All Forum Posts by: Luis Toledo

Thanks for the response Mike. Good to know we're looking at this the same way.

How is that different from making the part time salary of a maintenance person and property manager on top of your investment return? Sounds like something that would be worthwhile as long as I weren't incurring an opportunity cost because I'm not doing something more profitable.

I have a day job, it pays pretty well. Assume my hourly rate is twice that of most maintenance people and residential property managers that consider themselves well paid. It wouldn't make sense for me to quit my day job to manage properties. I'm not above changing door locks, A/C filters, pressure washing stuff, etc. in my otherwise free time. If I invest in the right deals and make the right assumptions (like what we agree on) then I can manage this thing like I would any other investment with an appropriate amount of time spent of research, consultation with advisers, monitoring (what you called managing the managers), etc. I'm hesitant to consider manual labor as a requirement to achieving my investment goals. If its just a way of earning an extra buck or two, then so be it.

So maintenance and management labor costs total to half of your operating expenses? Sounds like you were either ripped off or you underestimated the amount of work that needed to be done up front. That sounds really high, then again I don't know where you are. Hawaii? NYC? San Fran?

I'm curious, when you evaluate a deal, do you calculate NOI based on you doing the maintenance and management or on what it would cost if you outsourced it?

Consider this, I've read in several places that "profit is made at purchase". By that same token, if I crunch the numbers on an investment and the only way for me to meet my investment goal is to perform the maintenance and management personally (thus removing labor costs from my NOI calculation) then I'm probably paying too much. You're not buying an investment, you're buying a job, and are thus, an owner

I think this thread has really highlighted the differences between two different models for REI. I'll call them the "Investor model" and the "Owner model".

Here are some observations, do with them what you will.

Investors seem to approach REI as an asset class, like stock, bonds, mutual funds or hard money lending. The end is achieving their personal investment goals. Investors strive to maintain liquidity and tend to withdraw profits often so that they can "reinvest" that capital in other assets that may or may not be in the same asset class. Capital appreciation and cash flow both factored into their calculations of return. They see the beauty of REI as the ability to influence their return on investment directly through active management, much like Warren Buffet only invests in companies in large enough volume to get a say in how they are run. Therefore, Investors are less likely to do their own maintenance because they've run the numbers and already factored in the cost of outsourcing repair work.

Owners seem to look at REI as a career path or alternate income stream, like a small business owner. The see their properties as their livelihood and are constantly trying to minimize their expenses. Owners tend to value cash flow over capital gains (for rentals) because their intent is to live off of the income produced by their properties. Owners are less likely to invest in other asset classes, even if greater returns were likely because they are hesitant to give up control of their livelihood. Owners are more likely to do their own repairs because it reduces their expenses (thus increasing net cash flow), increases job satisfaction and possibly reduces their risk.

I'm new at this but those are my observations.

"Read a book!" is a pretty common tip for new comers getting into real estate investing. Here's a question, what books do you recommend and why? Which ones should be avoided, and why?

Here are some of my recent reads:
- The Total Money Makeover by Dave Ramsey
Leverage can be a great business tool, and in some asset categories it can be about the only way to earn adequate returns. However, I personally think that household debt has become a scourge to our economy and poses a real threat to the American dream. This is a good "how to get out of debt" book. I don't buy into a lot that Dave says because his financial math isn't so good, but he nails it when it comes to the psychology behind getting debt free.

- The Wall Street Journal. Complete Real-Estate Investing Guidebook by David Crook
Its short and worth the time if you want a brief overview of many different aspects of REI. Speaks briefly to many topics and has a good bibliography that can be used to find more in depth books.

- Maverick Real Estate Investing by Steve Bergsman
Case studies in REI based on the experiences of some of the legends like Trump, Zell, Simon and others. I like this book because of the multiple perspectives it presents. The investors featured in this book generally started out small and grew huge. They seem to share some common principals which this book highlights.

- How to manage residential property for maximum cash flow and resale value by John T. Reed
I like Reed's style of writing, this book is going by quickly because he writes like I think. Very blunt advise on the nitty-gritty details of landlording and property management. Setting rents, leasing, maintenance, etc. just the basics, but no nonsense or puffery. This is not a feel good, motivational book. In fact, it might actually convince you that residential investing is not for you.

Has anyone else read these? If so, what did you think? Here are some others that I haven't gotten to yet:

-Landlording by Leigh Robinson
-The Millionaire Mind by Thomas J. Stanley
-Profit By Investing In Student Housing by Michael H. Zaransky