The Real Estate Investment Thread

#1
TheColdVolTruth

TheColdVolTruth

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#1
I know we have a few investment threads. I frequent the stock market thread in the PF probably more than any other thread on VN. We also have the stock thread here in the pub and even a new thread about diversification today, but I can't find anything on real estate investing.

I have had moderate success in the stock market, and I have been stalking real estate for the last few years. I have not pulled the trigger on a deal yet, but I would like to hear from any of you who have played in the real estate sandbox.

What is your strategy, and where is your market? Do you look for long term holds and rent, or do you flip? Single family, small multi-family, large multi-family, commercial? Do you go for value add?

I see the real estate market on a macro level as inflated. Some local/regional markets are crazy hot, but I think deals do exist below intrinsic value. I am mid-thirties, and I see real estate as a vehicle to accumulate wealth and expand my portfolio beyond the stock market. I look forward to your respective opinions.
 
#2
#2
My experience was with long term holds and rent. I have experience with single family houses, commercial, apartments. Never did any flipping. I wouldn't do it now in my area due to scarcity of good tenants, low real estate appreciation, and increasing costs. Commercial worked out best for me.

I own nothing that I rent now, but do have a couple of houses in vacation areas for my own use. I think they will be decent investments long term, but I bought to have a place to go whenever I want. I don't rent them, but they would rent easily. McDad does rentals now. I don't.
 
#3
#3
Personally, I don't like that the government has so much control over it. Plus, it's an extremely illiquid asset.

Raw land is like precious metal. No compounding of returns.

Guys that have skills or employ good crews can do well in it.

It helps to have a good lawyer in the family if you want to be involved with it. Hourly fees add up quickly.

Leverage is a key component in the equation. Too little and the returns won't likely beat fixed income securities. Too much and it can quickly lead to financial chaos.
 
#4
#4
1972 Grad said:
My experience was with long term holds and rent. I have experience with single family houses, commercial, apartments. Never did any flipping. I wouldn't do it now in my area due to scarcity of good tenants, low real estate appreciation, and increasing costs. Commercial worked out best for me.

I own nothing that I rent now, but do have a couple of houses in vacation areas for my own use. I think they will be decent investments long term, but I bought to have a place to go whenever I want. I don't rent them, but they would rent easily. McDad does rentals now. I don't.
Click to expand...

What area did you focus on when you were renting? When did you sell your rentals? What use was your commercial, and is there anything you wouldn't touch if you had to go back and do it over again? Sorry for all the questions, but I hoped you would opine on this topic. Answer as many as you would like or none at all.
 
#5
#5
Thunder Good-Oil said:
Personally, I don't like that the government has so much control over it. Plus, it's an extremely illiquid asset.

Raw land is like precious metal. No compounding of returns.

Guys that have skills or employ good crews can do well in it.

It helps to have a good lawyer in the family if you want to be involved with it. Hourly fees add up quickly.

Leverage is a key component in the equation. Too little and the returns won't likely beat fixed income securities. Too much and it can quickly lead to financial chaos.
Click to expand...

I almost put this in the PF due to your first statement. Policy can weigh so heavily on any market that there is a heavy political component to any investment.

Leverage is the key particularly on large multi-family. The cap rate can be manipulated by raising rents or lowering expenses which has a direct effect on property value. This is intriguing to me as I see the opportunity, but it also cuts both ways.

I have read some interesting stuff on investing in notes by financing the sale to a buyer off market that I find fascinating. It really takes out multiple variables.
 
#6
#6
Real estate also has an advantage in that cash flows can be positive while there are losses for tax purposes. The higher the investor's tax bracket, the better the returns will be.
 
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#7
#7
TheColdVolTruth said:
What area did you focus on when you were renting? When did you sell your rentals? What use was your commercial, and is there anything you wouldn't touch if you had to go back and do it over again? Sorry for all the questions, but I hoped you would opine on this topic. Answer as many as you would like or none at all.
Click to expand...
First of all, it wasn't my primary business. It was a way to hopefully cash in at some point after staying afloat for many years. The commercial was 4 retail storefronts with apartments above. I wouldn't touch single family houses again. I probably wouldn't touch apartments again. Too much hassle.

You should probably see if you can find someone who does this on a larger scale than me. I may not be much help. Also, your area may be totally different than mine(hopefully better). I sold some about 10-12 years ago, and the rest over the last 3 years. It did work out over the long haul, as far as cashing in, but not as well as I had hoped.


Edit: Be aware that the area that you may buy in can change over 20-30 years or so that you own a property, and may no longer be a good location for whatever purpose. If it goes downhill, your property values won't increase much, if at all.
 
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#9
#9
If you are either handy with fixing things or have a good reliable guy, foreclosures can be a goldmine. They can also be a money pit. Have a reliable person to inspect them and give you the lowdown on what is wrong. But, usually you can get them way under market and for a minimal investment, flip for large profit. I know a realtor in Knoxville who deals almost exclusively with foreclosures and does extremely well. Buy, fix, sell, profit.
 
