All Forum Posts by: Leonard L.

@Nick Capriotti as you can tell from the responses above, there are two different ways that people value raw land.  

The most obvious is answer to the question - what is land worth -- is derived from CMA, or competitive market analysis. This is trying to answer the basic question of worth through extrapolation and adjustment of data from sales of similarly situated properties. This is the approach described quite well by @John Becker above.

The other approach, and this is the one used by developers like myself, is residual value.  Residual value is that value that would remain after costs are deducted from revenue from sale of the entitled and/or developed lot.  That is the approach described by @J Scott above.  What is the thing that makes sense to develop on the property, what would be revenue be from that development, and what are the costs of getting there.  Whatever is left after deducting all costs (other than land acquisition) from the sales proceeds of the development, is the residual value left over for the land.

The CMA value is handy if you are a passive investor. But if you are going to add value through entitlements and/or ground up development, it is residual value you will want to understand.

@Blake G. Welcome to BP.  Pomona is a fine college, you must be very bright.  I commend you also for recognizing the wisdom of Rich Dad book at such a young age.

My advice is that since you will likely not have RE investment opportunities while in Korea, try to hone your entrepreneurial instincts.   Keep your eyes and ears open and don't assume any idea is stupid.  Eg, I have an acquaintance who noticed a simple mechanical dermal brush in Korea and thought it might sell in the US, he secured US distribution rights and sells it to high end dermatologists in US for many times what he pays for them. He goes back and forth between Korea and US looking for additional opportunities.  Or you might notice an approach to housing that might be applicable upon your return to US market, albeit perhaps only to Korean submarkets in US (K-town, etc), who knows.  Point is that most here have had to scramble and think outside the box to find and finance their first real estate opportunities.  Perhaps your time in Korea will help broaden and sharpen that mind set.

Good luck. 

I have Los Angeles set for a key word alert seeking wisdom from those who do it successfully, so I am not the guy to give you the magic formula for LA investing.  I can tell you from being on these board a while (1) those typical BP ratios do not work in high value areas such as LA, NYC, Wash DC, etc. and (2) people invest in those areas anyway, not for cash flow as much as the anticipation of appreciation.  

I personally invest in Inland Empire.  You hint you want to eschew the ghetto areas, but ghetto means different things to different people.  Most of South LA is a little hardcore for me to invest in comfortably, but there are parts of Riverside, Lake Elsinore, Menifee, Wildomar and other blue collar Inland Empire neighborhoods that can generate much better cash-on-cash returns than core LA markets while still participating in that sought-after California appreciation.    IE is closer to OC where I am than North LA like you, but maybe there is an area closer to you that provides similar dynamics to the IE market (Palmdale/Lancaster or Oxnard?).

Ability to get good returns also depends on how and of course when you buy.  I was lucky to start buying in 2010/2011 when returns were very good.  The deals I buy nowadays tend to be complicated, hairy and/or distressed properties (usually off market) or in one case a result of a yellow letter campaign.  As a real estate lawyer, I can untangle complex deals.  The good deals are out there but much harder to find.  I do this full time so I have time to find deals that others probably do not.

@Jack Medford Can you get a corporate land development job with no experience. Of course, experience to get through the door always helps, but there are many ways to get your foot in the door. At one point I hired a parking valet from Flemings as a junior land acquisition analyst to source land deals (compile ownership, target 5 acres+, cold call, etc). With this experience, he got a better job as VP land acquisition for a smaller builder, then land broker, then started his own company. So yes, it is possible. You just need to get your foot in the door. Lots of builders and developers hire young finance majors, although again hopefully with some experience. Check Selectleaders.com and other job boards that specialize in real estate.

@Jack Medford Personally, I think you are much better served by working full time as others have suggested. Professional experience is particularly useful as you try to use OPM. Flipping sounds really attractive but is much more difficult than you might think from reading these posts. I tried this late in my career, in the last few months as result of all the positive experience here on BP, and for my scores of hours and maybe two or three thousand dollars, I have closed one deal. Am I ahead, yes, but I have made far more money in other areas of RE. Although I have been in RE my entire professional life (starting with RE attorney), I wish I had started investing on my own much earlier. So good for you and other young people like you on these boards that are getting your feet wet early. But again for me personally, nothing helps my fund-raising like my 20 years land development and real estate law experience, although most of that was done for corporate employers.

I just wanted to add that I use IRA Financial Group, and they charged $900 to set up the 401k trust, with very small annual fees thereafter (I think $125/year). I have checkbook control, so have not needed to check back with them very often; however, when I do send an email asking for guidance, they typically return my email within a day. (disclosure - I have no other financial connections with them)

I agree with others that the key is first qualifying for a 401k. For me, this part was easy since I already run my own business with no employees. The second thing is to make absolutely sure that you understand the limits (no active management, no insider deals ("prohibited transactions"), no sweat equity, strict limits to how much you can borrow, etc.). For those like me that just want to buy rental property, have a third party manager, and receive rent, the 401k Trust is a pretty sweet deal.

@Ali Boone you sound like you have some experience in other markets. if Memphis is past its heyday on cash flow, and assuming I don't mind a market with problems and headaches (since again I do this full time), what would you say are the top three other markets you would consider for best cash flow?

@Joe Mueller thanks for the tip. I will listen to the podcast.

@ryan

@Account Closed Wow. At $30k that is still a great deal. I thought I would mention that I am involved in new home builder community, and one of its most shiny stars, John Burns, recently issued a report calling Chicago one of the markets with the most potential right now for new home growth. That piqued my interest, but I thought to myself Chicago is probably a very expensive market with low rental ROI. But your story tells me it bears further examination. Thanks.

One market that I wonder about is Phoenix. It is not too far from So Cal. Anyone getting good returns from recent deals there?