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divorce-illness-job loss are things usually not on the radar and the tenants can make their problems your problems way to easy .
Tenant problems become landlord problems automatically. That's part of the game. If a landlord can only get by in having problem-free tenants, he's sitting at the wrong table entirely.
exactly my point .which is why real estate may be passive at times but you can bet once the tenant has problems or the property has problems ,you have problems .
after 30 years we are down to very little real estate left . 2 co-op apartments in manhattan with stabilized tenants are all we have left and not by choice . i want none of it in retirement anymore . so our goal was to liquidate everything over the last 12 years or so as opportunities presented themselves and retire with as few tenants as we could . .
pretty much all our holdings are now gone but two holdouts will not take a lease buy out offer so we may be stuck with them , no biggie but we rather sell . we have the two apartments up for sale now for 50 cents on the dollar .we have a few investor groups toying with taking them over but so far nothing concrete . .
we could actually give those apartments away for free and the rest of the stuff we got in the deal was very very profitable.if we can get 50 cents on the dollar for the 2 apartments over looking central park in a very prestigious building it would just be icing on the cake .
Last edited by mathjak107; 11-23-2017 at 08:56 AM..
Tenant problems become landlord problems automatically. That's part of the game. If a landlord can only get by in having problem-free tenants, he's sitting at the wrong table entirely.
i was never really interested in having tenants and collecting rents .
my thing has pretty much been special situation stuff where the rents are near break even but if we can flip it the profits are very very high .
things like buying out rent stabilized leases on co-ops in manhattan and selling the apartments for big gains , or holding commercial lease rights in manhattan and selling those rights . i have done a tax lien deal and took the property .
these are the things i liked . i did not want to just collect rents and wait for appreciation .
most pro's do not do that either .they make their profits on the buy whether things go up or not but these are not the types of deals amateurs are privy to. it is a different world for these pro's than what amateurs do .
my partner was one of the countries most successful real estate moguls so he was part of that inside crew . the deals out there can be insane .
take a couple of young guys who take advantage of the deal we have out there who don't mind waiting out some 70 year olds . they can buy in to these apartments worth 7 figures for half price and have a 50% equity stake day 1 , even if things don't appreciate a dollar . .
all they need to do is wait it out while collecting rent ... if we get no takers than our kids will be the winners as they outlive the tenants, they are partners in our llc so they can just wait the tenants out . .
Last edited by mathjak107; 11-23-2017 at 09:14 AM..
most investor groups will not pay more than .35 cents . that is just the nature of the markets on stabilized apartments . we will not sell for less than .50 cents . we even offered the tenants 1/2 off and we would finance but at 70 with no heirs they have no desire to buy .
this is why ,while landlords of stabilized apartments complain about the low rents they get most are compensated because they are priced accordingly when purchased .
we paid way less than .35 cents for the package we got .
investors generally hate waiting open ended amounts of time to see their profits .
in our case we picked the low hanging fruit early on . we knew most of the baby boomers in the apartments would not be able to afford to live by central park once the pay checks stopped . so we offered 100k to anyone who sold us the lease back . out of 9 apartments ,7 sold their leases and the apartments were sold for 7 figure numbers
most investor groups will not pay more than .35 cents . that is just the nature of the markets on stabilized apartments . we will not sell for less than .50 cents . we even offered the tenants 1/2 off and we would finance but at 70 with no heirs they have no desire to buy .
this is why ,while landlords of stabilized apartments complain about the low rents they get most are compensated because they are priced accordingly when purchased .
we paid way less than .35 cents for the package we got .
investors generally hate waiting open ended amounts of time to see their profits .
in our case we picked the low hanging fruit early on . we knew most of the baby boomers in the apartments would not be able to afford to live by central park once the pay checks stopped . so we offered 100k to anyone who sold us the lease back . out of 9 apartments ,7 sold their leases and the apartments were sold for 7 figure numbers
Sounds like you got incredibly rich off of the original deal so good for you. That said, at 50% market value for a couple age 70 unless the net rent at the controlled/stabilized level is meaningfully positive you're not leaving any alpha relative to a less risky and lower effort investment for the buyer. You can do better than 35% but, think of it this way: if you weren't trying to get out of the business, would you pay 50%? If no, why should you expect a buyer to? For a married couple that age there's a roughly 50/50 chance one of them makes it to 90. At 50% that's not a bad bet strictly on the numbers compared to financial asset returns, but you can get less effort and more liquidity from financial assets or better yield and more certainty from a normal rental property. You're overpriced by ~10-20% if you actually want to move the units.
when we bought we would not buy at 50 cents on the dollar since tenants were 15 years younger . today they are in their early 70's so that is a factor as far as what investors will pay . rents are positive but about 1/2 market rate . it is a waiting game .
with our kids guaranteed to outlive the tenants there is no reason for us to accept less . the co-ops sell very easily once they are freed up . it is one of the most prestigious buildings in nyc , the 200 central park south building .
Location: Formerly Pleasanton Ca, now in Marietta Ga
10,347 posts, read 8,564,711 times
Reputation: 16689
Quote:
Originally Posted by WorldKlas
Your explanation has a lot of merit and I have always understood this kind of thinking and have often considered doing the same. Initially you used your cash (as I also have for my 11 properties) and as these assets appreciated, you were able to recapture your initial investment nut on selected properties by then getting equity loans on a few; and those properties now support themselves. So you have some properties now that generate income and continue to appreciate with none of your initial investment tied up in them. I get it 100%.
For each such property, you now have an asset that supports itself and even provides revenue. The question is.... had you not chosen to mortgage the property, how much MORE would you be earning? And are the funds you recaptured by getting those mortgages now giving you at least as much in earnings as you would have gotten from not mortgaging the property?
