Real Estate Vs Paper - Posted by Randy, CA

Posted by Bud Branstetter on November 02, 1998 at 13:00:51:

The capitalization rate is supposedly what return a cash investor would want. Irrespective of what you paid for the property or the return your getting on the money you have invested,determine what you truly could sell the property for owner financed. If that is less than what you could invest your money in notes then why not change. From another asppect, we know you would not discount your mortgage for cash but other people will. While you can find mortgages to buy at a decent return the amazing thing is increasing the return after you own it.

You comment on the hassles of owning rentals. If you are doing any of the hands on management or maintenance be sure to factor the costs of hiring that done. Remember you would be working for the labor rate of someone you hire if you do it yourself.

And what is wrong working as a broker to ferret out great deals if you are the one that can take advantage of them. Your competition is out there paying 9-12% for notes. You don’t want to invest for that return so you have to figure out how to find them before the others or how to get them to go with you before they find a better price. A passive investor will never make the returns that a proactive investor can find.

Real Estate Vs Paper - Posted by Randy, CA

Posted by Randy, CA on October 30, 1998 at 14:04:11:

I am the owner of several apartment complexes and I am trying to determine which side of the equation to be on; the owner or note holder. I am beginning to question if ownership is really worth the risks (litigation, neighborhood deterioration and over development) and hassles (“tenants and toilets”).

I would like to know what the typical return on capital that I could expect to receive from investing in paper, not as a broker ferreting out great deals, but as an investor working with a broker.

BTW: I have seen many newsgroups and this one is by far the most intelligent and well behaved, without any juvenile flame wars. This is undoubtedly due to the high tone set by John Behle. Thank you all for the example of what is possible.

Re: Real Estate Vs Paper - Posted by John Behle

Posted by John Behle on November 02, 1998 at 17:55:07:

Sorry for the delay, my ISP was upgrading their phone lines and equipement and I was out of the loop for a couple days. Now I have clearer faster service.

I echo what was said about not working with brokers. The yields might not be that attractive in the good notes. The competition is heavy. They can be a great resource in referring notes that they can’t find buyers for and you can make some great profits as you learn to deal with the problems.

I started as a real estate investor and hated the TNT - Tenants N’ Toilets. I had a particular property I called my “Triplex from Hell” that I exchanged into because I wanted the cash the other party was putting into the transaction. I learned to hate that property. I put money and time into it every month until I sold it. Then I had these wonderful payments coming in like clockwork and I was amazed. I traded in my toolbox for a briefcase and toilet plunger for a calculator and lots of deposit slips for my bank.

I sold off most of my properties and haven’t regretted it. Real estate will always be good for appreciation and tax shelter, but I can shelter the income from notes and they appreciate as I improve the yields. Notes are for cash flow not properties. Even high cash flow properties can usually end up as higher cash flow notes. Then, the worst case scenario is that you end up owning the real estate at a discount through foreclosure. There are risks, but they are manageable and I believe a lot less than real estate.

Average yields as an investor buying from a broker wouldn’t be that outstanding. As an investor buying on your own behalf, they can be fabulous. Our portfolio yields never dip below 40%, but it’s financed 100% at lower rates, so the yield is actually in the “infinite” range.