All Forum Posts by: Lesley Resnick

There are a lot of turnkey providers that will deliver a completed building with a tenant.  You will pay market price or above.  It is low risk.  If you are looking to lower the cost, you need to move upstream in the process.  Risk reward takes over.  You can actually build it yourself, hire the contractors and supervise the project.  If you don't have a background in construction and do it full time, you are in trouble.  Alternatively, you can hire someone else someone to build it, they will want 15-20% fee and the investor will own all the risk.  It is a builders / sellers market.    Demand is through the roof in all areas of construcion and contractors attention is at a premium.  You are going to face challenges either way. Material availability and cost are variable beyond sensibly.  If the builder has any experience and skill, they can borrow the money for less than 20% (2 points funding and 1% a month).  The  builder would need to fund horizontal construction including the land.  Unless we are talking about 10+ builds 2m+, In this market I am not seeing a reason a builder would make a deal under a 50/50 split.  Plenty of people will take jobs with no sense of urgency.  They will finish the most profitable jobs first and if it is not your build...  

Has anyone actually done a JV new build for under 50/50 in the last year?

So what would be an a example of a fair dea? 

If you are looking for the builder to put in a token amount that is reasonable.  Anything beyond that and it no longer makes sense for the builder.  The market is hot and you can borrow money to do the build.  However, even with a loan, they will need land acquisition & working capital.  The only reason a builder would partner is to reduce or eliminate the need for capital.  Builder loans are expensive and take work to gain an approval.  I build for cash, I borrow money and I have partnered.  They each have their challenges.  If both parties are not enriched for making a deal, then is is bound to fail.   

It think it is a fair deal, given the market. In fact I have done the same deal as the builder in Jacksonville. Whether the build is profitable or not is another question. There is an idea that is circulating around BP, that only one party should make money on a JV. No one works for free. There should be advantages to both sides. The investor gets a superior return on their investment. It is complexly passive and should be lower risk than if they just hired someone to build the house. The builder has skin in the game.

All builders have liquidity and cashflow issues. To solve this problem they borrow money. Build money is more expensive and harder to obtain than fix and flip money. Further, lenders will not loan on land or land prep. Even with a loan, the builder needs working capital. Thus making a JV valuable.

“Good is the Enemy of Great.” 

The concept is that too many people and too many organizations “settle” and take short cuts accepting that “good” is good enough and that they don't need to do the really hard work to be great

Jim Colins

I would suggest that he has it backwards in Real Estate.  Good enough is my approach.  I would like to have a lot of good rather than a little great.  I have found the 80/20 rule is true in RE.   

Should you wait for the perfect deal, tenant, loan, a home run?  A deal that meets every metric you can imagine?

Or

Take a good deal and move on to the next one?

How far do you go when renovating a house you will never live in?

If I am going to rent it, I am in the 80% business.  This should get me top of market

If I am flipping it, I am in the 85%-90% business.  This should get me close to top of market.  There are a lot of extremes in flipping.  I will paint over the termite holes or I will buy $1k vanity faucets.  

I never chase the last dollar.  I have been the agent on a number of deals that owners have been instant on the last dollar and ended up holding the property for another 3 months to clear a few dollars more or end up in the same place.

My business model is simple: Velocity.  I want to turn my money as quickly and often as I can.  Give me base hits all day long. 

This is a long game and the market is dynamic in the short term. The long term trend is clear, upward. Cashflow is a derived number and can be manipulated. What is the cashflow of a building I own free and clear and have deferred maintenance vs a renovated house I have leveraged at 80%? There is more to the picture than one number. I generally stay clear of derived and theoretical numbers, vacancy, cap ex, reserves, cash on cash, cost to turn, maintenance and so on. I use numbers I can quantify, purchase, renovation costs, actual rent, tax, PITI, property management, principle pay down. I follow the KISS method. Keep it simple stupid!

Taxes should always be considered.  Tax is a real number, it can be qualified and there is a time line associated with it, the fiscal year.   Taxes, insurance, depreciation, maintenance and interest are all deductible.  All of those line items are on sale 1/3 to 1/2 off depending on the rest of the individuals taxes.

I know it is a common accounting practice and a spread sheet requirement, but the idea of saving for Capex never made sense to me. What if I bought a building and held it for 5 years and saved for cap ex every month, kept the money in a savings account at .05% and inflation ran at 3%. First, the inflation would eat my lunch. If at the end of the 5 years of holding, I did not replace the A/C or roof, no cap ex. How is that money accounted for? It was actually cashflow, there is no cashflow look back.

