All Forum Posts by: Henry Clark

1.  What are your loan terms?

2.  How much principal per year are you pay ing

3.  What do your future capex look like?

4.  How stable is your tenant market?

5. What financial targets do you have? Coc, ROI, etc. How do your actual returns compare?

OP the good thing about BP is lots of opinions and experience.  You get to pick what you want.  We don’t know all of your info.  Nor may appreciate your risk tolerance level.

1.  Financial terms.   Your personal loan has a 5 year balloon period.  Assume you will be making payments in it.   Not 100%.   Your house loans will be long term say 25 years. Never invest in Longterm assets with short term debt.  Even if it is just the downpayment.  This is a lesson many investors and pro investors fail over and over again.  

2.  Real estate investing can be a combination of cash flow or appreciation.  If you’re talking C properties probably cash flow. Making this up but you will probably need to own 100 of these to match the stories you’re referring to.  I would both buy a property to get your feet wet and at the same time make a plan to scale.  Personally I would stay away from this.  Lot easier ways to grow wealth.  

3.  It is always better to invest locally.   Looks like you’re in Hong Kong based on your tag line.  We already invest in Belize.  Thinking about Italy or Sicily.  Did Xmas in Malta.  Lived it but they drive in the opposite side of the road.  The following is the thought process on a house we looked at in Italy over Xmas.  Our interest in Italy Sicily is both our brother and son are based over there.

Deal analysis in Italy.

1.  2,000 sq meters.  Two story.  3bd, 2bath

2.  12 acres in the valley between two hills. Most villages are on top of the hills.  So property is private. But is in a rise of land so it has a broad view down the valley.  My brother lives above.

3.  2007 house just updated by owner.

4.  Asking $495k euro.  3% interest fixed, 10% down.  25 year term.  Probably get down to $430k.

5.  Location. 25 minutes to beach, 40 minutes to Florence, 15 minutes to Pisa, 60 miles to snow skiing.  10 minutes to Home Depot style store, etc.  Desirable location both locally and regionally.

6.  Revenue stream.  Own living quarters.  Weekly Airbnb.  Military or civil service housing using their Base Housing Allowance.

Now what does the above have to do with you and HongKong.  

7.  Revenue stream.  Airbnb.  Shared living quarter rental, Military or Civil service rental.  US military or civil service or other government renters are low risk, high collectibility, steady flow.  

8.  Hong Kong both chance for cashflow and appreciation.  At 3% interest you’re bearing both inflation and appreciation from the cost side. 

9. Our deal was a new build. Thus easy to manage and low Capex expenditures.

    10.  It would be local for you.  And your team would be local.
   
11.  Just like there is only so much beach frontage.   There is only so much Hong Kong.  Guaranteed value appreciation or maintenance.

Although you said you don’t mind high risk.  Your true return has to be risk adjusted.  Example.   I would take a 10% return in my home town A/B versus a 15% return in a C market OSS.  The 15% return is in paper and not sustainable.

@Michael Plaks

Thanks for Fincen official link.  No reporting required at this time.  

If they want to stop money laundering and funding terrorism they can control the border.  Or US govt giving money to Iran.  

It took me 13 months to open a bank account in Belize.   Each time I wire funds down to Belize the recipient has to go to the bank and sign why they are getting the funds.  This is to meet the U.S. govt requirements.  

Mexicos second largest revenue source are wired funds from the U.S. by individuals.  BOI reporting won’t impact that.  Worried about tax evasion, money laundering or funding terrorist groups and Cartels.  

They can install more control features in $20 and $100 bills like other countries.  Then have a 6 month period to convert all old currency $20 and $100 to new currency.  

Point is the above comments there are many other more effective ways to meet the FINCEN stated objectives for tax evasion, money laundering and terrorism.  

OP.  You need to sit down with someone and do this on paper.  Far too many decision points for a post.

1.  What is quality of all the tenants on existing and potential?

2.  What rent escalations are built in?  If none, your losing money, on either the existing or potential.

3.  Potential. Not fully rented, but in a highly desirable location?  How long have you factored open occupancies?  How much money per unit to refit for a new tenant?  $50,000 or $100,000 per unit?  Is that factored into your returns?

4.  Are you retired and is this your sole income?  Trading off current cashflow for principal payoff in the future?

5.  Risk/Reward.  What is the return on the duplex?  It may be your most profitable asset.  If its trouble check on PM.  

6.  What are true returns for comparison, before or after Income taxes?  Existing $200k on a Value of $5-$6mm is 3.6% on $5.5mm before/after taxes?  Potential $400k on $6mm is 6.7% before/after taxes?  Are these primarily Cash flow or Appreciation type assets?  What inflation factor are you using?  What Rent escalation is in either the Existing or potential assets?

7.  Cross Collateralization is the best.  This will have a 3/5/7 year balloon and terms get revised.  What interest rate escalation factors will you have?  Do some scenarios to see the impact on your cashflow.  Currently rates on commercial are going up and not down with Fed rate decreases.  If you take a loan at 8% today.  Currently neither of your Existing/Potential are earning 8%.  They would have to add value through Appreciation or principal payoff to make the numbers work.  What happens in 3/5/7 years if it goes up?

