All Forum Posts by: James Kojo

@Zachary A. : My thoughts on this subject as someone who's lived in the SF bay area for close to 40 years:

It's currently very unfashionable in the REI community to go for appreciation plays, but to be honest, before I found BP I didn't even know there was any other strategy and I think that goes for many native Californians. Almost anyone who's owned real estate in CA for any amount of time (primary or investment) has probably made a ton of money through appreciation, and usually in the 6-7 figure range. I'm guessing that a majority of would-be investors in CA would be more excited by appreciation potential rather than trying to squeeze out a 4-cap in Sacramento.

I'm no longer one of them, but I think you do yourself and them a dis-service by classifying them as "suckers." It's simply the strategy that works in CA, with 1 major exception (2008! arg!).

That said, my advice to you would be to sell the appreciation story rather than trying to pump up yield. Hopefully, you're finding deals that are at least potentially high appreciation if they are lower yield. If they are low yield, and low appreciation, then yeah, you're gonna need to find yourself some suckers. :)

Hope that helps!

James

P.S. Sacramento is actually currently a high appreciation market in the A and B areas. I just traded out of a property in West Sac to move into cash-flow markets. I thought I made a killing until I watched the zillow estimates go up another 50K after a few months after I sold it. :)

@Andrew Smith If you're OOS (out of state) and you're just entering the area, your best bet it to call a few commercial brokers and ask if they know local lenders (portfolio lenders) who will a) do deals in your strikezone and b) do deals with OOS investors. While you have them on the phone, try to establish a rapport with them. They are the gate-keepers.

Sometimes local banks don't want to deal with OOS, because they issue recourse loans, and don't want to have to try to collect across state boundaries.

To your question as to whether or not you need a commercial loan: you said "duplexes" which might suggest it may be a portfolio of properties, not a true 24 unit MFR. If each "duplex" are on their own APN's, you could potentially try to get residential mortgages (4 unit or less) on 10 of them, and put the other 2 under a portfolio loan. That would be a pain in the *ss, but technically feasible.

Good luck and hope that helps!

James

Now that I have visited Columbus, my scientific conclusion is that Columbus is all kinds of awesome.

I was only there a couple of days, but it was a fairly easy town to get to know.

On the tourist side, I did a walking tour of downtown which eventually took me to the Short North, which was a real blast. I ended up meeting a lot of really great people in my journeys, and some of them were actually REI's, so that was a lot of fun.

On the investor side, I toured a few properties (duplexes all the way up to  a 24 unit) with Robin and David Panzera, who own Panzera Realty (combined sales and PM introduced via @Sarah Wheeler. ) I was in contract with a 4-plex in Westerville, which is why I flew out there in the first place. That deal looks like it's going to close soon, and I have a few more "irons in the fire". All indications are that they are a great shop, and I really like working with Robin on the acquisitions side.

I also met with @Robert Ellis and team while I was there. They gave me a bunch of new ideas to think about, so if you're in town, I would definitely recommend looking them up. They definitely have and investor focus and mindset, and they present all of their deals through an investor lens. 

That all said, Columbus is not quite a "hidden gem." Talking to vendors and providers, they are getting constant pings from OOS investors like myself. Commercial brokers are far from being desperate for your business. You still need to be putting your best foot forward, and soliciting referrals and generally have your act together when you're working with them. There is a lot of C inventory, but B inventory trades at a premium and moves very fast.

It's also not easy to differentiate between the C neighborhoods and the B neighborhoods just by driving around. You'll want to have some local knowledge on the ground if you're investing.

Hope that helps!

James

@Mariana Hernandez : I don't think the answer is as simple as "do it" or "dont' do it." In REI, the answer is almost invariable "It depends." :)

As @Ralph R. suggests, if someone is actually suggesting you commit fraud (which isn't actually clear to me that is the case), then of course, "don't do it."

Otherwise, consider the following: as a buyer, if  you encounter a barrier-to-entry, that means that other buyers will likewise encounter that same barrier. That's a double-edge sword. It puts you at a superior negotiating position if you are able to solve it, but it's a deal-killer if you're not able to solve it. 

