I was in a FB group today when someone posted a four unit they were looking for someone to join them in a joint venture. He had a LOI for $ 810,000 and current NOI was $ 40,000. He was expecting proforma NOI to go to $ 48,000 after raising rents. Those numbers are about a 5% cap. It's uncertain if reserves have been included in those numbers. Financing this deal at prevailing rates will mean debt service is about $ 4,000 a month. That assumes 20% down. If you double to down payment to 40%, debt service is $ 3,100 a month. Basically, I don't see where this makes sense. I'd only bite on this at an 8%+ cap.

This is why I've not been a buyer here of late. I just think the newbies and flippers running around have distorted the market. Everyone and his mother is on the prowl for a "deal" and are willing to take on something even if it doesn't cash flow or only does so marginally. I've been attending a few local meetups and it's all rah rah cheerleading type stuff. I don't need motivation but look for information that will enhance running the business.

To me, this is like the internet mania back in the day. Not sure how it's going to happen, but these folks are going to be cleared out of the market and when they do, I'll be a buyer again. Until that happens, I'll be working with what I got.

I think you are spot on for a Multi Cap Rate if you are going to buy it in a traditional manner.

I would ask though - why buy it in a traditional traditional manner?

Think you can find any baby boomers who want to retire? How about a burned out land lord after enduring Covid politics? How about someone who can't quite figure out that they are in charge and not the tenants? These are all real scenarios - and we hear about them on this forum daily....so these people do exist.

I think these people exist in your back yard......not just yours, but in everyone's back yard. It is finding them and then looking in your investor tool box - more about that later.

First lets talk about the bubbles. Is one coming? Absolutely. Will allow for a drop of 15% or so percent in the heart land? Probably. But ask yourself, if you bought absolutely nothing this past two years, was the combined inflation rate over those two years about 15%. I would think that it would be close since inflation rates are based on previous years.

A BUY AND HOLD strategy is a natural inflation hedge. If instead of dollar cost averaging, you bought a set amount of real estate each year, then there would be no bubbles. If that magic number is $500,000 in sales volume or 3 houses each year - as long as you are steady strain.....you will ride out the bumps. I like how you say you will work with what you got!

As for the investor tool box, I am hoping everyone feels good doing Master leasing on Multi's. Couple a Master lease with an option to purchase and you can create a value train. Not everyone is convinced that these tools work. They will tell that they can't find a single investor out there who understands getting a passive income stream. Think it would be hard to sell someone on doing nothing and getting cash? I posted last week about seeking out expired MLS Multi Family listings. Many were not impressed. I guess they don't know any troubled Land lords locally.

So as you lease a place for five years and you paid a whopping $1,000 and 60% of the rental income collected - would it be that hard to just somehow stumble across a spare $25,000? If offered the lump sum payment, perhaps the old landlord would go Sub2. If not interested, then ask them the lowest possible amount that they would accept for an all cash offer. If they tell you the option sales price, let them know that the value of money is getting reduced by inflation and in four more years that $125,000 is going to be only worth $100,000.

Most investors will only think about future value of a unit, but if the value of a dollar is presented, and you have cash available.....deals can be created.

It might be something as simple as a 80/15/5% deal configuration where you are only paying interest on the second. Again, deals are made - not found

An investor can make money in any market. We typically make the most money in downward markets, but I find if you create chains in these transactions (normally via 1031), you can make money. You just need to place time on the investors side.

You are spot on with so many "traditional investors" If you are buying traditionally, you are going to get beat up badly. That said, I don't consider that many "traditional investors" really investors at all. Yes they are invested, but they are better described as land lords.

The big money isn't in the land lording. The Cash Flow is in Land Lording....and with steady cash flow, you can survive long enough to scrap together funds for that second "traditional purchase".

In this market place, it is harder to make deals happen because there is more work to make them happen. Any experienced investor just needs to recognize that it is harder. Meanwhile, read the obituaries and send out post cards.

I urge everyone to Find and Create that Next Deal - that is unless you are in MY backyard. If you are near me - disregard this message. Nothing to see here.

My rant really wasn't aimed at you at all.

Nope you are well beyond the wet behind the ears. Instead, I really wish I learned how to think more about structuring up deals that much earlier.

When you are starting out, you are so afraid of messing up, that you do nothing even when you should be moving ahead. By not doing anything, I know I messed up more than once myself. It isn't a matter if you mess up, it is a matter of when.

Options are very forgiving tools in any market.

Ray,

Great ideas. I think the Cali market is spreading. I recall Robert noting that people are buying for future numbers - that it would take time for cash flow. As mentioned, seems similar to internet mania. Will be interesting. I recall AOL buying Time Warner. Speculatively priced AOL acquiring old school real assets. Tap that inflated equity to buy good deals.

Also, the youngs trust FB, can check out a person's history and friends.

People are dumping money into real estate because it holds value in an inflationary environment, and unlike gold, it actually produces income and can be leveraged.

Consider your typical person who has $50,000 - $100,000 sitting in the bank or in something worthless like a CD or money market. The best of those pay somewhere around 3-3.5%, which compared to inflation of 8-15% means you're losing money each year. So why not leverage that money into a $500,000 property that not only rises as value rise, but also puts a little cash in the pocket each month?

5% CAP is unacceptable. I can pull up Loopnet in my town and see that 7% caps are found on every street corner. 9%-10% if you look a bit deeper. Turns into 12-15% after a few years if you find one of those 9-10ers and know what to do with it long-term. And that's just the cash return side.

Here's an 8.25% right now. I toured it about 2 months ago. Found a better one I went after instead. Not showing that one... yet. (*grins)

www.loopnet.com/Listing/300-E-Chestnut-St-Springfield-MO/26008218/

Almost all gurus makes seminars about residential. Few make seminars about commercial. Dig for diamonds where no one else is looking.

DH almost went in with a partner several months ago on a 60-unit portfolio, a combination of singles and multis. His prospective partner was sharp, hard-working, and hungry for this deal that would allow her to retire from her day job and do RE full time.

They wrote an offer based on touring ten of the units. The owner toured with them and shared how he had lovingly restored them while maintaining their vintage architectural features. They were lovely.

The offer was accepted, and then they toured the rest. They were not in the same pristine condition. Meanwhile, I was asking questions about whether the electrical had been updated, the cast iron and galvanized replaced, the age of the furnaces, etc. They hadn't paid attention to those.