Real estate

[txfan2424]

Fairly new to this board but love it.

 

Anyone have an experience w/ real estate? Any good resources?

 

I'm looking for some sample real estate models that I can use when evaluating potential investments.

 

[DTEJD1997]

I've owned primarily commercial real estate in the past.  I've always made money on it also.

 

HOWEVER, nothing EVER went according to plan.  Almost everything takes longer to complete & more time, energy & capital than what is initially forecast.

 

It is good to have a detailed plan, but bad to spend too much time & energy over it.

 

The best thing in my opinion is simply to get started & get into it.  That is best.  Real world experience beats anything else.

 

The other thing is to think of it kind of like a stock.  What capitalization rate or P/E ratio would you apply to it?  What kind of income do think it will throw off?  Leverage ratios?  Risk levels?

 

The other thing I learned is that the quicker/simpler deal is usually the best deal.  The longer something takes to work out, the more risk there is.  Risk will also come at you from directions that you simply can't imagine sometimes...

 

There are some members on here who are very accomplished real estate investors, so they can give better insight than I can.

 

Good luck to you!

 

 

[Pelagic]

Take a value investing approach to real estate and you'll do well, margin of safety is just as important there as it is in investing in businesses.

 

I enjoy reading BiggerPockets.com occasionally as there's a lot of good real estate info and resources there. What kind of real estate are you looking at?

[txfan2424]

Looking at rental homes or condos for now. Eventually, I'd like to get in to multifamily and commercial.

 

Just not sure where to start. Will try biggerpockets.com.

 

Was hoping to come across the real estate version of Margin of Safety or Securities Analysis...maybe something like that doesn't exist.

[Morgan]

Was hoping to come across the real estate version of Margin of Safety or Securities Analysis...maybe something like that doesn't exist.

 

Read all of William Poorvu's books. He has four or five of them. Start with The Real Estate Game: The Intelligent Guide to Decisionmaking and Investment. Poorvu was one of the founders of Baupost, the legendary value oriented hedge fund.

 

Read How to Get Rich in Real Estate by Robert Kent. It's old and racist/sexist, but the information on how to deal with non-paying tenants, finding good tenants, etc is good.  There is also some analytical stuff in there that really didn't do too much for me. Maybe you'll like it more.

 

All in all, read everything you can, buy some property that has a good cash flow and deal with issues that pop up. Also, don't be an asshole to people.

[txfan2424]

Was hoping to come across the real estate version of Margin of Safety or Securities Analysis...maybe something like that doesn't exist.

 

Read all of William Poorvu's books. He has four or five of them. Start with The Real Estate Game: The Intelligent Guide to Decisionmaking and Investment. Poorvu was one of the founders of Baupost, the legendary value oriented hedge fund.

 

Read How to Get Rich in Real Estate by Robert Kent. It's old and racist/sexist, but the information on how to deal with non-paying tenants, finding good tenants, etc is good.  There is also some analytical stuff in there that really didn't do too much for me. Maybe you'll like it more.

 

All in all, read everything you can, buy some property that has a good cash flow and deal with issues that pop up. Also, don't be an asshole to people.

 

Thanks Morgan!

[fareastwarriors]

definitely check out biggerpockets.com.

 

I think the most important thing is understanding that you're essentially buying into a small business and it will take time and effort. Real estate investing (SFH rentals and multi's) is not like buying a REIT.

 

Also you need to understand your local market. Some areas have basically no chance for appreciation beyond inflation and you're just buying for cash flow. Some areas you're buying for appreciation and any positive cash flow is just gravy.

 

In my area, I'm buying and holding for appreciation but luckily for me, I bought low enough where my cash flow after expenses still gives me a decent return.

[LR1400]

definitely check out biggerpockets.com.

 

I think the most important thing is understanding that you're essentially buying into a small business and it will take time and effort. Real estate investing (SFH rentals and multi's) is not like buying a REIT.

 

Also you need to understand your local market. Some areas have basically no chance appreciation beyond inflation and you're just buying for cash flow. Some areas you're buying for appreciation and any positive cash flow is just gravy.

 

In my area, I'm buying and holding for appreciation but luckily for me, I bought low enough where my cash flow after expenses still gives me a decent return.

 

Good points.

