All Forum Posts by: Jimmy Klein

@Thomas Lorini

Congratulations on the buy. This has definitely been a widely debated thread. You obviously seem to have a good purchase based on the comps. Going forward, I probably wouldn't title a thread like that simply because there are many newbies here and if I wrote something like this, I would feel terrible if they over-leveraged incorrectly and in their mind they felt like they got a free ride. 

While you technically did not put money down, I consider it wrong to say you achieved $X amount of dollars in passive income without even considering the fact that the money you took out costs you interest each year. The bank is not giving you free money, they are here to make a profit. Anyways, congrats on the buy, but I would just be careful going forward how we phrase things.

With the hundreds reading this thread, its scary that one person may take equity out of another property thinking they got free money and end up being burned. While this is definitely not your fault, just consider the repercussions. Anyways, congrats on the buy.

 Hahaha, no just underlying loans. Regarding the hurdles, I was referring to hotel deals, so 12% is fairly achievable in the industry. 

As @Jay Hinrichs said, you need to be different. The groups I work for are now offering 12% pref and trying to aim for returns in high teens while providing full guarantees on the loans. You need to be willing to take less initially from your end.

The market is a way of transferring wealth from the impatient to the patient. 

Warren Buffett said this about stocks, but I think it can also be applied to real estate.

@Christina Presenti

So I'm still a bit confused do you want to DIY or be an investor? Those are two different things. As for hiring a PM company or managing employees directly, it depends on what you prefer and want. If you want to be truly involved then you dont need a management company, but bear in mind the time commitment that exist. I rarely ever see hotel owners doing DIY rental properties because you have only so much time to dedicate. Unfortunately with the hotel business, if you have 20 rooms, your looking at 20 toilets, 20 tenants that are constantly changing. You need front desk, housekeeping, maintenance. Very hard to DIY unless you drop your other activities and focus full time. If its a small property, a PM company would not make sense and just eat into your profits. Otherwise I suggest you start by either investing with an operator, working at a motel, or possibly investing in some lodging REITs to get some exposure. This is an asset class that has far greater returns that almost every other property type simply because the level of involvement needed. Its hard to dedicate time to other asset classes. Most of the hotel owners I know only specialize in this space because it requires a steep learning curve.

@Christina Presenti

I would say you should start with the basics and understand all aspects of operations. Also figure out what role you want to be in? Do you want to be an investor? Or do you want to be more involved? If you have limited funds then unfortunately you may have to be more involved in the beginning. As an investor, you cant really do well on a small property with a management company in place.

I hope you went in all cash, either that or have a ton of money. As everyone else above said, you went backwards. Nothing wrong with making mistakes and bettering yourself if you have the funds, but if you have limited capital, these are not mistakes you want to make. Making reasonable mistakes is more like saying maybe the plumbing could have been done better or the architectural design was off, these make sense. The wrong kind of mistake is spending millions on having a building built with no ideas on design, layout, tenancy, etc. I'd stop and speak to an experienced retail GC, who may know what makes sense for the market as they are on the front lines of development. Then reach out to an appraiser or get data on the market rents.

@Ali Boone

I respectfully disagree with you on Airbnb. While it has taken some share, I can assure you hotel owners are certainly not "freaking out". Hotel RevPar is at the highest level seen, there is still pent up demand for hotels and loyalty members for brands is on the rise. The only area where hotels haves been hit due to Airbnb is in large urban markets where younger people are looking for an experience rather than a clean, simple hotel. Based on current trends, there is more than enough room for both markets. I think Airbnb will always be more of a niche, while hotels will still control the bulk of the share. The reason is that not everyone is okay with sleeping on someones couch or air mattress. 

@Julia Allred

Red flags could be anything from deferred maintenance, new hotel supply, competing brands, closure of demand generators (corporate and leisure). 60% CoC can be achieved but depends on the deal. I highly doubt the downtown Marriott in Los Angeles will ever see those returns, but the no name 25 room motel in the middle of nowhere in Wyoming is very likely to achieve that. Its a matter of self involvement, the more involved you are, the higher the return. I have done three deals where we achieved more than 40% CoC in year 1...but its a matter of being involved consistently and marketing timing. They were smaller value-add deals.

Yes. What are your questions. This is the hardest asset class to understand and manage in the RE world.