Buying a hotel as a passive investment?

[constructive]

The guy runs a really lean hotel so i'm thinking i cant add any value there. The things i add some value to is there is a vacant bar/resturant space in the hotel. I can lease that and make some additional income.

 

Key quote. If you can't run the hotel better than the current owner, don't buy it. If you can add value to the bar, you could make him an offer for that.

[premfan]

Maybe I'm not thinking about this in the right way, but depending on how you finance this deal, you might be able to make a good return and grow nicely.

 

It costs $900,000 to buy and if you can get away with only putting up $100,000 cash and have the seller finance the remainder of the down payment and you make $100,000 a year and you  can reinvest that in another hotel and then two more... extrapolating out a few years, you might own a few hotels and be making a good chunk of change every year.

 

Maybe your hotels wouldn't have the best margins or occupancy rates, but if you can make 5x your money in five years and do that multiple times you'd be doing nicely in life. Just a thought.

 

 

Morgan,

 

This is what I was thinking as well.  I'm currently a owner/operator in a wellness office. It does well but, it requires me to be there all the time. I was looking to get into something more passive. The wellness office requires me to sell a lot and always be on "stage". I literally have to be "on" every moment to gain the trust and rapport with my clients. Also its not really a scalable business. Reading everyone's messages it seems the only way to make this work is to do it the patel way.  Going all in and using the cash flow from the property to put a down payment in other ones. Keep rinse and repeating.  I don't have the network that patels have like their family and relatives. Only way to make this work would be to use management services which would give me a rate of return of about 6 percent :(.

 

Thank you for all the suggestions guys! This board is awesome!

 

[Morgan]

I'm currently a owner/operator in a wellness office. It does well but, it requires me to be there all the time. I was looking to get into something more passive. The wellness office requires me to sell a lot and always be on "stage". I literally have to be "on" every moment to gain the trust and rapport with my clients. Also its not really a scalable business. Reading everyone's messages it seems the only way to make this work is to do it the patel way.  Going all in and using the cash flow from the property to put a down payment in other ones. Keep rinse and repeating.  I don't have the network that patels have like their family and relatives. Only way to make this work would be to use management services which would give me a rate of return of about 6 percent :(.

 

Thank you for all the suggestions guys! This board is awesome!

 

 

A few thoughts...

 

Free Cash Flow Machine:

Creating an enterprise that shoots out cash that can be redeployed into new investments is very important to growing. But it also needs to be combined with scalability (or somewhere else to invest it at least).

 

Management:

As others have said, the Patel Way works very well. There are other ways to do it, and one way is to hire excellent, trustworthy management. Maybe you have to pay them above average salaries, but then you'd be freer to look for other investments.

 

Scalability:

Building a business that you can grow and eventually get to a point where you're not dealing with the day-to-day, but are focused primarily on capital allocation is hard, but possible. Most small business owners, I think, don't think about (or don't care about) growing their business into a billion dollar enterprise that other people manage for them, so they don't go into businesses that are inherently scalable. I don't know exactly what you're aiming to do, but creating a large hotel chain from one hotel has been done and it will be done again. Could you do it? Do you even want to?

 

Lots to think about...

[rjstc]

Maybe I'm not thinking about this in the right way, but depending on how you finance this deal, you might be able to make a good return and grow nicely.

 

It costs $900,000 to buy and if you can get away with only putting up $100,000 cash and have the seller finance the remainder of the down payment and you make $100,000 a year and you  can reinvest that in another hotel and then two more... extrapolating out a few years, you might own a few hotels and be making a good chunk of change every year.

 

Maybe your hotels wouldn't have the best margins or occupancy rates, but if you can make 5x your money in five years and do that multiple times you'd be doing nicely in life. Just a thought.

