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Sure. But I think it takes a lot longer to learn by reading then it does by doing. The most important thing that I have learned about investing through my work is what not to do. I learned this mostly by having to make sense of a huge mess of a deal that someone had put together. (I don't mean to plug my own thing, so forgive me, but I am putting together a list of 20+ situations that I have come across of things that would be best to avoid. I am hoping to possibly expand the list with case studies and turn it into a book. For now I am dilivering them through email for free. If you follow the link below and sign up, you will recieve them at some point soon).
You know the absolutely best way to learn this thing is to interview investors. One by one and soak up everything that they say. Find people who seem to really know what they are doing prepare a huge list of questions, buy them lunch and listen to everything they say.
Hope that helps.
Tom Siegel
Commercial AppraiserSounds like you know what to do and are not going to do it if the numbers don't work. I see a lot of lackadaisical diligence from developers in what I do. Let's put it this way… I have never met a developer that was not extremely optimistic.
Cheers,
Tom Siegel
Commercial AppraiserQuote:And you are exactly right, either build – total cost approx 560K rental $800 week 6.80% lets say interest only loan works out to weekly repayments of $732 so it would be cash flow positive by $70 a week without taking into consideration rates. Hold on to them and sell them down the track as there is going to be a housing shortage for some time yet so in the long term they will always increase in value and in the meantime they haven't cost very much, or even made you money to hold onto them.Or rent out the first one and then build and sell the new one for at least $350,000?? so you would then owe $210,000 and receiving rental income of $350. Repayments at 6.80% on 210K = $274 per week so cash flow positive of $76 per week. Or sell the old one and recieve the advantages of depreciation on the new property and all its fittings etc as it is an investment with tenants so you would get more money back again making it even more CF+.
Hello,
This sounds like a fun deal at first. However, these figures are speculative. You have said that you don't know the market. It is great to think about it. If you want to really figure out how the property will perform you need to figure out what actual market rent is. The best and only way to do that is to find rental comparables in the same neighborhood. I don't know the market at all but there was an earlier post that was rather skeptical of you getting $350/week. If he's right then how are you going to get $800/week? I don't mean to be a downer but you definitely shouldn't make any decisions based on a hunch.
Let's say you're right… now you have $70/week profit on each unit. What about vacancy (there's always vacancy) and as vacant carrying costs? What about your other expenses? You still need to pay taxes and insurance, are utilities included in the rent, building maintenance and repairs. Then there's professional and legal fees (probably not a whole lot) and reserves, something often left out by investors (you will need to replace the roof someday, or the HVAC, etc.). If you add all that up and it still makes sense then maybe its a good thing.
Quote:Or sell them both at average $350 each = $700,000 total cost $560,000= $140,000 profit. Possibly more obviously if you can get it at right price, build as cheap as possible and have the contacts or the ability to build it as cheap as possible.This sounds like the way to go here. Except for one thing. Just because you are willing to pay $360,000 for the one unit does not mean that is market value. You have to look at comparable properties that have sold in the area. If market value is infact what you think it is and construction costs are what you are expecting, then this is the way to go. But you do need to factor in marketing and exposure times. I would market them now… as in as soon as you have it under contract.
Anyway this sounds like a lot of fun to think about. It could work out well for you.
Tom Siegel
Commercial AppraiserSo the net rent is the same? Are you adjusting for market vacancy in the two different areas?
Properrty near the water generally has more potential to hold its value in a bubble burst or even continue to appreciate.
I don't know the market so I can't say for certain – just generally speaking.
Food for thought. I hope it helps.Tom Siegel
Commercial AppraiserTerryw wrote:I would be inclined to say do neither, unless you want to work in the industries.You would be better off just buying some books/internet and reading in the areas of interest.
Agreed.
I took a real estate appraisal class to find out more about investing in real estate. I guess it worked I know a lot more about investing in real estate now than most people I know (even seasoned investors), but I accidentally became a commercial appraiser in the meantime. Oops. Don't get me wrong I like what I do and I have access to knowledge that even seasoned investors don't know, but it isn't the path to riches through real estate investment.
You definitely need to learn as much as possible. But those courses are set up to make you into a real estate professional. Not an investor. That is more of a choice than a product of education.
Tom Siegel
I appreciate this discussion. Thanks for the posts guys. I see too many investors getting into situations such as a possible subdividision that they assume is going to be easy and profitable. However, often times something doesn't work out the way they expected it too (a lot of times I'm the thing that didn't work out. Ooops! I just call it how I see it). But I am glad for you karen that you were able to recognize the lack of upside potential in this deal. Good work.
Tom Siegel
You definately have to keep your head on straight. I see a lot of developers just going for it. There is a difference between a positive mental attitude and ignoring reality. However, those lines seem to get skewed at times. I watched developer after developer get into waterfront condo developments at the END of the boom in my state. All of the condo developments that I appraised then are in workout now. ALL OF THEM! Yikes! Pay attention to the trends. If you see one particular concept increasing in frequency, your likely too late.
I say learn what you can and become an equity partner. Use other peoples money if you can. Invest first in some information that will get you pointed in the right direction. That's my advise.
Tom Siegel
I see most developers requiring a 15% to 25% premium on the back end to do something like this and that is how I would appraise it too. Assuming your figures are accurate (and as an appraiser I never really do that), you are looking at a $65,000 profit. That barely qualifies at 16%. Your figures have to be spot on (i.e. I would like to see buyers lined up). There is a lot of room for something to go south here. The cost of splitting could go up for a lot of reasons, the approval proccess could take a long time, the exposure period and marketing times could become extended (don't know the market), are you sure of the useable area (i.e. wetlands, topography). You have no idea how many times I see developers get into something not knowing what is useable – Get a survey to be sure.
But it could work out well. My advise is – don't leave it up to chance.
I just found a good one here:
http://www.realestatevaluationsecrets.com
sign up and you can get the software under tools.
