All Forum Posts by: Henry Clark

OP ask your rental property insurer for Umbrella coverage options.  

OP show us the math you’re using. 

Examples 

$200,000 x 6%= $12,000.  Or

$200,000 x mileage rate .09419 for Lexington x 6%= $1,130?
   
Plus doing a quick read did you include all Personal property in the calculation such as furnishings?

Key is call either the treasurers office or assessors office or even a realtor in the area and have them walk you through the calc.  Or find a rental property on their GIS map and walk thru the property tax calc.  

We are in Iowa.  Their taxes don’t look that high.  Our county is in the upper 1/3 of 99 counties for property taxes.  

Quote from @Scott Trench:

Quote from @Henry Clark:

OP  We have been sitting on the sidelines the last 2 years.

It’s a good time to buy when the numbers work.  But you also have to apply your level of risk aversion or risk adjusted return.  

Will everyone else jump in then?  No, since their risk aversion and their value analysis will be different than yours.  

I would also throw in bandwidth.  Both from a time standpoint but also a risk standpoint.  
Lots of people’s bandwidth have shrunk with the higher interest rates.

We always have about 4 different projects either in motion or sitting.  We might wait for the in motion project to get to say 40% completion or occupancy before we start the next one.   This is for bandwidth and risk management. 

For the last two years we have been sitting on the sidelines. Actually we have divested 4 of our 8 Self storage locations to get into a better LTV position versus my view of the economic world.

Example:  Risk assessment.  my view of the economic world is pretty pessimistic.  We don’t invest at 9% or higher.  Currently we would be at 8.5% interest rate.   Stock market to me needs to revert by 50%.  S&P500 index is propped up by about 7 companies that make no material value with P/E ratios of about 3% for the market average. Known  Potential Black Swan events, numerous.  

With the above said we have a 75 acre country subdivision coming online this spring. 100% cash. I tell people this is the worst time to do a subdivision. But REI is local.

Have another self storage development identified.  Land priced right, zoned correctly, market analysis great and potential competition low.  Build cost low.  Financing is approved just need to sign the paperwork. Cash flow great.   Value add $2mm after 2 years.  Easiest project we have ever could do.  Project on the sidelines because of my assessment of the overall economic risk. 

So what do we do to avert the above concerns?  We invest in Teak plantations in Belize.  

It’s always a great time to buy.  There are tons of deal flow out there.  Even in housing.  

I may have to Teak my strategy in light of the excellent advice you provide here, Henry. 

Play on words.  But for everyone’s benefit don’t invest in Teak for 98% of people.  If you google there are several invest in Teak options.  Most of them relate to the trees and the land.  

All trees not just teak trees the money is in the processing and not the growing.  Example value of a standing teak tree is $1 per board foot.  For teak the finished retail board is $28 to $32 per board foot.  Our model is to take the tree to the wholesale stage before retail at $16 per board foot.  

The thing about teak is natural forests are being harvested at a rate of 20 to 1 farmed plantations planted.  Teak is getting rarer.  The market is primarily China, India, Malaysia and Europe.  Most of those populations are both growing and their GDP per capita is growing.  Most.  Thus the market is increasing on a declining availability.  Lifecycle of teak is 21 to 60 years.  The above anomaly won’t get corrected for 40 years. 

Bad world economy.  You just don’t harvest. They grow both physically and with inflation.  Not USD dependent, provides diversification.

I have stated many times I like nasty properties or situations.  

Side note.  We don’t invest in housing.  But Nasty is coming up.  With the next downturn look to buy distressed top end airbnb and resort properties even destination island properties.  Pick an area to isolate.  Make realtor connections to understand what makes each house and neighborhood valuable.  Check Airbnb rates and occupancy.  Once the market goes down make 10 offers at 60% current value.  Subject to.   During Covid 1/2 of the houses in one of our Belize resort locations were up for sale.  Same thing will occur with a downturn in the U.S. stock market.

Quote from @Ronald Rohde:

wow, surprised to hear you sell so much! I sold 1/8 of my properties, similar motivations, but I think overall Trump will be good for real estate

Sold the C market locations.  We needed to build more there but the cost to build has doubled and the return is t sufficient. Used funds to pay other debt off plus out cash in the side.  

I think Trump will help but our debt levels are too far gone.   The U.S. needs to default or go into stagflation for a few
decades like Japan.  

@Ronald Rohde

We have been on a hold stage. Have one subdivision project going to market this spring. Sold 4 of our 8 Selfstorage locations to get in a better defensive position. More cash and more favorable LTV%.

Long term interest rates should continue to increase.  There are to many variables in play.  Whether one or all have any validity it doesn’t matter. 

1.  BRICS.   USD fiat currency

2.  National debt versus GDP

3.  China as a low cost producer is past- they have aged and standard of living out.  Will take a while to move to another low cost country.  India, Malaysia, Vietnam, CA/SA

4.  Wars.

5.  S&P500 needs a 50% haircut.  Dominated by about 7 tech non physical product companies.  

6.  Black Swan events- will cycle faster due to faster interconnectivity.

7.  “AGE”transition-  ag, indust, inform, and now to me Entertainment.  

8.  Inflation-  Fed can’t fight inflation anymore with interest rate hikes.   National debt is to high, we couldn’t afford higher interest rates.  Inflation will rise 4th quarter as economy speeds up or government starts printing cash to pay debt. 

