Has anyone sold their res. RE to go commercial? - Posted by jim

Posted by osirus on October 06, 2003 at 24:06:42:

“”""Kaiser was talking about coming out with some kind of course that would automate this REI thing as much as possible including, but not limited to, courthouse research. An employee manual was to be part of it.

I wonder what ever happened to that idea ?""""

Good question! May be you should ask him?

Has anyone sold their res. RE to go commercial? - Posted by jim

Posted by jim on October 02, 2003 at 08:12:17:

Cutting right to the chase, I’ve owned a couple duplexes for about 3 years that are basically breaking even (more exactly $400per month). My father has sold considerable college house units and 1031 exchanged into Q-trips, Dollar General Stores, and some pre-rented Attorney/CPA office new construction.

Anyway, there is approx $100K of equity in the duplexes and I’m seriously considering 1031 into a triple net commercial building. This at least on paper appears much more profitable and less time consuming on the little stuff (I need this I need that, late rent, early moveout, faucet leaks, etc etc etc).

Any feedback from someone who has made the change?

Thanks a bunch–Jim

JT and everyone - Posted by jim

Posted by jim on October 03, 2003 at 09:36:05:

Thanks for the great comments. Frank Chin on the commercial board gave a great response as well. SOunds like what it all boils down to is finding a fair priced property with a well established tenant. JT-I’m familar with Q-Tips from my old days of financial planning with American Express but I was referring to Quick Trip convenience stores here in the midwest. They have the market share of the gas/convenience stores in our area like the 7-11’s do in other areas. Too, I think as many of you mentioned best to diversify as well.

Have a great weekend everyone and keeping searching for those deals-----Jim

The answer is… - Posted by JT-IN

Posted by JT-IN on October 02, 2003 at 21:26:28:

Depends upon how good the deal is, that you 1031 into…

I fyou choose a good deal, then good for you. If you choose a GREAT deal, then even better.

If you have picked up something from ole Dad is should be that he has done some very nice deals, and that is why he has the assets to be setting up Q-Tips, for estate purposes, etc… (Not Q-Trips).

Ths business all boils down to making your money when you go into the deal… and the 1031 exchange is simply a tax planning technique that will enable you to keep more of what you have already accumulated.

One of the fascinating elemnets of the RE business is that there are so many ways for folks to be successful, and many times doing the opposite approach from one another, too. So whether Residential, Commercial, or ??? doesn;t matter near as much as NOT losing site of what works, once you attain some success in this business.

Personally I like residential deals… I have some commercial and have had more in the past… but I like the simplicity of residential deals, that are relatively liquid, without much of an issue… where commercial is a more hybrid animal. But each to his own… and it all works if you apply it.

Once last issue is, no matter where you are the grass of always greener… etc. It seems that since your Dad has had success in the commercial mkt, then there would be the logical draw to it, for you to prove yourself, etc… Understandable… Just be sure that you take with you the same scrutinization that you have used to date, when evaluating the commercial deals, if you decide to go that way…

Wish you all the best in your choice…

JT-IN

going commercial? - Posted by tom

Posted by tom on October 02, 2003 at 08:32:11:

jim,

i am working on a commericial deal right now. i am in a similar situation 7 houses, though it sounds as my equity and correspongingly cash flow are highier than yours.

my take: if the outlook is good for your area in pop growth and jobs, you will probably make more in appreciation holding housing rentals. if you need better cash flow today or the above situation is not what you predict then commercial may provide the better return.

the reason i say may, is that commericial has a different risk premium, both in the marketplace and in the type and character of the bank money you can aquire. thus the highier cash flow, debt coverage, experience, and cash reserves requirements by lenders.

I am doing mine all on leverage, as two of my rental homes are free and clear. so i don’t have a need to sell, making the decision a little bit different.

best,
tom

Asked on commercial board? - Posted by Ronald * Starr(in No CA)

Posted by Ronald * Starr(in No CA) on October 02, 2003 at 08:27:08:

Jim------------------

Have you also posted this on the commercial properties forum on this CREONLINE.COM website?

If not, I suggest you do so.

