All Forum Posts by: Giovanni Isaksen

@Brenda Cassady, we should discuss how to fund your deals. We're looking for experienced investors who've done at least 5 rehabs in the last twelve months. If that's you we can provide either debt or equity to grow your business. Good hunting,

Giovanni

@Henri Meli, great advice here already. The only thing I can add is that if you're looking at a new area check with the police to see how bad the area and the subject property are. I once went to the heavily barricaded (Clearly post-Terminator I https://youtu.be/kYt2HmAxHL4 ) police department for a property I was doing due diligence on and they were happy to tell me that the subject property 'only' averaged 20 calls a month!

Good hunting,

Giovanni

@Conner,

Houses only go up in value, why worry? ;) I know a lot of people in the US who thought that and learned otherwise. Fortunately Canadians are smart enough not to make RICO level mortgage origination fraud legal (unlike your southern neighbors here in the US) so a collapse brought on by mortgage rates resetting on borrowers who had no business getting a mortgage in the first place is very unlikely.

On the other hand with mortgage rates below 3% and most Canadian mortgages being short term (compared to a 30 year in the US at least) if rates rose significantly a lot of folks might have a hard time affording the new payment when the loan was due to roll over. If they all try to head for the exit at once that could definitely swamp the market with inventory which would quickly create a buyers market (remember those?). 

However it looks like the odds of rates rising significantly (or at all) based on the US Fed's decision last week is extremely low (Seehttp://www.theguardian.com/business/live/2015/sep/... ). In fact I believe most central banks are trapped at the zero bound and that we're all turning Japanese (Whose 'Lost Decade' is now old enough to be graduating with a master's degree) because low interest rates distort investment and hurt savers who would normally be a big part of the spending in consumer driven economies. In the US Wall St. bankers are doing great but a poll last year showed that half of Main St. Americans thought the economy was still in recession.

Another possible cause for a correction is demand disappearing. Some have postulated that with the renminbi being devalued and the Chinese stock market 'crashing' (only back to Feb 2015 levels) that foreign investment from China would slow down but anecdotally at least we haven't heard that from our Chinese clients. My theory is that it may speed up overseas investment as investors there race to get ahead of further devaluations (and before they're swept up in 'anti-corruption' investigations which are mostly designed to weed out anti Xi Jinping factions).

There is another hit to demand that also could originate in China; the slowdown in their economy and it's effect on raw materials producers (see http://www.visualcapitalist.com/china-consumes-min... for a good look at that). Since 30% of Canada's GDP comes from exports (and more than a quarter of that is oil) any slowdown in purchasing from China plus any knock on effects from other countries tied to China could really put a dent in the Canadian economy (see http://www.worldstopexports.com/canadas-top-export... for the top 10 list). Then it's domestic buyers who would stop purchasing, a group that despite the press is much larger than all the foreign buyers put together.

So, long answer but short on conclusions; it's why US President Harry Truman wished for a one-armed economist (so they couldn't say 'on the other hand'). The reality however is that in a complex adaptive system like the world's economy for you or I to pretend we can predict the future is to deceive ourselves. The thing I'm most sure of is that if we can envision it we can plan for it and therefore reduce the risks. Unfortunately that means the thing that will get us is the 'unknown unknown', the risk we don't even know exists.

Einstein said that compound interest is the most powerful force in the world, I'd say that non-recourse loans are a very close second which is why investing in the US is so attractive to Canadians... and everyone else.

BTW I think your VRBO investment(s) up at Whistler are great.

Giovanni

Let's partner!

We are looking for partners who:

• Have done at least 5 profitable flips in the last 12 months (will require verification).
• You're looking to expand your business and need a money partner who can fund quickly.
• You flip in King, Snohomish or Whatcom Counties.
• Non-owner occupied only.

If you qualify and are serious about growing your business we'd like to fund your growth:

[email protected]

We're strictly looking at 'special situations' for acquisitions these days. Currently trying to coral several distressed owners who have properties with a lot of deferred maintenance and below market occupancy in markets that we like. At this point they're still paddling down that big river in Egypt but once the fit hits the shan they'll start taking my calls.

For long term holders, e.g. not syndicators or private equity, if you buy with low leverage and a margin of safety in the cash flow you can pay market prices today and in 20 years the guy who sold it to you will be wishing he never sold.

If you think prices are high in your market check out Vancouver BC where you'd be buying 60 year old, flat roof, single pane window, central boiler, never been remodeled buildings at 'suite' cap rates in the upper 2s.

Just some food for thought but I don't think the Fed is as likely to raise rates (and drive up cap rates) any time as soon as most think. For more on this see my 2 recent posts: http://www.biggerpockets.com/blogs/5055/blog_posts... and www.ashworthpartners.com/10yr-multifamily-investme...

These are the books I recommend as intros to apartment investment, and with the exception of Frank’s cash flow book (and Peter’s) they’re pretty quick reads:

Frank Gallinelli's book on cash flow is the source for understanding income properties. You can find it on Amazon here: What Every Real Estate Investor Needs to Know About Cash Flow... And 36 Other Key Financial Measures http://amzn.to/Zv0Zph Frank and I don’t agree on everything but this book is the bible as far as I’m concerned.

