All Forum Posts by: Andrew Wydra

Great input and YES, it all depends on your market. What I wanted to get across is that there are many avenues (niches) to pursue within RE. Each market will demand different types of RE at different times. 

Lot development: as I mentioned, I have a mentor that does small lot deals and does it well. For example, he will find a home in the heart of town that sits on an extra wide lot. In this example he finds the old house on a large lot in an area where they are building new homes for $800k-$1.2m. He will pay market for the 1970's home which is about $300k. He will then tear down the home and subdivide into 3 lots. Home builders are paying $160k-$175k/lot. His costs are to demo house, rework existing water and sewer line, grading, and rezoning. On that deal he will make $30k+/lot or a total of $90k. 

This is just an example of another niche in RE. 

Thoughts I'd pass this interesting WSJ article on to readers. Overview: the how real estate market has neglected new entry level homes. There is very little supply which offers an opportunity for those with the skills to become a new home builder or a land developer. I've worked with local guys that have taken a piece of in-town property and subdivided it into 4 lots. They sell those lots to home builders and take a nice profit in doing so. It's one of those areas in real estate that a lot of smaller guys don't touch b/c of knowledge. Maybe it's something you want to look into as an alternative to flipping. 

http://blogs.wsj.com/developments/2015/06/25/economists-home-builders-neglecting-entry-level-market/

Hi Joseph,

I work on the same type of MF value add projects as you discuss getting into. It's hard to find stuff on the market that works. My success has come from acquiring off market properties- most of it comes from contacting the owner personally. I look at a lot of distressed investments and you have to underwrite them carefully. More so than a SF since your end buyer market is smaller. Make sure to plan very conservatively. Give me a shout if you want to talk shop. Would love to chat with like minded fellows. 

Lawrence,

You have a lot of moving variables in that question. The change in sales price from a 6% to a 12% cap rate could be hundreds of thousands in dollars.

I would reverse engineer it. Ask yourself first, what type of return/cash flow do you want from an investment. Then, you'll need to figure out what price point you can purchase at. Discuss with lenders/capital partners. Say you determine you can purchase up to a $500k bldg and your financial threshold is a 10% cash on cash. Now you can start searching for buildings to consider. 

If you have questions, please feel free to message me. I'm more than happy to share some of the basics that I use. 

I've always wanted to "house hack" but never pulled the trigger. Congrats on pulling the trigger and getting serious about investing. You'll get a lot of comments on your question. My initial comment is that your first investment has to be successful. If it's not, you'll run from real estate. So, the #1 thing you have to do is buy right. You can make a lot of stupid mistakes in this process and still make profit if you buy right. Run your numbers, calculate your expenses and when you feel you are conservative on them, add another contingency expense (say another 10-40% for unknown expenses - believe me, you will use this money up!). It won't be easy to find an asset that works, but enjoy the feeling when you know that no matter what "unknown" comes up, you are still going to make a profit. 

Disclaimer: I am assuming you will be smart, do all your homework, and get professional opinions. 

Best of luck and let us know how you progress!

I just spoke with a gentleman that is selling a 15 unit and is looking for 6% cap. 5 years ago that would've been ludicrous but he will get close to that today! 

Connelly, 

Touch base with @Brian Moore. He is a fellow BP member that does multi family projects here in Chicago. Could be a  good connection for you. 

Hey Joey- Let me ask this, are you willing to give away $37,500? That is in essence what you'd be doing if you do not raise rent to market price. Here is the math:

What is the value of the additional $250/mo in rent?

• $250x12= $3,000 less than market @ an 8% cap rate
• Loss in Value = $3k/8%= $37,500

Now I'm not factoring in vacancy or turn costs but you've hopefully already included a budget for that in your pro forma. But I'm not saying to immediately bump rents. I would get the other two units up and rented then discuss the rent change with the existing tenant. This will give you some cash flow during the first few months. Or maybe you give them a discount on the first month equal to what you assumed for vacancy and turn? There is a way you can make it a win for both you and the tenant. 

@Gino Barbaro

Subsets such as land development, self storage, single family homes, retail, senior housing etc. Not all real estate goes up together and falls together- some are inverse. I agree, homeownership is at it's lowest but there a many factors that could cause an increase in single family demand (especially entry level) One factor being rental rates that are too high. We are seeing this in hot markets such as San Francisco. Here is a great Bloomberg article on the pent up demand for entry level homes. 

https://finance.yahoo.com/news/housing-busts-long-shadow-110004280.html

You have to take a look within the subsets of real estate. I think the multifamily boom is due for a pull back in the next 24-36 months. BUT, that boom's higher prices is creating a need for entry level/starter homes. Yes be prepared. Don't get fat on just one sector of real estate. Educate yourself in different markets sectors and be prepared to capitalize on the subset cycles.