Good InvestingRon Starr*

Q-Trips… LoL - Posted by JT-IN

Posted by JT-IN on October 03, 2003 at 22:18:33:

That is funny… You see, I am not a comm’l guy nor am I familiar with the lingo… but I assimilated the Net Worth growth of your in-law or father, due to the excellent investment strategy and now the huge estate tax issue, that a Q-Tip was in order…

You aee, I have a financial planning background also… and old CFP…

Thanks for the education… and the laugh…

JT-IN

$$$ / agida / family time tradeoff - Posted by Hank FL

Posted by Hank FL on October 03, 2003 at 24:09:28:

I’ve read recent posts of yours that make the sensible point that a long term REI plan might just be a list of things that one might think/feel quite differently about when the time comes.

My thought/question is… well, I’m not quite sure…

OK, if one wants to be a Sam Zellish kind-of-a-guy at some point, then there is a ceiling w/SFH investing, no ?

What I have seen successful SFH investors that want to “kick it up a notch” do is build a seminar/books/tapes biz and then get sweet leads/joint venture deals from far & wide as well as $ from their courses of course.

I’m wondering who has more ulcers: Zell or LeGrand ? Who has a better family life ?

I’m also wondering how much I’ll be content with.

This post is as articulate as I’d wish, but I think you’ll get my point.

I know, I know, worry about it when you get there.

Re: $$$ / agida / family time tradeoff - Posted by JT-IN

Posted by JT-IN on October 03, 2003 at 07:57:45:

Hank:

All legitimate questions and thoughts to have. We all dream about what type of Magnate we will become, however, reality is far different than what we dream, it seems. Some of us are able to greatly exceed our dreams, while others never quite get into the implimentation stages of the dreams… Big difference here!

Whether Zell or LeGrand have more headaches probably depends upon which day you check with each one of them… (not that they are parrallel comparisons, by any streach of the imagination). 3 or 4 months ago I would say that LeGrand was by far having more headaches than Zell, with the break-up of the marketing company… and I doubt that this is fully subsided either; but again I do not have any internal knowledge here, just a guess… On some days it is probably wonderful to ole Sam, but doubtful that most of us could focus as much as he can, or that we could stand the intensity of his situation either…

I think your thoughts are valid here… and as you go along you will periodically adjutst your views and asperations, goals and needs. This simply happens with aging, maturity or tiring; as the case may be be… Some folks have a stronger penchant for fame, power, control, worldly possessions, etc… However, what I have seen quite a few times over again is that reality (once we obtain what we have dreamed about) is rarely the we perceived it to be. Some areas will exceed our dreams while others just don’t match up to what we THOUGHT was really ultra important… hence we adjust, refine and retool our desires.

I certainly would never disuade you from dreaming (worrying about) how you want to structure your enterprise some years down the road… Enjoy the journey as it is the best part, as there really is NO destination… simply the achievement and satisfaction of doing it your way, accomplishing some degree of financial security and status.

Just the way that I view things…

JT-IN

Random thoughts - Posted by Hank FL

Posted by Hank FL on October 03, 2003 at 10:06:18:

Perhaps I should compose my thoughts so I’ll be able to write a cogent post later, for I’m out the door in about 15 minutes.

“Cogent post?”

Nah, why should I start now.

OK, here are some random thoughts:

  • Why spend X # of hours on a house deal that will net me X $ a year in cash flow and other benefits or X $ in a one time lump sum when I could spend maybe 4 times the hours on a bigger deal but receive 20 times the financial gain when compared to the house deal.

  • Limitations. We have only so many hours, and this SFH thing has a large component of self employment or “S Quadrant” as Kyosaki calls it. That means that I can’t really hire negotiators to get me houses for they would snap them up for themselves.
    Well, I suppose buying houses or contracts from flippers is a way to do that. The point is that there seems to be no limitations in the commercial arena.

  • Stress. I do have to imagine that these commercial deals will test one’s ability to get a good nights sleep more often than SFH deals.

  • Guaranteeing debt. I know lots of guys that own strong SFH portfolios but haven’t signed for any bank loans. Starting out in the commercial world, I think I’d be taking on more of that kind of risk. Hmmmm… I have heard of investors that have taken commercial properties “sub2” around here though. These guys don’t do seminars.

  • A to Z. If I would want to be invloved in the commercial world in let’s say X years from now, there are things I’d have to do now and just about every day till then. I’m talking about learning that biz. It seems so different from buying a “3/2/1 in a neighborhood where people want to live” … Why is it that some commercial locations are the kiss of death ? No matter what business is tried at these locations, they go belly up in months. When I drive by, the location seems fine by be though. I think a good place for me to start my education would be with CCIM stuff.

