All Forum Posts by: J Scott

Quote from @Taylor L.:

I'm not convinced this guy isn't trying to ride on the real @J Scott's name/brand/coattails!

:)

First, keep in mind that "commercial real estate" is an over-loaded term. 

Does that refer to Office Space?  Warehouse?  Retail?  Flex?  Multifamily?  Industrial?  Something else?

I don't think it's unlikely that one or a couple of those asset classes will see a downturn over the next couple years -- among all those asset classes, we have typical cycles that drive values up and down, and while all those asset classes are correlated, they are not perfectly correlated. 

For example, as @Russell Brazil said above, Office Space got hit pretty hard last year.  But, Warehouse, Industrial and Multifamily all had a record year.

Could one or two of these asset classes have a major downturn (worse than 2008)?  I guess, but likely not simply based on fundamentals.  Fundamentals in most of these asset classes are strong, and I believe it would take a major macro-economic event (or geo-political event leading to a macro-economic event) to cause a 2008-like crash.

I see the greatest risk in retail.  While large businesses are creating record profits (see the vast majority of publicly listed companies if this isn't obvious), the vast majority of small/mom-and-pop businesses are struggling.  Covid decimated margins in the service industry, and I wouldn't be surprised if a lot of non-anchor retail office space starts hitting the market soon, with lack of demand driving values down.

Will they crash like 2008 prices?  Could be.  Though I don't think it would look anything like 2008, as retail space isn't well-correlated to broader asset classes, so a crash in retail real estate is unlikely to reverberate throughout the industry -- let alone the financial markets.

As for the other commercial asset classes, most of them seem pretty strong.  Warehouse/Flex is still in huge demand.  Office space has started to recover.  Industrial has strong fundamentals (but I'd put this as second most risky behind retail).  And multifamily will likely stay strong for a long while.

Again, I'm not ruling out a major global event that could derail things, but that doesn't seem to be what this guy is predicting.  He seems to believe that fundamentals are problematic, and I mostly disagree.

You should expect to pay federal income tax at your marginal tax rate (same as you'd pay for your W2 income or other ordinary income), plus self-employment taxes on some or all of the income (depending on your entity structure).  And then state taxes at your state/local tax rate.

Flipping houses is NOT a good way to shelter taxes.  You'll likely incur a higher effective tax rate than you would for a W2 job.

Quote from @Ryan DiCanio:

What factors impact the decision to invest in updates for a property, versus saving capital for other investments?

I am currently house hacking a duplex in the Aurora area. The side I am living in is very outdated (20 years at least). I have added a fresh layer of paint and have ripped out all the carpet in and old tile on the first level, replacing it with Lifeproof Vinyl Flooring. 

There are a couple of other duplexes in my neighborhood; on the exterior, one of them looks similar to mine and a couple of the other ones are more up to date. I have not had the opportunity to see what the interior looks like.

When making the decision to either invest into my current property versus saving money to invest into other properties, what factors should I be keeping in mind?

If anyone can provide some insights I would greatly appreciate it!

All other things being equal, invest the money where you're going to make money.

Investing money in the side that you're living in now isn't going to generate any greater return, so the ROI on that "investment" is zero.

So unless your goal isn't to make money on the investment -- for example, if you just want a nicer place to live -- I don't see Any financial benefit in spending money there.  At least not until you're ready to rent that side out.

Quote from @Bruce Woodruff:

I think @Nate Bell is pretty correct...you might want to go up to $200 SF based on todays prices....

Best case is to have GC run by and throw a number at you, it'll get you in the ballpark

A full gut in southern Georgia on a one story bungalow built in 1995 using day laborers, independent subcontractors and low end materials is going to be about 50/sf.

The same full gut on a two-story craftsman in San Francisco built in the 1960s using a licensed GC and high materials is likely going to be more than $300 per square foot.

Long story short, without a whole lot more information, there's absolutely no way to put a per square foot number on a renovation.

Check out the BiggerPockets book on Estimating Rehab Costs.

Quote from @Steve Lomeli:

Hey @J Scott, I actually read your books over estimating rehab costs and flipping houses and I loved them! They were super informative and really helped me get a solid foundation. I'm creating spreadsheets for myself to reference to when I eventually go to properties and estimate their costs on my own, would you be able to provide some kind of electronic version of the table starting on page 185? 

Thanks a ton in advance!

Shoot me a DM...

Quote from @Ricardo Ramirez:

What are some of the best books to read for someone just getting into real estate.any suggestions?

Most people in the industry agree that BP has the best real estate related books available. So, go to the BP's bookstore on this site, find the books related to whatever flavor of investing you're looking to do, and start with those.

Quote from @Jason Kang:

Hey all,

Does anyone have any tools/guides/know-hows for when looking at pictures of a property and ball-parking estimates for how much something will cost? ie taking a look at a room and saying "this needs new flooring/paint, should cost me ~$xx". Something to help for when taking a quick look at a property.  Thanks!

I would recommend picking up the BiggerPockets book on estimating rehab costs.

Originally posted by @Matthew Irish-Jones:

@Jonathan Bell I’m not sure you need a partner. The best partners are vendors. They have to continually earn your business and you can fire them if they don’t work out.

For a lender to take you serious you need a W-2 job or two years of 1099 income. Once you are pre approved you can go shop agents, property managers, etc..

If you get hooked up with the right agent or property manager they will have a top notch vender list they readily share with potential clients to make a smooth transition for all. Now you are a customer in the driver’s seat with all of your partnerships AND they need to earn your business. You can lean on their expertise to guide you and judge them by performance. In my opinion these are the best partnerships that exist.

It depends on what types of deals he's looking to do. This is the multifamily and apartment subgroup, so we don't know if he's talking about 10 unit deals or 200 unit deals.

I think a lot of us are presuming he's talking about larger deals, where a track record and relationships are absolutely essential.  For example, you mentioned lenders requiring W-2 or 2 years of 1099.  That's true for typical recourse debt.

But for the types of debt associated with larger deals, it's a bit more complex. Loan guarantors need to hit specific net worth and liquidity requirements as well, along with experience signing on these types of loans. Without those three things, the only way to get these large non-recourse loans is by working with a partner who has those things.

Likewise with broker relationships.  You're unlikely to take down 250 unit complex without experience doing these types of large deals. Your options are to start smaller and work your way up, or to partner with somebody who does have experience.

But again, without more information from the OP about exactly what types of deals he wants to do, it's hard to give specific guidance.

I found my partner by reaching out to the most successful person I knew in multifamily and volunteering to work for her for one year, no strings attached.  I offered my knowledge, expertise, time and network, for as many hours as she needed, asking for nothing in return.

About a year later, she offered me a GP role in one of her deals.  That went tremendously well, leading to us deciding to partner and work together full time.  We've done about $85 million in projects together since then.

The key is being willing to give with absolutely no expectations in return. Best case, you find a new partner. Worst case, you get a year of experience working with someone you respect.