8.  Consumer debt- US is tapped out.  Inflation/deflation/stagflation doesn’t matter.  Uncertainty leads to higher interest rate expectation.  

Longterm interest rates will keep going up until the above reach more finality.  

OP

First thing is to understand the topic is really Scaling.  Getting financing from other people is really easy once you have your scaling approach down.  

The answer to each of the below is different as you scale.

1. Skillset-  first you do everything.  Then you specialize or hire legal, operations, finance, investor relationships, concept, deal analysis, Which investment level your at determines what experience you need.  If you can’t delegate then you become the choke point. 

2.  Experience-  you have to build your skillset as you gain your experience at each level.  

3. Speed of scaling depends on your ability to assess. Most of us already have the skill sets from our day jobs. We just don't realize those lessons learned apply to REI. Your background as a military pilot. Did you ever do a flight plan? Yes. Do the same thing for scaling. Look at your investment portfolio. It's great. But you reached or are near critical mass. You need a flight plan or no one should invest with you.

Actions.  Develop a Scaling model.  Break it down by component and assess each phase of your current model.  

Finance- you’re moving into the commercial level.  All of your money should be coming from one commercial lender, syndication approach or corporate model.  If you take the individual investor model, you need to find a Whale.  Otherwise you need to keep looking for individual investors. 

Insurance- need a broker.

PM- farm out or you better be good at process management. 
Facility operations-?????

Deal analysis-????

Investor relationship- ????

Financial management-????

You will literally have to turn cash down.  And be more selective who you let invest with you.  

OP

I would assess your fire potential first.  

Buildings and terrain around you?

Your roof and exterior material?

Yours and neighbor landscaping?

Do you have a pool?

Geographically locally where is your house in the landscaping?  

Etc.  

Then make your decision based on information.  

OP  We have been sitting on the sidelines the last 2 years.

It’s a good time to buy when the numbers work.  But you also have to apply your level of risk aversion or risk adjusted return.  

Will everyone else jump in then?  No, since their risk aversion and their value analysis will be different than yours.  

I would also throw in bandwidth.  Both from a time standpoint but also a risk standpoint.  
Lots of people’s bandwidth have shrunk with the higher interest rates.

We always have about 4 different projects either in motion or sitting.  We might wait for the in motion project to get to say 40% completion or occupancy before we start the next one.   This is for bandwidth and risk management. 

For the last two years we have been sitting on the sidelines. Actually we have divested 4 of our 8 Self storage locations to get into a better LTV position versus my view of the economic world.

Example:  Risk assessment.  my view of the economic world is pretty pessimistic.  We don’t invest at 9% or higher.  Currently we would be at 8.5% interest rate.   Stock market to me needs to revert by 50%.  S&P500 index is propped up by about 7 companies that make no material value with P/E ratios of about 3% for the market average. Known  Potential Black Swan events, numerous.  

With the above said we have a 75 acre country subdivision coming online this spring. 100% cash. I tell people this is the worst time to do a subdivision. But REI is local.

Have another self storage development identified.  Land priced right, zoned correctly, market analysis great and potential competition low.  Build cost low.  Financing is approved just need to sign the paperwork. Cash flow great.   Value add $2mm after 2 years.  Easiest project we have ever could do.  Project on the sidelines because of my assessment of the overall economic risk. 

So what do we do to avert the above concerns?  We invest in Teak plantations in Belize.  

It’s always a great time to buy.  There are tons of deal flow out there.  Even in housing.  

OP run the numbers for us.  Change to fit your view.  

1.  Give investor a 10% return.  Risk adjust to 12%.

2.  What is your finance mechanism and terms?  If any short term financing, risk adjust upwards another 2% points on the interest rate.

3.  Is there enough fat on the deal.  What would you say is your monthly cashflow?  Say $300.  Do you give up $100 to the new investor?  Now how many do you need to scale?

4. PM. In your cashflow above how much are you pulling out for PM or Capex? What is you adjusted cash flow?

5.  What occupancy percentage and turnover cost did you factor in?

My point above is how solid are your financial and management plans?  

With the above said then develop a scaling model.  Financing, pm, insurance, downpayment, etc. What are the bumps you have to overcome at each level?  Basically do it in paper before you go down the road.  

Quote from @Todd Dexheimer:

Quote from @Henry Clark:

As I think about this post on Coaching.  I think BP would create more value to the RE community by doing for coaching what they are doing for LP syndication investors.  

I personally don’t see LP syndication investors as Real Estate investors.  View them as bankers who better know how to do due diligence.  

Whereas as a Coach segment would provide far more support for new REI people to find resources that fit their needs. BRRRR, Fix Flip, taxes, deal analysis, market analysis, marketing, financing, etc.

Realize BP has a boot camp program but don't know what that entails. But opening up vetted Coach programs would supply a lot more bandwidth to the REI community. Plus different approaches versus one size fits all.

 In my opinion LP investors are the definition of a Real Estate Investor. They invest in real estate passively. They don't buy it and operate it. Myself and the majority of people on BP that call themselves real estate investors, should be calling themselves real estate business owners. Unless you're taking a passive role, you're buying/building businesses that require work and dedication. 

 Please post a copy of your due diligence checklist and your stress tests.  You will find most LPs don’t have them and are gamblers or they have detailed ones and are investment bankers.  Yes the product might be Real Estate but the LP is just loaning money.