  • Contradictions. I’m thinking one moment that a commercial investor is in the fast lane and has no time for the important things in life and a moment later I’m thinking that commercial investing really is a heck of alot more of a business that doesn’t necessarily require mega-hour-micromanaging. More “B Quadrant” than SFH “S quadrant”. I don’t know.

  • Osmosis. I guess I could just continue with houses and learn the other stuff over the years and gradually transition (1031) into the commercial world.

I’m rethinking everything having to do with REI at this point in my life. I returned home from a long, strange trip in August and will return to marketing for SFH in a few months after I fix some things.

Just thinking out loud here…

Re: Random thoughts - Posted by osirus

Posted by osirus on October 05, 2003 at 13:38:47:

“”""Perhaps I should compose my thoughts so I’ll be able to write a cogent post later, for I’m out the door in about 15 minutes.
"Cogent post?"
Nah, why should I start now.
OK, here are some random thoughts:

  • Why spend X # of hours on a house deal that will net me X $ a year in cash flow and other benefits or X $ in a one time lump sum when I could spend maybe 4 times the hours on a bigger deal but receive 20 times the financial gain when compared to the house deal. “”""

I cannot not really comment on commercial REI since I have never done commercial REI. Suffice it to say it would be many times more difficult than residential REI. Plus the moment I most choose between business and spending time with family and friends then the point is defeated for me.

“”""- Limitations. We have only so many hours, and this SFH thing has a large component of self employment or “S Quadrant” as Kyosaki calls it. That means that I can’t really hire negotiators to get me houses for they would snap them up for themselves.
Well, I suppose buying houses or contracts from flippers is a way to do that. The point is that there seems to be no limitations in the commercial arena. “”""

This is something I thought about a lot since my “master plan” is to have my REI on auto pilot so that I could go on a month long vacation, on whim, with out REI suffering. After thinking about it, I have concluded that it depends on the nature of the your REI activities and your ability to think of ways of getting people to do the work for you.
For example:

Any type of seller financing like buying on a wrap, L/O, subject 2, seller financing, etc.; would not lend themselves automation since they are negotiation intensive and do not require must other resources outside knowledge. Thus, as you say people, your hired negotiators “would snap them up for themselves.”

Nonetheless, there are ways to prevent them from snapping them up themselves which I will get to later.

There are several REI methods that lend themselves to automation like: Landlording, Nodiscount?, using cash.

Landlords can hire a management company. Nodiscount? was designed with a lot of automation, is not negotiation intensive, and can be tweaked to be almost completely automated. “Using cash” includes any buying technique which requires upfront cash like: buying discounted mortgages, being a HML, buying with cash selling on contract, buying at auction. Being able to negotiate is just half the equation. You would still need the cash resources.

One technique which JT IN post about really lends itself to automation in my humble opinion. He researches to public records for foreclosures and buys the defaulted paper directly from the lender. Next, he continues the foreclosure and attends the auction. If the property gets bid up he can that the quick profit. If not he acquires the property way below value.

This is a method I will use myself once I have the resources and experience to do them.

Do you see how this method lends itself to automation? JT IN could document all he does during the research phase, put together a manual, then hired some one research the public records for him. He could do the some for negotiating with the banks part. If the hired help wants to snap the deal up themselves they are going to need the cash resources that JT IN has.

Anyway, this is how I might hired people and discourage them from becoming my competition. First, carefully screen the people I hire with specific attention to character references. Second PAY THEM WELL. Third, have them sign a employment contract language stating that: 1) if they quit they agree to return all materials 2) they agree not invest in real estate , in the county, for 3-5 years after they quit. Also have them sign a performance mortgage of hundreds of thousands of dollars and record. Hold a satisfaction in escrow.

If they quit and snap up your deals enforce the mortgage.

Re: Random thoughts - Posted by Hank FL

Posted by Hank FL on October 05, 2003 at 18:36:47:

Kaiser was talking about coming out with some kind of course that would automate this REI thing as much as possible including, but not limited to, courthouse research. An employee manual was to be part of it.

I wonder what ever happened to that idea ?