Question of the week
I am going to answer a question about a topic I rarely write about….real estate.
I know you've been involved with a
few construction projects over the years. Let's talk about real estate,
real estate development (as a biz), and real estate development (for
I love real estate. Owning a piece of property for personal use or even an investment can be a great place to park your cash if of course the location is right, the price is right and you are thinking long term. At least that is our strategy.
My first "aha" moment with real estate happened many years ago. A friend of ours owned a strip mall in Kansas City that was bequeathed to both him and his sister from their Grandparents. Skipping a generation with a gift is a benefit for tax purposes. Not sure what it is but I am pretty sure there is a benefit and perhaps that does not exist anymore but at one time it did. Regardless, every ten years, him and his sister would take out a new mortgage on the property. The property was completely rented out so they were receiving monthly revenues from this investment. By pulling money out of the property with a new mortgage every ten years, they were able to pull out a significant amount of cash to split and the revenues coming from the property paid the mortgage back and then some. In essence, the property was a constant source of income with a size-able kick every ten years. I thought it was brilliant. It was one of the moments where I said…note to self, buy real estate.
When we first got married, we bought our first apartment. We have purchased several pieces of property since. We like owning things that we can touch. More than likely over the next couple of years we will begin to buy more property for investment purposes that can generate revenue and go up in value over the years to come.
I also enjoy the project. The creative aspect of building something for personal use that I want our family to live in is rewarding. I like making decisions every day. I am good at seeing the vision. I know for many it is incredibly stressful to go through a process like that but I enjoy it. The key is really having a good group of people around you that you trust from the architect, designer and builder. One thing to keep in mind is every project takes a life on of its own. I don't care if you have done it ten times, the eleventh time is different. There are always mistakes, it never comes out exactly perfect but it generally comes out pretty damn good.
Would you share some insight into what you look for in an investment property (commercial or residential, price-versus-income-versus-location, etc.)? Thank you.
Location is important. You can never move a building. I have gone back and forth between residential and commercial and have yet to take the leap. I never want to be in a position of putting someone out on the street yet in someone always needs a place to live. Commercial space can always lower the price to get someone in too. The perfect would be a balance of both worlds.I’d love to buy a medium sized building that is putting off income in an area that could be going through a change over the next 5 years.
Interesting. I’d guess there’s a ton of research involved in identifying up-and-coming areas early enough that the market hasn’t soared, but late enough that there’s genuine momentum forward.NYC has so many smart, well-financed real estate aficionados that it’s probably very tough to get a great deal from a risk-adjusted standpoint.Perhaps you could find a partner or two with experience in this field to share the risk and contribute some capital along with their industry knowledge and contacts.Good luck! I’m looking forward to more posts on this topic.-Mark
i’m working on it.
I love real estate too! My husband and I decided to buy our apartment a couple years ago (despite also founding in a high-risk, bootstrapped startup) and it was the best decision we’ve ever made. I decorated it with mostly vintage and Ikea and I never looked back.
“I also enjoy the project. The creative aspect of building something for personal use that I want our family to live in is rewarding. I like making decisions every day. I am good at seeing the vision. I know for many it is incredibly stressful to go through a process like that but I enjoy it. “I have a tenant in an office condo that I own that is a physician’s office.As part of the process in writing the lease I wanted to see their tax returns even though the realtor assured me they were good for the money. (“As if” you take someone’s word for that.)I couldn’t understand why they wouldn’t just buy the condo and why they needed to rent from me. (I bought the condo because they presented as a tenant at the time the condo was for sale. So it could have easily been their purchase). After reviewing their tax returns they had plenty of money and were in great financial shape. They just seemed to be totally unable to wrap their hands around buying, doing some minor renovating, and taking care of fixing occasional issues. They wanted a turn key experience and someone to call when something went wrong.I ended up putting in much better quality upgrades then our agreement even required. Better carpet, wood baseboards (not plastic), chair mouldings, better faux hardwood etc. New toilets (the old were fine actually), replace all fluorescent bulbs so they were uniform as well as the lenses. When I stopped by a few months ago I saw a mini blind was slightly bent. I replaced it w/o them even asking even though a patient had broken it. The doctor is really proud of the office. He made a point of telling me that when he wanted to recruit a new doctor out of med school that he wanted to show off the office.I find this all fun to do.I want them to have a quality office and I wouldn’t put anything out there that I wouldn’t occupy myself. They like the service, and I more or less get the feeling that this will lead to deals with other physician tenants (which are great because they are long term and a host of other reasons). (Return is 9% btw.)