 

 

Morgan,

 

This is what I was thinking as well.  I'm currently a owner/operator in a wellness office. It does well but, it requires me to be there all the time. I was looking to get into something more passive. The wellness office requires me to sell a lot and always be on "stage". I literally have to be "on" every moment to gain the trust and rapport with my clients. Also its not really a scalable business. Reading everyone's messages it seems the only way to make this work is to do it the patel way.  Going all in and using the cash flow from the property to put a down payment in other ones. Keep rinse and repeating.  I don't have the network that patels have like their family and relatives. Only way to make this work would be to use management services which would give me a rate of return of about 6 percent :(.

 

Thank you for all the suggestions guys! This board is awesome!

 

I was attracted to your comment of looking for a passive investment. I can't think of any better passive investments with more stable long term attributes for putting $1000000.00 than BRK, FRFHF,LUK,BDVSY, or maybe a few others mentioned on this board. Or hire an honest, shareholder oriented manager to run your money. I think maybe the founder of this board, or Francis Chou,or a few others.

  I think you'd sleep better, worry less, and profit pretty decently.

[giofranchi]

I like it. Everyone knows the rules ahead of time. It's open to see. Disciplined. Fair to everyone. The only question I would have is if someone leaves, what happens to their portion of the 20% in the investment portion. I'm sure you have a good system Gio. Just curious how you handle retirements, etc. ron

 

Hi Ron!

Now I must leave in a hurry... but I will answer your question as soon as possible!  :)

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

 

Ron,

that 20% is what I make for me and my partners out of our firm’s operations. The professionals who work with us have no rights on that 20%. In other words, they are no partners of mine, they are just collaborators, and therefore they have no claim on the firm’s equity. Instead, if a partner chooses to leave, that’s another story. Until now it has never happened, and, as I said before, I have no perfect plan: I guess somehow I will have to deal with it, when that eventuality might come to pass. Sincerely, I still hope it will never be necessary to think about it! Anyway, though I clearly don’t like it, the easiest way would be to sell a portion of my firm’s investments and distribute the proceeds to the leaving partner, in proportion to his/her stake in the firm’s equity.

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

 

[giofranchi]

Maybe I'm not thinking about this in the right way, but depending on how you finance this deal, you might be able to make a good return and grow nicely.

 

It costs $900,000 to buy and if you can get away with only putting up $100,000 cash and have the seller finance the remainder of the down payment and you make $100,000 a year and you  can reinvest that in another hotel and then two more... extrapolating out a few years, you might own a few hotels and be making a good chunk of change every year.

 

Maybe your hotels wouldn't have the best margins or occupancy rates, but if you can make 5x your money in five years and do that multiple times you'd be doing nicely in life. Just a thought.

 

 

Morgan,

 

This is what I was thinking as well.  I'm currently a owner/operator in a wellness office. It does well but, it requires me to be there all the time. I was looking to get into something more passive. The wellness office requires me to sell a lot and always be on "stage". I literally have to be "on" every moment to gain the trust and rapport with my clients. Also its not really a scalable business. Reading everyone's messages it seems the only way to make this work is to do it the patel way.  Going all in and using the cash flow from the property to put a down payment in other ones. Keep rinse and repeating.  I don't have the network that patels have like their family and relatives. Only way to make this work would be to use management services which would give me a rate of return of about 6 percent :(.

 

Thank you for all the suggestions guys! This board is awesome!

 

I was attracted to your comment of looking for a passive investment. I can't think of any better passive investments with more stable long term attributes for putting $1000000.00 than BRK, FRFHF,LUK,BDVSY, or maybe a few others mentioned on this board. Or hire an honest, shareholder oriented manager to run your money. I think maybe the founder of this board, or Francis Chou,or a few others.

  I think you'd sleep better, worry less, and profit pretty decently.

 

I agree 100%.

