Real Estate Investing - General

[booth52]

I'm trying to read up on real estate investing, particularly on how to evaluate on a value based perspective as an investment alternative to securities.  I'm curious if anyone has any recommendations on specific real estate forums (similar to this forums, perhaps), blogs, websites, and books.  Ahead of some possible snarky "google that s**t" like responses  :), my hope is to separate the wheat from the chaff so to speak, and avoid possibly wasting my time reading some Jim Cramer/Mad Money-esque type content and hopefully find some more beneficial reading, again with a value investing like focus.

 

While there may possibly be not that many opportunities now, it seems possible that during the 2008-2009 crisis, while I was busy trying to find some undervalued companies selling at 50cents or less on the dollar, there may have easily been a multitude of residential rental opportunities selling at even better valuations, say 30cent dollars. I'm looking to equip myself with the knowledge to act should a similar opportunity arise.  It's also quite possible, after doing some research, I may find the risk/work vs. reward not as beneficial, and stick to investing in stocks!

 

I searched real estate on this forum, and found out that hyten1 actually wrote an e-book.  I don't have an e-reader, so I may not purchase this, unfortunately.

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/how-might-warren-buffett-invest-in-real-estate/msg36669/#msg36669

 

Also, found a link to this forum on another thread, which I'll be going through as well.

http://www.biggerpockets.com/forums

 

A top 20 real estate investing blog list:

http://www.biggerpockets.com/renewsblog/2010/06/28/the-top-20-real-estate-investing-blogs/

 

 

 

[Poor Charlie]

Bill Poorvu (HBS/Baupost) has some good books.  I enjoyed 'Real Estate Game' and the case study book.  I believe Poorvu was the HBS professor who tapped Klarman to run Baupost.

[nodnub]

Bill Poorvu (HBS/Baupost) has some good books.  I enjoyed 'Real Estate Game' and the case study book.  I believe Poorvu was the HBS professor who tapped Klarman to run Baupost.

 

yup, the "po" in Baupost stands for Poorvu.

 

[Morgan]

Bill Poorvu (HBS/Baupost) has some good books.  I enjoyed 'Real Estate Game' and the case study book.  I believe Poorvu was the HBS professor who tapped Klarman to run Baupost.

 

Poorvu is the "po" in Baupost from what I read a long while back. I think a few families gave Klarman ~27m to manage after he graduated undergrad. He must have been simply amazing to be given that back then. Granted it wasn't a typical 2 and 20 setup like it nowadays. I think he earned a 35k salary and eventually they sold him the company.

 

As for RE, read all of Poorvu's books. They're great and cheap too. Another interesting and old one (1969) is "How to Get Rich in Real Estate" by Robert Kent. This book is about getting 2-6 unit buildings and how to deal with tenants to some extent. It's a cheap book and a fast read.

 

Basically if you're on here you probably have a value bent, know how to do some decent analysis and can figure out how much you're likely to earn from a building. Take that and see what your returns will be compared to how much cash you have to spend to buy it. If you use creative financing (leverage) you can get into more buildings more quickly and thus increase your FCFs pretty quickly. To be honest, arranging the financing is the easiest bit.

 

Dealing with tenants and doing maintenance is far more time consuming than financing. Read "How to Win Friends and Influence People" by Dale Carnegie. Good book regardless which industry you're in. Also get some books from the hardware store on home repair, plumbing, electrical, basic building concepts, etc. Watch youtube videos on specific stuff. In general, get good tenants, be nice to them, fix problems quickly and properly. Don't half ass things. Do it right the first time and you'll probably do pretty well.

 

If you're looking for info on REIT's I'm not the person to talk to. Never really looked into them.

[Cer302]

Before reading most real estate books, I always liked to check John T Reed's opinion of them. He is very critical of most real estate books but likes to give background information on authors such as criminal history and or past financial history. 

http://www.johntreed.com/Reedgururating.html

I also recommend any book by Jeffery Taylor know as Mr Landlord however his site is horrid. I do like his weekly emails which offer good insights and reference to various landlord issues.

 

[booth52]

Thanks all for the replies.  I'll be purchasing the Poorvu book and look forward to reading it.

 

Checked that johntreed gururating.  It's pretty interesting; the 1st guru I clicked on that he doesn't recommend was Richard Wood:

 

Richard Wood—Murdered

 

Wood was a paper (seller mortgages) seminar guru. He reportedly persuaded his seminar students to give him $4 to $6 million to invest in second mortgages. Instead, he used some of it to pay phony returns to later investors. Using the principal of early investors to pay phony returns to them and later investors is called a Ponzi Scheme after Charles Ponzi, the first to receive great publicity for using the scheme. Wood reportedly put the rest of the investor’s money into his own accounts—offshore. When he avoided investors or told them unbelivable stories explaining why he could not give them their money back, they forced him into involuntary bankruptcy. He stopped making payments on his $500,000 Las Vegas mortgage and was presumably about to flee the country when he was shot dead in front of his house.

