Getting started in Real Estate (my perspective)

[Calvin Thomas]

I've been receiving quite a few messages about real estate and how I got started, so I thought it would benefit everyone with a separate thread.  Of course, this is just what we go by, and is not considered any legal or investment advice.  As always, conduct your own due-diligence before entering any business.

Ok, here we go.  I started in NYC back in the mid to late 70's when President Ford told NYC to drop dead and the city was in really bad shape.  The building I bought was looted and destroyed, no one wanted it.  Me, working not far on Wall Street, saw the potential.  I knew, as the World's Capital, NYC would recover after paying it's dues.  While I will not release the address, I can say it's pretty close to the exchange on a side street.  I continued on with my career and build a sizable nest egg.  I was never an aggressive trader and mostly went into bonds and insured securities.  After all, since inflation was so high, I was able to lock in 7%+ interest rates for nearly 30 years.  As I saw deals come up, I'd go for them.  Now, I am a big believer in getting your hands dirty.  Whereas, I never just hired some GC and had no oversight or direct contact within each rehab I've done.  Ask any of my workers or companies we do business with, my team is very much involved.

Fiancing:

Fiancing is very important.  Hoping, wishing and praying on appreciation is a foolish and ill-advised.  I always built up my funds and then shopped around for the best rate.  I usually found the best rates with credit unions or small banks.  Nowadays, if I cannot pay cash, I would use an agency loan.  I do not use hard money nor any exotic funding sources.  If you do not have the 20% - 25% to put down on the building, you cannot afford it.  Yea, you may get by or be successful in a good or steady market, however, you never know what's around the corner.  Always be well financed and have backup savings or credit lines.

Team:

Always put together a great team.  This is tough, but it is important.  You may have to go through a number of GC's and companies, but once you find a solid team, you are golden.  Make relationships with realtors.  You never know when they may have a pocket listing or something off market that you can grab at a good price.

Market:

Start with your local market and grow from there.  Now local market can be 20 miles, 20 minutes, 2 hours.  It depends on your own standards.  I always recommend to start in the low income urban areas to get your feet wet and learn on the job.  It's much better to pay your dues on 100k investment and make mistakes, then on a 1 million investment.  Do not invest in vacation areas or rentals unless you know the areas which are very desirable and you can withstand the vacanies if and when they happen over long periods.

Resources:

Do not stretch your resources too thin.  Yes, everyone wants to be the next Donald Trump (developer), Ben Mallah (Developer), Sam Zell (Developer), etc.  But this takes time, resources, experience, and a lot of $$$ (or credit).  I cannot tell you how many times I hear that people have lost properties, family, and even lives due to mismanaged funds and resources.  This is not an easy business.  A person has to deal with government officials, contractors, suppliers, inspectors, insurance companies, regulators, health departments, social services, police, and sometimes even military.  Yes, you can do very well in this industry, but most do not.  They either over leverage, make rookie mistakes or have a partnership disagreement.  It's always best to have one partner if at all, and that partner is the bank.  The only ships that sink now are partnerships.  It's one of the reasons why I've not done one since 1999.

Suppliers:

Always provide the supplies for your buildings, never let your GC pick them up.  They market pricing up as much as 30%.  If you are spending 100k on supplies on a rehab, that I am sure that 30k that you could save would had come in handy.  Buy in volume, if possible and store in your warehouse or off site facility (when you get to this stage).  Nowadays, when one of our buildings needs parts or supplies, we just send a team to pick the items up at the warehouse.  Everything is logged and monitored by access locks and security cameras.  When you see sales, stock up.  Shopping.google.com can be your friend if you are not able to get corp. discounts yet.

Vision:

Many have asked me how I picked some of the crappiest buildings and know that they'd turn out to be rockstars.  Example.  There was a building in NOHO for around 750k.  It was run down and needed a lot of work.  Retail in the bottom, apts or suites on the top along with air rights (very important).  We grabbed it for 500k and estimated 250k in rehab costs.  The total rehab costs was around 575k (typical).  Also received tax abatements and State/City grants totallying about a third of the rehab costs.  The building is worth north of 3m right now.  It was a good gamble.  Due to the new law, we've turned the building into more of a WeWork model as it's not worth the headache dealing with evictions in NYC.  However, I've done the same in several other major cities.  You need vision.

End game:

What's your end game? Always think in the future. What do you want out of this experience? I say experience because many do not run it like a business. This experience or hobby is neither. If you are serious in building a real estate portfolio, you must treat it like a business. Have a separate bank account (one for each building/LLC), a CPA, a lawyer, suppliers lined up, excellent credit and most importantly a good amount of savings or a rainy day fund.

If I missed anything, feel free to chime in and I'll do my best to answer.