Though I also like to have a fcf generating machine that I can control. The reason is that a (more or less) predictable stream of cash helps very much reducing what Mr. Klarman in “Margin of Safety” calls “the opportunity cost”. Of course, it could also be reduced through special situation investing, or through high-yield bonds investing. But I find the nitty-gritty of business management and decision making to be much more fun!  :)

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

 

[Morgan]

I was attracted to your comment of looking for a passive investment. I can't think of any better passive investments with more stable long term attributes for putting $1000000.00 than BRK, FRFHF,LUK,BDVSY, or maybe a few others mentioned on this board. Or hire an honest, shareholder oriented manager to run your money. I think maybe the founder of this board, or Francis Chou,or a few others.

  I think you'd sleep better, worry less, and profit pretty decently.

 

I agree 100%.

Though I also like to have a fcf generating machine that I can control. The reason is that a (more or less) predictable stream of cash helps very much reducing what Mr. Klarman in “Margin of Safety” calls “the opportunity cost”. Of course, it could also be reduced through special situation investing, or through high-yield bonds investing. But I find the nitty-gritty of business management and decision making to be much more fun!  :)

 

giofranchi

 

I tend to lean towards the fcf machine and control aspects. I've discovered that I'm better at making money in real estate than in stocks. I have far more control, but it's definitely not as passive at all. Buying and holding BRK, FRFHF, LUK, BDVSY, etc would make you money, but in my experience I'd be more likely to make more money in real estate. Buy anyways premfan, the choice is ultimately yours.

 

Good luck and let us know what direction you go!

[premfan]

Update :

 

 

I decided that not to make the deal on the hotel. Factoring in hiring an consultant to run the hotel. The return would be minimal to justify the effort. I do have someone coming in to operate my business sometime in may where its a 50/50 collections split. With an option to buy after certain metrics have been met. I feel I need to control an asset that's somewhat passive. Nothing is really passive in the real world but, I would like my business not to be completely dependent on me operating it.  I'm looking to become a franchisee in an up and coming brand. I even looked at steak n stake lol. Apartment complex was next on the list but, the returns are not enough to justify the capital investment. Cap rates in Denver are pretty low like in the 7 percent range.  I cant see how rent rates can be increased in the future to justify higher income. Rents are pretty high here already.

[Parsad]

Update :

 

 

I decided that not to make the deal on the hotel. Factoring in hiring an consultant to run the hotel. The return would be minimal to justify the effort. I do have someone coming in to operate my business sometime in may where its a 50/50 collections split. With an option to buy after certain metrics have been met. I feel I need to control an asset that's somewhat passive. Nothing is really passive in the real world but, I would like my business not to be completely dependent on me operating it.  I'm looking to become a franchisee in an up and coming brand. I even looked at steak n stake lol. Apartment complex was next on the list but, the returns are not enough to justify the capital investment. Cap rates in Denver are pretty low like in the 7 percent range.  I cant see how rent rates can be increased in the future to justify higher income. Rents are pretty high here already.

 

You will have to be totally hands-on on the franchise for a while, until you find a good manager and train them right.  I have a number of friends who run franchises, and it is never-ending.  Once you find a good manager, then you start to see the passive income come in, but initially it's very time-consuming to get it up and going.  Good help is hard to find, but once you do, they have to be incentivized to work hard for you.  One my friends has done very well with Subway franchises on Vancouver Island.  He's even got it now where he can monitor his employees from his laptop and cameras in the store.  He's got a good manager in place, his retired parents help out a bit on the accounting and administrative side, and he's got some good passive income coming in between two stores and now trying to get a third one open.  But there are definitely times when he has to be there and for long stretches.  Cheers!

[Morgan]

You will have to be totally hands-on on the franchise for a while, until you find a good manager and train them right.  I have a number of friends who run franchises, and it is never-ending.  Once you find a good manager, then you start to see the passive income come in, but initially it's very time-consuming to get it up and going.  Good help is hard to find, but once you do, they have to be incentivized to work hard for you.  One my friends has done very well with Subway franchises on Vancouver Island.  He's even got it now where he can monitor his employees from his laptop and cameras in the store.  He's got a good manager in place, his retired parents help out a bit on the accounting and administrative side, and he's got some good passive income coming in between two stores and now trying to get a third one open.  But there are definitely times when he has to be there and for long stretches.  Cheers!