8.  What is your outlook on inflation?  If Inflation goes up to say 8 to 10% at the end of 2025 and stays up for an extended period due to Feds printing cash, you will lose cash value if your rent escalators don't follow it.  Normally you would think your asset value would go up if inflation goes up, but if the Fed is put into a position to print money to meet Fed Interest payments, US assets will probably devalue.  Forget whether any of this is correct.  Point is what is your outlook?  What is your Risk tolerance level? Run your numbers.  You're sitting good right now.  By buying this new asset you will be exposing yourself to risk, which is good if the returns match it.

OP.  Revisiting self financing.

1.  Work with your commercial lender and see if you can self finance, by cross collateralizing your existing portfolio. Sounds like you have equity in them.

2.  Go for a lower downpayment.  See if you can do an SBA loan at 10% versus a commercial loan at 25% downpayment.

As far as investors:

3.  Work with your commercial lender/insurer/lawyer/personal banker and see if they know of any interested parties.

4.  Attend the local and regional Real Estate meetups.

OP.  Your primary strategy should be to have the Contractor and all Subcontractors add you to their insurance policy as Additional Insured.  You need to renew this annually.  I would look at their policies and make sure both the coverage and deductibles meet your needs.  Take a look at Personal Property versus Real property coverage, plus clean up costs to make sure your covered.

I would also look at covering your project from the Subcontractors.  Work with your attorney for what is needed to insure all subcontractors get paid by the General Contractor.

Make sure the insurance covers Construction period and also materials.

Talk with your Commerical insurance agent and they should address the above questions with you.

If this is an older facility make sure your engineering firm has covered Fire Suppression systems and any Storm pond or drainage systems.  Some of this may have been grandfathered in, but now need updating.

I would pay the extra say $50,000 to have an Engineer firm go over.

OP.  Things are always changing.  Those examples are all 50 to 60 year old facilities.  Back then you could do catalog shopping.  These malls took out Mom/Pop local stores.  Life goes on.  Will Movie theatres exist in the future?  

What to do with these.  Same question as always, what is the best usage.  These are large facilities with both the stores and the parking.  Thus, they are more apt to be torn down since they are in central locations and larger projects can replace them.

With regards to the general BP poster or reader, doubt most of us are the $100mm to $300mm investor range to consider taking advantage of these properties.

Looks like you're in California.  Are you seeing any other trends in the Commercial sector.  Any facilities coming online, bringing production back from China as an example?  Or how vibrant is the Silicon Valley corporate real estate market?

Use the lookup with my name and self storage and zoning.

1.  Zoning codes and definitions are different by zoning entity.

2.  Look at a copy of their zoning map.  If the desired zoning is next to your property, it is easier to get rezoned.  Most entities don't like to do "Spot" zoning and put new zoning in the middle of different zoning.

3.  Look at the current zoning.  See what is possible thru Special Use or Variance permits.

4.  Look up the Future zoning map.  If the land you are looking at, has a conducive future zoning to your needs, then it is easier.

5.  Success rate.  Talk with the zoning group.  Show them your land and your desired use.  They will tell you the potential.  If they are for or against your idea.

6.  How long?  Depends.  Rezoning or Special Use or Variance.  We took an Ag zoning to Commercial then allowed a Special Use to Self Storage which is Industrial.  Each change took a meeting, then two different public hearings, then a Board approval meeting.  All of that took about 6 months.  The zoning Board only met once a month.  The City Board met twice a month.  You can ask them to skip one of the Public hearings if very little input.

Zoning is actually good from a competition standpoint.  I tell people the harder it is to zone your project, the less chance a competitor will come nearby.

Started this investment mainly as a weather change from Iowa in the winter.  This week supposed to be 15 highs and 0 lows.  But always needed to do a money deal.  As world economics and geo politics have become more of a constant, this Teak investment will serve for diversification in asset class, maturity- since you don't have to harvest, currency arbitrage since main customers are China/India/Europe.  Although this is a long term investment and not in the main stream, it has added a certain level of comfort knowing the above potential investment risks are to a degree reduced.

Been moving along with this project.  We finally made it across all locations and completed both trimming and thinning trees.  We used 20 foot ladders to trim low limbs.  I want to trim up to 30 feet so we can get at least three 8 foot logs that will grade A quality.  If we leave the limbs then the logs will be B or C quality and 1/2 the price.  Since the 20 foot ladder is "leaned" against the tree, it only goes up about 17 feet.  Plus say another 4 feet with the person standing.  Buying a used Skylift which should be delivered from the US to Belize in January.  This can reach up to around 38 feet with around 10 foot side movement.  With the person in the basket, we should reach 30 foot around and hopefully be able to do 2 or 3 trees at each stop.   Cost used is $25,000.  But if we can trim higher by another 10 feet and get one more "A" quality log across all of the trees, that will add about another $2mm of value.  Will use our 4 wheel drive tractor to pull between the tree rows.