All Forum Posts by: Amit M.

Crickets???

What in the world is going on with all these Marcus and Millichap auctions!?! I'm getting blitzed with all sort of cheap NN and NNN offerings. One year ago dollar generals were $800-,1200k. Now? Some are dimes on the dollar. Same goes for other offerings incl. McDonald's, Starbucks, strip centers, some empty and some not. But all of them seem to be selling for a fraction of what they would have sold prior to the interest rate hikes. And last M&C email said an REIT was liquidating holdings, so it's not just mom and pops going under.

To those directly in the NNN space, is there some great reckoning going on? All I know is that when I last considered NNN in 2021/early 2022 the prices were way higher. Basically couldn't touch anything decent for under $1.5mil. Now it seems there's plenty of properties being discounted 30-60%. Comments?

@Russell Sherman yes you have some tough decisions to make. I was in a similar position, and went through the same scenarios ;)

1- basically decide if you want to sell it for sure. As @Kenny Cho stated you have prime real estate, and that in itself is a good hedge and generally safe asset to keep long term. I basically did that- I sold part of my portfolio in lesser areas that appreciated a lot in 2021/early 2022, paid cap gains, and used the proceeds to knock down all my debt on the prime rentals I wanted to keep long term. But of course in your case it’s only one property, so all or none is more extreme.

2- if you do sell, I think would split the proceeds in 2 or 3 directions. Maybe defer some $$ and try out DSTs. And the rest cash out and go into stocks (gradually, dollar cost average to minimize risk), safe savings/treasuries, and some maybe in private RE syndications. Keep in mind that both DSTs and syndications carry risk, especially now imo with the market going down/sideways. Personally I hope I can keep my prime properties in perpetuity, but I realize that at some point I may need to sell them off. Then I’ll be forced to make the same decisions, and absent any clear winner, I’d probably diversify in 2-3 different directions, hoping to generate a similar return that my rentals had, without taking on too much risk.

Best of luck, and let us know what you decide to do!

P.s. where in Mexico are you based? My wife and I toy around with getting a place in Bucerias (near puerto Vallarta)…but for now we’re annual visitors :)

Look I’ve lived in SF proper for 29 years and the picture is complicated. 

SF has a lower per capita murder rate than most large USA cities. It’s the “quality of life” crimes that are out of control….homelessness, car break ins, etc. And the local gov here is too stupid and tied up in its own BS minutia to solve it. It’s like, the year is 2020: defund the police! defund the police! defund the police! The year is now 2023: call in the national guard! call in the national guard! call in the national guard! I kid you not, at the mayors request governor Newsom recently sent the national guard to the tenderloin to help control the fentanyl/homeless crisis in that area. So yeah, local politicians here are looking like king size idiots.

The actual neighborhoods SF is famous for are doing quite well with active daily street life (working from home helps) such as pac heights, mission, north beach, Hayes valley, Russian hill, inner sunset, noe valley, nob hill, etc. etc. The city is still one of the most beautiful in the USA and the only one with significant European style walkability and architectural and natural charm. (Yea there are small levels of homeless walking around but not the crazy encampments as in the tenderloin.) Homes and condos still sell at a premium in the good neighborhoods and many wealthy residents are set up nicely and have no intention of selling. (Remember that many people have tons of equity and really low fixed rates to boot.)

Do I think SF RE is going to double in value like it did for each of the last 3 decades? No. But I think appreciation will still be solid down the road, so keeping quality properties here is still a great proposition. But I’m not sure I’d be buying here any time soon…I’m just glad I got in years ago and now I can coast for awhile and enjoy my daily lattes and neighborhood walks.

@Mike Jacobson hi Mike. It’s been awhile since you updated us on your dst performances. Curious how they have been working out for you since your last update?

Cheers

The big question going forward is, how will Bay Area and costal California real estate fare at large over the next 5-10 years? I for one am not optimistic that appreciation will be anything like the last 20-30 years. There are several key state and national level political, social, and economic reasons for this: some adverse blue state politics, hybrid work options, other states and regions becoming more desirable, etc.

Personally I think that if you already own appreciated and good quality properties (i.e. not war zones) in costal CA, they are safe and solid holds for the long term. But I don’t see how it’s worth buying in now for buy and holds, etc. Even with forced appreciation I think the return to effort ratio is not very attractive. Of course there are always good one off/unique deals, but in general I’m not seeing the growth and attractive price points needed to create a stabilized cash flow portfolio. In my market (San Francisco) I’ve felt that after 2015 it was slim pickings, and still is. I’m just glad that I was able to perform over the last 20 years and kill it with what I purchased in the past. But I’m afraid I don’t have encouraging news for those getting started and wanting to invest in costal CA now, except for maybe house hacking and buying your personal residence. It was great over the last 20-30 years but now, not so much :(  Perhaps others out there are more optimistic than me?

@Jay Hinrichs yup, your rate of return on the Palo Alto house was much higher than 8.5% as you used leverage (mortgage).  That’s how people made the big bucks in CA :)

@Carlos Ptriawan so are you essentially saying that those friends of yours made their wealth by the real estate they brought in CA more so than their stocks options or start up exits?

@Account Closed are you sure it's not a DST/1031 exchangeable fund? Look at that ad! If you're correct, this is what I'm talking about in my initial post- false advertising!

@John McKee you’re right about syndications, but DSTs usually don’t make capital improvements. Actually I believe they are not allowed to do so due to their structure. So if they can’t force appreciation, they can only benefit from natural market appreciation on their exit, which is why their returns are lower than syndications (but of course you get the benefit of the 1031 exchange.)

Here is another ad from Kay properties claiming high DST returns of 9.75%. Given that most DSTs offer 4-5% cash distributions, are they including potential appreciation to get to 9.75%? Seems pretty speculative.

@Robert C. hey shout out to Robert…long time no see!

@Jay Hinrichs shout out to you too Jay!

As to the quandary posed by the OP: The root of the issue is that it basically sucks to be an RE investor these days. It’s like everybody was gangsta 2012-2019, and then 2021-early 2022 was weirdly good too (due to market distortions caused by COVID.) Mid 2022 and onwards? Not so much ;)

So now investors are feeling the weight of dog properties…be it higher interest rates, non paying tenants, property values falling, government intervention (especially in CA), etc. Lots of advice given here, and each has of course it’s pros and cons. While syndications were the rage the last few years, I’m quietly hearing more about failures. Funny how it’s easy to find stories about 20-30% profits….but you really have to dig to hear about the losers. Remember syndicators run a business, and they invest in almost all market conditions. The question is if those investments make sense or not in *this* market. 

As for being a hard money lender. Could work, but remember people that need hard money usually need it for a reason. And those borrowers that are higher risk are risky for you too. Knowing this space well is important imo.  

With DSTs you need to make sure that the various fees don't negate your profits. Plus you have no control when they do an exit, and you're paying fees all over again to re enter into a new DST. Frankly I'm not sure how profitable they are long term. I haven't seen any longer term studies done, only promotional info when the RE market was generally rising.

Bottom line is that you need to understand which risks you’re capable of handling with these various options. No free lunch in this market!

FYI in my case I was lucky, as I profitably sold some properties late 2021 and early 2022. Not only was my market timing great, but I sold my less promising buildings and used the proceeds to pay down debt on my long term keeper properties, which have higher end tenants and are thus more stable and much easier to manage. So for me the decision was pretty straightforward, but it still required a lot of thought.

It’s not easy out there these days folks, best of luck!