Economics of rental property

[Turd_Fergeson]

@jayman\_137

Ohai,

So I usually don’t end up on this forum but I guess I’m just too loopy from studying and need a break. For what it’s worth here is my take on the Real Estate question.

No, you should probably not get involved in real estate if you are operating in the one or two property level. The issue is that this is a play for construction type guys, not finance type guys – you need to know people so you don’t get stuck paying retail and you need to know how to do the work yourself. For most of us the effort just won’t be worth the return. If you can get the count up to more like 10 or so properties then economies start to make a little more sense and economic pain of vacancies starts to average out. I realize that the draw with real estate is the leverage but in this game you have to have money to make money. Yes, there are always exceptions; if you can find a property way below market value then it starts to make sense…

As others here have said most of the value is from capital appreciation, realized at the exit. So timing is important, and right now residential cap rates are just absurdly low, you aren’t going to make scratch buying at the prices that are out there now. But, as always there are options to try to find yield. If you have $ you can look into moving down the trough into more of a value-add or opportunistic play. Okay so maybe this is getting into even more of a headache so unless you are pretty handy this may not be an option either.

So now if you are still thinking direct ownership of real estate you need to look at investment vehicles. This route will reduce your headache, but then again you aren’t going to be calling the shots. The most “private” way to do this would be to get buddy buddy with a developer or private equity investor and invest with them through some sort of “Friends and Family” structure. Failing this you start to get a little more “public” there are funds out there that will buy directly into real estate that can be bought into. As others here have mentioned you can invest in REITS, the problem here is that they tend to behave more like stocks than real estate so the exposure really isn’t the same.

For what my advice is worth I would say that you should avoid direct ownership in your current situation, if you really want exposure you can go the more public route (unless you know somebody in the biz). There are always going to be stories of the guy who bought up some farm land and twenty years later the nearest city expanded and all of a sudden his cow pasture is the next office park and is worth a boat load; but for most of us we are stuck at the cap rate number, and right now it isn’t pretty.

you can buy current yield, you just need to know where to look. i’m buying direct and clipping unleveraged 10-12’s on stabilized residential properties with none of the normal headaches of being a landlord. there are some huge players in the space i’m in - some of the biggest PE companies in the country - but they don’t go after the deal size i play in. once i amass a portfolio with some size, i’m hoping they or some other HNW type buyer will be my exit - at a handsome premium of course.

I’d tell you the niche but then i’d have to kill you.

[rawraw]

I have a coworker who did similiar thing – he amassed a portfolio of rentals in Chicago after the crisis and then sold all the properties to some fund in one transaction. Seemed like a pretty sweet deal

[jayman_137]

@rawraw

I have a coworker who did similiar thing – he amassed a portfolio of rentals in Chicago after the crisis and then sold all the properties to some fund in one transaction. Seemed like a pretty sweet deal

Yes - putting together an assemblage while everyone else is selling is a good thing,( in retrospect) - assuming you have the $ as no one was lending back then. Oh, if only…