Frank also has another book called '10 Commandments for Real Estate Investors' that I reread every other month or so as a reminder: http://amzn.to/15ikXL0

Ken McElroy has two great books on apartment investments and one on property management:

The ABCs of Real Estate Investing: The Secrets of Finding Hidden Profits Most Investors Misshttp://amzn.to/HdXVf1

The Advanced Guide to Real Estate Investing: How to Identify the Hottest Markets and Secure the Best Dealshttp://amzn.to/1bcWx50

The ABC's of Property Management: What You Need to Know to Maximize Your Money Nowhttp://amzn.to/1d518JK

People often mention Dave Lindahl’s books but I think Ken’s are better, one reason being that Ken is out there doing it and was dragged into the guru thing by Kiyosaki while Dave is mostly a guru who was mentored by Ron LeGrand, one of the old school gurus (who I worked for back in the day).

Also If you haven’t seen Ken's BP interview on Podcast 052: Buying Apartment Complexes, etc. here:

http://www.biggerpockets.com/renewsblog/2014/01/09/bp-podcast-052-raising-millions-ken-mcelroy-rich-dad/

Because running an apartment is as much of a business as it is a piece of real estate I typically recommend The E-Myth Revisited: Why Most Small Businesses Don't Work and What to Do About It by Michael E. Gerber http://amzn.to/1Bs4HEh Many people I talk to don’t understand that the difference between owning a business and owning a job is about building systems and Gerber does a great job of explaining it.

One other book I almost hate to recommend but do because it does a really good job with why a team is critical and who should be on it is The Real Book of Real Estate by Kiyosakihttp://amzn.to/13bv4AO It reads almost like he wrote it to make up for some of the others that came out under his name.

For a deeper dive Peter Linneman’s textbook Real Estate Finance and Investments: Risks and Opportunities, 3rd Edition http://amzn.to/10Jo5xR is Wharton MBA level knowledge served up by a guy not only started Wharton's real estate program and ran it for 30 plus years but he's done plenty of deals himself and now is chief economist at NAI/Global, one of the big international CRE brokerage firms. It's five hundred bucks, less than some guru's ‘bootcamp' but way more useful… and waay cheaper than a Wharton MBA too!

Good hunting-

Will cap rates rise if interest rates don't? As I mentioned above I think the Fed is trapped and it's not just me, here's Tim Duy's take on the latest Fed Statement [emphasis mine]:

See Tim's blog here: http://economistsview.typepad.com/timduy/2015/04/fomc-snoozer.html

It remains to be seen just how transitory the Q1 weakness turns out to be as on the one hand bad weather back east, port strike in LA and the hits from the oil industry pullback, and on the other weakening demand world-wide, a rising dollar and people here seem to be banking or paying down debt with their energy savings instead of spending them. And yes I totally sympathize with president Truman who wanted only one-armed economists!

Some observers have pointed out as we get towards the end of summer we'll be in election mode when the Fed rarely if ever raises rates, meaning that the long anticipated rate hike won't come until 2017 at the earliest.

@Account Closed and all;

Great thread, the issues discussed here are generally reserved for the wonky econ people I follow.

 A piece I was quoted from in Multifamily Executive Magazine The Apartment Market Cycle Peak Is Here, It’s Just Not Evenly Distributed Yet said domestic investors particularly retirement money (think pension plans) looking for yield or returns of any kind are in a tough spot. How much new money do you want to put to work in the stock market at these valuations, six years into the bull market?

On the fixed income side they’re getting a pittance and I believe the Fed is trapped and we are turning Japanese*. With economies outside the US slowing, exports getting more expensive in their destination currencies and ever cheaper (in exchange rate) outsourcing costs it’s hard to see how we’re going to generate much wage growth and/or inflation that would spur the Fed to raise rates materially. Based on that I believe the cap rate spreads can hold much longer than anyone expects. Remember that everyone has ‘known’ that rates are going up every year for three years now and I don’t think the fundamentals have changed that much.

One other thing that's happening is that the hits to economic indicators from falling oil prices show up almost immediately while the related boosts from cheaper energy costs will take longer to filter through into the data so our domestic economy as measured by GDP will look softer than it actually is for a while. If you're at the Fed though looking at aggregate data for the country as a whole you can't ignore what the data is telling you.

* Japan's lost decade or Ushinawareta Nijūnen began after the collapse of their real estate and stock market bubbles in 1989/1990 which means it's old enough to be graduating with a masters degree this year. Unfortunately for us our government and the Fed are following the exact same game plan of protecting the banks and helping them to hide their insolvency at the expense of the economy, especially down at the Main St. level. That's why I believe this apartment cycle will have an extended peak similar to the illustration above or How I Learned to Stop Worrying and Love The Bomb Low Cap Rates. If you want to have deja vu all over again read the Wikipedia page Lost Decade (Japan). For a deeper look see the NBER report: The Causes of Japan's "Lost Decade": The Role of Household Consumption which if you change the dates and names would be the story of what's happening here since 2008.

+1 on @Account Closed's comments. Ask yourself this: if you had the cash in hand that you could sell it for today would you buy it again? The behavioral people call it 'Loss Aversion' and we often find ourselves paddling down that big river in Egypt because if we don't sell out of that bad investment we can delude ourselves (and hopefully our friends) into thinking we haven't lost money... but it's already gone and all that's left is the crying. The pros know to cut their losses and this is one of those situations where you can learn to be a pro.

Good hunting-

@Daniel Hsiehgood hunting!