Jump to content

My next step in real estate


Boner
 Share

Recommended Posts

Im in healthcare, which is ok. Been in it 15 years. Its a comfortable living but I feel like I am always waiting for the next insurance company to leave, or the next group that has a $12,000 deductible. I need a way out. It seems like the wealthiest people I have met have/had massive amounts of real estate. So, that is my strategy. As I drive through town, I think that *somebody* owns this stuff, and its not me!

 

I started 3 years ago in real estate. I now have 3 commercial properties. They are worth about $1,000,000 total and I owe $480k. That leaves me with about $500k of equity. This doesnt include my house, which I have about $500k in equity also.

 

For all of you that have gotten somewhere in real estate by your own means, what would be a good next step for me? I just dont know what a concrete plan should be to hit it hard. There is a family practice doctor that just built a $30 million dollar apartment complex by me. That is great, and I wonder how they got to that point. Hard work? Inheritance?

 

In my head, I will have everything paid off in 10 years at the current rate. At that point, I will have $2 million in equity and I will be 48 years old. My goal is at least $10 million in property. My problem is that I dont know if I need to wait until Im 48 and then use my $2 million equity to get a $10 million property loan? Or, do I use my current equity to strategically borrow now, and use these current 10 years.

 

Im a little lost, but would appreciate some experienced advice, if you dont mind. Im 38 now and wish I would have started this 15 years ago. Its a lesson that everyone has to figure out (and many dont). Im ready to listen!

Share this post


Link to post
Share on other sites

  • Replies 115
  • Created
  • Last Reply

Top Posters In This Topic

Top Posters In This Topic

Posted Images

I'm interested to hear the answers too. Also why did u decide to buy commercial real estate. I have been looking into buying a real estate portfolio of houses. But I just wonder if commercial is better than actual homes.

Share this post


Link to post
Share on other sites

It's hard to give advice if I am not familiar with your particular area. One thing I will tell you, do not wait, if you want to do something do it now, do not put it off, everyday you aren't in it its a lost opportunity.

 

Being perfectly honest $2mil isn't a great deal of money so waiting the next 10 years to capitalize on it isn't worth it, use your equity and talk to your bank.

 

RE is basic formulas are simple but it comes down to how switched on you are, what are you able to see where others can't, your ability to negotiate and put together deals.

 

Are you able to build from scratch, renovate, manage construction, town planing, building approvals, manage rentals, figure out the best use for a piece of dirt, push for a change of zoning from residential to commercial or vice versa, can you see gold where others see dirt?

 

Most importantly do you have the right connections, consultants, engineers, architects, banker, RE agent, lawyers? These people are the key to your success.

 

When properties hit the market 99% of the time you are too late, I sign contracts weekly for off market properties, 99% I don't get, it's a constant battle to acquire the right asset, when you enter fresh you have very little chance, when I look at something within minutes I know what I can do with that property, within 24 hours I have basic sketches done, within hours I have town planning advice, speed is important because you snooze you lose, I see multi million dollar properties signed up within hours.

 

If you know what you are doing you can make a tone of money if you don't you can lose a tone of money.

 

Educate yourself by studying your local market, you are on the right track with looking at commercial property, I dislike residential, I do a bit here and there but not my preferred deals.

 

Sorry about the scattered post I am on my iPad.

Share this post


Link to post
Share on other sites

Thanks for the advice Fortis. That is what my gut is telling me. I think I know what I need to do now. My first couple deals were like your description. I bought some ground for 10k per acre, rezoned commercial, and sold it. Had to do some dirt work, get city approvals, and deal with FEMA. But, it all turned out good in the end.

 

Now I just need to figure out how to get a loan based on my current equity. That will be interesting. I am on the edge of the city, so there is def opportunity. Thanks again!

Share this post


Link to post
Share on other sites

Thanks for the advice Fortis. That is what my gut is telling me. I think I know what I need to do now. My first couple deals were like your description. I bought some ground for 10k per acre, rezoned commercial, and sold it. Had to do some dirt work, get city approvals, and deal with FEMA. But, it all turned out good in the end.

 

Now I just need to figure out how to get a loan based on my current equity. That will be interesting. I am on the edge of the city, so there is def opportunity. Thanks again!

 

Banks will look at two main factors, your ability to repay debt and obviously a deposit towards the loan, they generally look more favorable towards passive income (not generated by your own operations or yourself) so I'd suggest the following:

 

Look for a property with holding income and upside development potential, I know it won't be easy but that's what you have to chase.

 

I am not sure how leading works there so I can't really help with any suggestions, even here lending for me it's a bit different, I generally put down majority of the cash, complete the project go back after completion refinance and extract my cash out so I can reutilise it on the next project, at that point lending is just a formality because you are giving them all the security and exact ingredients they are looking for.

In terms of holding risk, I positively gear all my properties, most have their properties negatively geared in order to take advantage of tax benefits but I feel more comfortable to have them the other way around.

