All Forum Posts by: Henry Clark

OP hurricanes can be 500 miles across, tornados a mile across maybe.  There will always be some differences in weather by area.  

Why would you pick either?  What is driving your market selection?  Tulum to Oklahoma is a big difference?  Where do you live? Don’t answer.  Where do you have or plan to have a good relationship with a PM?  Etc etc. 

Life lesson.  Get moved out or switched over before telling them.  

Example.  Don’t tell your electrician in the middle of a project you’re never going to use them again.  

OP ask your larger local commercial real estate office for some recommendations. 

OP not sure what your missing and the degree to which your missing.   

1.  Checklist- all major items should be known up front.  Sewer elevations, fire hydrants, setbacks, soil compaction, storm ponds, storm drains, easements, utilities access, road access, etc.  

2.   Discuss plan with Planning Zoning group.

3.  Your engineer should identify most issues.

4.  Mother Nature-  just have to deal with.

After that your misses will be inches and not miles.  

Please give your examples.   

OP you’re not ready to invest.  Your asking to many questions which you should already know the answer prior to investing.  Need to brush up on business.  

1.  Join a Real Estate group in your area.

2.  Talk with a real estate agent

3.  Talk with a lender

4.  Do several deal analysis on your type of property.  Ask people on BP to analyze.

5.  Should you sell your business to finance a purchase?   Only you know.  If it’s making $10,000 a month, no triplex is going to earn that much.  You have to compare the numbers.  

OP

Watching the movie “Yesterday”.  Got me to thinking would the Beatles be as successful today if they came on the scene. 

Will never know.

What I do know.    
    
1.  I voted for Trump but would have been happy if Harris won.  You have to shock the system with change or you have to get to the bottom of the barrel as fast as possible.  I have been a Kaizen change leader.  People hate change until they have no hope.  Who the president is doesn’t matter.

2.  Fed debt matures on average about every 7 years. The Fed has to keep the Fed rate low.  Even now our Federal interest will nearly double in the next few years.  If inflation comes back which it will in the 4th qtr they cannot raise interest rates.  Back in the early 80s they raised it to 20%.  which was possible since our national debt was only about 5% of our national GDP.   Now our documented debt of $3xT is about 120% of our GDP.   We would default on our interest payments in about 3 months if they raised it to 20%.  Who the president is doesn’t matter.

3.  Who cares about the Federal debt of $3xT?  We have unfunded debt of over $13xT for social benefits.   Which will come due over the next 20 years with the baby boomers.  Just Fed funded retirement care.  What’s 30,000,000 people times $6k to $10k per month times 12 months.   Forget health care.  Plus we will only have about 1 worker for 3 retirees to fund that.  Who the president is doesn’t matter.

4.  If they raise interest rates another level of banks will go into default.  Doesn’t matter who the president is.

5.  S&P 500 index fund.  Normally you use a fund to reduce risk.  P/E ratio is at a 3% return rate.  Value is consolidated into the Mag 7.  Which are mainly tech and either startup or fast turning models to commoditization.  It has to take a 50% to 60% haircut.  Who the president is doesn’t matter.

5.  Gold revaluation based currency- won’t work to get rid of the debt.  Who the president is doesn’t matter.

Solution-  we have to go bankrupt, or we have to inflate the debt away.  Raising or lowering interest rates will not solve anything.  The only other way out is tax the Baby Boomers to zero.  Yes, we are xxxxed.

Actually there is a solution.  Self storage, Silver and Teak plantations.  Remember my saying.  It’s your money, you’re right, even if you’re wrong.

Forget who the president is. Put your money on the table and make an REI decision.

As long as my favorite restaurant hangs around, the world is good.

 @Eric Bilderback

Like all investments there is risk to manage.  I'll try to dissect.

1.  Meat doesn't get on the bone until it's ready to sale.

2.  You don't make a profit till you have covered your costs or banking.  You might have to sale 60% of your lots first.

3.  Financing costs- there is no better way to go bankrupt right now than to do a Subdivision.  With that said it's a great investment as long as you manage your risk.

4.  Financing- With interest rates high, it is better to go in with heavy equity.  Example:  Say $1mm.  At 8%.  $80,000 per year, and reduced increments until you hit break even and have the bank covered.  Your banker isn't going to collateralize the land at Subdivision value, but at say farm value.  Just because you say it is worth $2mm, they will only give collateralize at farm ground price.  So for a 25% down, you might need to bring more equity.

5.  Financing- go for a minimum of 100% return.  If your cost is $1mm, go for $1mm in profit.  You need to risk adjust your return.  Keep in mind this might be spread out over 2 up to 7 years depending on your site selection and the economy.