Great coincidence, as we’re looking at some land to build a new house on today! I was actually going to ask you a question about your story of moving out of the city and ultimately back again, since if we do this, I’ll go from walking to work, which I’ve done for the past 10+ years, to commuting (albeit by bike and ferry, not driving).I bought my first condo when I was 22. I was doubtful that it was a good idea at the time, as it was more money than I would have spent on rent, and I had to part with my very small life savings, but in retrospect it was great timing.Up-and-coming neighborhood, hot economy (first dot-com era), and hot housing market in Seattle meant I doubled my money in the 3 years I lived there. I only wish I could have afforded a penthouse instead of my studio, hah!Of course now, we live in a 115 year old house, that we bought at the peak of the market, and sunk a huge amount of money into renovating. I love it, and it’s been fun, but certainly less successful on the investment front 🙂
the grandparents leaving the strip mall to grandchildren was called a “leapfrog trust.” Lots of advantages.Building hmm.There is being a developer and there is being a builder. I prefer building. That way it doesn’t go from you to architect, to builder and then to subcontractor. For a single family house I like the control. It is not that difficult from forms to roof.The decisions do get tedious.I am working on a renovation and it is difficult to restore rather than to build new construction. This is a killer. I think at this stage I would like to go to the salon instead.
Here’s an idea for you to deploy your capital (just thought of this so it is fresh and un-vetted).I’ve noticed that there are a fair amount of people that have good steady jobs but can’t qualify for mortgages and end up renting in NYC (and elsewhere) instead of buying. Might be 2 stable professionals (lawyer at a name firm with a good Ivy Degree and, say a physician, accountant etc.). These people are good credit risks, but to a bank all they see is no long income history and other problems. (And maybe there are but let’s go with the idea for now). And they don’t have family to back stop them and cosign or maybe the parents don’t want to cosign or other things.So what you do is be the financier to these people charging a market rate of interest (plus, say 1/2 pt) and servicing the loan (like taking back a mortgage on a property that you already own) and in exchange you own x% of the property and get the upside when/if it sells. I don’t know what x% would be. Could be 25% perhaps +-. So you are co-owner. If and when they sell (or get divorced) you get the upside. If you believe in the property as not depreciating, and you believe in the people you are financing, you should have nominal downside risk (and you can always buy them out and rent for that matter). You get your steady stream of income as well and you put in a clause that they can’t refinance perhaps. And protect yourself in other ways, at least contractually.This seems like a decent deal for both parties, given what each stands to gain from the arrangement. Part of what you do now (with angel investing) involves judging people so while this wouldn’t make sense as an entire investment strategy it would seem to make sense to park some money this way.Of course you still have a lean lien on the property so if they go south you take that back obviously and rent or sell.
interesting. not sure i’d want to be in that business but interesting.
Joanne, thanks so much for taking my question! My wife and I own our condo in Boston’s South End, and love being homeowners. Our family recently started dabbling in the real estate investment biz with a small beach summer rental in an area that we have a summer home in (Nantasket Beach in Hull, MA). It’s worked out quite well, as we know the ‘hood, are just around the corner for late night calls and maintenance, etc. Lots of work to get the house prepared and rented for the summer though – probably 10-15 hours/week around rental season to make sure everything runs like a first-class resort. That being said, we enjoyed it enough that we’re looking for a second property in the same area.Thanks again!
our friends did that. they bought a place and fixed it up down the street from their beach home. it has been a great experience.
Joanne, I actually found your blog through researching the new owners of some property in Park City and have been following ever since. I’m a project manager for Germania Construction in Park City. I sent you a letter this summer but don’t know if you ever received it. I agree with you that every project is different and having the right people around you makes a difference. Are you planning to build in PC or just holding onto the land as an investment? We have several projects off the ground, including one in The Colony that will be finished for the holidays. If you vacation here during the winter, I hope you’ll come take a tour of the house.
I did receive it. We are doing work but have had someone for the past year and a half who we are extremely happy with. Really appreciate you sending me your info.