Posted by Eric C on February 23, 2001 at 01:17:13:
Hi Dewey -
I agree with David on more than just the issue of new construction. I also believe in “contrarian” investing. I know that everybody says that, but in my experience, very few actually take it to heart and act on it. It can be awfully lonely out there on the edge sometimes.
I don’t use any “rules of thumb” to determine my investment strategies or criteria. There isn’t a “hurdle rate” or anything like that; it’s all scenario dependant.
I purchased my first property, a duplex in 1973; there’s never been a year since that I haven’t made a significant portion of my income from RE in some form or fashion.
I think I was lucky to begin at that time. I saw first hand just how fast inflation could make me millions – on paper – and how an oil crash (and recession)could take away those millions even faster.
Do you know how difficult it was to get a loan in Texas during the mid and late eighties? And not only Texas, you couldn’t get to real money in Colorado, Oklahoma, Arkansas, or Louisiana either. At the time, paper buyers (yes, there were paper buyers and sellers back then) actually redlined this group of states completely. “We don’t purchase anything in the C-O-A-L states or in Texas” was the usual answer. Thanks a lot Metro, Kent, Old Dominion, and …
What do you do when nobody wants what you have to sell? How can you keep going when there’s no more money to be had? When just seeing a Real Estate loan on the books is enough to trigger a knee jerk reaction from the FDIC auditors?
I don’t know about you, but I had to come up with ideas that worked for my employees, my investors, and for me. It’s no different today. Ownership seasoning, L/O’s, flips, rehabs, discounted paper – all of those issues were alive and well back then too. You just have to adjust. And to survive. Learn to think long term.
I hired my crew foreman in 1978; he’s been with me ever since. Today he owns about 50 rental homes himself. We built every one of those.
Lately (past ten years or so), I do commercial deals a lot more than I fool with SFH’s. It’s a decision primarily motivated by time constraints. Plus, I can’t seem to get as motivated by a SFH deal anymore.
Doesn’t mean I won’t do them, just that I like a slower pace. And part of that slower pace is deciding (a long time ago) not to sell very much. Period. I keep almost everything. I find it easier for me, that’s all.
As for building new projects for my own account, that’s really about all I do anymore. Like I said, it may be a commercial project, or a small apartment, maybe even a SFH, but you can be sure that it will be kept in house and not sold.
A lot more people do this than you realize. I knew a fellow in Houston who owned 14,000 apartment units and another gentleman in North Carolina with over 20,000 houses (all paid for, mind you).
This is a good business and you can make a great deal of money. It can be a simple business, but that’s not to say it’s always an easy business.
On balance, I’d say that I was really lucky not to have access to easy credit when I started out, or to have a “hot” market, or a long list of cash rich paper buyers waiting for my product.
No, I think it worked out just fine. After the hard times, these days seem like a piece of cake. And make no mistake, the hard times will come again. They just won’t ever come my way again.
If you want more particulars, yell. Or you can drift over to the commercial board and do a search or two. There’s almost always something interesting going on over there.
PS - this was going to be a longer post, but between the Nyquil ( a little flu,I think) and the new install of Linux on my computer, I’m too tired to think.