patrick.net

I don't think you ever hear about the failures unless its a family member begging you to bail their ass out.

The building I live in was a cash cow for the prior owner but it appears he knew deferred maintenance was near its day of reckoning. Plus the market was at a sick high for "investement" properties.

I don't think the new buyer understood what they were getting into. Not by a longshot actually. Overestimated the rents the market would bear, underestimated maintenance cost. I think it will be a failure for this owner, but its unlikely anyone will ever hear about it.

thats how i did it. i would buy a building that was up to date on maintenance and then let it ride with the minimum to make profits and then sell at a market high when maintenance was coming due. the best way to make your money.

dodgerfanjohn says

The building I live in

How many units? More than one building? Urban or suburban?

casandra says

ride with the minimum to make profits

Does maintenance cost that much?

Say for a $1000 a year, 2-bedroom apartment. I mean short of when they replaced the washing machine a year ago, there's been no major interior renovation since I moved here. They've painted the outside twice in a decade. The grounds are kept very nice by landscapers who come by once a week during summer.

Does it add up to that much in a fully maintained building?

16 units/urban

dodgerfanjohn says

16 units/urban

Ok...wow.

So what you are saying is that even with today's valuations and high rents, and even with an urban apartment building, unless you basically run it into the ground, you're not going to make profit over he long run.

And even then, your goal is not to make a profit from operations, but to find some Greater Sucker walking along, who thinks he can make a profit, and unload it on him.

This is a dumb thread. Every building is different. Every market is different.

bob2356 says

Every building is different. Every market is different.

So give me an individual example based on personal experience.

Describe it and tell me the profit margin.

John Bailo says

So give me an individual example based on personal experience.

Still waiting.

Or are you telling me that the commentariat of Patrick, who daily opines on each and every topic from space travel to the value of gold, has zero real world experience in the ownership and operation of an apartment building, viz., real estate?

Simple profit is a CAP rate calculation based on prudent assumptions. On the end all is reflected in price.

Here you go. Don't let the facts surprise you.

http://finance.yahoo.com/news/best-cities-mom-pop-landlord-190000702.html;_ylt=AwrTHQ6y_AdU_jEA5Fxx.9w4;_ylu=X3oDMTE0ZXQyZzlwBHNlYwNzcgRwb3MDMQRjb2xvA2dxMQR2dGlkA01PVVMyMDVfMQ--

John Bailo says

bob2356 says

Every building is different. Every market is different.

So give me an individual example based on personal experience.

Describe it and tell me the profit margin.

Why? You can't create a time capsule to redo my investments in time and space. Every single investment is different and would have to be evaluated on it's own. There's no magic formula. It also depends on the definition of "profit". Cash flow, appreciation, mortgage pay down, gross, net, whatever. I look at overall return on investment not "profit" by which I think you mean cash flow.

The primary market I was in, south texas, has changed enough that I sold out of it last year. Property taxes and insurance both doubled in 7 years while rents barely budged which was a deal killer. The cash flow varies a lot year to year depending on occupancy rate and repairs.

I don't buy the yahoo finance/zillow numbers. Read the article. The numbers are based on buying at the absolute bottom of the housing crash in 2008 with a 4.5% mortgage rate. Makes nice headlines, but that's about it. In real life it's a lot more complicated.

The averrage net worth of a homeowner is anywhere from 30x to 40x more than a renter. Landlords are rich, renters are poor. If there is a chance to own, own. It does not matter anywhere. Cap rates are high or low for obvious reasons.

Like any business, understand permanent, fixed cost is the key. Texas, a state with high property tax and high maintenance as a % of rent is bad, and that is reflected in the lower price. Ca, a sate with low prop tax and maintence as a % of rent is good and that is also reflected in the price. Low fixed cost to maintain an asset and easy source of customer is the key to own it forever which drives value long term.

Housing is the only business in the world that a mom and pop can kick reits ass or large enterprises. No need for scaling or any special expertise.

Instead of asking a question on patnet, all you need to do is read the 10k from Avalon bay, equity one, or even silver bay. A mom and pop beats their return by 100%

SFace says

The averrage net worth of a homeowner is anywhere from 30x to 40x more than a renter. Landlords are rich, renters are poor. If there is a chance to own, own. It does not matter anywhere. Cap rates are high or low for obvious reasons

Want to back that up with something? Also want to compare the average age of homeowners with the average age of renters? Or home ownership percentages by age. A big percentage of homeowners are in peak earning years or retired. A big percentage of renters are just starting out or are early in their earning years. BTW the terms homeowner and landlord are not synonyms.

What about the opportunity cost of sinking cash into a property? For example if one buys a property cash for $200,000 you save paying monthly rent. But you could have just left the money in a more liquid investment and used the earnings to pay rent. Then you have none of the problems of ownership, no maintenance and so on, and you keep your cash. And even owning property outright you still have all the taxes and maintenance.

Buying is really more of a bet that the home will appreciate in value (minus upkeep, taxes and so on) more than other investments. Of course buying a home with debt is another story, which magnifies the potential gains, losses, and overall risk.

I've rented my whole life, and I have far more wealth to my name than any of my friends who are "homeowners". Plus I don't spend weekends at Home Depot.

Yes but what you are arguing is essentially the returns on investment would be higher if someone were to invest money into houses than into the stock market. That may well be the case, and if it is, then investing in houses must actually be more risky than investing in the stock market due to the risk/return tradeoff.

Also there are some big assumptions made here, mainly market timing. For example if one claims to be able to be invested in houses at precisely the right time, and out of stocks or other more liquid investments at the right time, yes, houses look to be "better" investments. And overall, yes interest rates have been dropping for decades. But can it be predicted accurately that this is what will happen again for the coming decades? Especially since interest rates are at nearly zero now?

Besides, at even just a 7% return, $200,000 invested over 24 years is $1,067,886, far more than the house price which has "doubled". Of course it can be said that a 7% return is difficult to guarantee over time, which may well be the case, but then again the return on houses isn't guaranteed either (i.e. they have crashed as well).

If houses were always such a superior investment to everything else (i.e. one could earn such a high level of return for a given amount of risk), including stocks, why would stock market investments (or anything else) even exist? Wouldn't investors eventually just learn to invest in nothing but houses?

I like the liquidity of stocks.

Rents have doubled; so have the dividends.

And those are easier to reinvest for podunk lazies like me than the positive cash flow from the rental property.