All Forum Posts by: Marcus Auerbach

Quote from @Jay Hinrichs:

Quote from @Marcus Auerbach:

We don't have the labor to make more things in the US. 

We still have about 7.4 million open jobs and vs 7 million unemployed. You can't drive unemployment to zero. Anything under 5% is considered full employment. And we are at 4.1%. So while it sounds great to "bring jobs back" - who is going to do them?

And we also have a qualification problem. A modern auto factory does not require much unskilled labor. Material is moved by automated forklifts, and assembly is either done or assisted by robots to meet TQM standards. Much of what you need are engineers and highly skilled workers. We are already short on both.

I doubt that most of the 40% unemployed men of the inner city of Detroit are a good fit for a modern day manufacturing plant.

The Apple CEO Tim Cook said famously: people think we manufacture in China because labor is cheap. The real reason is they have a vast pool of HIGHLY qualified skilled labor.  Video.

I have spent almost 20 years working for a global manufacturer. For any machine that was produced in our US factory and the components needed to assemble the decision was to either fully automate the process to 24/7 production here in the US - or offshore to MX or CHN, the difference being the response time to change orders (6 months vs 6 weeks) due to geographic distance. MX kept us more flexible.

Here is a picture of the BMW plant in Spartenburg, SC and if you want to see the list of jobs they have it's here https://www.bmwgroup.jobs/us/en/location/location-spartanbur...

I think back to the auto products of the 70s  detroit was putting out JUNK with the exception of their pick up trucks.. to me that opened the door for japan and their quality vehicles to really take off.. I suspect a lot of BP members are too young to have been buying a car in the 70s.. but it was not uncommon to buy a new buick and within 30 days have 17 things wrong with it.. or like when they tried to convert gas to diesel engines and those things blew up in 10k miles..  To me Detroit in those days fubared themselves.. I know in 79 I bought a brand new turbo diesel MBZ for probably 3X what an american car would have cost but I drove it for 150k miles then gave it to my parents who put another 150k on it.. other than window units and airconditioner tires and brakes we drove that thing for 20 years.  a 79 American made could never do that.  Along with anyone who has owned toyota products etc. 

Yup, you go to Munich literally every taxi is a Mercedes. Because cost/mile over their twice as long lifespan they are cheaper.

California has been trying to build a high-speed train from LA to SF for over 20 years. I just watched a video about how the project struggled against environmental laws and regulation, budget explosions, complete disaster.. we burned so much money and it does not look like it will happen after all.

Meanwhile, China has built 13,000 miles of high-speed trains in the last 15 years. They are super modern, absolutely whisper quiet inside and make travelling very cheap and easy. 

Infrastructure is a catalyst for a thriving economy. 

We start to look like a developing country..

Quote from @Eric Bilderback:

Quote from @Marcus Auerbach:

We don't have the labor to make more things in the US. 

We still have about 7.4 million open jobs and vs 7 million unemployed. You can't drive unemployment to zero. Anything under 5% is considered full employment. And we are at 4.1%. So while it sounds great to "bring jobs back" - who is going to do them?

And we also have a qualification problem. A modern auto factory does not require much unskilled labor. Material is moved by automated forklifts, and assembly is either done or assisted by robots to meet TQM standards. Much of what you need are engineers and highly skilled workers. We are already short on both.

I doubt that most of the 40% unemployed men of the inner city of Detroit are a good fit for a modern day manufacturing plant.

The Apple CEO Tim Cook said famously: people think we manufacture in China because labor is cheap. The real reason is they have a vast pool of HIGHLY qualified skilled labor.  Video.

I have spent almost 20 years working for a global manufacturer. For any machine that was produced in our US factory and the components needed to assemble the decision was to either fully automate the process to 24/7 production here in the US - or offshore to MX or CHN, the difference being the response time to change orders (6 months vs 6 weeks) due to geographic distance. MX kept us more flexible.

Here is a picture of the BMW plant in Spartenburg, SC and if you want to see the list of jobs they have it's here https://www.bmwgroup.jobs/us/en/location/location-spartanbur...

Why should we care about Apples phones etc.  If they aren't going to bring opportunity to Americans to buy a house, provide for a family then they are not a priority, if they go broke "thems the breaks".  They can take all the money they are spending sending missiles and weapons all across the world and get the folks in Detroit up to speed for those good jobs Apple has.  Americans don't need more technology, we need some good jobs that can create strong communities, towns, neighborhoods etc.  And if your business doesn't provide that then your business is not a priority.  Am I missing something?

Yes, I think you missed my point. It's not about Apple. The issue is: we have more open jobs than people looking for jobs. In other words: we don't need more jobs. And if we create more jobs, who is going to take them?

And a large portion of the people unemployed today have a qualification problem. Simple manual labor is not a thing anymore. You need automation engineers who can troubleshoot a FANUC 6-axis robot - and not a grunt to do heavy manual labor.

And you are not going to train a 40 year old unskilled laborer to become an engineer. Heck, who would even make the investment to pay for college with only 20 working years left to retirement?

Good jobs to create strong communities" sounds really great, we all want that, I am all for it. But the definition of what a good job looks like has changed. Give it another 3 or 5 years. Machines will be picking your strawberries, because they will do it cheaper, better and also at night.

We can recreate an economy like it was in the 80s with "Good jobs for hard working Americans". Tune back the technology. But the world will move on and the ones who say America is a dying empire will have been right.