Likewise, if you can't get it re-zoned (at least eventually), then the person you try to sell it to next will likewise encounter the same barrier to entry, and will be faced with the exact same decision.

My advice: if you're somewhat experienced in REI and/or you're a problem solver and willing to put in the work: give it a shot but make sure you are adequately compensated for your efforts. Otherwise, kill the deal and just wait for the next one to come along.

If you move forward, your best bet for financing is going to be with local banks (sometimes referred to as "portfolio lenders".) They don't have the same underwriting restrictions as the national lenders. That is not to say that they simply ignore zoning issues, but they may still be able to work with you.

Hope that helps!

James

@Mariana Hernandez : It sounds like your finding this out doing your due-diligence period, so that's good. Whatever you do, make sure you aren't releasing contingencies until this is resolved or you have an action plan.

Zoning is handled by the Building Department for the given city. I would give them a call to find out if it is indeed improperly zoned and exactly what it would take to get it re-zoned and demand compensation from the seller.

However, re-zoning takes time, so that's likely going to be a long-term solution. If you can close the deal cash, then you still might be able to move forward.

If you're using agency debt (Fannie Mae conventional), I have a hard time believing that they would do this deal considering the zoning issue but I don't actually know so ask the loan underwriters (don't just ask the "loan officer." make sure s/he asks the actual underwriters.) If your agent is suggesting that you mis-represent the property as a single-family when it's actually a fourplex, well, that's probably about as bad an idea as it sounds. :)

You may want to try the general "Conventional Mortgage Advice" forum to get some input from actual loan brokers, as this forums is for 5+ commercial units, and your property falls under the "residential" class because it's 4 units or lower.

Good luck!

@Michael Sifontes : your expense ratio looks very low.

Please share your breakdown of the expenses. in the states, expenses usually run at least 45% of gross rents. I have a feeling you're leaving out a few major ones in your calculations.

To your question on how to value a property: any formulaic way of computing value is going to be inaccurate, as even the most precise require inputs that are a little bit of guesswork (such as prevailing cap-rate for your product type in that neighborhood.)

There are some often "rules of thumb" that people use, which are usually used to pass the initial "smell test", but as you will see, will only give you ballpark accuracy.

In roughly increasing accuracy and precision:

1) Price-Per-Door: see what other multi-family units have sold at, and divide by the number of units. The closer you get to your product type and neighborhood the better. this varies wildly between neighborhoods.

2) 1% rule: you shouldn't pay more than 100 * monthly gross rents. Or another way to look at it is, gross rents should be about 1% of purchase price. (E.G. a 200K house should bring in about 2K/month in gross rents.)

3) Cap Rate : (<Gross Annual Rent> - <Total Annual Expenses EXCLUDING debt service>) / Purchase Price. This gives you a percentage. Higher is "better." You need to find the prevailing cap-rate of the neighborhood class and product type for your market. 

Those are the ones that I know about.

Hope that helps!

James

yup! I’ll defin be checking out Westerville. I’m actually closing on a property not too far from there. 

I’m actually working with a couple of companies who frequent this forum so I’ll  update you if they don’t beat me to it. 

I’m flying out to Columbus for some property tours next week. I’m interested in hearing about which neighborhoods folks are currently investing in and in which asset classes. Also, are there any must-visit bars or restaurants in the area that I should check out while I’m there? I’m in my 40’s so I’ll be avoiding the student dives. :) Thanks! James

The nice thing about most posts is that you can tell if someone has something to "sell" you from their signature. BP allows Pro members (i.e. paying members) to add a link in the footer of their posts. That gives you a pretty good clue about where they are coming from, so you can tell right off the bat if they have a vested interest in the topic. By no means should you automatically discard any advice you receive from a Pro member: most of the time they are the ones adding the most value to a given discussions because they are subject matter experts. But if you post a question like "Do I really need a Real Estate Broker?", and you get a response from a bunch of folks who are obviously brokers, then you obviously know their bias.

That all said, their are some people like myself who just truly  enjoy learning and contributing to the subject matter. I don't need your money (yet!), and if you're new, I probably don't need your advice. But i like sharing what I've learned so far, and I want to see you succeed.

Fair enough?

James

@Account Closed : can you provide the source of the graphic?

Thanks

James