My self imposed rule is, if 60% of the complex is unoccupied the reminder of the income has to be sufficient to cover interest on the loan. I know I am quite conservative but it's worked for me I have no issues running forward in similar manner, having said that I'd like to add that it's a bit too conservative, with a bit more risk you will have greater rewards, at the begging you should probably take on a bit more risk than that in order to accelerate growth.

 

As for acquisitions as I said look for plots which are underutilized, if they have tenants, if you can, keep them there until you've completed the planning for increasing GFA, try to negotiate with existing tenants to occupy newly developed space, do not renew their leases at expiration if they aren't interested in moving into new buildings or worse case scenario, golden handshake, pay them to move out, make sure you have demolition clauses in tenancy agreements if you buy run down buildings which you are intending to take down. The vendor (current landlord) can insert them retrospectively in the leases, obviously with tenant's consent, make that condition of your purchase.

 

BTW whatever advice comments I make here are based on my own experiences please do not consider it as investment advice, you and everyone else reading this have to do your own due diligence and make your own decisions, remember what works for me might not work for you.

Share this post


Link to post
Share on other sites

That makes perfect sense Fortis. Thanks! I like the holding income idea a lot. I have missed a couple excellent examples where there were old farm houses with large parcels I could rent out and hold, and they were on commercial frontage roads.

 

I think I have an idea now. I'm on the edge of town and it's all farms around me. Oddly, the YMCA just built it's nicest branch in the country across the street, and a $100 million hospital went in 1/2 mile farther out. It's sort of funny, because they are literally surrounded by farms in all directions.

 

I think there is a potential to get land from people who don't see what's happening soon. But, I'm in kansas and my city is not huge. Only 500k people. Only downside is that we are very polar, as virtually every jet in the world is made here. When the jet economy does bad, everyone does.

Share this post


Link to post
Share on other sites

I guess I should also ask:

 

When you approach a property owner, how do you contact them? Knocking on the door? Mail? Envelope on the front door?

 

Also, what is your explanation? In other words, they have to know something is up if you are offering to buy something that is not for sale.

Share this post


Link to post
Share on other sites

I guess I should also ask:

 

When you approach a property owner, how do you contact them? Knocking on the door? Mail? Envelope on the front door?

 

Also, what is your explanation? In other words, they have to know something is up if you are offering to buy something that is not for sale.

 

I like to picture Fortis rolling up in the Huracan and revving the engine till the property owners come out to see the car!

Share this post


Link to post
Share on other sites

I have been flipping properties since the early 2000s... couple of things I learned; first, Its hard to predict the market 6 months out let alone 10 years. The market moves really really fast these days (mainly due to investment shoppers, and flippers like myself). Avoid projects. Know the area.

and most important, never fall in love with an investment, and do not be afraid to take a profit.

Share this post


Link to post
Share on other sites

I guess I should also ask:

 

When you approach a property owner, how do you contact them? Knocking on the door? Mail? Envelope on the front door?

 

Also, what is your explanation? In other words, they have to know something is up if you are offering to buy something that is not for sale.

 

That's why I mentioned above, it comes down to your skills, are you good enough to sell ice to Eskimos ? :icon_mrgreen:

 

Blank cheque in their mail box with the property owner's name on it works sometimes :icon_mrgreen:

 

It gets them thinking most of the time and at least gets you to a contract.

 

I have a story about negotiating a deal with the last owner of a house, key house, in the centre of a number of houses I put together in order to rezone the site that would keep you on the age of your seat, after I've done the deal I literally had to go to bed I was that exhausted, it was not fun, a RE agent stuffed it up for me and I had to bring these people around and they were hostile to say the least, glad to say that I was able to pull it off, looked after them and now we've become very good friends :icon_thumleft:

 

Boner on a separate note, why do you restrict yourself to your area? Go outside it apply the same formulas.

 

Also if you can afford it, the prices you've mentioned are very reasonable, start land banking, it sounds like you have a good understanding of what's there now and have enough foresight to understand what that might come in the future.

 

Good luck.

Share this post


Link to post
Share on other sites

I like to picture Fortis rolling up in the Huracan and revving the engine till the property owners come out to see the car!

 

Funny you say that, there are times when the Lambo helps and I did use it to my advantage but there are times when you must leave it at home. :icon_mrgreen:

Share this post


Link to post
Share on other sites

I have been flipping properties since the early 2000s... couple of things I learned; first, Its hard to predict the market 6 months out let alone 10 years. The market moves really really fast these days (mainly due to investment shoppers, and flippers like myself). Avoid projects. Know the area.

and most important, never fall in love with an investment, and do not be afraid to take a profit.

 

Hollywood if you are a flipper you generally work with a different set of rules and you look for different ingredients in the deal, long term holders are different and can generaly screw deals for you by paying more, when I look at a site I am looking with a 10 year plan in my mind.