Residential 1-4 is easier to get into and learn. 5 to 8 units, even 12 units is one of the thought asset sizes; you have all of the downside of commercial, but without the scale and upside. Basically poor man's MF. 

If you want to replace 300k in 4 years, your only path is medium-sized or large MF. You'll probably need 150-200 units, that's a 15 to 20 million $ portfolio. It can be done, but 10 years is a more realistic timeline.

We don't have the labor to make more things in the US. 

We still have about 7.4 million open jobs and vs 7 million unemployed. You can't drive unemployment to zero. Anything under 5% is considered full employment. And we are at 4.1%. So while it sounds great to "bring jobs back" - who is going to do them?

And we also have a qualification problem. A modern auto factory does not require much unskilled labor. Material is moved by automated forklifts, and assembly is either done or assisted by robots to meet TQM standards. Much of what you need are engineers and highly skilled workers. We are already short on both.

I doubt that most of the 40% unemployed men of the inner city of Detroit are a good fit for a modern day manufacturing plant.

The Apple CEO Tim Cook said famously: people think we manufacture in China because labor is cheap. The real reason is they have a vast pool of HIGHLY qualified skilled labor.  Video.

I have spent almost 20 years working for a global manufacturer. For any machine that was produced in our US factory and the components needed to assemble the decision was to either fully automate the process to 24/7 production here in the US - or offshore to MX or CHN, the difference being the response time to change orders (6 months vs 6 weeks) due to geographic distance. MX kept us more flexible.

Here is a picture of the BMW plant in Spartenburg, SC and if you want to see the list of jobs they have it's here https://www.bmwgroup.jobs/us/en/location/location-spartanbur...

@Bernard Wallace check out Mach1 Lending and F Street Hard Money in Milwaukee. The first thing they will do is confirm the ARV, but even if it is a bit lower there should be enough meet on the bone for asset based lending. Don't forget holding cost and commissions.

Also, I think Jay was referring to the lenders and I have to agree, many residential lenders will not understand what you are talking about..

Another good way to think about this decision is if you want to have this property in your "collection" 10 years from now. Would you be happy to own it in this neighborhood with where things are going or do you only like the numbers?

In my market (Milwaukee) distressed properties are not a business model anymore. Our market is so extremely dry on inventory that you can't get a discount to match the condition. First time home buyers vastly underestimate how much it will take and pay full price. The last few properties we bought were all basically move in ready. 

We stepped in on deals that fell through on financing and bought them cash with a small discount (about 10%) in exchange to keep the sellers original closing date and be able to close on their new home. By the time I would have been able to get the rehab done, gotten a tenant in place, we were not that far from picking up another 10% in market appreciation for basically doing nothing. Maybe not the best CoC return, but a really good return on my time.

Good plan. Let me add a couple things. Taxes become a bigger consideration on an older portfolio. You don't have that much to write off anymore. That's where new mortgages come in, because the cash you pull out is tax-free. Not everyone wants to grow their portfolio, you could also 1031 into a DST if you want to be passive.

The other thing I would do is get proactive with rehabs. Our portfolio is all 1950s and 1960s housing and we gut rehab them to reset the clock for the next 30 years. If you rehab well and you have good tenants a property will look just fine after 10 years. (If you have the wrong tenant it can look like ready to rehab after 1 year BTW). 

Reinvesting money gets you higher rents AND better tenants. That has become a huge consideration for me over the years, there is massive benefit to that combination.

What we do now is systematically replace old driveways and roofs. We have a list and we do several of them every year. Similar with furnaces, we have a list of old HVAC and have started swapping out older ones. Paying half the cost of a new unit in repairs in the middle of winter and you still have an old HVAC makes no sense. I'd rather do a scheduled replacement in summer.

Great post @James Hamling

Love your plan, but let me tell you where the issues are. REP status requires that both of you work in RE, at least one full-time and the other more than half. Look up the rules. I still think it's a great plan, but you want to make sure you are not hating the lifestyle. 

You need a love for brick and mortar to sustain REI long term, not everyone has that and there are other businesses that you might like better. And as far as getting licensed, 85% quit in year one and of those who remain, another 80% quit in year 2. Because the reality of the job is not what they thought.

For most people it takes about 10 years to build a portfolio that can sustain them, but it can be done faster if you have funds to start with. It took me 7 years to quit my executive W2 role, but I was also incredibly lucky to start buying rentals in 2009 and Milwaukee RE was cheap back then. Today it's tough to find a deal that cash flows with 20% down, but it will 5 years from now.

 yes, exactly what Rebecca said ;-)

This is going to sound harsh. When you picked this financial framework you have made the classic noob mistake of looking at everything through a cash-flow lense. The good news is that this deal is a great learning opportunity and you start asking the right questions. Let me back up.

The four basic sources of wealth with RE are:

1.) Equity: forced appreciation and natural appreciation

2.) Leverage and amortization: principal pay down

3.) Cash flow

4.) Tax benefits

Cash-flow is one of the smaller benefits and should not be the primary reason you buy a property. To gain an intuitive understanding of this use the BP rental calculator, punch in 1 million property value, 10k monthly rent, 3% appreciation, 3% annual rent increase. Look at the results after 10 years and after 30. Cash flow get's dwarfed by the other components. If you increase appreciation to 5% the results get even more extreme. 

Once you realize this, you start asking the right questions: how can I manipulate the input-numbers to optimize the outcome.

As far as this property: keep it and let time do it's thing. It's called buy&hold not buy&sell for a reason. Cost of selling is too high. Cash flow and property value will improve with the years.