All Forum Posts by: Robert Mayo

I've found a few companies that hold farmland as their primary asset, with farming as their primary activity. By buying their shares I've effectively bought farmland in Russia, Argentina, and Malaysia, for around $500 per acre.

If anybody out there also has an interest I'd like to exchange notes on particular companies and see if we can learn more. My email is below or post here. I believe farmland deserves a small place in my portfolio, since it is so essential to life.

Around here a permit for removing a door would simply involve the owner's hand-drawn framing plan or equivalent, a revised floor plan, and the minimum ($50?) permit fee. You might see if they will accept something informal like that for such a small job.

Thanks guys for the advice! It turned out to need more rehab than I am willing to manage. No bathrooms or kitchens, but some of the rough plumbing is there (not all). Heavily patched exterior siding, mold and dryrot in places.

I found the ordinance online, and it doesn't look too bad. It requires compliance with the code in effect as of the date of construction, which in this case is circa 1908 for the main structure and who-knows-when for the conversion. In addition, it requires inexpensive safety items like GFCIs and smoke detectors.

The numbers on this deal seem excellent, but I need help on due dilgence. This smells fishy to me.

Tri-plex with 1/1, 1/1, and 2/1. Rent $400, $400, $500. REO asking price $35k, located in neighborhood of $35k SFRs. Tri-plex is a converted 1900's SFR.

2% rule: 1300/35000 = 3.7%. NOI = $7,800 (50% rule). Rehab cost is unknown at this point, assuming $30k rehab and it still meets 2% rule.

Trulia claims it sold in June 2009 for $300k. 89% depreciation in 5 months! How is that possible? Also, even if June buyer never made a single payment can they foreclose quickly enough to have it back on market in November?

Things I need to research:
Rehab costs.
Is the tri-plex conversion legal? Could they make me unconvert?
Check for mold, dry-rot, termites, toxic waste, lead, and asbestos.
Have professional building inspection.
Roof inspection.
City has new ordinance requiring all rental property to be
inspected and brought up to code (I'm surprised that's legal).
Find out implications for this property.
Anything else?

Comments? Am I going to regret this or love it? What's the gut feeling of the experienced people here?

I like some HOAs for single-family houses, and certainly CC&Rs.

Here in California you'll see a block of nice $500,000 houses and in the middle of the front lawn of one house a guy has his car parked up on cinder blocks. And then you notice that two doors down somebody has painted his house black and red.

HOAs provide some assurance that your neighborood will still appeal to mainstream tastes 10 years from now, at the cost of a small amount of personal freedom.

Be aware that if you see advice of the local building department they may issue a citation and demand the conversion be removed. If you do this before buying the house the seller will be pretty upset.

I have a friend who bought a house and then had to remove a whole attic conversion, with significant square footage. The building inspector became suspicious of it during an inspection of another permit and, after verifying there was no permit for the attic conversion, ordered it removed.

Rob,

You may be able to save yourself some hassle by choosing a nation-wide title company that has offices near both where you live in California and the Georgia property. That way your California office might be able to give personalized help, and you could also do your closing there, while the Georgia office would do the title policy and prepare the documents.

There are many good title companies but if you are searching for suggestions try First America Title, Chicago Title, or Stewart Title. Tell them about your transaction and ask them what fees will be involved, especially the fee for title insurance.

Thanks for the info, maybe a micro-level comparison isn't possible. What ratios apply at a broad level? It seems like both individual deals and REITs have a total cost (equity + debt) and dividends (cashflow). Maybe that is all I need.

Are there any REITs that hold a set of properties and don't buy and sell, thereby emphasizing cashflow?

Before I buy a rental property and hire a property manager, etc, I want to see how much worse I'd do by just buying shares of a REIT, since that's the ultimate no-hassle investment.

So far, it looks like public REITs are much less profitable, with yields of 5% vs possible 12% on the hard-to-find SFR deals.

Hi. I'm trying to compare some of the private deals mentioned here with public REITs.

Looking up the income statements for Equity Residential (trades as EQR) I find a line for cost-of-goods-sold. What is this for a REIT? Is it the cost of maintaining the apartments, everything from the salary of the building manager to the cost of the new bathroom fan? What is under SG&A? Is it the sales reps, accounting department, etc?

I also see margins of 8% to 25% on public REITs (whats left over after deducting expenses from rent). For private deals mentioned elsewhere on the site, people are using a 50% rule -- expenses are 50% of rent. For these public REITs it is more like 80%. Why is this? Is an individual investor that much more efficient than a giant like Equity Residential?

Am I comparing the right things, or have I messed up somehow?