All Forum Posts by: Paul B.

@Khalil Bachir

The reason I am comfortable investing out of state is because I am only passively investing in syndications, which means I have no role in the operations anyway. The important thing is that the people in charge are qualified people that I trust, and they have their own money invested in the deal too. There are many on this site who have invested in their own properties out of state (as opposed to syndications). Some have horror stories, and others have had success. The important thing is to make sure you have a good team working locally, and be ready to replace anyone who is not performing. 

Oh, I own one property myself that is out of state, but in that case I have a family member who also owns rentals who looks after it for me. I prefer not to buy any more because I would rather not manage from afar, and there aren't great opportunities in that market either. 

@Aaron Mazzrillo

Oh I agree it would be political suicide to just yank it away, but it could be done in a two-step process. Doubling the standard deduction could be sold as a tax cut to the middle and lower class, and tax neutral to the upper class. It makes the mortgage deduction less powerful, after which it would not be so crazy to take it away. 

Anyway, I was just speculating on events that could have an impact on the current market. I don't know what is going to cause the next downturn, but it will probably look obvious when we have the advantage of hindsight.

You said you're interested in multi-family syndications. $40K is just about the right amount to get into a deal. Most of the ones I see set a minimum of 50K, but the smaller ones are 30 or 40. It's a good way to learn without doing any work. Another poster said that you're giving up control, and that's true. But you're giving it up to someone who already knows what they are doing, instead of you making your own mistakes.

Now, let me clarify my statement about "not doing any work." You need to make sure you understand multi-family properties and how they differ from single-family, so that you can evaluate a potential investment. Then you have to build a relationship with a sponsor, so that you can trust him/her with your money. Both of those things take time and effort. But after you do that, the investment is passive. It's not for everyone, but I like the ability to ride someone else's coattails so that I can focus on my day job and earn more money to invest. 

One other comment...the OP here is considering house-hacking...he would not be in competition with institutional investors in that case, as they only bother with very large properties (they have a lot of overhead). With smaller properties, then you're competing with more mom and pop types. A good rule of thumb is 60 units or more can support professional on-site management, which means professional investors are competing in that space. So, a four-plex could be a good start for a beginner. Anything with five or more units is considered a commercial property. 

@Mason Peacock

I once wondered that myself. If the institutional investors are so smart, why do they focus on Class A properties, when there are higher returns in Class C? I asked an industry veteran (in commercial real estate finance) once, and he told me that the institutions have boards of directors and layers of management, which means there is a lot more accountability in every investment decision. Class A is perceived as much safer, which makes up for the lower returns. If an investment fails (and it can happen to anyone), it's better to be able to say they followed all the "rules" and bought in a prime neighborhood, than to have to explain to the bosses why someone thought buying a run-down apartment complex in a blue-collar part of town was a good idea. 

Years ago, back when IBM was the gold standard in the computer business, they used to have a slogan, "Nobody ever got fired for choosing IBM." The tagline was silent on whether they were the best product; they only claimed to be a safe choice. Whoever was making a purchasing decision for a company would be covering his a**.

I think you need to decide whether you want to be a cash-flow or appreciation investor. The former means selling and buying cheaper properties in the mid-west or south. The latter means staying in CA. The debate has been made in thread after thread. Since you are fairly new to this you haven't made up your mind. One isn't right or wrong. It depends on your goals, risk tolerance, and your own predictions about the future of the market. 

The notion that every dollar you of your net worth must be earning you at least 10% (or else you are leaving money on the table) is an aggressive strategy. Having a high amount of equity in a property (relative to its cash flow) is a conservative strategy. Some want to only invest in their backyard, even if there are lower returns. Others are comfortable investing out of state if the returns are better. You need to decide what is right for you.

I went to high school in the mid-90s, when people knew what the Internet was, but it simply wasn't used by everyone yet. I had a shop teacher that would be up at 5AM every Sunday when the thick newspaper was dropped on his doorstep, and he would immediately flip to the classifieds and look for used cars that were underpriced. He would then run to the phone when he found a deal, and buy the car, fix it up, and sell it for a profit. He sometimes did the same with real estate, but mostly was into cars. 

Years later, when Craigslist and other web sites made newspaper classified ads irrelevant, I imagine that the urge to be the first guy in town to open up the Sunday paper faded away. But at the time, it was a very specific case where the early bird would indeed get the worm. There simply was no other way to know what was for sale until you saw it in print. 

Originally posted by @Chris Nance:

@Harrison Liu She is on board with investing, but 401k is sufficient for her.

After all:"it is what everyone does. And it works right?"

Sure, everyone does it. But no, it doesn't work. It's not hard to find an article that gives statistics on how woefully unprepared most Americans are for retirement. Show her some numbers and projections with your 401k, and if you are realistic, she will probably see that it will not be sufficient to maintain your current lifestyle after you retire. I don't even have to know how much is in there to make that guess.

Then your proposed solution is to to learn about alternate forms of investment (e.g. REI) to supplement your 401k.

I agree with Andrew Herrig . All the stuff being built today is upscale. Nobody builds working class apartments, but those people aren't going away. They still need a place to live. Now, if you prefer to live in a nice house in an upscale neighborhood, maybe they wouldn't be your tenants.

@Aaron Mazzrillo

I agree that the last downturn was unusual, and I believe the next one won't be housing related at all. Something else will dampen our economy, which of course means fewer people buying houses, which could mean more renters, or if jobs are really scarce, it could mean more deadbeat tenants, or fewer renters if people start moving in with family and friends.

Maybe it will be a government action? I wasn't paying attention in 1986, but my understanding is that the tax reforms that happened that year were devastating for certain types of investors in commercial property, so much so that the entire commercial market had a downturn. I'd love for someone who was investing then to comment on that. Lately, tax reform is being thrown about, such as eliminating the mortgage deduction. Very few people buy a home for the tax breaks alone, but it could make a difference for some. A reform of Freddie and Fannie could make it harder to get a loan, or maybe the rates would be higher. 

The population of the US grows every year, due to immigration. What if that changed? Certainly it would have some effect on the demand for housing, although it would probably only affect certain markets.