Alex,,, Cheeves…
should investors be scooping up shovel ready lots in your minds.
I just had one batch of 300 come accross my desk
bout 30 are in charlotte ( Alex I will talk to you offline) and bunch in Florida, want to talk to Cheeves about those.
A few I looked at were in the High CA desert and have no value.. there is 100 or so in Atlanta were I have been methodically loading up on lots.
Curious for Aussie investor feedback… Do you folks ever speculate on land…. And or make investments that have the potential to return 10 to 30X return but no cash flow for 2 to 5 years…. At a price that is less than a down payment on a car per parcel…But you got to buy 300 of them at once…..
Hiya Jay
This strategy just would not work for me, you need deep pockets to be holding this stuff and if you are not buying large parcels why would you bother, lots of pain during 2-5 years, or perhaps longer.
In Australia I like buying properties that are sitting on land which can be rezoned/subdivided, eventually bulldozing the house and building 3 or putting together plans and permits and onselling to an investor. However with this strategy you still have rental income to offset holding costs.
I would be interested in understanding why you are buying land in a particular area, as mentioned Atlanta, what is the attraction here?
Also, you stated in one of your posts that you would not buy in Texas – oversupply land/blocks?
Cheers WI
The reason I am buying land is that I am picking up shovel ready lots ( that means they are buildable now no improvements needed) for 1k to 5k per lot… This package I am looking at is 300 lots for 400k… cost to build just the utilities is 4 to 5 million.
The big public builders Lennar,,, DR Horton, Pulte and others have been buying these lots over the last 4 years… for pennys on the dollar.. .they are income averaging because they are also stuck with lots that they paid huge dollars for.
Now Horton I know first hand always paid market prices…. they would use local front men to option lots. then take them down as they had demand.. So they did not get stuck owning hundreds of thousands of lots they paid too much money for. Centex now they bought lots and had problems because they were in them too deep… Lennar ended up buying Centex. And I personally bought 14 lots from a developer here in Portland that Centex failed to exercise their option.. They had a contract for 195k per lot and I ended buying them for 105k per lot, and built out the 14 homes they sold for 350k to 400k.. We build for about 65 to 70 dollars a sq ft. all in here in our market.. thats builder grade no upgrades although its far better than builder grade in the South east.. Like what WI and I are buying, the Vinyl village houses. We have 9 foot ceilings, Hardee plank siding. 30 year comp roofs.
Granite counter tops Stainless appliances, Nice upgraded laminate flooring Not that cheap stuff they use in the south east. Up graded cabinets. Oil bronzed plumbing fixtures, plus full landscaping front and back with sprinklers and nice size trex deck. Oh and big windows and plenty of them not the little windows….. In GA they build the houses as cheap as you can build a house period, and those are the ones we are all buying… So you take cost to build the lot 25k plus say 10k for the dirt … Cost to build those vinyl houses is about 55 a foot, So your still north of 100k to build them.. And we are picking them up for 60 to 80k… still a good deal and under replacement values.So my long range plan is this:
I am buying cash flow rentals in my TWH model,, IE: have bought just over 100 this in the last 9 months. And will accelerate that to 20 to 30 a month for the next 6 months then move that up to 50 a month as I bring on other markets… At the same time I am buying these lots that are just too good of a deal to pass up on…
There is going to come a day and its going to be in the next 24 months to 36 months that cash flow rentals for the Net YEILDS we like to make will not be there in any great number… And we will start to sell off our houses to those that will pay us our profit and I am not looking for huge profits if we can sell and make 20 to 30k a house we will be fine….
What will happen is that new construction will take off again in some meaning full way.. And I will be sitting on 500 plus lots that I paid next to nothing for IE 1 to 5k per…. and our profits on the new constructions sales will be very good.
At least thats the thought.
I am buying lots right now in Oregon for 50 to 125k per…. And building homes and selling them for 199 to 350k per.
In atlanta were I have bought these lots at like I said 1 to 5k per lot… I will be happy to build new homes and sell them at 125 to 150k per home… Very achievable and very profitable.
Texas:
Its not that I would not buy in Texas I would and may: my only caveot is that one needs to be very careful up front checking on property tax's…And one needs to be cognizant that in Texas its very easy to build new… The market there did not erode as bad as other areas but it also does not rise because new construction is always chasing exisiting stock.
