive investments (tenant pays for everything) absolutely no work but the return is small (8%).”

Again, you simply show that you do not have RE knowledge since you paid too much for these bldgs. An 8% return is what everyone else is getting, sure some less, but if you had bought those bldgs for 2/3rds of what you paid for them, or even less, what would you return CAP be…? Maybe you couldn’t have bought those bldgs for that price, so you buy other bldgs that are on-sale, creatively, and get a much higher return.

So this convo comes down to discussing what you know… your perceptions about how things work, as opposed to how they work in arenas that you know nothing about. Creative RE is about fixing messes often and those are the things that the traditional inv never gets involved in. However, the huge messes are where the money can lay, and in bushel baskets full to be exact. e.g. Find a property that a seller can’t sell… traditionally. Enter into an agreement where you can buy the property [option] only if you can find/acquire the solution to the underlying problem. So now you have the solution in hand, exercise the option and make the purchase and then turn around and keep/rent or flip/sell the property for FMV and realize the huge upside. See the diff…? Yes, these deals don’t usually find you and they don’t come along every day, but knowing what to do with them when you do discover them sets apart those that make huge money as a RE inv and those that don’t. But then again, that approach isn’t for everyone either, so you decide where you want to be and go for it… as you should. Good luck.

import · August 30, 2011, 9:00am

Re: Real estate vs. a business - Posted by Natalie-VA

Posted by Natalie-VA on August 30, 2011 at 09:00:37:

Not really any particular strategy. Just whenever we pick up a deal that’s unusually good, we offer it out to other investors to try and make some money without rehabbing.

The other strategy we have used is to try and wholesale to retail buyers buy buying a fixer that needs mostly cosmetics. Then we will make repairs that we think an appraiser might require (new roof for example). Then we would list on MLS at a price that’s really too high for an investor, but lower than other actives in the neighborhood. Buyers can recognize a good value and deal with cosmetic repairs if they know they’re getting a good deal. This worked really well in 2009 before REOs and shorts really started reducing their prices. Now there might be too much competition for this strategy.

–Natalie

import · August 24, 2011, 6:43pm

Re: Then why are you here? - Posted by Sailor

Posted by Sailor on August 24, 2011 at 18:43:13:

If you want to learn here, read ALL of the archives on ALL the forums. Then you’ll be able to ask knowledgeable questions & we’ll be better able to assist you–

Tye
www.ShoeboxProject.org

import · August 23, 2011, 4:43pm

Re: There Will Always Be Doubting ToMmies - Posted by arlanj

Posted by arlanj on August 23, 2011 at 16:43:24:

I think it is a cash cow type of business. Try this on for size:

In regular America, not necessarily in the major cities. Go buy 10 houses for around $50,000 each. Payments on a 10 year would be around $5500 + 600 insurance and taxes. Rent for an average $750/month leaves $1,400/ month for maintenance and other costs. You just bought yourself a part time job. At the end of 10 years you would own FREE & CLEAR 10 houses that are earning 6900/ month +/- in rents after insurance and taxes. That is an annual income of $82,800. If my cap rate is 10% the houses are worth $828,000.

How much did I pay for those houses? Only my labor at the part time business of managing them and collecting the rent.

The renters paid for them. They bought them for me.

Now what if I bought an additional house each year, maybe a $25,000 house with money from my full time job. Now at the end of 10 years I have 20 paid for houses, at maybe $12,000 monthly rents.

10 years of a part time job and a great easy part time job retirement. At $144,000 in annual rents. No cushion for retirement. It is a good retirement, leaving me time to invest more, vacation more, live more. I will be 53 when I get mine paid off.

I can’t believe I sat at my accounting desk for 18 years before I started. If I had started in my 20’s, who knows. I would be a multi-millionaire selling courses to people who would dream but never get in the game.

import · August 27, 2011, 12:18pm

Re: Plugged toilets and 2am phone calls… - Posted by Frank Chin

Posted by Frank Chin on August 27, 2011 at 12:18:06:

Chris:

Nice post.

I’ve been landlording for 30 years, but never had a 2:00AM call on a clogged toilet. But I had a 5:00AM call on a bursted pipe, and the tenant had no idea where the main water valve is. This happened once. Had another call where a tenant didn’t know how to shut the water off to a overflowing toilet, clogged and water was going on the floor, and I was taking someone to the airport. So I swung by the place to shut the water off, and called a plumber.

These are the only two instances I was inconvenienced in 30 years.

My wife took over managing rentals full time after we were in the biz for a little less than 10 years. We made enough for her to quit her job, and people telling her about these 2:00AM phone calls scared her, and there were a few rentals over 30 minute drive away, so I arranged to meet a PM working with a local Century 21 at a site to see what he can do.

I met him in front of one property, and he commented the lawn was nicely done, and asked if I had a landscaper doing it. I said yes. He asked if I had a plumber I can call and send over. I said I used one guy that comes by, I trust him enough to do the work, and he sends me a bill. For emergencies, I had the tenant pay by credit card for 24 hour emergency plumbers and I re-imburse them.

He next asked me how many calls I get from the average tenant a year, and I said 5 or less, but I get only one or two from this particular SFH, because the tenant handles all repairs under $200 under the lease.

So he was shaking his head and asked why I wanted a property manager. He said the Century 21’s PM fee is 10%, so with a $2,000/month rental, it’ll run me $200/month, coming to $2,400/year. So why on earth would I pay someone $2,400/year to take two phone calls, and if a plumber is needed, the PM would call a plumber anyway, and the plumber would still bill me.

He went on to say that if I have a landscaper, it would take care of situations where the tenant is on vacation, and I can have junk flyers picked up. And I can even arrange to have the tenant call plumbers as you do, so I don’t have any 2:00AM calls.

Oh, one thing I since learned and I do now is I tell new tenants where the main water valve is, and where the valve to the toilet is. And for the house that the tenant called me at 5:00AM, the valve was originally behind the hot water tank, kinda hard to get to, so I spent some money re-installing the valve on the other side of the wall and now it is easily accessible.

One thing I do now is I also get a service contract for the furnace, and the tenant is authorized to call them.

If you think about it, if I got a landscaper doing the lawn, and keep an eye on the outside when the tenant is on vacation, a service contract on the furnace, a plumber a tenant can call and he sends me the bill, what else would a tenant need to call me up on at 2:00AM for??

Oh BTW, the nice thing about the service contract for the heating system is they handle calls 24/7.