All Forum Posts by: Scott Krone

@Kurt Granroth - Sorry for the confusion. REIT's are certainly one option, but not what I was solely referring to. For instance:

Turn Key is a major topic on BP.  As you pointed out, you can leverage $250k to increase your portfolio value to $1.0m.  It will also increase your cost, and lower your cash flow.  Most Turn Keys are viewed as passive income (blue chip stock).  Major market changes will impact them - ie the last real estate crash in PHX where homes were renting for less than apartments. 

@Sabrina Brown

Apartments - Blue Chip hedge.  These can produce both cash flow as well as appreciation, provide you with a bit more diversity by having unit types, and economy of scale.  Harder to get into, I would suggest having a property manager (portfolio manager).  

@John Casmon 

@Vinney Chopra

Notes:   Lower yield ie Bond.  Consistent performance less management.  There are companies that manage these transactions.  They are to preserve income and grow it at a more conservative rate.  I have meet some great BP people who do this.

@Dave Van Horn

For us, we view our product in a similar fashion.  We convert empty/non performing buildings into self storage.  It is a retail business that thrives in both a down market (put) as well as a growth market (option).  We gain both passive income and appreciation (Growth Fund).    For us we view our product as a Growth Stock with Options and Puts..   Typically, we increase the value of the asset by 2x.   Another way we see it as a stock option is we structure our deals with syndication.  Our investors can hedge their investment over multiple asset classes by not having to incur the entire investment (same can be said about apartments - but we don't have toilets or calls in the middle of the night!)  Much lower cost basis than apartments.  Big apartments (600 apartments) could cost $25m+.  We can own/operate 600 lockers for $7m, and generate very healthy returns at a fraction of the cost.  Less risk.

What I was suggesting was first determine your strategy, and then study the different markets to insure your investment class is at the right time for buying. For instance, I hear the CAP rates of apartments in CA, and I would be selling, not buying if I was in that market. There are charts and data for each sales market be it homes, rentals, apartments, and even self storage! Many in the CA market are buying Turn Key in the Midwest due to lower costs. We base our entire model off of demographics and data. Just like analyzing stocks, we study demographics to determine our buying and selling strategies.

Hope this clarifies my point.  It may require a bit more due diligence, but hopefully keep you on your financial track.  Worst case, some people to reach out to and learn more about the different markets.  

@Kurt Granroth  It appears you are quite knowledgeable to the pros and cons of stock market.  There are ways to use real estate as an option/put on the "market".  With the funds you are willing to commit, it should allow you the flexibility beyond just rental income single family homes to invest in real estate.  As with your stock portfolio, I would encourage you to consider your goals - growth, income, hedge (diversity), how much involvement you wish to have (passive investment verse active), etc.  Based upon those goals, invest your designated amount accordingly.  

Whether in PHX (we used to own property in Paradise Valley) and my associate grew up in PHX, factor into your decision where the market is in its cycle - similar to stocks. 

@Brian Seggebruch  Here is an interesting article written by someone whom I consider to be a mentor.

https://www.universitybusiness.com/article/making-...

@Richard P. @James Ihssen James makes a good point. Private money can be different than a private money lender. Richard I believe the question you are asking is: "How does one financially structure a long term hold using someone else's money?" There are many ways this can be done: equity, preferred return, preferred return with equity, a note, etc. The way to best determine what works best for you and your investor is understanding each others goals and objectives. If your investor is looking for passive income, then perhaps a note at a lower rate. If your investor is seeking growth, then perhaps an equity position is a more appropriate option. It is important to create a win win for both parties. Either way, the property can be set up in an LLC, and then the two of you can figure out what is the best arrangements for both of you.

@Neil Dhawan

1.  For us, we view buy and holds as both a retail business as well as a real estate investment.  The reason we say that is our product, converting non performing assets into self storage facilities, is fundamentally a retail business.  The process we used to accomplish that is specifically a real estate investment that produces passive income (cash flow) and significant appreciation (value of the real estate increasing due to the cash flow).

2.  I wish I had learned the value of the internet sooner for our business model.  In addition, the importance of systems in order to scale the business more effectively.

3.  Absolutely, we hire a company that manages $7.0b of assets to manage our properties.  We do what we do best, and hire them to do what they do best.

4.  Challenge - real estate is a fluid business, and not a liquid business.  It is not like the stock market where you can go online and trade it immediately.  I see patience as the biggest challenge.  Everyone wants instant success.  Instant success more times than not is luck.  True success is when it is repeatable.  That requires patience.

Here is to your success (more than just $'s).

There is not enough information to answer your question.  However, three things would give me pause.  1.  $105,000/door, 2 & 3 your comments about double digits growth in rents and appreciation.  It appears you are buying at the upper end of the market.

A local Chicago lender is Renovo.  On a national front Grand Coast Capital.  Both evaluate the deals first as opposed to traditional lenders.  They will charge more.

Raising capital for a specific project is vastly different than raising capital for a fund where you are then deciding where to deploy the assets.  They are two entirely different animals.  I would highly recommend you seek legal council.

@Brian Gallagher @Federico Gutierrez 

I do not believe you were asking on the quality of the deal, nor have you provided enough information to assess that. With regard to partnering Federico sums it up pretty well. Begin a partnership if it takes your company to a new level. I believe the other question you asked is "What would the basic structure look like". You can use an LLC to own the property. Within the LLC's operating agreement, you can spell out all the various terms as to how to manage the company. The operating agreement in essence becomes your constitution which governs the company.

@Rigo V. We have been doing this for over 20 years, and everyone of our projects has been in a partnership. Partnership is a great way to expand in areas which you wouldn't normally be able to. A friend who runs a nationwide real estate organization was asked why he partners on deals when he has the means to do them himself. His response, "Because I can do more deals by partnering." Partnering is often associated with cash, but that is not always the case. We are currently partnering with a $7.0b company to manage our self storage facilities. Why, they can manage it better than us. We can build it, they can manage it. Its a win win. That is the key, is to create a win win scenario for both parties. To that end, I would suggest putting the building into a LLC rather than your name. Right off the bat, knowing or unknowing, you have created a imbalance in the partnership (guarantees, title, etc). Work out the terms within the LLC. Banks will accept the LLC.