All Forum Posts by: Tom NA

I can only speak to a specific location but here in the San Francisco area, the standard commission of 6% can often be negotiated down to between 4% to 5% for $1mil properties. Of course remember out here, $1mil isn't necessarily considered luxury. You usually need to leave 2.5% for the buyers agent so that only gives you so much room to negotiate on the sellers side commission.

Hi all,

As a relative newcomer with more than an ounce of caution and skepticism, I wanted to get some opinions on investing in "luxury" properties. I've been looking to passively invest, using my cash and credit, and parter with others and because I can bring excellent credit, income, and some cash to the table, I've heard from several people that focus on these properties. One person finds properties between 50%-75% of value and then has a "guaranteed" purchaser of any of these properties at 80% value. Another buys well below market, holds for a couple years while renting to execs through a placement firm, and then sells. The list goes on.

Of course in the end, it's really my money, my credit that's on the line. Sure they found the deal but if something happens, it's my million dollar house with million dollar payments to worry about. My experience tells me that moving these properties and for that matter, valuing these properties is indeed quite difficult due to the lack of good comps as well as the much smaller pool of buyers. After all, ultimately an appraisal is only as good as the piece of paper it's written on - the true value is what someone will pay me.

All that said, I'd like some opinions on investing in luxury property - how do you experts feel about it? Does anyone here actively work at those levels or do most people work on lower dollar houses? I guess just like any other investment, it depends on the numbers - the discount you get when buying as well as the exit strategy but I think my great hesitation is that at the higher dollar values, the margin for error can be catastrophic vs. much less when you're buying $50k properties. Any thoughts and experience appreciated!

RESmith,

My opinion is probably a little different than many but the message is the same in that it depends on your goals. When we bought our first rental property, we just went in with the idea that we were diversifying our assets and if the house could slightly cash flow or break even with 20% down, that was ok since it was purely a long-term investment where someone else would pay our mortgage and we'd have a 2nd house when retirement rolled around. This has worked out quite well on that property and we are very happy with it as it is easy to rent out and has almost doubled in value over 2.5 years (don't count on this much appreciation - we got lucky/timed it right!). Btw, our fixed expenses there are mortgage, property taxes, insurance, HOA, property management, and home warranty. Of course repairs and vacancies are on top of that - we have definitely had repairs but vacancies have not been an issue to date.

Moving forward however, our goals have changed so we're not looking to come out of pocket for so much money in our investments or if we do, we want much more cash flow. That is, we were ok putting $40k down and barely cash-flowing because that suited our needs for property #1 but if we put $40k down now, it will need to bring us significantly more cash flow than break even (probably like $400-$500/month or more).

Again, we were very conservative out the gate and are still very much rookies so our strategy will not be aligned with many others on this board or even yourself but decide what you can live with and what's important to you. We value equity in our property and also the ability to know that even if we have NO tenants for a year or longer that we have enough in reserves to handle payments on the property without having a fire sale. Many people are much more aggressive (though some of those people get in trouble too).

Good luck!

I agree John that this appears to be very thin for the investor. However, viewing it from my side a year ago - I was taking into consideration that I paid retail for my first 2 rental properties so this was putting me ahead of the game when compared relative to those (as an aside, those retail purchases have worked out just fine for me). Now that I'm a bit more educated (with a long long way to go) and realize that there are many sources where I won't need to pay retail for property, what they have to offer is much less appealing. Again, I could be misrepresenting since I never got too serious with them plus I think they have expanded their offerings which when I first engaged with them was exclusively in Philadelphia and Atlanta.

I'd also like to hear if anyone has any experience with them. I have spoken with them before and get periodic follow-up calls where they try to get me to invest. If I remember correctly, their business model was to sell rehabbed property at 80% ARV which would allow the investor to get in at no money out of pocket while maintaining an 80% LTV. The investor then would be setup with a renter at roughly breakeven or perhaps even slight negative cashflow and then could sell after 1 year (or hold). I was never convinced that this was a great investment for me, even though it meant no money out of pocket. I have never invested nor have I spoken with them for quite some time so I could be off on the details so please don't take this as gospel.

I have to admit I didn't read the entire article but I got the gist of it by reading the first several pages. I think some very valid points were made and there is a benefit to carrying some debt on your home as mentioned in the article but here were my 2 concerns:

1. As someone else mentioned, tax savings are purely speculative based on many individual factors. Once you hit (I think) $150k AGI per year, you can start kissing part of your mortgage deduction goodbye and if you get into AMT annually like I do, then your mortgage deduction benefit really fades fast.

2. Since this is a real estate investing board, I was taking the leap that Brother B very well might be encouraged to put his excess cash into... well... more real estate! Obviously this is reading between the lines and is a big assumption but if indeed Brother B follows this course, this makes him no more liquid than Brother A and in fact in worse shape potentially as he may struggle to get much money out of *any* of his holdings in a pinch.

I guess also as someone mentioned, my concern with most people is that the extra money would in essence be "wasted" rather than put into a solid investment. I use the term "wasted" loosely because buying a boat or a BMW for example is not "wasteful" if it brings pleasure but it certainly isn't going to return 8% on your money put in either. Building equity is a method of forced savings that unfortunately many people require.

To summarize, my opinion is that while indeed leverage is a valuable tool, using too much of it or using it carelessly can get you in trouble. I prefer to have a decent amount of equity in my properties so that if/when I need to sell, I'm not bringing more money to the table just to get a property off my hands.

Hi Sharney,

I too am from California so I also look outside of the state for reasonably priced investments. I'm fairly new to the game but so far have had some success with rentals in both Phoenix and Portland that are both cash flow positive. In fact I have never even seen one of the properties in person. I think if you do your homework and most importantly, can get connected with people you trust, there is definitely the opportunity for success. My goal with these first properties was ~$200 cash flow per month which I accomplished with 20% down.

I'm now looking to broaden my horizons and have been looking at potential partners in rehabs where I can remotely provide the funding and credit and they can do all the leg work. In this case, obviously I'm not concerned about cash flow but again, believe that out of state is where my resources can be used most effectively and I'm confident that if I approach it properly, this too will be a successful strategy.

In short, it may feel less comfortable investing far from home but as someone who has researched opportunities in many different states and dabbled a little, there is definitely potential. Now, if you're looking to be the person who is managing a rehab or being day-to-day hands-on, I don't think that is the case but as a pure cash/credit investor and/or landlord, I think you will find that remote investing can be quite rewarding.

If you are looking for some resources to connect with in other states, try this board of course or other places on the web (I like Craig's List). I'd also be happy to let you know of some of the more interesting things that I've run across in my searches over the past couple years. Good luck!

Hi, I've been a lurker to this forum (and others) for quite some time and decided to sign up and join the community. I have 2 rental properties so investing isn't totally foreign to me but I still consider myself quite new. Since we live in California (expen$ive), we are usually looking for opportunities out of the area. To that end, I'll throw out that we have excellent credit, strong assets & some cash, and stable employment to bring to a partnership with the right person and the right opportunity. We're open to just about anything and look forward to interacting with others in this community!