What Is Your Favorite Type Of Real Estate To Own And Why?

Question

What is your favorite type of property to own? Commercial? Condos? MultiFamily Homes? Single Family? Raw Land? What are the pros and cons to your favorite type of property? There are no wrong answers.

Jay Hinrichs · Answer

@Russell Brazil  my  favorites are :

#1   Timber land in the Northwest  ( Nothing beats the returns on timber land)

#2   Land in the path of progress in Northern CA.  ( If your lucky enough to own this kind of land  you can make 50 years of cash flow in one transaction)

#3   would be value add and new construction. ( ride the up waves and cash in.

#4   Mobile Home Park  ( best semi passive resi returns  class B or Better

#5    Larger self storage that has on site management ( larger facility more like a business than RE ivnesting

#6    Storage Condo's  ( take said storage units put a condo plat on them then sell them on contract.. NO management issues all income is basically 3NNN

# 7   Little bit different but lending money long and short term and brokering money

As you can see from what I do and like to do rentals are no were in the picture  LOL I hate tenants  !!!!!!!!!!  And I am the worlds worst Resi manager..

Douglass Benson · Answer

Multifamily is my favorite.  I tell people it is like "Adult Monopoly".  All the real estate truths come into play.  First is location, location, location.  I don't need to lecture on that.  We all know what it means. Second is to make sure your building is always in good shape.  Cutting corners on maintenance limits your ability to attract good tenants and good tenants are the ONLY way to make consistent money.

None of this happens overnight, but your goal should be to have those three things in place.  You will find a very fulfilling past time waiting for you when you do.

'

Jon Klaus · Answer

Land in the way of growth or redevelopment.  Regular appreciation rules go out the window. If a big user or developer needs what you have, you can see decades worth of "normal" appreciation happen over night.

You could say it's somewhat speculative, but if you watch the macro-trends and the micro-trends, and follow land investing "rules" like buying on the interstate or hard corners in high growth areas, you give yourself a real advantage.

Jefferson Lilly · Answer

I'm intrigued by Jay's comment about timber land in the NW.

My only experience has been with mobile home parks.  But I did look into apartments, self storage, and SFH (both buy-and-hold and fix-and-flip), and at least of those, MHPs are the best by far.  We typically double our money in the first year (e.g. put down 25%, and improve the property's overall value to 125% of what we paid for it within 12 months).  Our cash-on-cash returns tend to be 25% - 30%, and with all the depreciation that's nearly entirely tax-free.

My 2 cents worth,

-Jefferson-

Jay Hinrichs · Answer

@Jon Klaus  Timber of course is regionalized ..

So my knowledge is from NW timber land on the West side of the Cascade range and Seirra Nevada's.  East side is primarily pine West side is primarily doug fir.

Doug fir in our market is the dimensional lumber that is used to frame most SFRs on the west coast.

Also plywood and tele poles.

Timber in the best growing sites were we have bought and owed will grow at a rate that will equal a 12 to 14% COC return just on increase of volume.. IE as tree's age they grow in height and width. And if you pre commercial thin you can create the necessary ring counts and knots to jump into an export grade log which will bring 20 to 40% or more in value than a domestic log.

So if you combine this with the same buying principals that most of us RE folks look for IE a deal day one.. Or combine it with some land divisions and value adds it can be pretty neat returns.. and as passive as they get.. the only threat of course is fire and other than the Tillamook burn back in the early 50's forest fires on the WEst slope and in the coastal mountains are rare.  Now Pine beetle has devastated the Pine markets in Canada and areas of the west and is moving east through Canada.. But I don't deal in Pine .

Here is the opportunity  smaller parcels IE 80 acres and under with homes on them are not the targets of big timber companies .. big companies want larger tracts and NO improvements IE commercial timber land.

