All Forum Posts by: Fernando E.

@Fernando Enrile we are buying houses and then owner financing them to people at a higher interest rate, higher price, and down payment.

My goal is to find a property in Austin and rent it out as a MTR or STR to cash flow and hold onto it for the appreciation. I'm still finding cash flow in Austin! You have to be a little more creative though.

Hi @Fernando E.! Great post and you got some fabulous replies above. I am in my 3rd decade as a real estate investor and I have found that it is most prudent to invest in asset classes that have a lot of mom-and-pop sellers. Operators that don't have the time or resources, knowledge or desire to increase NOI, improve operations and increase the value. They don't need to in many cases, this last decade? Acquiring self storage (like @Scott Krone said above), mobile home parks, RV parks, and other assets that are seriously undervalued should allow many of us to thrive while this market turns down for the next 1-3 years, if it does. 

This is really just the Warren Buffett value investing thesis. Find significantly undervalued deals and improve them to perform well in any economy. I also like a longer hold which allows you to pick up more recession-based revenue increases over time while the cap rates and interest rates fluctuate against and for you. Good luck and happy investing! 

Our plan has been to continue buying, but be EXTREMELY focused on what we estimate the ARV to be (when talking about flips). Seems like we are "catching a falling sword" where no one really knows when values will stabilize, so we are very cautious on what we estimate the ARV to be. If recent comps show it is $325k, we will likely add a buffer and use $300k or even less. We are extra cautious on rural properties and condos, and likely won't get involved with any of those types for the foreseeable future.

ARV is the biggest variable that can mess up a deal in my opinion, so logically, I think the most emphasis should be placed on that as well to make sure there is a buffer for the changing market. In early July we had someone reach out about purchasing their property....long story short we offered $425k and they decided to put on the market because they didn't like that offer price. After not getting results from the market, they got back in touch earlier this month and we ended up offering $375k due to the Fed continuing to increase rates and just seeing the market continue to worsen from when we first spoke to them. We ended up purchasing the property on the second offer.

While we are super cautious and careful due to the current market conditions, we are also breathing a sigh of relief since we are not competing with a million other buyers on each deal. Seems like the pendulum has swung back to the buyer side of the aisle for the foreseeable future and we are going to certainly take advantage of that!

 I judge my RE purchases by total return. 

Historically cash flow is my least desired source of return.  Why?  Because it is taxed annually.  Extracting money via a refinance from either appreciation or value adds do not get taxed until the property is sold.  If you die, the property gets a stepped up basis to your heirs   If you sell to reinvest on another RE, you can 1031 exchange it postponing the taxable event.

It also happens that cash flow has been historically a small fraction of my return and this is on ~$500k/year rent.  

My worse property appreciation has been $2400/month over its hold (single unit).  I suspect it is a very rare unit that cash flows >$2400/month.  If you managed to achieve $2400/month cash flow, it would get taxed and provide you significantly less than $2400/month to spend.

Cash is always king.  I am not saying I am sitting on the sidelines.  I will continue to review deals.  There are risks to buying now and there are risks to sitting on the sidelines.  If you buy the wrong deal now, you lose money.  If you are syndicating that deal, you lose investors money.  

If you sit on the sideline, you are taking a risk that a fall in prices never come.

My view is continue to look and take the info that is out there from your lenders, from your management teams, from your investors, from your brokers and assume they are 15-20% off.  If the deal still isn't loosing money if the market goes 20% beyond what everyone thinks, then you are probably safe to invest.

It also depends on your income or ability to raise more capital.  If you are making $300k/yr and continually have $100k to place year after year, then take more risk today and get money out there.  If you are investing your entire life savings, and it will take you another 15-20 yrs to build that back up, I would be very hesitant to let that money out of my hands right now.

Personally I do not care about up or down 10- 15% in the value. When you are earning 10- 15- 20% net caps, and buying below the appraised value its irrelevant. Markets always come back. Also I do all my business in the Cleveland markets where it seems properties are appreciating monthly. 

Good luck to all . 

@Fernando E. building an ADU on a rental for about $170K and will $2,350 a month in rent and a significant upside in equity too. So that will allow me to do an investment HELOC for deals and give me cashflow of $3000 a month on that property.

@Fernando E.

Not including the pandemic slow down, this is the 4th recession of my real estate career.  Unlike the previous recessions, this is the first one we have been planning for.  When I say that, it is because we have been building and developing a portfolio that historically does better during recessions, including the pandemic.  A reason for our strategy was we studied historical performances of various asset classes.  When compared GDP to Occupancy for self storage, we saw the resiliance of the asset class during recessions outperformed many others.  To answer our question, we are not changing our strategy.

However, if I were we were in asset classes that were not as recession resilient, our strategy would be to lock up longer term mortgages at at fixed rate, stress test the assets with respect to the DCR, and begin looking for opportunities. The other research we did showed how much more wealth was generated by buying in recessionary markets versus bullish markets.

@Fernando Enrile there's a lot to think about. I just saw a headline that the Federal Reserve is going to cause unemployment, so how are those people going to pay their rent? If our government is causing economic problems we have to be very careful. Lots to consider these days, but I'm no expert.