All Forum Posts by: Nate R.

I owned a condo in Pasadena in the early 2000's which I sold because of my fear about a bubble market, and it turned out to have been much too soon. I wish I had had mentors back then because I probably would have made a better decision at that time.

I left LA in 2010 after a series of short, high-stress jobs and the 2nd set of layoffs I experienced in a 2 year timeframe  -- the first one occurring at the beginning of 2009 during the global financial crisis, the second one occurring a year later at a very well-known media/tech company that has since shuttered. Austin was like a safe haven beckoning (it was also where I was born and spent part of my childhood), a place where I could easily find work and be comfortable.

I did look into real estate around 2005-2007 in SoCal and almost got involved with a vendor from Marshall Reddick, but I'm glad I didn't, since that organization went bankrupt and many members ended up losing money in investments out of state during the collapse in 2007-2009.

Anyways, I had a hard time getting any traction in LA due to the unstable job market, generally stressful lifestyle and high cost of rent, which made it difficult to save significant money. Being busy with working and commuting and short on savings (outside my 401k), RE always seemed out of reach. Looking back, I wasn't in a good position to invest.

I'm glad I am where I am now, as I've made some good money in Austin and more recently, San Antonio multi-family. I probably never would have discovered these opportunities and my mentors if I hadn't moved here in 2010, so while I have some regrets about missed opportunities in California (I'm not bitter towards CA or anyone who is succeeding there), I am glad I came to Texas.

@Llewelyn A. Interesting comparison. The one with the highest IRR is not necessarily the most suitable, though. Maybe the owner can't wait 10 years to get cash from his investment. He needs cash to pay his bills, he wants to retire or will be forced out soon because he's getting old.

The other problem is that while today's cash-on-cash returns are easy to determine, predictions about future appreciation are inherently risky (subject to higher variance). Some people prefer a sure thing. It seems highly subjective and based on one's personal risk tolerance. 

That's awesome, and I congratulate you on a smart purchase. It is amazing that people overlook value like this, especially in a "hot" market.

Ok, I read his follow-up post after I posted above and he explained he was buying below market. I understand now.

 In his earlier post, he stated (paraphrasing) "we didn't even to anything to the building other than replacing a water heater". That's what I meant.

Sorry, does anyone else find the forum editor really difficult to use? I would go back and try to quote him verbatum but it's a PITA and not worth it.

It doesn't sound like Arlen added any value yet. He rode the wave of market appreciation (rising rent, falling cap rates). 

@Amit M.: The risk is if one is highly leveraged during one of the downturns (let's say they own their personal residence and a couple of rent houses and they've taken most of the equity out of their home to invest), they lose their job, then they can't pay their mortgages, so they lose everything.

There were plenty of people during the last recession who had their houses foreclosed on or just walked away. Were you investing at that time? Do you remember? Or were you in diapers?

One of my friends I used to work with in Los Angeles also moved to Austin with his family. He and I were laid off at the same time, but he was later in his career, so it was difficult for him to find work. They lost their houses and cars, and it took them a decade to get back to where they were financially. They just recently bought a modest house in a neighborhood not too far from me. 

If you're putting 40% down, then you're "buying" cash flow. If you can still make it work, that's great. In less volatile markets like TX, we can put 20% down and still make excellent cash-on-cash returns.

Also, we're not foregoing appreciation in TX. Housing price appreciation in Dallas, San Antonio, Austin and Houston has been strong in recent years due to strong demographic/population trends. In the multi-family deals I'm in, we're benefiting from market appreciation as well as the opportunity to add value and generate forced appreciation.

I've been in one deal for less than a year and our equity is up 200%. I'm expecting a refinance and return of 80-100% of my capital in the next few months, with 7% cash-on-cash returns after that. We did that by acquiring a complex at a discount, operating it smartly and raising the NOI. Market appreciation has nothing to do with it.

DUPLICATE POST

@David Song I always invest in things that can go up in value, but they have to cash flow.

Now, I don't want to confuse the issue but I will mention the new construction residence I bought in East Austin in a gentrifying neighborhood. I bought it as a residence, and I was nervous about paying what I considered a high price at the time. It paid me nothing in cash flow, obviously, but I made a significant profit when I sold. I wouldn't have bought it as an "investment", because the rent did not cover the expenses. That one purchase and sale gave me the seed capital to do other investments. 

But how many times can one flip a house like this without adding any value? What happens if the market peaks and you're left holding the bag?

Without appreciation, real estate is a mediocre investment. In every multifamily deal I do I require room to add value and force appreciation or I buy in an appreciating market, or ideally, both.

@Arlen Chou I like that deal!

I don't know much about the market there but I am surprised at the prices you mentioned. I would have imagined much something higher, but then again, Oakland is not SF.