So you had two opportunities one a 20 acre tract nice home... Listed right on MLS broker and owner really don't understand the value of timber.. and just list the property using resi comps..  Some stands of 20 acre timber in our area can bring NET after cost 100 to 200k after harvest.. We buy the property do what I call a RE cut.. IE leave some aesthetics close to the home  replant the harvested area and put the property right back up on the market and sell it for basically what we paid for it... Timber is cash revenue.   And on a little larger parcels much more is made..  In many cases properties I bought the timber would pay for the entire purchase and I was left with a nice home one acreage free and clear, and on really good one's we would get the land and cash after harvest.  from close of escrow to cash out on the timber is usually 60 days or less.. and in the good ole days certain Export companies ( I dealt with Menasha) would advance on the delivered logs through a timber deed .. so they would in essence pre buy the logs with a zero interest loan on the timber deed.. WE would use this money and our cash if we needed it to close on the deals. Many times the timber advance covered the purchase price outright and we had a 100% levered transaction with no interest.. It just does not get any better than that  LOL. Of course they don't do this for anybody we were top log suppliers to Menasha in the 90s

Then there is the tracts that we could short plat  IE create 4 lots... again value add.. buy right off of MLS  log short plat and sells building lots.. between these activities we also did very well.. the neat thing about logging in our areas Permits are over the counter and your good to harvest in 3 days.  Washington its a little tougher.. and CA well we can forget about it there the permit process is terrible.

The neat thing about a timber harvest permit is you can build logging roads under this same permit  No inspections nothing.. well our logging roads happen to be right were we would put our access roads for the short plat.. the landings  ( were you stage the logs to be loaded on the trucks) would be our building pads.. So after we were done the roads and building sites were all cleared without having to go through county planning and public works roads already exist... beautiful.  And no extra cost as this activity was included in the price to harvest the logs it was a by product of the logging activities.

Case study  this one I sold in 2013.

780 acres  bought in 1999  for 1.7 million... 500 acres in various age class's from 25 year old to 50 year old.. all very well maintained and replanted in the 70's. fully fenced and 7 miles of rock road that would carry log trucks.. great owner to buy from... He needed money for a business we paid cash and closed in less than 21 days. We then hung 1 million in debt on it once we owned it. so we had 700k in cash in the deal.

The property fronting the paved county road had a zoning that allowed 15 5 to 10 acre parcels to be created.. WE worked on that for a few years and created the parcels. because the logging roads already existed and would suffice for rural resi roads all we did was survey and plat... Power was along the county road.. so we put power in underground and we actually had a rural water system.. so water meters went in on the county road and we ran service to each site.. Sold those off at an average of 100k each.. build 2 specs to start it off. it took about 4 years to go from start to finish.. so we brought in about 1.4 million on the lots then sold a 40 that had water rights to the river it was all pasture for 240k

So basically within 5 years we had our cash back but of course had to pay some tax on the gains  although we got some write offs on timber depletion. ( semi complicated not sure I can describe that tax treatment)... we were left then with 500 acres of growing timber..

now the 25 year old is 39 years old and the other stands are 50 to 70 YO and ripe.

We sold to Stimson for 2 million plus on 2013..cash transaction.  now we were negative cash flow first few years until lots started selling. But all in all a nice fun project.. and we hunted on it every year and ran our quads etc.. I actually got it approved for a zip line park but my other partners just wanted to cash out.. its would have been an awesome zip line park

Russell Brazil · Answer

This is one of the reasons I love BP.  Learning from people with drastically different views of real estate from your own.  @Jay Hinrichs selling timber rights seems so ingenious to me. Living in a major metro area it is something that not in a million years would I ever think of, as we dont have open land with timber on it.....but now it is something maybe I will keep my eyes on in properties located further away from the city.

Jay Hinrichs · Answer

@Jon Klaus  one last point   WE owned NO logging equipment.. just pickup trucks and quads to run timber tracts... We subbed out all logging and trucking.. some December my partner went to Maui for the winter and I stayed at my home base in the Napa valley..

Jon Klaus · Answer

Yeah Jay, tell us more about the economics of timber land, please.

Bryan N. · Answer

Townhomes.  They rent quickly, cheap to buy, cheap to update, and maintain.

Christine O'Meara · Answer

Very impressed M. Hinrichs @Jay Hinrichs! Very interesting read , but definitely not for most of us...

I like being owner of a few multi family units.

I am still in the process of learning, and for me I think there is lots of money to be made in this business!

I am currently working on my next deal (11 unit),can't wait to close on it!

For me , this is a relationship business.

You have to like people and be willing to solve their problems.(Both landlords and tenants)

I also like to be nice to my tenants, because they are paying my debt...love that!!!

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