All Forum Posts by: William Jenkins

When business related I travel 100% in hotels.  I know what I am getting, the location is where I need it, and I know what to expect.  I consider AirBNBs (don't always book) when I travel for pleasure with my family of 4.  It has to be a unique property with something to offer.   

When traveling for business, I would never use AirBnB.  I don't have time to review properties, photos, customer reviews and sometimes I don't even book until an hour before I show.  

 

It would be important to find out how long in the past it was and who the carrier/tower company was.  There have been many builds over the years that have gone on hold and will likely never materialize.  The longer ago the contact the less likely it is to ever be built.   

I would assume with a 100 acre parcel that you are very rural.  Lease rates are generally lower in these areas than in more urban/suburban locations.  It is all based on what their alternatives are and those are limited by zoning, constructability, ability to lease, and most importantly radio frequency needs.  

Any future deal would be in the form of an option ground lease.  They would typically have 2-3 years max to exercise the option and build if all due diligence was suitable.  In most circumstances if you sign an option ground lease they will build it, but it is not guaranteed.  

There are many things that you need to negotiate in your lease to get a good deal aside from just the rent.  You don't want to drive the deal away, but there are some major no nos that you may agree to that will completely kill the value of the lease.

Keep us updated.  

@Sarah McCluskey - I just don't accept 8% proforma returns on active investments.  Now you mention that you are going to use a property management company and that's great, but this still will not be a passive investment no matter what you think.

Some things to consider:

1.  If you really want to get into rentals I would highly suggest managing your own property.  At some point you may be able to scale up and hire this out, but I think it is absolutely imperative that you gain experience as it is worth its weight in gold.  Also, property management firms on these types of properties can be a major cash drain.  They take a percentage of gross and lease up fees but the biggest issue is that they don't have a vested long term interest in the property.  You will get much better tenants if you learn to vet them personally and much more economical/quality repairs if you build your own contractor network.

2.  If you are happy with 8% returns than that is fine (everyone has their own underwriting guidelines), but keep in mind that there is also an opportunity cost to every deal you do.  Maybe you could go out and buy 3, 5, 10, etc. of these deals immediately, but at some point you are going to be tapped out and won't have the capacity to do another one.  What are you going to do when that "home run" or "grand slam" deal comes across your plate?

3.  Make sure you double check and triple check your numbers.  I would also add a contingency too.... Maybe its just me, but 9-10 deals I do end up having something pop up that I wasn't expecting.  Not really a problem if you account for it.  

@Dennis Wayne - Exactly what I was thinking but didn't want to say anything (glad you did).......  I think its important for new investors to do a deal to get in the game, and it doesn't have to be a home run, but this doesn't look good.

This has burned out landlord written all over it. An 8% cap on an ACTIVE investment is terrible. If it was some NNN with a quality credit tenant then that could be a different story.

This unfortunately is the market we are in however.  If you want in you have to pay retail, and if you do that, you are very likely to have terrible returns going forward absent a mass inflationary event.  Could happen, but I don't use it as an investing thesis.  

@James Hamling - A roof is the most important need but don’t ever discount people’s ability to trade down or share housing.  We saw a lot of this after 08.  higher end tends to get hardest.  

In a lot of Midwestern cities there is a huge supply of roofs, just not necessarily in the areas you would want to live in.  

I think prices are at an extreme right now.  Could they go up further.... sure, but I think that would be more of a function of interest rates then supply demand.  

@Sean MacLeod - Are you seeing prices actually drop (closed transactions) or just over priced listings reduce price back in line with market?   
 
Just curious.  In St Louis, We have not seen a drop at all.  There are some sellers that were shooting for the moon that have come back down to the stratosphere, but year over year closed is still higher.  

My own opinion.....  Owner occupied properties and neighborhoods are probably not in bubble territory (high yes...bubble no).  Values have been on a tear, but people don't buy a home based on price, they buy based on payment.  Cratering interest rates and increased values still lead to the same monthly payment and that is ALL people care about.  I think lower to lower-middle income neighborhoods could be an exception as you really could see job impacts from COVID (think restaurant and hospitality workers, etc.). 
 
I think investment properties are in bubble territory, and I think it applies pretty much across the board (from small SFR homes, strip centers, office buildings, and the list goes on). The returns that people are purchasing assets for and the leverage they are using is absurd. Either cash flow from those assets (rents) needs to rise substantially, or prices need to fall. I just don't see rents rising in this market which leads me to believe we will see asset prices fall.
  

@Joe Splitrock - I agree with a lot of what you have said.  Having said that, high prices relative to the past don't concern me, it is the rates of return that assets are trading at.  I don't care if an asset that was selling at X five years ago is now selling at 2X or 3X as long as the NOI has gone up 2X or 3X as well.  That simply isn't the case right now in a lot of markets.  I'm not really criticizing others for jumping in right now.  Its their own decision and they can all make up their own mind if they are satisfied with the current market risk/reward offering.  Cash pays nothing right now and that is painful, but I've been in bad deals before and they are even more painful.  I'm always open to buying, but the deals that fit my criteria are few and far between, and I will not lower my criteria.

Final point.... I'm not sure if we will get a major residential crash and I'm not necessarily predicting one.  What could easily happen though is value plateau/slight trough where we begin to see no appreciation, and that could kill all of the marginal deals going on right now.  Will it lead to mass foreclosure.... probably not, but I do think it will turn a lot of gung ho high leverage BRRRR type investors into tired landlords.  More investment supply and less demand = more deals available.

An area where I think you could see some opportunity however is commercial (office, retail and hospitality).  It isn't there yet, but the underlying distress is there.

@Joe Splitrock - I see a lot of what you describe as average people acting like experts.  Most of these people didn't live through the last cycle and only know what it is like for prices and rents to go up.

I can't call a market top, but my gut tells me we are approaching one.  I see deal after deal (in multiple market segments) get sold immediately at prices that just don't pencil.  People are getting levered, lowering their standards, and reaching for deals.  That doesn't bode well long term.

Most of those I know that have been in the game for multiple market cycles have not been buying at these levels absent an excellent off market deal.  
 
  

@Kevin Maher -  What are you seeing in FL right now? 

The coasts always lead middle of America by a year or so.