 

Not exactly the chaff I was thinking to avoid, but yah,  definitely good to note!  He doesn't have a recommendation on Poorvu.  Wonder why he never read him.

 

Thanks again.

[booth52]

In case anyone is interested in additional resoursces, I went to Barnes & Noble, and began reading What Every Real Estate Investor Needs to Know About Cash Flow... And 36 Other Key Financial Measures  by Frank Gallineli.   So far I have found it to be insightful and straightforward, easy to read, and free of fluff/sales pitch (not done yet).

 

Gallineli, is a real estate investment professor at Columbia, credential wise.

 

http://www.amazon.com/Every-Estate-Investor-Financial-Measures/dp/0071603271/ref=pd_sim_b_3

http://realdata.com/blog/author/admin/

 

Another possible helpful tidbit:

In case anyone else buys used books online,  I have found that other book stores online are sometimes significantly cheaper than Amazon.

I actually just purchased both the Poorvu and the Gallineli book at Abebooks.com at pretty much half the price than found on Amazon for their cheapest used book.  Only negative is the shipping time is longer.  It may also be possible the service may not be as great as Amazon, but just in case anyone else is looking for a deal...

[DTEJD1997]

I can recommend "Ragnar is a Pirate".  The day job of the author is real estate.  I can attest that he is very skilled and knowledgeable when it comes to real estate acquisition, rehabilitation, valuation, and anything related to it.  What is interesting is that he will have articles on real estate from time to time in addition to stock investing.

 

A good site to check out written by a very capable investor.

 

Ragnar is also a member here, and will post here from time to time.

[eggbriar]

 

Another possible helpful tidbit:

In case anyone else buys used books online,  I have found that other book stores online are sometimes significantly cheaper than Amazon.

I actually just purchased both the Poorvu and the Gallineli book at Abebooks.com at pretty much half the price than found on Amazon for their cheapest used book.  Only negative is the shipping time is longer.  It may also be possible the service may not be as great as Amazon, but just in case anyone else is looking for a deal...

 

Amazon acquired Abebooks in 2008.  I like the site.  I find it to be a good place to search for difficult to find books.

 

http://en.wikipedia.org/wiki/AbeBooks

[Morgan]

I can recommend "Ragnar is a Pirate".  The day job of the author is real estate.  I can attest that he is very skilled and knowledgeable when it comes to real estate acquisition, rehabilitation, valuation, and anything related to it.  What is interesting is that he will have articles on real estate from time to time in addition to stock investing.

 

A good site to check out written by a very capable investor.

 

Ragnar is also a member here, and will post here from time to time.

 

+1 on Ragnar

[booth52]

I can recommend "Ragnar is a Pirate".  The day job of the author is real estate.  I can attest that he is very skilled and knowledgeable when it comes to real estate acquisition, rehabilitation, valuation, and anything related to it.  What is interesting is that he will have articles on real estate from time to time in addition to stock investing.

 

A good site to check out written by a very capable investor.

 

Ragnar is also a member here, and will post here from time to time.

 

Thanks.  I remember having read his site a few times.  Look forward to going back and reading his real estate related articles.

+1 on Ragnar

[One Idea]

Real estate can be a great investment because of the leverage.  You can buy a 2-4 unit building with 10-20% down (even less down if you go owner-occupied).  If you buy in a coastal city, with strong rental demand, your property will probably appreciate faster than inflation.  Between 1975 and 2013, we have seen 7% annual appreciation in the Los Angeles area.  If you bought a 75K property in 1975, it is probably worth over 1M today.  If you put 20% down, and realized 5% appreciation, that's about a 25% increase in equity each year.  Other benefits include cash-flow, tax benefits, and principle reduction with each mortgage payment (all of which are less meaningful than the appreciation).

 

The other thing that should interest value oriented investors is the highly durable nature of the assets you own.  Demand will usually remain consistent or grow over time.  In most coastal areas of the country, rental demand will continue to be strong 30 years from now.  Also, your biggest expense (debt service) can remain fixed while your rental income increases each year. 

 

The worst part about owning rental properties is managing the tenants.  Unless you have a background in law enforcement or debt collection, I suggest that you consider a good property manager.  It's always a good idea to manage your first building for about a year or two just so that you get that experience under your belt.