 

We have a family friend that opened a franchise a few years ago and she's made apparently decently good cash flow, but she says it's not worth it. Finding help is too difficult and a good manager is basically impossible to find. She also had troubles with the company when the store computer went down. She couldn't just buy a new equivalent one for $300, but she had to buy the one from the company for $1200 and it was a crappy old machine. It's constant troubles for her. She's just working to pay off the debt and then be done with it. So like Parsad said, until you can find and keep a great manager you trust, it's going to be a lot of work.

 

 

[Parsad]

You will have to be totally hands-on on the franchise for a while, until you find a good manager and train them right.  I have a number of friends who run franchises, and it is never-ending.  Once you find a good manager, then you start to see the passive income come in, but initially it's very time-consuming to get it up and going.  Good help is hard to find, but once you do, they have to be incentivized to work hard for you.  One my friends has done very well with Subway franchises on Vancouver Island.  He's even got it now where he can monitor his employees from his laptop and cameras in the store.  He's got a good manager in place, his retired parents help out a bit on the accounting and administrative side, and he's got some good passive income coming in between two stores and now trying to get a third one open.  But there are definitely times when he has to be there and for long stretches.  Cheers!

 

We have a family friend that opened a franchise a few years ago and she's made apparently decently good cash flow, but she says it's not worth it. Finding help is too difficult and a good manager is basically impossible to find. She also had troubles with the company when the store computer went down. She couldn't just buy a new equivalent one for $300, but she had to buy the one from the company for $1200 and it was a crappy old machine. It's constant troubles for her. She's just working to pay off the debt and then be done with it. So like Parsad said, until you can find and keep a great manager you trust, it's going to be a lot of work.

 

Morgan touched on something else I should have mentioned.  Make sure the franchise agreement stipulations aren't onerous.  The best franchises are the ones that emulate the same system across the chain, but allow flexibility with each owner and their regional customer base.  There are many franchise agreements that are just crazy, and are completely to burnish the coffers of the parent company.  Usually this means the franchisee is a grunt and long-term passive income is less likely.  I would recommend talking to franchisees in chains you are interested in.  Set up a coffee or take the owner out for lunch, and just ask him what his experience is like with the franchise...what he likes, dislikes, etc.  Cheers!

[Morgan]

Update :

I decided that not to make the deal on the hotel. Factoring in hiring an consultant to run the hotel. The return would be minimal to justify the effort. I do have someone coming in to operate my business sometime in may where its a 50/50 collections split. With an option to buy after certain metrics have been met. I feel I need to control an asset that's somewhat passive. Nothing is really passive in the real world but, I would like my business not to be completely dependent on me operating it.  I'm looking to become a franchisee in an up and coming brand. I even looked at steak n stake lol. Apartment complex was next on the list but, the returns are not enough to justify the capital investment. Cap rates in Denver are pretty low like in the 7 percent range.  I cant see how rent rates can be increased in the future to justify higher income. Rents are pretty high here already.

 

If you do happen do get into real estate, you should really read Real Estate: A Case Study Approach by William Poorvu (http://www.amazon.com/Real-Estate-Case-Study-Approach/dp/0137634838/ref=la_B001IGJM4U_1_4?ie=UTF8&qid=1362591079&sr=1-4). There is one chapter in there that is really great. Of course I can't remember the chapter number, but it's about a guy who owns 10,000 apartments and how he uses creativity and scale to keep his margins high and his properties looking nice. Really good stuff in those few pages. The book is only $0.01 used so it's hard to argue against it.  ;D

[wescobrk]

If you do happen do get into real estate, you should really read Real Estate: A Case Study Approach by William Poorvu (http://www.amazon.com/Real-Estate-Case-Study-Approach/dp/0137634838/ref=la_B001IGJM4U_1_4?ie=UTF8&qid=1362591079&sr=1-4). There is one chapter in there that is really great. Of course I can't remember the chapter number, but it's about a guy who owns 10,000 apartments and how he uses creativity and scale to keep his margins high and his properties looking nice. Really good stuff in those few pages. The book is only $0.01 used so it's hard to argue against it. 