Short of natural disaster and fire, there are very few surprises when it comes to the building, you can anticipate the expenses.  You are doing well if get 20 years on a roof, 15 on an A/C.  If you have older buildings and equipment, you are going to have expenses.  I have a duplex with A/C units that are 20 years old and I may not like it, but I know they are going to fail.  I will pay cash or put them on a credit card, depending where I am in my funding and build cycle.  I do not have a rainy day fund for every building I own.  I have operating capital and it is always moving. I do not let it sit on the sidelines.  In any given month (year) a property may be unprofitable, but as long as the overall portfolio is performing I am satisfied.       

"I an't gunna work on Maggies Farm no more"  Is the battle cry of BP.

Be careful jumping off that bridge.  

Things to consider:

1.  If you leave is there a path back to that job or industry?  Many careers do not allow you to jump back in.

2.  What will you do for health care?

3.  Do you have enough cash to pay your bills for 6-9 months until your first deal is completed? 

4.  Will you have enough working capital to complete the project?

5.  What happens if your first full time deal goes sideways or does not yield much?

6. Have you taken as much Fannie Mae conventional / HELOC money as you can get. Have you open as many credit cards as you can based on your w2 income.

7.  Should you sell your primary home?  You may consider selling, renting or downsizing?  Should you try to buy a duplex and live in one side.  Can you take on a room-mate?

8.  Could you do something to make the J.O.B more tolerable.

9.  Could you do both?  Perhaps be less focused on the day job and more attention to the RE.  

10.  Will you / spouse be able to sleep if this is not a home-run from day one?  It takes time to really figure out how to make money consistently.  It is likely you will struggle for a period of time.  

If the only reason you are leaving your job is because you hate it and have not been planning the move for 6 to 12 months.  Don't do it, unless you are flush with cash and didn't really need the job in the first place.   There are no podcasts on, "it did not work out and I went back to my J.O.B."  No one tells that stroy, except your angry aunt who, "told you so".   

To all my Doom and Gloom friends.  The sky is not falling.  We can all agree prices are up and interest rates are down.  It is as you would expect, inflation is now in effect.  Greater demand chasing less supply  There is still a lot of money floating around from the Fed and the give aways.  This scenario is coming to an end.  Baring anything unforeseen, we are good for 2022.  Two rate hikes and supply chain normalization, resulting in a flattening of inflation.  In 2023 it is anyones guess.  Rates must go up, they are in an unsustainable place.  Be weary of anyone who has confidence about what is next.  There is no way to know and there is no historical data to use.  The supply problem is largely a result of COVID and people not working by choice.

If you want something to worry about, it is fuel costs.  This will grind our fragile economy to a halt.  Inflation and simply the cost of living will hurt a lot of people.  We will see a decreasing in profitability in businesses across the board.  If this happens companies will stop hiring and those people who now need to work will not be able to find a job and pay rent.  Anyone on BP not hurt by the eviction moratorium?

Real-Estate will not be the cause of economic troubles or the big story.  It will be effected and change as a result.  No two crisis are the same.  Housing Crash, Dot Com Bubble, Oil Embargo Stagflation and so on.  In the mean time, I am going full steam ahead for the next 12 months.  I will reassess my strategy in q4.             

Who said this was easy or guaranteed?    

In relative terms what would it take to generate 10k a month in the stock market?  One million invested with a return of 12%, life time average is around 11%.  That does not take into account inflation, since your buying power will be diminished over the long term.  To stay in the same place, you will need to keep save some of the earnings to grow the investment,  The other problem is draw downs during a down market.  Pullling out money in a down market, will hurt the amont the accounts ability to generate 10k in the long term, you will be invading the principle.  To be realsistic you would need closer to 2M.  The other key point is taxes on market returns is higher than realestate. 

Real Estate is still a better choice.  While not perfect or easy, it is the best game in town and the best chance to get to 10k a month passive.

I am opportunistic.  By that I mean I will build what I can get land for and be profitable doing it.  I have built and sold affordable, retail and  I have built my own B2R.  

Currently:

1 Retail build 

4 build to rents 

18 unit townhouse community.

I don't think it has gotten to hot for B2R.  Materials are up and so are rents and housing prices.  It is amazing to see, the prices seem go up monthly.