[plato1976]

yeah, it's really hard to beat real estate investment if a region can appreciate at 7% annually for decades. At early stage when leverage is 5% this translates into 30%+ annual return, plus some rental income. For individual investors, real estate investment also has some tax benefits (esp for primary residence).

 

 

Real estate can be a great investment because of the leverage.  You can buy a 2-4 unit building with 10-20% down (even less down if you go owner-occupied).  If you buy in a coastal city, with strong rental demand, your property will probably appreciate faster than inflation.  Between 1975 and 2013, we have seen 7% annual appreciation in the Los Angeles area.  If you bought a 75K property in 1975, it is probably worth over 1M today.  If you put 20% down, and realized 5% appreciation, that's about a 25% increase in equity each year.  Other benefits include cash-flow, tax benefits, and principle reduction with each mortgage payment (all of which are less meaningful than the appreciation).

 

The other thing that should interest value oriented investors is the highly durable nature of the assets you own.  Demand will usually remain consistent or grow over time.  In most coastal areas of the country, rental demand will continue to be strong 30 years from now.  Also, your biggest expense (debt service) can remain fixed while your rental income increases each year. 

 

The worst part about owning rental properties is managing the tenants.  Unless you have a background in law enforcement or debt collection, I suggest that you consider a good property manager.  It's always a good idea to manage your first building for about a year or two just so that you get that experience under your belt.

[fareastwarriors]

http://www.bloomberg.com/news/2013-10-24/buffett-says-gains-in-housing-fall-short-of-equilibrium.html

 

 

Warren Buffett, the billionaire chairman and chief executive officer of Berkshire Hathaway Inc. (BRK/A), said the U.S. housing market has made progress and still has a way to go in recovering.

 

“It’s coming back,” Buffett, 83, said yesterday during an event at the New York Public Library. “Pricing (SPCS20Y%) is better in almost all markets by a reasonable percentage from a few years ago. Housing starts are up somewhat. They still are not where I would regard as an equilibrium point, where they match household formation.”

 

[fareastwarriors]

http://www.bloomberg.com/news/2013-10-24/families-blocked-by-investors-from-buying-u-s-homes.html

 

Home purchases by institutional buyers reached a record high in September and all-cash buyers accounted for almost half of sales as investors responded to rising demand from renters.

 

Institutional purchases accounted for 14 percent of sales, according to a report today from RealtyTrac. That was the highest share since the real estate data firm began in 2011 to track transactions by that group, which it defines as buyers of 10 or more homes a year. All-cash sales rose to 49 percent from 40 percent in August and 30 percent a year earlier, a sign that rising mortgage rates since May have kept some people out of the market and that smaller investors are stepping up purchases.

 

[DTEJD1997]

Between 1975 and 2013, we have seen 7% annual appreciation in the Los Angeles area.  If you bought a 75K property in 1975, it is probably worth over 1M today. 

 

I agree with a lot of what you say, BUT do you think property in CA, especially L.A will continue to appreciate 7% a year for the next 20 years?  If so, that $1MM house today will be something like $4MM 18-20 years from now?  Wages have not been going up that fast...

 

Who is going to be able to pay $4MM for a somewhat above average house 20 years from now?  Heck, I am amazed there are enough people willing/able to pay $1MM for a house now...

 

In certain areas of the country, you can get a very, very nice house for $100k or $150k.  At some point, I would think business/buyers will start moving away from the high cost areas.  Granted, living in LA is better than living in Indiana or Michigan...but at some point the cost simply is not worth it...

 

You are starting to see this in the legal profession...work is being outsourced out of NYC and DC to Detroit and Minneapolis.  You can get plenty of lawyers willing to work for $25/hour in the midwest....so work is moving out of the high cost areas.  I think this trend will accelerate in the future.

[plato1976]

The wage has not been risen at 7% a year either in the past 20 years...

 

Between 1975 and 2013, we have seen 7% annual appreciation in the Los Angeles area.  If you bought a 75K property in 1975, it is probably worth over 1M today. 

 

I agree with a lot of what you say, BUT do you think property in CA, especially L.A will continue to appreciate 7% a year for the next 20 years?  If so, that $1MM house today will be something like $4MM 18-20 years from now?  Wages have not been going up that fast...

 

Who is going to be able to pay $4MM for a somewhat above average house 20 years from now?  Heck, I am amazed there are enough people willing/able to pay $1MM for a house now...