 

Thanks! I just ordered it. Even with shipping and tax probably still cheaper than a drink at Starbucks.

[premfan]

If you do happen do get into real estate, you should really read Real Estate: A Case Study Approach by William Poorvu (http://www.amazon.com/Real-Estate-Case-Study-Approach/dp/0137634838/ref=la_B001IGJM4U_1_4?ie=UTF8&qid=1362591079&sr=1-4). There is one chapter in there that is really great. Of course I can't remember the chapter number, but it's about a guy who owns 10,000 apartments and how he uses creativity and scale to keep his margins high and his properties looking nice. Really good stuff in those few pages. The book is only $0.01 used so it's hard to argue against it. 

 

Thanks! I just ordered it. Even with shipping and tax probably still cheaper than a drink at Starbucks.

 

Just ordered the book. The cheapest one left was 1.93 + shipping costs. Looks like 5 forum members bought the book before me! 

 

My family has experience somewhat scaling apartment complexes. My dad came to the US in 1979 and bought a apartment complex for lower income residents in NYC in 1983.  He told me that back then it  wasnt hard to find apartment complexes that were yielding a 20 plus cap rate. Back then the city was in the dumps. Full of crime and banks wouldn't  lend to anyone. He finally convinced this bank in chinatown to lend him money.  He accumalated units until 1998 when he sold out. He mentioned during the late eighties the city started enforcing rent control.  A couple points he made

 

1.) Buy the best location even when its alot of crime and dangerous

2.) Buy crappy buildings that make cash flow then redevelop the property to charge higher rent rates

3.)  Scale as fast as possible.

 

The problem i see now is that asset prices for real estate are high relative to what it earns. Apartment complexes are overvalued at least in denver. When rates rise and if the debt isnt fixed for an extended period of time. Its going to be tough for owners to pay the mortage cause i cant see how much faster rent rates can be increased.  I'm looking forward to reading this book cause i would prefer owning real estate assets and scaling that up. 

[eclecticvalue]

By your comments premfan it seems Detroit would be a great buy and you could re-purpose the land.

[Aberhound]

My brother came back a few months ago from helping his friend who purchased a hotel in southwest US. The friend was an experienced hotel operator from Canada. The hotel was purchased for $2M from a bank with 100% financing. The bank would only sell to experienced operators on those terms. The bank was getting a bad deal from their receiver who was operating the hotel. The hotel across the street cost $6M and carried the debt so my guy knew he could out compete him. The rooms were renovated, the furniture replaced and occupancy was good 80% to 90% but the rates were lowish to get the occupancy up from the previous dismal levels. My brother's job was to go through and suggest subtle improvements. He got the driveway lights replaced with coach lights making the property pop which increased revenues 3 percent. He got 20 parking spots or so covered so guests would not sweat while their car cooled down. This made the hotel busy during the day for business meetings. He got the pool changed to put in a covered area in an unused sunny corner with a bar and bbq and pool use climbed dramatically. These changes allow rates to increase from $69 to $89 per night with the same occupancy. The value is now $6M based on cash flow. You can make a lot of money with hotels. A manager runs it but you need to visit way more than 2x per month. Now the guy is looking for another in the same area. He found a nearby lake with fancy homes and bought one so he could spend more time down there. He will probably make good money on that house too. I suggested setting up an Limited Partnership and doing ten in the same area instead of 2. You need the capital to make the hotel better than the nearby hotels who are stuck with way more debt but one guy can oversee multiple hotels. There is a ton of opportunity in the US.