 

I just flipped a deal within 60 days from purchasing, I've made a solid 6 figure gain and after a split I've retained half of the plot but now I am kicking myself, I wish I didn't, it's residential and that's why I moved it but I should've kept it, I went back and told them to contact me if they ever want to sell but I won't hold my breath.

 

Tax implications have a huge impact on flipping properties quickly, we have quite a few incentives not to do so, it's all dependent on what the rules and regulations are where you live.

 

 

Share this post


Link to post
Share on other sites

I'd like to get into real estate. I own a small (11 lawyer+staff) law firm in Houston. I live 20 miles west where all the new neighborhoods and medical centers are being built. It's just so capital intensive that my conservativism Kicks in. I've been more aggressive in my law business, which I understand, but RE is a brave new world.

 

Great thread. I appreciate the primer.

Share this post


Link to post
Share on other sites

Tax implications have a huge impact on flipping properties quickly, we have quite a few incentives not to do so, it's all dependent on what the rules and regulations are where you live.

 

In the US we have what's called a (Section) 1031 Exchange which allows for tax free capital gains on property but only if you move the money into another property, and have that property identified within a certain time period.

Share this post


Link to post
Share on other sites

Fortis what do you think about deciding between buying real estate in the very expensive cities versus the less expensive cities to get going?

 

So for example say $1 million that buys you a single unit home/apartment in one city or maybe that same amount of money could buy a multi-unit residential or commercial in another city?

 

I've understood the returns to be better on bigger unit properties.

 

This naturally comes up when you live in those expensive cities and the cost of entry is rather daunting.

Share this post


Link to post
Share on other sites

I'd like to get into real estate. I own a small (11 lawyer+staff) law firm in Houston. I live 20 miles west where all the new neighborhoods and medical centers are being built. It's just so capital intensive that my conservativism Kicks in. I've been more aggressive in my law business, which I understand, but RE is a brave new world.

 

Great thread. I appreciate the primer.

 

Houston is a gold mine. Even with oil in recession it has medical, education, and other industries that run thst huge sprawling city. I'm part owner of an apartment building in Houston as part of an investment group. This group has a few complexes. I am diversified but the unit I went with this group on paid ridiculous returns and for me it's only been initial investment and mailbox money. Zero work involved.

Share this post


Link to post
Share on other sites

I guess I should also ask:

 

When you approach a property owner, how do you contact them? Knocking on the door? Mail? Envelope on the front door?

 

Also, what is your explanation? In other words, they have to know something is up if you are offering to buy something that is not for sale.

 

Go build a relationship with a local bank and see if you can set up a line to borrow against your equity. The local bankers usually have an inside line on defaulting and troubled properties and sometimes they will give you a list of assets they have had to take back or are in the process of taking back. It's a good place to start. Set a meeting with a bank manager to discuss.

Share this post


Link to post
Share on other sites

Fortis what do you think about deciding between buying real estate in the very expensive cities versus the less expensive cities to get going?

 

So for example say $1 million that buys you a single unit home/apartment in one city or maybe that same amount of money could buy a multi-unit residential or commercial in another city?

 

I've understood the returns to be better on bigger unit properties.

 

This naturally comes up when you live in those expensive cities and the cost of entry is rather daunting.

 

 

In Australia All cities are expensive so it could be hard to compare. I'm also interested in Fortis' thoughts on this. But here $500k barely gets you on the property ladder and $1m is pretty much a basic middle class home.

Share this post


Link to post
Share on other sites

In the US we have what's called a (Section) 1031 Exchange which allows for tax free capital gains on property but only if you move the money into another property, and have that property identified within a certain time period.

 

Wow, if we only were so lucky :(

Share this post


Link to post
Share on other sites

Houston is a gold mine. Even with oil in recession it has medical, education, and other industries that run thst huge sprawling city. I'm part owner of an apartment building in Houston as part of an investment group. This group has a few complexes. I am diversified but the unit I went with this group on paid ridiculous returns and for me it's only been initial investment and mailbox money. Zero work involved.

 

I concur. Just bought an apartment complex close to Houston and roi is very favorable. Looking into buying another soon, hence my STS possibly for sale :icon_mrgreen:

Share this post


Link to post
Share on other sites

Wow, if we only were so lucky :(

 

 

We pay the australia tax on everything. :/

 

I may be wrong here, butI've heard that in the USA are you are somehow able to claim the interest on your home mortgage as a tax deduction?

Share this post


Link to post
Share on other sites

We pay the australia tax on everything. :/

 

I may be wrong here, butI've heard that in the USA are you are somehow able to claim the interest on your home mortgage as a tax deduction?

 

 

Yes, mortgage interest deduction up to 1 million dollars mortgage amount.

Share this post


Link to post
Share on other sites

We pay the australia tax on everything. :/

 

I may be wrong here, butI've heard that in the USA are you are somehow able to claim the interest on your home mortgage as a tax deduction?

 

Yes-that is one of the biggest deductions regular citizens have as non-business owners....

 

And states like FL have no State Income tax (only federal)

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
 Share


×
×
  • Create New...