Author Topic: Rental Properties?  (Read 6794 times)

LC

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Re: Rental Properties?
« Reply #30 on: January 18, 2018, 11:07:41 AM »
Really depends on your budget.

About 4 years ago I did a 2 year MBA program in NYC. 99% waste of time (from an educational perspective) - with one exception. I took a class called real estate entrepreneurship. It was taught by a guy who moved to NYC from Iran in the 70s. He bought a bunch of row houses in Harlem with about 10 of his coworkers. 40 years later they have 50 affordable housing buildings across NYC.

Couple of key things I remember:
-Large projects (esp 80/20s) hinge on syndicated tax breaks (IIRC state street has the monopoly here) and low-interest financing provided by the city/state
-Air rights are extremely important. Usually they are obtained by purchasing your neighbors' air rights.
-Lot location on a row of lots is important. End lots can get squeezed out by a developer, whereas middle lots are harder to ignore.
-As someone mentioned, environmental remediation is important. They developed a gas station on a corner of Central park  but had to foot a huge bill for the soil remediation. Negotiation is key here.

Use your city resources. NYC is well-developed in terms of available city resources. You can easily search lot information, tax information, DOB permit information. Harder to do but still possible is search all sites with environmental issues.
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LounginMKL

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Re: Rental Properties?
« Reply #31 on: January 18, 2018, 12:42:43 PM »
I live in SF and can give some color on rent-controlled properties here. After talking to a few apartment owners, I learned that

- Rent-controlled properties that transact at 3-4% cap rate can be misleading. These acquisitions usually baked in some rent upside through natural attrition (move-outs) and adjusting rent to market rates.
- Existing below market rent offers good downside protection; rent income doesn't decrease during market downturn because it's already below market.
- In fact, property owner can opportunistically buy out tenant during market trough, when the delta between what your tenants pay and market rent is diminished.

Through some digging, I learned that the largest apartment owner in SF is funded by none other than one of our favorite value investor- Baupost Group. All rent-controlled properties.

BG2008

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Re: Rental Properties?
« Reply #32 on: January 18, 2018, 05:12:25 PM »
Really depends on your budget.

About 4 years ago I did a 2 year MBA program in NYC. 99% waste of time (from an educational perspective) - with one exception. I took a class called real estate entrepreneurship. It was taught by a guy who moved to NYC from Iran in the 70s. He bought a bunch of row houses in Harlem with about 10 of his coworkers. 40 years later they have 50 affordable housing buildings across NYC.

Couple of key things I remember:
-Large projects (esp 80/20s) hinge on syndicated tax breaks (IIRC state street has the monopoly here) and low-interest financing provided by the city/state
-Air rights are extremely important. Usually they are obtained by purchasing your neighbors' air rights.
-Lot location on a row of lots is important. End lots can get squeezed out by a developer, whereas middle lots are harder to ignore.
-As someone mentioned, environmental remediation is important. They developed a gas station on a corner of Central park  but had to foot a huge bill for the soil remediation. Negotiation is key here.

Use your city resources. NYC is well-developed in terms of available city resources. You can easily search lot information, tax information, DOB permit information. Harder to do but still possible is search all sites with environmental issues.

LC,

Please explain more of the end lot versus the middle lots.   

LC

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Re: Rental Properties?
« Reply #33 on: January 18, 2018, 05:46:47 PM »
Sure. So if you are a developer and you are looking to buy up a bunch of row houses or brownstones and build a high rise, you most likely need the middle lots. End lots you can theoretically cut out, just cut the building off right before the end lot. Middle lots you need: you can't have a gaping hole right in between of the building (obviously), and the numbers won't work to build 2 high rises on either side of the middle lots.

It comes into play when negotiating buyouts, because middle lots can stop the entire project while end lots can be ignored.
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BG2008

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Re: Rental Properties?
« Reply #34 on: January 18, 2018, 05:55:26 PM »
Thanks, makes sense. 

chrispy

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Re: Rental Properties?
« Reply #35 on: January 18, 2018, 05:59:07 PM »
Very informative. Thanks to all that have contributed.

BG2008

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Re: Rental Properties?
« Reply #36 on: January 19, 2018, 08:47:32 AM »
Just curious what cities aside from NYC, SF, LA, Honolulu, Seattle have natural barriers to new supply?  DC kind of has, but it seems like there's not much zoning barriers as million sqft projects gets readily approved all the time. 

Natural barriers - Mountain, ocean, rivers, islands that prevents new supply from coming on
Zoning Barriers - laws that makes new construction prohibitively costly from a monetary and time perspective

DooDiligence

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Re: Rental Properties?
« Reply #37 on: January 19, 2018, 10:17:21 AM »
This is a great thread, love off beat things like this.

I've dabbled in this from time to time.  Never rented out, but have looked and purchased land.

Location is key.  In RE the market seems to be reasonably efficient too.  That is nicer places near shopping are more than dumps in a crime ridden area.  People seem to ball park the same repair costs too.

If you can do things yourself, or cheap that's when you get a deal.  Homes aren't complicated, but there is a learning curve.  What I've found with homes and cars is it pays BIG time to learn and understand everything.  That way when an electrician comes in to do a $1500 upgrade you know if they're doing it right, and know if they're cutting corners.  Tangentially this works with mechanics too.  If you go in and say "I have a weird sound" you will get ripped off.  But if you learn a little and say "I think a tensioner pully is going" they will talk to you on the level and you will know if their logic works or not.

My advice would be look for hidden issues.  Everyone sees bad carpet, or an ugly exterior.  Look for knob and tube wiring, look for cracked foundations, water damage, or serious structural issues.  Those are the expensive repairs that can destroy any hope of value.  Everything cosmetic is fixable.

If you're looking in the coastal southeast, pay close attention to termite damage as well.

This could present buying opportunities too, as many will run from a home with visible signs of infestations which may be easy to diagnose & repair.
« Last Edit: January 19, 2018, 10:19:34 AM by DooDiligence »
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LC

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Re: Rental Properties?
« Reply #38 on: January 19, 2018, 01:37:02 PM »
Just curious what cities aside from NYC, SF, LA, Honolulu, Seattle have natural barriers to new supply?  DC kind of has, but it seems like there's not much zoning barriers as million sqft projects gets readily approved all the time. 

Natural barriers - Mountain, ocean, rivers, islands that prevents new supply from coming on
Zoning Barriers - laws that makes new construction prohibitively costly from a monetary and time perspective

Ski areas may be another good one. Or areas around universities. I would guess the better the mountain/uni, the more stable your rental would be.
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premfan

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Re: Rental Properties?
« Reply #39 on: January 23, 2018, 08:49:35 AM »
s
Just curious what cities aside from NYC, SF, LA, Honolulu, Seattle have natural barriers to new supply?  DC kind of has, but it seems like there's not much zoning barriers as million sqft projects gets readily approved all the time. 

Natural barriers - Mountain, ocean, rivers, islands that prevents new supply from coming on
Zoning Barriers - laws that makes new construction prohibitively costly from a monetary and time perspective

Population per square mile.  The natural barrier is land. A good example by me is Boulder Co.  Zoning could be a issue since they need to build vertical now.  Yet we don't want to block access to the beautiful mountains. Whats there solution?  Demand is there. Land is scarce. Air rights would seem like a challenge for our hipster neighbors to approve. 30 mins from Denver. Yet more population per square mile than Denver. Overindex Boulder.  underindex Denver.

edit: just checked didnt realize how fast denver has grown lately. Population per square mile roughly the same.
« Last Edit: January 23, 2018, 08:53:14 AM by premfan »