[Morgan]

If you do happen do get into real estate, you should really read Real Estate: A Case Study Approach by William Poorvu (http://www.amazon.com/Real-Estate-Case-Study-Approach/dp/0137634838/ref=la_B001IGJM4U_1_4?ie=UTF8&qid=1362591079&sr=1-4). There is one chapter in there that is really great. Of course I can't remember the chapter number, but it's about a guy who owns 10,000 apartments and how he uses creativity and scale to keep his margins high and his properties looking nice. Really good stuff in those few pages. The book is only $0.01 used so it's hard to argue against it. 

 

Thanks! I just ordered it. Even with shipping and tax probably still cheaper than a drink at Starbucks.

 

Just ordered the book. The cheapest one left was 1.93 + shipping costs. Looks like 5 forum members bought the book before me! 

 

My family has experience somewhat scaling apartment complexes. My dad came to the US in 1979 and bought a apartment complex for lower income residents in NYC in 1983.  He told me that back then it  wasnt hard to find apartment complexes that were yielding a 20 plus cap rate. Back then the city was in the dumps. Full of crime and banks wouldn't  lend to anyone. He finally convinced this bank in chinatown to lend him money.  He accumalated units until 1998 when he sold out. He mentioned during the late eighties the city started enforcing rent control.  A couple points he made

 

1.) Buy the best location even when its alot of crime and dangerous

2.) Buy crappy buildings that make cash flow then redevelop the property to charge higher rent rates

3.) Scale as fast as possible.

 

My family is in the apartment business too and what your Dad says is exactly what I'm doing with the company now. After managing an eight unit building during college, we tripled the number of units in 2012 and hope do to the same again this year.

 

Premfam if you don't mind can you add some more specifics about your family's experience with RE? How many units did you guys have at the peak and also when you sold out? Dealing with financing issues? Any thing else you want to add? It's always interesting to learn more from others!

 

Cheers!

 

 

[premfan]

If you do happen do get into real estate, you should really read Real Estate: A Case Study Approach by William Poorvu (http://www.amazon.com/Real-Estate-Case-Study-Approach/dp/0137634838/ref=la_B001IGJM4U_1_4?ie=UTF8&qid=1362591079&sr=1-4). There is one chapter in there that is really great. Of course I can't remember the chapter number, but it's about a guy who owns 10,000 apartments and how he uses creativity and scale to keep his margins high and his properties looking nice. Really good stuff in those few pages. The book is only $0.01 used so it's hard to argue against it. 

 

Thanks! I just ordered it. Even with shipping and tax probably still cheaper than a drink at Starbucks.

 

Just ordered the book. The cheapest one left was 1.93 + shipping costs. Looks like 5 forum members bought the book before me! 

 

My family has experience somewhat scaling apartment complexes. My dad came to the US in 1979 and bought a apartment complex for lower income residents in NYC in 1983.  He told me that back then it  wasnt hard to find apartment complexes that were yielding a 20 plus cap rate. Back then the city was in the dumps. Full of crime and banks wouldn't  lend to anyone. He finally convinced this bank in chinatown to lend him money.  He accumalated units until 1998 when he sold out. He mentioned during the late eighties the city started enforcing rent control.  A couple points he made

 

1.) Buy the best location even when its alot of crime and dangerous

2.) Buy crappy buildings that make cash flow then redevelop the property to charge higher rent rates

3.) Scale as fast as possible.

 

My family is in the apartment business too and what your Dad says is exactly what I'm doing with the company now. After managing an eight unit building during college, we tripled the number of units in 2012 and hope do to the same again this year.

 

Premfam if you don't mind can you add some more specifics about your family's experience with RE? How many units did you guys have at the peak and also when you sold out? Dealing with financing issues? Any thing else you want to add? It's always interesting to learn more from others!

 

Cheers!