I still think at the end of the day what we called finished lots IE shovel ready, that one can pick up for 5k and maybe be in including tax burden in 5 years for 7k,,, and that same lot cost 25k or more to develop IE streets and roads.. that is a good play.
JLH
Jay
"There is going to come a day and its going to be in the next 24 months to 36 months that cash flow rentals for the Net YEILDS we like to make will not be there in any great number… And we will start to sell off our houses to those that will pay us our profit and I am not looking for huge profits if we can sell and make 20 to 30k a house we will be fine…."
I can understand why you are happy with 20-30K profit per house, you have huge quantity, would your investor be happy with this??
I would also be interested to hear from Aussies and whether they would be happy to purchase land, no income. With Aussie investors the goal is cashflow. This would go against the grain I would think??
WI
.
Our US clients look for
#1. Safety. IE no risk of cash flow interruptions
#2. Realistic yields. Very happy at 7 to 10%
#3. Equity kicker is gravy on top
All of our clients are taking funds that are making less than 1% in the bank and investing for greater yields however they do not want to take o. The management risks they just want predictable cash. We make an average of 30k per house at the exit and do our equity share our clients returns will be 12 to 16%. Net. Net yield with no risk for a bad day or month or year, no horror stories…
If. USA investor could get 7% in the bank like Aussies can that’s where 90% of USA cash would reside…
Jay
Do you have to have a view on rent growth and inflation?
Under your scenario are rents stabile or growing with inflation or falling as renters leave the rental market and become owners?
Vacancy rates are so high won’t it take a long time for demand for shovel ready lots to return? more than three or five years? You’d need to pick your location carefully.
If confidence returns won’t US inflation rise? So would bank rates rise to be more like Australia or be held artificially low to keep the dollar low leading to high inflation?
My point is if by holding a rental property you get even better cashflow why would you want to sell and bank the capital gain?
In answer to your question do aussie investors ever speculate on land the answer is yes of course. But to borrow at 6 per cent and with exchange rate risk to speculate on overseas land would be a big call!
Regards
David
jbelmore wrote:Jay Do you have to have a view on rent growth and inflation?The US is such a big market you have to look at regions then metroplex's and each will be different when it comes to rent growth… SF Bay Area Portland Oregon are the best rental markets in the country.
Under your scenario are rents stabile or growing with inflation or falling as renters leave the rental market and become owners?
In my markets rents have been very stable for the last 10 years…I do not factor in any rent increases and have margins big enough that if we had rental rates compress we still are OK. when buyers come back into the market prices will have risen they are rising right now in select markets, over bidding multiple offers etc… We will take profit at that point,, When retail folks are buying I am a Seller.
Vacancy rates are so high won't it take a long time for demand for shovel ready lots to return? more than three or five years?In the sandbox we play in our vacancy rates are less than 5%, and we provide a superior rental experince by and large since we own the houses and do not rely on PM to run them for us.. This gives more attention to the renters and keeps them in place longer.
Again in certain markets the shovel ready lots are already in High demand, Here in Portland Or. were I live shovel ready lots are sold within days of hitting the market if they hit the market at all and prices are 50k to 200k per lot.. In the south East , and Atlanta particular there is new construction going on right now, Of course not to the extent it used to be.. But when you buy a shovel ready lot that originally sold for 60k and bought it for 5k.. You lower your end price accordingly and you still make profit and give a great deal to the buyer.
You'd need to pick your location carefully. If confidence returns won't US inflation rise? So would bank rates rise to be more like Australia or be held artificially low to keep the dollar low leading to high inflation?
Fed has promised to keep rates were they are for 2 more years then who knows where they will go… Up is really the only place they can go… And in the long run these low rates have help stabalize those that have bought at the low of the market with really cheap interest… Just like Bufffet said. Your defaults are going to be next to nothing in the coming years once all this toxic stuff clears out… Just think about all the foriegn investments 95% of you are paying cash… You may be leveraging your Aussie asset but to us you pay cash and there is no debt on your US property, So no way you can lose it in foreclosure.. Sure there are going to be alot of foriegn ivnestors that bought in very poor locations, they will just walk away from their homes, and the next group of buyers that wants to give it a go on the super low end will enter.My point is if by holding a rental property you get even better cashflow why would you want to sell and bank the capital gain?
At some point you have to sell to realize a gain… And investors like to cycle their money, from my perspective we just look at other avenues to create cash flow,,, buying debt…Partnering with builders for new construction, different asset class's like commercial or Multi family.