6.  Risk adjustment- Start of doing smaller lots.  Like my examples above, you can just subdivide some lots, they don't have to be a subdivision.  Instead of doing say 20 lots, if you have a lot of road access, just do say 10 lots with shared drives.  You make less money overall, but your risk due to cost, timeline to market, input cost, etc is far shorter.

7.  Road access- talk with the city or county engineer or road department.  You can only do so many road accesses.  Based on line of sight, MPH, curves, etc.  In our county they did not allow "Private Drives" for 20 years until I asked.  Say you had a long rectangle going back. You might get only one entrance up front.  Could do a shared drive for 2, maybe 3 properties.  But the rest of the ground is waste since you can't divide it more.  But if you can do a Private Drive, then you might get say 10 lots back there using the same road.

8.  As mentioned above by @Jay Hinrichs on Sewer leach fields.  Do a percolation test to see if the land will leach away the sewer water if in the countryside.  If not you might not be able to do a lot there.

9.  Water- Either check with neighbors, drill test well, or call me to Witch water to see if you have water on the ground.  Your sales agreement should say they have 30 days to do a well.  If no water, then the sale is no good.  If you have covenants, you might say utilities and a water well can cross lot lines.  You can actually increase your underground water table, but that is a whole post on how dry areas can make their own water.  You might covenant no water sprinkler systems or require them to put in a Cistern well system.  An okay well will have at least 8 gallons of flow per minute.  If you only have say 3 gallons per minute put in a cistern well.  Basically concrete culverts turned sideways into the ground.  This may give you 1,500 gallons of storage.  Even with incoming water at 3 gallons per minute you will never run out.

10.  Utilities/Phone/internet- test these areas out before buying.

11.  Utilities- if you're doing a full-blown subdivision you will need to run all of the utilities yourself.  If you just do some lots with road frontage, you don't need to do.

12.  Marketability- as I mentioned above.  Not all dirt is the same.  Pick a place on the side of town towards the next larger town, towards Rec areas, or near schools.

13.  Marketability- people like walk out basements, water, views, trees, boulders.  Basements and views mean sloped ground.  Water, trees, boulders you can add or create.  These are why I like Nasty or junk ground and not flat farm ground.

14.  Don't be a hog, unless you have a lot of capital- Easy question, would you like to make $1mm or $1.5mm profit on your project.  Now let's risk adjust.  Say for the $1mm profit your just selling lots.  For the $1.5mm you're selling the lots and also building houses.  Your outlay is 4 times higher to achieve the $1.5mm.  The longer the project takes the more risk you have from interest cost, insurance, property taxes and the market changing.  Lot sales are a shorter time frame than building houses.

15.  Market-  make sure there is a housing shortage.  For your type of customers.  Then they will want to buy a lot and build to their specs, versus paying a premium for someone else's dream.  If the Stock market crashes, your type of customers may shrink.

16.  Contractors- surveyors, lawyers, excavation, road or entrance builders, etc.  pay them quick, know what you want done, make them part of your team.  

17.  County or City permitting- own the process.  They don't care you have money on the table.  Learn what must be done, how it must be done, when and by whom.  Own the process.  It will never be their fault, always you.

18.  If in the city- fire hydrants, water/sewer line sizes, sidewalks, easements even more so, setbacks become more of an issue, green spaces, storm ponds, storm sewer systems, etc etc.

19.  How much money can you afford to lose?  Use that figure to determine your deal sizes.  A.  Buy an old house with 5 acres in town.  Sell 2 lots off of it., B.  Buy a church in town with 8 acres.  Divide off the land.,  C.  Buy a waste piece of ground with a big hill or a swamp area, cut it down and use for fill, or get free fill to fill in the low spot.

10.  Corp of engineers, DNR, Soil/Water boards/City-County Engineer- you will need to file with one of these possibly.  Depends on how much ground you are disturbing.  Our County if you disturb more than 1 acre you have to permit.  This cover both where you might be cutting a hill down, but also the roads you are building.  Neighbors will call you in.  So go ahead and reach out to these depts above.

11.  Indian/other significant grounds/old graveyards.

12.  Normally soil compaction is not an issue, but you might need a test done.

13.  When are you going to die?????  These projects can take longer than other types of projects.  They also can be worth $.10 on the dollar if not completed.  Take out term life insurance.  Recommend you do several tranches versus one big policy.  Instead of a $3mm policy, take out 3 $1mm policies.  That way you can drop them as you don't need them.  But you also don't have to requalify if you dropped the full $3mm policy.