 

I like investing in real estate and agree that it is similar to owning a small business. There's also nothing wrong with using property managers where needed.

 

I try to break it down in my mind like you did and also align my thoughts similar to investing in common stock.

 

You have your net-net/Graham type real estate: Cheap, probably in a crap area, little to no price appreciation, usually better net cash flows. However, like many net-net companies, you will potentially have a problems with the "core" business. The tenants you will have in this type of real estate are often a bigger pain in the ass, they won't pay on time, they may break the lease, etc. Often harder to raise rents here.

 

Then you have more of your Munger/Buffett type real estate: More expensive/higher quality, much better price appreciation, not quite as high net cash flows initially. The tenants you will attract here are higher quality and will give you less headache. Often easier to raise rents here.

 

Both methods can create a lot of wealth and it really depends on your personal temperament and what you like.

 

It is very local and you obviously have both types in most every town/city. I know multiple that have built a solid amount of wealth by building up their holdings to the 50+ single family home range plus commercial properties in small towns. It's a relatively easy way to get a decent amount of wealth and it's tailor made for using leverage. I personally won't buy without at least a decent positive cash flow return, that's just me.

[Simple Investor]

In my experience if you aren't making money through cash flow it will be hard to deal with the drama.  So my advice is to make sure the cash flow produces something for your time.  For me it is money after mortgage, taxes, and capital reinvestment.  For me its the only rationalization to deal with the problems that come up on Friday night.

[TwoCitiesCapital]

Great topic -

 

I'll check out bigger pockets as well. Anyone have tips on triple net leases in the commercial space? Have looked into doing that in 2010 and couldn't get a loan (20 years old at the time), but am getting more interested in adding real estate to my portfolio using this method.

 

Any pointers would be appreciated.

 

Thanks!

[fareastwarriors]

You're not Sfdragonboy are you?

 

http://forums.redfin.com/t5/Bay-Area/Triple-Net-Leases-Anyone/td-p/531992

[TwoCitiesCapital]

You're not Sfdragonboy are you?

 

http://forums.redfin.com/t5/Bay-Area/Triple-Net-Leases-Anyone/td-p/531992

 

Nah, thanks for the link though. Will read through some of those comments.

[fareastwarriors]

You're not Sfdragonboy are you?

 

http://forums.redfin.com/t5/Bay-Area/Triple-Net-Leases-Anyone/td-p/531992

 

Nah, thanks for the link though. Will read through some of those comments.

 

Oh okay. I frequent that forum as well and no one ever talks about triple net leases there so that's why I thought it might be you. hahaha  ;D

[TheAiGuy]

Fairly new to this board but love it.

 

Anyone have an experience w/ real estate? Any good resources?

 

I'm looking for some sample real estate models that I can use when evaluating potential investments.

 

A smart investor told me that if you can buy for less than half the construction cost and hold on, you'll do well. That basically means bank foreclosure in hard hit areas in hard hit times. He didnt say this, but that implies that you think he land is worth something and that it will recover over a decade or two.

[Martian]

"ragnar is a pirate" (I think he was a member here) owned some rental properties and documented one of his experiences. here is is..

 

http://ragnarisapirate.blogspot.com/2012/05/sometimes-its-best-to-take-pass-40.html

[LR1400]

Fairly new to this board but love it.

 

Anyone have an experience w/ real estate? Any good resources?

 

I'm looking for some sample real estate models that I can use when evaluating potential investments.

 

A smart investor told me that if you can buy for less than half the construction cost and hold on, you'll do well. That basically means bank foreclosure in hard hit areas in hard hit times. He didnt say this, but that implies that you think he land is worth something and that it will recover over a decade or two.

 

 

That's very similar to what you will hear from Sam Zell, or least with regard to how he got started and what his thought process was. He's definitely a deep value type investor.

[bci23]

My formula is Annual rent less 45% for expenses divided by .1 (10% cap rate multiplier).

 

Example:

 

$12,000 annual rent

 

less expenses (45%): 5,400

 

Total: $6,600 / 10% = $66k --- thats what price I would buy the property at. Call up a broker and tell them you are looking for 10% cap rates and they will probably laugh at you and say you are dreaming, hence why real estate is kind of a crappy investment in my opinion. Certain parts of the country this can be done though with residential properties, C class office buildings as well.