In answer to your question do aussie investors ever speculate on land the answer is yes of course. But to borrow at 6 per cent and with exchange rate risk to speculate on overseas land would be a big call! Regards David
From my point of view to borrow on your Aussie asset at 6% to try and make the yeild spread in the US is a risky play, it is one of the major contributors to the US meltdown,,, US investor leveraging up and biting off way more than they could chew one property does not perform another one tanks next thing you know its a falling knife…. What happens if your US asset does not perform as advertised… And I certianly know that from what I have seen… with Aussie investors buying in the what I call super low priced rental markets the mortality rate over time is going to be very high… So they will have borrowed against there home and their US asset which looked great on paper but is in the Hood or some really poor performing metroplex, just starts to suck money, at a point you either do not have the money to keep the asset up and running or your losing so much that you just walk away… And there your left with debt on your Aussie property that you still need to debt service or pay off.
If I was playing that leverage game I would only buy Higher end assets,,, like we talk about A B C type that have realistic returns. The first rule of investing in the US is capital preservation, yields is second, furture equity 3rd.
Thanks – good points.
In Aussie we can get 5.85% today on money in the bank with capital preservation so any money invested in US has to have a lot better returns than that.
Most of the investors you are seeing from overseas are people speculating a small portion of their portfolio or some of those on this forum who are investing boots and all like an occupation.
jbelmore,
There is one thing in the US that Aussies don't really get and it again relates to scale. Right now there is still contraction in the rental and buying market. The economy is definitely changing and getting better – not just from the official figures, but from my personal experience. People are buying cars again, going on holidays etc.What happens when people en masse lose their jobs etc is that they downsize, move in with family or friends etc. This reduces the demand on established homes. When things start to improve again these people move out and live on their own. If one or two do it, the difference is negligable, but when thousands (or millions) do it at once you get 3-4 fold increase in tenants and/or buyers. I can see that type of thing happening in small pockets right now. There are just more people responding to rental ads.
In Australia newspapers etc bleet about the rental increases when they increase 3-5% per year. My properties in LA have all had 30+% rental increases in ONE year. And they didn't drop in subprime either – those yields were retained throughout this mess, which is why in my particular (and lucky) case my US property portfolio increased in value.
There is almost nothing I disagree with Jay on anyway, but I cannot recommend enough that people look at what he wrote above regarding 'better' quality property. The yields 'look' low on the surface, but the risk is almost zero and the potential increase (near guaranteed I would say) is exponential.
There is certainly money to be made (still) in 'once in a lifetime' buys in subprime areas, but that is not neceassry to make very good money in. It is a different mind set, but an equally good strategy to include higher quality assets in a portfolio. I am not sure if I would put money into land plays (though I trust Jays judgement) but it is more of a gamble and more expensive to hold up front than high quality income backed US real estate that you KNOW is going to go places from a very low base. These properties any day of the week, any week of any year kill the yield return on any bread and butter Aussie property so don't think the US is a yield play alone. Again, read carefully what Jay says about returns – having the opinions of someone like that available for free is fantastic.
If I was playing that leverage game I would only buy Higher end assets,,, like we talk about A B C type that have realistic returns. The first rule of investing in the US is capital preservation, yields is second, furture equity 3rd.
Jay
Good advice.Out of curiosity what do grade the properties that you are purchasing in Henry County, GA??
WI
WI.
B’s. Some plus some minus,
Hi Jay,
Just going through all this it looks like you gone deep enough on this topic. Yes for an Aussie investor cash flow is necessary, but I don’t think its common for all, there are people who can go to your way or may be for some portions of there investments can. The only problems can be investing in 100K+ on something which look like gambling though return can fulfil the objective. In my view it should be in group buyer or may be one can go to buy and resale straight way with a 10% + price to get get out of the portion which is not desired or intended to invest on these shovel ready lots. This can be a strategy for making it possible.