 

 

 

My Dad said his first purchase was a 16 unit building in harlem. The purchase price was 125k and he put 25k down. He found the building in the new York times. He bought it from a old lady. Three years later he bought two other buildings in harlem that had 32 units total for 450k. Three years later he bought 10 units with one commercial space. Purchase price was 150k with 25k down. Sold out in 1998-1999 to multiple buyers due to his feeling that the market was toppy.

 

Total units at peak= 58 units with commercial space rented as a Chinese restaurant

 

He was a one man show and at that point I was too young to help out ( I'm 30). The plan was to slowly redevelop the property and increase rent. I saw his journal during the mid 80's and the rents were silly cheap in that area. Like 250-300 for a one bedroom.  I saw a couple in the mid 100s ! You frame it as an arbitrage between putting money in the buildings and increasing rent. NYC during in the 80's is not how it is now. No one wanted anything to do with the city. This was also the era that trump made his money by redeveloping prime real estate in manhattan. You go where no one else wants to go. Being a landlord in that area is not a glamorous profession. I remember him going to court like every two months or so to kick out a tenant that wasn't paying. There is always a price to pay to make money. He had fun doing it so it wasn't ever really work to him. When he sold out we moved to the west coast. He used the money to buy downtown commercial property and apt units mostly with cash. 

 

My goal recently has been to find something I can scale up. Coming to a realization that my small business isn't scalable. I'm open to everything from being a franchisee, owning a hotel, or buying 8-10 unit property. I'm not seeing the no brainer deals like they were back in the day. There is too much opportunism compared to back in the day. I wasn't really thinking about doing anything but my small business until recently so I missed the good buying opportunities from 2008-2010 in RE.  Congrats on tripling the apt units!

[Morgan]

My Dad said his first purchase was a 16 unit building in harlem. The purchase price was 125k and he put 25k down. He found the building in the new York times. He bought it from a old lady. Three years later he bought two other buildings in harlem that had 32 units total for 450k. Three years later he bought 10 units with one commercial space. Purchase price was 150k with 25k down. Sold out in 1998-1999 to multiple buyers due to his feeling that the market was toppy.

 

Total units at peak= 58 units with commercial space rented as a Chinese restaurant

 

He was a one man show and at that point I was too young to help out ( I'm 30). The plan was to slowly redevelop the property and increase rent. I saw his journal during the mid 80's and the rents were silly cheap in that area. Like 250-300 for a one bedroom.  I saw a couple in the mid 100s ! You frame it as an arbitrage between putting money in the buildings and increasing rent. NYC during in the 80's is not how it is now. No one wanted anything to do with the city. This was also the era that trump made his money by redeveloping prime real estate in manhattan. You go where no one else wants to go. Being a landlord in that area is not a glamorous profession. I remember him going to court like every two months or so to kick out a tenant that wasn't paying. There is always a price to pay to make money. He had fun doing it so it wasn't ever really work to him. When he sold out we moved to the west coast. He used the money to buy downtown commercial property and apt units mostly with cash. 

 

My goal recently has been to find something I can scale up. Coming to a realization that my small business isn't scalable. I'm open to everything from being a franchisee, owning a hotel, or buying 8-10 unit property. I'm not seeing the no brainer deals like they were back in the day. There is too much opportunism compared to back in the day. I wasn't really thinking about doing anything but my small business until recently so I missed the good buying opportunities from 2008-2010 in RE.  Congrats on tripling the apt units!

 

Thanks for sharing premfam! Sounds like you Dad did nicely there! He certainly bought those buildings at good prices. I don't know much about real estate in NYC, but I'm sure it's not that cheap for equivalent stuff nowadays.

 

You're right about no-brainer deals being less prevalent now in Denver and also in WV where I am because of the gas boom. There are lots of temporary people here so rents and building prices are high, so you gotta negotiate hard and be willing to walk away if it doesn't meet your requirements. There is definitely money to be made, but it's just not as obvious as it was a few years ago!

 

Let us know of any other options you think about to build a fcf machine.  ;D