All Forum Posts by: James Kojo

I'm trying to break into a new market, so I don't have any track record there. I've heard that some commercial brokers will ask for a proof of funds before they even show you a deal, if they don't know you.

Are there any compelling reason why I should or should not provide a POF (if requested) as part of my credibility kit? Whenever I provide POF as part of a deal, I always blank out my account number and mailing address.

Thanks!

James

my understanding is that brokers typically first shop deals to  investors whom they've had previous dealings with, then to other brokers in-house, then to the general public. 

My question is, if I have my own buying agent, will brokers still let me see the deals in that first round or do they expect to double-end the deal?

Is it generally understood that in-order to get a pocket listing from a *commercial* multi-family broker, you will have that same broker represent both sides of the transaction (i.e. there is no additional "buying agent" involved?)

The same question asked a slightly different way: do you ever get off-market listings through a buying agent that doesn't work in the same brokerage agency as the listing broker?

To keep the discussion focused, please assume: I always use buying agents. You may assume that and I'm fully aware of the advantages of using different representation for both sides of the transactions, as well the potential pitfalls of double-ending and dual-agency.

Thanks!

James

If I'm analyzing deals on multi's, should I expect to get the trailing-12 and rent rolls before I make an offer, or do I review those during the due-diligence period?

Thanks,

James

full disclosure : I'm only a beginner at REI data analysis, but I'm trying to learn.

From what I've gathered so far, the #1 factor to look at when evaluating a market is jobs.

The chart above shows the total number of jobs available (Green) and the total number of people employed (Blue) in Fresno CA.

You can see there's a definite uptrend since the recession (Grey). So, that's good. It speaks to the resiliency of the market.

That said, it appears that Fresno is less resilient than the total CA market and the US as a whole.

Here is the unemployment rates of each:

You can see that Fresno consistently has higher unemployment per-capita than CA and the national rate.

Usually, you want to select a sub-market that is beating the macro-market. That will "suck in" people from the surrounding markets.

Hope that helps!

James

@Robert C.: I'm not aware of any special *annual* reporting requirements to CA for the 1031 beyond the income on Schedule E. I looked through my return and I didn't see anything mentioning my TX properties except Schedule E and the depreciation schedules.

That said, I'm not a tax expert and my tax guy takes care of this stuff for me. And if you're doing out-of-state REI and 1031 exchanges, I think it's time to admit to yourself that you'll need a tax guy. :)

Hope that helps.

James

Hi, @Robert C.

I'm also an investor from CA. I actually used to live and work in your neck of the woods, but I moved to the south bay.

I have done an out-of-state 1031 exchange. I exchanged a property in West-Sac for 2 houses in Austin.

In terms of the process, there was no detectable issues with doing the exchange out of state. The money went into the 1031 escrow fund and the money flowed out of the 1031 escrow fund very much in the way I would imagine it working for an in-state 1031 exchange. I didn't have to do any special paperwork because the money was going to Texas.

The 1031 itself was a bit challenging because of the very tight timelines involved, especially as it involved getting 2 houses at once.

In terms of taxes, I pay full CA taxes from income generated from those properties, because I'm 'domiciled' in CA. TBH, I'm not sure what you're referring to about 'clawback,' so I'll let an actual expert speak to that. :)

I hope you found any of that helpful!

James

@Account Closed

I bought all of my California houses before I started reading real-estate books and sites like this one, so I pretty much did everything the opposite of what they tell you to do, but I've been extremely lucky.

For my primary homes, I mostly just chose them based on what I liked and what fit my work and family situation. I'm an engineer, so I pretty much have to live within driving distance of the Peninsula where most jobs are. You could have pretty much bought any house in the valley at any time in the last 20 years and made a killing (except 2008!) So that was my "strategy" for my primary: buy a nice home, pay whatever the market demanded. Again, it never feels good buying here. Most people just close their eyes, cross their fingers and sign the check.

For my investment properties, I had a little more fore-thought than that. I didn't really know that SFH were something that actually *could* cashflow. I just thought all REIs bought for appreciation, so that's what I did. I bought post 2008 in neightborhoods that I wouldn't mind living in myself (one thing people tell you not to do) that had reasonable commutes to good jobs. I would do the math and make sure I could run them at cash-flow even with a 30 year fixed, and I counted on equity pay-down while I waited for them to go up... and up they went.

I had a couple of really "good" investments where I was making a cap rate of 4-5%. I realized this only after i learned what cap-rates where. Again, most REIs would probably find a 4 cap laughable. However, after about 3 years, I was making an IRR (internal rate of return) of about 30% after factoring in appreciation and leverage.

So, there you have it. That's how you do everything wrong and make a lot of money. Better lucky than good! :)

Now, that we've had such a really good run of appreciation (and I've read a lot more RE books), I'm shifting over to more traditional REI strategies. I'm don't have time to do rehabs, so i'll look for markets outside of my area that have good economic prospects, and find houses with a 9+ cap rate and have a PM manage them.

James

source: https://fred.stlouisfed.org/series/CASTHPI

I'm a long-time resident of the Bay Area (Silicon Valley). I moved here with my parents when they immigrated in 1978 or so, and I've lived , went to school and worked here since then.

I'm not so sure I would call real-estate here a "boom-bust" cycle so much as a continuous upwards trend with a few notable reversions to sanity and one very notable boom-bust cycle (which the entire nation seem to go through at the same time.)

I've never met anyone here that has ever thought buying was a good idea at anytime, myself included. With 20/20 hind-sight, they have all been wrong (myself included) unless they bought in 2008. Everyone always says that "it can't possibly go up anymore!" I have literally heard people say that throughout my entire adult life. Luckily, I've been an owner since 2001. :) Somebody has literally paid me to live in every single house I've owned since then. Unsustainable you say? Perhaps, but the market can remain irrational longer than you can remain solvent. I would be careful trying to play the "market cycle" game here and wait for dips. It's not as simple as some of the podcasts make it sound. :)

Most BP'ers will tell you not to try and play the appreciation game, because it's akin to "gambling." I only somewhat agree. If you're going to play the CA market, then appreciation is pretty much the only game in town.

That all said, real-estate is always local, and CA is no exception to that rule. If you're looking for cash-flow in CA, I'm sure there are pockets where you can get it. As a matter of fact, if anyone here knows of any, I'd love to hear about them.

Back to your boom/bust cycle question though: I get the impression that states likes Arizona and Florida have more severe cycles.

Hope that helps.

James

One important consideration is that taking on negative cash flow properties will inhibit your ability to "scale up" you real estate business. It's harder to get loans if you have a large debt obligation relative to the income you are generating. So you will likely hit a wall and will have to stop buying new properties. Talk to your loan people and ask them about debt to income ratios and how this deal would effect it. Hope that helps! James