thanks,
Ajyjayhinrichs wrote:Alex,,, Cheeves… should investors be scooping up shovel ready lots in your minds. I just had one batch of 300 come accross my desk bout 30 are in charlotte ( Alex I will talk to you offline) and bunch in Florida, want to talk to Cheeves about those. A few I looked at were in the High CA desert and have no value.. there is 100 or so in Atlanta were I have been methodically loading up on lots. Curious for Aussie investor feedback… Do you folks ever speculate on land…. And or make investments that have the potential to return 10 to 30X return but no cash flow for 2 to 5 years…. At a price that is less than a down payment on a car per parcel…But you got to buy 300 of them at once…..Jay first and foremost you are stealing my ideas. On my board in my office I showed you my game plans. One is to be largest land owner in 60 mile radius. Figuring the opportunity would slow down with rentals. We could direct our clients back in to development area with the land we purchased. I will look over the lots in the am. Hard to find a moment to do anything heading to the beach in the morning . looking at 10 unit apartment building that I want to buy and hold and KEEP
worldinvestor wrote:Hiya JayThis strategy just would not work for me, you need deep pockets to be holding this stuff and if you are not buying large parcels why would you bother, lots of pain during 2-5 years, or perhaps longer. True land does not pay right away and cost $ to hold . When Jay was here in town we discussed what I was doing with lots here in NC and SC. I was putting together a small fund For me ,and some other clients who wanted to diversify and look towards the future . Cost of holding would be paid by selling off some lots. Looking at either building or holding until banks started lending again. Then made sense to build and take our cash lenders from rentals to Development. Again for a single investor might not be the best investment plan , for a team like mine. We are looking for other options for our cash lenders should rental buying and selling slows down.
In Australia I like buying properties that are sitting on land which can be rezoned/subdivided, eventually bulldozing the house and building 3 or putting together plans and permits and onselling to an investor. However with this strategy you still have rental income to offset holding costs. I have a good friend that buys land ,and plays the rezoning game. I can say he has done quite well with this strategy.
I would be interested in understanding why you are buying land in a particular area, as mentioned Atlanta, what is the attraction here? When I was at Jays office in Portland we went over 3 lots he picked up in Atlanta. The homes in same area were $300k and above . I won't mention his price( super cheap dirt ) . For me I am buying lots in any area that house are being or were being sold for $100k and over. Now lots that were selling for $80k we are offering $5k .Really just looking at diversifying all aspects of real estate. Local area near me actually 2 blocks from my house. Lots were selling from $69k to $229k. I am offering $7500k but to buy all 29 vacant lots.
Also, you stated in one of your posts that you would not buy in Texas – oversupply land/blocks? Jay is not high on Texas but I can tell you from USA investors Dallas and San Antonio are two markets with alot of USA investors are buying. I really cant comment on that being I am more familiar with the east coast of the USA.Hope all is well
Alex
Cheers WII'll start buying lots when it becomes cheaper to build. I have tons here for cheap.
Jay again I feel since you would be the one of the ones who saw my board in my office very similar goals mine are slim capared to yours .
So my long range plan is this:
I am buying cash flow rentals in my TWH model,, IE: have bought just over 100 this in the last 9 months. And will accelerate that to 20 to 30 a month for the next 6 months then move that up to 50 a month as I bring on other markets… At the same time I am buying these lots that are just too good of a deal to pass up on… We are trying to Keep 3 to 5 homes out of the 20 to 25 we buy and sell each turn.
There is going to come a day and its going to be in the next 24 months to 36 months that cash flow rentals for the Net YEILDS we like to make will not be there in any great number… And we will start to sell off our houses to those that will pay us our profit and I am not looking for huge profits if we can sell and make 20 to 30k a house we will be fine....My homes are for long term buy and hold not wanting to sell anything that we keep. The development idea is to make sure we have avenues for our cash lenders to park their money into something. If we don't use their capital we lose their capital.
What will happen is that new construction will take off again in some meaning full way.. And I will be sitting on 500 plus lots that I paid next to nothing for IE 1 to 5k per…. and our profits on the new constructions sales will be very good. We are hoping for smaller scale 100 lots or so. Again I am just a buy and stay in my market type of guy. Again our plan was in 5 to 7 years when buying of rentals slowed down, banks loosed up . We would switch to development which I met with a large builder last week. This seems to be happening faster then I expected . We are already lining up some USA cash lenders to jump in on this. Looking at some retail flips again been a long time since we hit that market.
At least thats the thought.I am buying lots right now in Oregon for 50 to 125k per…. And building homes and selling them for 199 to 350k per.