#10
#10
1972 Grad said:
First of all, it wasn't my primary business. It was a way to hopefully cash in at some point after staying afloat for many years. The commercial was 4 retail storefronts with apartments above. I wouldn't touch single family houses again. I probably wouldn't touch apartments again. Too much hassle.

You should probably see if you can find someone who does this on a larger scale than me. I may not be much help. Also, your area may be totally different than mine(hopefully better). I sold some about 10-12 years ago, and the rest over the last 3 years. It did work out over the long haul, as far as cashing in, but not as well as I had hoped.


Edit: Be aware that the area that you may buy in can change over 20-30 years or so that you own a property, and may no longer be a good location for whatever purpose. If it goes downhill, your property values won't increase much, if at all.
Click to expand...

Your edit is what scares me about commercial. Residential seems much easier to liquidate if the area shifts. Thank you for the insight.
 
#11
#11
Thunder Good-Oil said:
Real estate also has an advantage in that cash flows can be positive while there are losses for tax purposes. The higher the investor's tax bracket, the better the returns will be.
Click to expand...

This is key in trying to decide if the real estate market is too inflated to get started. The property can cash flow even while value decreases if/when the housing market contracts. The decrease in value can create tax deductions. At least that is my understanding, and I think it is what you are saying.
 
#12
#12
TheColdVolTruth said:
Your edit is what scares me about commercial. Residential seems much easier to liquidate if the area shifts. Thank you for the insight.
Click to expand...
Construction of a bypass hurt my investment to a certain extent. It was the hot area 30 years ago, and I was expecting a better return. When I sold out last year and the year before, the area was still decent, but not the hot spot anymore.
 
#13
#13
TheColdVolTruth said:
This is key in trying to decide if the real estate market is too inflated to get started. The property can cash flow even while value decreases if/when the housing market contracts. The decrease in value can create tax deductions. At least that is my understanding, and I think it is what you are saying.
Click to expand...

No, the depreciation can create a net loss while the cash flow could be positive. The IRS fiddles with the rules... like recapturing accelerated write offs. A good tax professional would know the details. The philosophy (if holding for several years), is that the building and improvements are written down on the books while the property is actually increasing in value. So the investor has a lower current tax obligation. However there will be capital gains taxes to pay when the property is sold. But there are/were accounting tricks even for the capital gains... like swapping into another property. Some of the best tax avoidance rules are for owner occupied properties, farms, ranches, tax credits and other incentives for various things (renewable energy, blighted, low income tenants, historic preservation).
 
#14
#14
Thunder Good-Oil said:
No, the depreciation can create a net loss while the cash flow could be positive. The IRS fiddles with the rules... like recapturing accelerated write offs. A good tax professional would know the details. The philosophy (if holding for several years), is that the building and improvements are written down on the books while the property is actually increasing in value. So the investor has a lower current tax obligation. However there will be capital gains taxes to pay when the property is sold. But there are/were accounting tricks even for the capital gains... like swapping into another property. Some of the best tax avoidance rules are for owner occupied properties, farms, ranches, tax credits and other incentives for various things (renewable energy, blighted, low income tenants, historic preservation).
Click to expand...

Thanks for the clarification.
 
#15
#15
TheColdVolTruth said:
I know we have a few investment threads. I frequent the stock market thread in the PF probably more than any other thread on VN. We also have the stock thread here in the pub and even a new thread about diversification today, but I can't find anything on real estate investing.

I have had moderate success in the stock market, and I have been stalking real estate for the last few years. I have not pulled the trigger on a deal yet, but I would like to hear from any of you who have played in the real estate sandbox.

What is your strategy, and where is your market? Do you look for long term holds and rent, or do you flip? Single family, small multi-family, large multi-family, commercial? Do you go for value add?

I see the real estate market on a macro level as inflated. Some local/regional markets are crazy hot, but I think deals do exist below intrinsic value. I am mid-thirties, and I see real estate as a vehicle to accumulate wealth and expand my portfolio beyond the stock market. I look forward to your respective opinions.
Click to expand...

Real estate is the only thing I'm invested in. I have a value by, hold and rent strategy. Doing pretty good overall. Happy to answer any questions.
 
#18
#18
I have dabbled in residential in the past and am not a huge fan, the cheaper the property the more maintenance and tenant problems that follow.

Still there are some opportunities out there. I am hoping that I will like commercial. I am in the process of buying an office condo and leasing it to the existing tenant a med spa. It is part of an investment strategy as I soon hope to be adding to this first piece. It is in a crazy good location with a high drive by traffic count and even though the tenant is a little risky, I think there will always be plenty of demand for this hot West Knox property/location.

Triple net lease throwing off about 10% returns annually so a very good cap rate imho. Building is only 3 years old.

Next, I hope to develop a 10 - 20,000 square foot property with returns in the 20% plus range.

Who wants to be a tenant? :)
 
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