 

In certain areas of the country, you can get a very, very nice house for $100k or $150k.  At some point, I would think business/buyers will start moving away from the high cost areas.  Granted, living in LA is better than living in Indiana or Michigan...but at some point the cost simply is not worth it...

 

You are starting to see this in the legal profession...work is being outsourced out of NYC and DC to Detroit and Minneapolis.  You can get plenty of lawyers willing to work for $25/hour in the midwest....so work is moving out of the high cost areas.  I think this trend will accelerate in the future.

[meiroy]

Bill Poorvu (HBS/Baupost) has some good books.  I enjoyed 'Real Estate Game' and the case study book.  I believe Poorvu was the HBS professor who tapped Klarman to run Baupost.

 

I've started reading his books, they are quite good and should appeal to "value investors". Thanks!

[ragnarisapirate]

Bill Poorvu (HBS/Baupost) has some good books.  I enjoyed 'Real Estate Game' and the case study book.  I believe Poorvu was the HBS professor who tapped Klarman to run Baupost.

 

I've started reading his books, they are quite good and should appeal to "value investors". Thanks!

 

Just ordered the newest one. Looking forward to it.

[Morgan]

Just ordered the newest one. Looking forward to it.

When you say newest one, do you mean "Creating and Growing Real Estate Wealth: The 4 Stages to a Lifetime of Success" from 1999? Or does he have a new book out?

 

I just realized I didn't have one of his books, "The Real Estate Challenge: Capitalizing on Change". Has anyone read it? I just ordered it for a penny.

 

 

Since this is a general RE thread, has anyone been involved in RE development? It seems to be filled with uncertainty and significant pressure to get space leased or face serious CF problems (you start from 0% occupancy!). The main benefits of developing over buying are that you get exactly what you want where you want it and it's cheaper? Does anyone know what percentage of developments fail compared to buying and managing?

 

 

 

 

[Ham Hockers]

Warren Buffett, the billionaire chairman and chief executive officer of Berkshire Hathaway Inc. (BRK/A), said the U.S. housing market has made progress and still has a way to go in recovering.

 

This made me think of the conclusion of this blog post:

 

http://worthwhile.typepad.com/worthwhile_canadian_initi/2013/10/random-thoughts-on-house-prices.html#more

 

[nkp007]

Just ordered the newest one. Looking forward to it.

When you say newest one, do you mean "Creating and Growing Real Estate Wealth: The 4 Stages to a Lifetime of Success" from 1999? Or does he have a new book out?

 

I just realized I didn't have one of his books, "The Real Estate Challenge: Capitalizing on Change". Has anyone read it? I just ordered it for a penny.

 

 

Since this is a general RE thread, has anyone been involved in RE development? It seems to be filled with uncertainty and significant pressure to get space leased or face serious CF problems (you start from 0% occupancy!). The main benefits of developing over buying are that you get exactly what you want where you want it and it's cheaper? Does anyone know what percentage of developments fail compared to buying and managing?

 

I just bought all three of his books.

 

I am completely turned off by real estate given how much money my family has lost speculating in it over the years in South Florida.

 

However, there's nothing more I'd love then buying cheap, panick-priced real estate during a future crisis. The $35 investment for the three books will probably pay off at some point in my life.

[Morgan]

From what I know, he's published four books:

1. Real Estate: A Case Study Approach by William J. Poorvu (Mar 1992)

2. Real Estate Challenge, The: Capitalizing on Change by William J. Poorvu (Dec 22, 1995)

3. The Real Estate Game: The Intelligent Guide To Decisionmaking And Investment by William J. Poorvu and Jeffrey L. Cruikshank (Sep 13, 1999)

4. Creating and Growing Real Estate Wealth: The 4 Stages to a Lifetime of Success by William J. Poorvu (Feb 27, 2008)

 

 

[meiroy]

 

http://hbr.org/search/William%20J.%20Poorvu/0

 

List of cases/articles on HBR.  Not sure if some are in one of the books.

 

[TwoCitiesCapital]

Hi guys -

 

I'm hoping to tag along here instead of starting another thread. I've looked at real estate in the past in wasn't able to get financing for extremely attractive properties back in 2010 (-unfortunately). However, my circumstances have changed over the years and I have a lot more money to work with, friends with money to work with, and 4 years of additional recovery that will hopefully allow banks to actually lend to credit worthy people.

 

Anyhow, since I'm considering this again, I'm looking for advice on how many of you have structured the legal entity. I had an LLC registered before but just did that mostly for tax benefits (pass through taxes at my low rate as opposed to corporate rates). Can you guys tell me the positives/negatives of doing an LLC, LP, C Corp, etc. from your knowledge and experience?