The issue — what does the recaptured cash do for you now — is a basic consideration when doing what you have done. Even if you are not getting as much income if you had kept the properties unmortgaged, I understand there is great value from having your funds more liquid.
I wrestle with this issue myself frequently as I evaluate methods to capitalize on my investments and provide myself the highest income stream in retirement.
The other poster did not understand what I was doing.
You do.
Many here do not so they like to discredit real estate over the stock market with things like "it's not passive" or "wait until you get a call at 2 am" or "wait until you get a bad tenant ". That's fine. They can go on investing in the stock market and be happy and remain ignorant of the value of real estate.
I am not forced to do anything with the cash I pull out. If anything the rental now has an incredible roi, but the overall cash in flow does drop.
In my case I did indeed reinvest the cash out for another property and that is why I did it. It now becomes a 2 rentals for the cost of one scenario. The new property will flow cash like the first so in the end the roi with the two combined goes up to 18 % instead on one property at 13%. Leaving the money trapped a fully paid rental while interest rates are low is kind of like dead money. So I did it just to obtain another cash flowing asset that has a higher roi than the cost of the mortgage.
Realistically you can keep doing it as long as you can get the loans, but I have target incomes that I have achieved already so any more cash outs might just be to buy something major. Yes it makes sense to pull out money only to make it work for you, but after a while when do you stop investing and start enjoying the fruits of your labor?
Math jack seems to know real estate better than me since he keeps posting all the bad things that will happen to me that have not yet happened. Late night calls? Never get them. Bad tenants? Rarely, but it happens every so often. We get rid of them quickly and move on. It's part of the territory and it's factored into my cash flow. I don't deal with it personally, my property manager deals with it. She deals with everything.
I own 24 houses, retired early with a great income, but obviously I don't have a clue as to how bad off I am since I am not experiencing all the bad things math jack says that I will personally deal with.
I guess with his limited experience he rented to bad tenants and had a horrible time with real estate . That's not uncommon, I've seen it happen with a lot of newbie landlords who try to do it on their own and make silly mistakes. I've also seen newbies hire property managers that weren't very good who have bad experiences.
Really just using some common sense goes a long way in real estate as well as the stock market. Surround yourself with others that do well in your type of investing and ignore the crowd.
Based on what mathjack posts, I would never take real estate advice from him. But if I was doing anything in the market I would listen to every word he says.
I realize that you and me and a handful of others are in the minority here on cd. Most are into the market. Heck most everyone I know is doing the slow growth investing in the market thing waiting to retire. But out of all of them I'm the only one who doesn't have to work. The funny thing is they all make jokes about how lazy I am or how I have too much free time in my hands. What I don't get is why none have ever asked me how could they invest in real estate and maybe retire early. Instead most just go to work every day, complain about it, and say they look forward to retiring at 60... or at least hope to.
The few re investors I know retired in their 30's. One has been traveling all over Asia for the last year. I'm not sure how he handles his bad tenants or late night calls halfway around the world, but I suspect it's not as much trouble as math jack and others keep pointing out.
I guess we will just have to be known as the odd ducks in the cd economic forums.
Last edited by aslowdodge; 11-23-2017 at 11:45 PM..
Location: Formerly Pleasanton Ca, now in Marietta Ga
10,347 posts, read 8,564,711 times
Reputation: 16689
Quote:
Originally Posted by WorldKlas
Your explanation has a lot of merit and I have always understood this kind of thinking and have often considered doing the same. Initially you used your cash (as I also have for my 11 properties) and as these assets appreciated, you were able to recapture your initial investment nut on selected properties by then getting equity loans on a few; and those properties now support themselves. So you have some properties now that generate income and continue to appreciate with none of your initial investment tied up in them. I get it 100%.
For each such property, you now have an asset that supports itself and even provides revenue. The question is.... had you not chosen to mortgage the property, how much MORE would you be earning? And are the funds you recaptured by getting those mortgages now giving you at least as much in earnings as you would have gotten from not mortgaging the property?
The issue — what does the recaptured cash do for you now — is a basic consideration when doing what you have done. Even if you are not getting as much income if you had kept the properties unmortgaged, I understand there is great value from having your funds more liquid.
I wrestle with this issue myself frequently as I evaluate methods to capitalize on my investments and provide myself the highest income stream in retirement.
Btw I forgot to mention that I really didn't wait for the properties to appreciate. I bought short sales and foreclosures which are undervalued because they have things wrong with them that make it so you can't get financing normally. When you buy them and fix them to a standard that they could qualify for normal financing the value goes up to market rates.
The value bump from the 60k I paid to the 90k appraised happened within a few months so the 50% increase is something you get pretty quickly, not over the course of years. Some investors call this "forced equity"
In my other lengthy reply to you I did mention for these two I did use the funds to buy two more rentals.
Btw I forgot to mention that I really didn't wait for the properties to appreciate. I bought short sales and foreclosures which are undervalued because they have things wrong with them that make it so you can't get financing normally. When you buy them and fix them to a standard that they could qualify for normal financing the value goes up to market rates.
The value bump from the 60k I paid to the 90k appraised happened within a few months so the 50% increase is something you get pretty quickly, not over the course of years. Some investors call this "forced equity"
In my other lengthy reply to you I did mention for these two I did use the funds to buy two more rentals.
We are in the exact same situation! I am considering pulling funds via equity loans, too, in order to purchase more property. But the deals on foreclosures are not as available as when I made my other purchases.
Great posts! CD won’t let me rep you anymore.
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