Virtually every risk you have can be mitigated.

Your right.  BP should have several podcasts on a lot of these topics.  

Keep in mind you need to research by jurisdiction: 

75 acres total.  50 Farmable.  The 18 lots are from 2 "buildable" acres up to 6 acres.  Some areas of our county your land goes to the middle of the road.  To get 2 buildable you might have say 2.3 acres.

No open or green space requirements in our "county".  That is the purpose of the 2 to 6 acres for the homeowners.  Even on an acre you can landscape yourself to privacy.  2 acres minimum in our county.  This is due to enough space to keep your drilled well and sewer leach field away from each other.  If you're on County or city water system, then you can do 1 acre.  Or if you're within a city's parameters.

When you say farmable, what are you looking at?  Economics- straight farm ground goes for $10,000 up to $15,000 per acre in our area.  That is for Farmable land.  No farmer would go past $7,000 per acre on this ground since there is a lot of waste ground and the way the land lays there are about 4 different fields.  Equipment has gotten so big; they don't like moving between little fields of say 10 acres or less.

OP

1.  At this moment who the president is and what their policies, doesn't mean anything.  We are past the point of no return on many aspects of the US and world economy.  Actually, in comparison to a drunk, drug addict or gambling addiction, it is better to hit concrete and go to zero than try to stop at the bottom 10% and try to save us.

2.  If your investing money in the market, then you're not a pundit.

3.  Whether the Fed increases or decreases rates will have no bearing on housing.  Watch the 10year and inflation numbers.  10 year is more worried about my notes below.

4.  No matter what economic term you call it, the world economy needs to have a large negative adjustment.

5.  Impact on REI. You need a matrix X/Y and not a flat statement. One side is how wealthy you are. The other side is what and how much you have in REI currently. For example: Inflation/illegal immigration/tariffs/fed spending etc is great if your already wealthy and invested in your REI. It's bad if your low income or not invested yet in REI.

View of the World, whether these are correct or not; staying with REI perspective:

A.  Tariffs- China- supplies virgin steel, appliances, door knobs, etc., Canada- main supplier of low cost SPF lumber, Mexico- main supplier of copper wiring and products.

B.  China is no longer a low-cost producer- Their labor force is aging out- they don't have new cheap labor to bring on board, their wage cost has tripled.  It will take 10 to 20 years for that "Concrete" (plants and distribution) to both be given up (Corporate decision) and then to be moved to other low-cost countries such as India, Malaysia, Vietnam, or South America, etc. In the meantime, our building costs will be higher than in prior decades.

C.  Fed Debt level- a majority is rolling over and will go from 2% up to 4%.  Our current Interest cost in our budget doesn't matter.  It will skyrocket in the next 1 to 3 years.  Means either they will print money or charge more in taxes.  Inflationary. 

D.  Fed Debt level- Social programs, unfunded.  The baby boomers are aging out over the next 20 to 30 years.  Whereas before we had 3 workers to 1 social person.  We will now have 3 social beneficent to 1 worker.  Means either they will print money or charge more in taxes.  Inflationary.

E.  Stock market- both will and has to go down by 40% to 60%.  P/E ratio is too high, to high of a concentration in the Mag 7.  

F.  Revolution/Age-  hunter gatherer, farmer, industrial revolution, information age, to me, we/US are moving into the Entertainment age.  Problem with the Entertainment age is not enough people produce anything.  Only a few farmers are needed for food, outsource production overseas, financial and IT services will consolidate and go overseas, Entertainment industry takes very few people and can be commoditized by local youtubers very easily.  There is no way for new people to make money or take advantage of the American dream.

G.  Aging of Super Powers- Rome, Dutch, England, France, Spain, Mayans, Aztecs, etc.  They all come to an end.  Whether it is time for the US to roll over as a Super Power, time will tell.  But as always it will start with heavy taxes and overspending on Military.  If/when the USD is no longer the Fiat currency, the US economy will get cut in half without the power and leverage of being the Fiat currency.

Although all of the above may be negative depending on your side of the Matrix.  I think there has never been a better time to invest than today (just like planting a tree). Wish I knew what I know today as a 20-year-old. I think 20-year-olds have the greatest chance to make money in today's economy. Glad to know what I know today to invest. If my son gets interested in REI, I would tell him, I expect him to be net worth over $100mm in 20 years starting from age 23. REI is that great.

Its your Money, your always right, even if you're wrong.

Start small and Make Your Big Mistakes Early.

OP.  Lower your offer price and move on.  If they take it, make it a deal.