In atlanta were I have bought these lots at like I said 1 to 5k per lot… I will be happy to build new homes and sell them at 125 to 150k per home… Very achievable and very profitable. That is what I was thinking first time homes buyers and $125k to $145k seems to be the sweat spot…
Texas:
Its not that I would not buy in Texas I would and may: my only caveot is that one needs to be very careful up front checking on property tax's…And one needs to be cognizant that in Texas its very easy to build new… The market there did not erode as bad as other areas but it also does not rise because new construction is always chasing exisiting stock.
I still think at the end of the day what we called finished lots IE shovel ready, that one can pick up for 5k and maybe be in including tax burden in 5 years for 7k,,, and that same lot cost 25k or more to develop IE streets and roads.. that is a good play. Well worth the risk again buying so cheap hard to pass on some of these lots.
JLH[/quote]
I can understand why you are happy with 20-30K profit per house, you have huge quantity, would your investor be happy with this?? You are correct for Jay who deals in Multiple markets ,or my self who buys in semi bulk can do this with multiple properties. Our clients are different as we build real estate portfolios, or leverage their cash for them. So again I guess it depends on your position.
I would also be interested to hear from Aussies and whether they would be happy to purchase land, no income. With Aussie investors the goal is cashflow. This would go against the grain I would think??For Aussies with Borrowed money this would not make sense . For cash strong investors who want to diversify this is just another avenue to go down..
just my two centsWI
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[/quote]
yeah with the Auzzie Market land is way over priced, it is worth more than the house in most cases for and 800sqm lot or smaller
(there is a lot this size going for about $450,000 near my area and another poor 600sqm lot for $270,000) houses in the area are $370 – $400,000 and Adelaide is supposed to be one of the cheaper cities.if your paying $1000 – $5000 per lot then your getting a better deal that 100% of people over here, for that price you'd be lucky to get land 3 hrs from the city and unlike America due to population there isnt alot out there, at least not in SA.
I have also been considering buying and holding American land as an investment (at least the AC cant be stolen) or alternatively buying low end houses where the land value is almost equivalent.. speculating on the scrap value of the place to offset the purchase and then retain the land as a method of building up some assets over time and getting "skin in the game" .. might later sell some off and then be able to build on others to get things going.
Land would beat low end housing (in my books) every time.
You answered your own question with your comments re A/C units. You would need considerable local knowledge to get a good return on speculative land purchases but if you aren’t chasing tenants over $3 every month and fighting deadbeats you would have time to stay ‘educated’ in the market.
Pat,
the land under very low priced houses in the US has negative value.. Its worth nothing and you can be charged with demolishing the house and hauling it to the dump. So take that thought right out of your head.
what Alex and I are talking about are shovel ready lots in areas were if one was to build a home you could sell it for north of 125k.
And Alex I think instead of me stealing your ideas its more like fine minds think a like… Although its pretty much a no brainer for us in the US that are in the business, that buying lots that are shovel ready that cost 60 to 80k 5 years ago and we can pick them up from banks in bulk for under 5k each is a pretty nifty investment.
And Pat there are plenty of areas in the US were the land under the homes is more valuable than the home, Or IE it cost less to build the home than to buy the lot.
The SF Bay Area, specifically San Francisco down through Silicon valley this is the rule on 90% of the properties there and has been since about 1984…. In 1986 I bought a tear down house for 765,000 on a 60×110 lot in Palo Alto.. Then spent 350k building my personal residence…
However to go into the older parts of the inner cities or since your all so familar with Rochester NY I will use that as an example. Investors are buying houses for 5 to 20k per house…. then spending the same to get them rent ready… So 20 to 40k total all in for a rental…
The land underneath these homes has Zero value and will never have any value, as these areas just keep deteriorating. And the builders will build if they are going to build new, they will find new attractive areas to create new subdivisions…Very few places in the US are land constrained, thats why Texas properties pretty much just stay level in value… Land prices are very low have been low and builders build new to compete with existing and do it very well.
The play in Atlanta suburbs for us. Is like the lots I bought at Lake Iris… half acre estate lots great big homes built there that sold at the peak for just under 400k and anyone familar with Atlanta know that 400k today or 5 years ago bought you a pretty great house. These lots sold new for 80k or so. And we picked up the last 7 bank owned lots for 34k total for all the lots…. I think this is a no brainer and one we will make some pretty good money on in 3 to 5 years as building comes back.. Now I am looking at this package of 300 lots that I can pick up for 400k or a little less…. Some good lots some are No value.. but its interesting none the less.
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