Investing in Real Estate
Over the years I have built, bought, held, and sold well over 100 properties in Las Vegas, Austin Texas, North San Diego California, and East Africa. Most of these properties produced well over 100% returns on my investments in less than 12 months.
However, real estate is nothing more to me than another asset class. Therefore I do not consider myself to be a “real estate investor” but just an investor that buys real estate because it grows the family wealth appreciation, produces cash and it’s fun to own.
We own 7 properties to date. I expect an increase to 10 in 2021.
All Residential but some zoned Commercial. So my plan is to add 2 to 3 more properties in 2021. With the possibility of building a commercial too. I will add these in the capital city of Addis Ababa Ethiopia. This is the capital city of Africa, sort of like Brussels is to the EU. Inflation is rampant but the growth of about 10%. It’s the last frontier where you can actually get a decent return (25% to 50% per annum) instead of fiddling around with these crowdfunding single digits. More on that latter because that may be a better fit for you.
It takes brass: Invest In Real Estate
(It takes brass balls to jump out of your comfort zone, so make sure you have them, and also make sure if you jump outside the country, you have a family like me who are educated and smart, to handle your affairs.)
3 of our buildings were built from the ground up, the others we refurbished with some major work done to them. In other words, I do both build and refurb.
As you can see several houses are overseas, one is in California. Therefore the plan is to continue building overseas depending on financing arrangements which we pretty much have in place. So the reason we are not pushing stateside properties is that we have a huge appreciation upside offshore.
Plus I have no family outside California I can rely on unless I want to hire professionals. In other words, California is way overpriced and will most likely continue until supply exceeds demand.
In other words, I do not recommend this strategy unless you have people in a place like relatives managing our projects from start to finish, and collecting the rents.
Watch out for Foreign Investments: Invest In Real Estate
Do not jump to any foreign country to invest, least of all Africa, unless you are 100% certain, which you can almost never be, that you have the right people in place. Ethiopia is different because my wife is from there, and although an American citizen, once an Ethiopian, always an Ethiopian. So we are embedded in this Country with 100 relatives to assist in place. From Lawyers to architects, truck drivers to University Professors, and a few government people too.
Side note from Warren Buffett: Invest In Real Estate
Warren Buffett, my go-to guy for knowledge and information, just invested about 6 billion in 5 Japanese trading companies. These are called the “Sogo shosha (総合商社, sōgō shōsha, or general trading companies) are Japanese companies that trade in a wide range of products and materials. In addition to acting as intermediaries, sōgō shōsha also engages in logistics, plant development, and other services, as well as international resource exploration.” In other words, sometimes you have to go offshore to get what you want. In other words, staying home and taking what you are given will often not give you much.
I have worked with some of these Sogo Shosha too, and I can tell you they are no joke.
Coastal California: Invest In Real Estate
Coastal Southern California properties are extremely inflated and still going up. COVID did not slow it down, in fact, it accelerated. The primary reason is Supply/Demand. Offshore money from China combined with big money (all-cash deals I have been told by my Wells Fargo Banker) from Silicon Valley have increased values because coastal properties are in big demand and continue to have limited supply, which leads us to my favorite real estate guru Mr. Sam Zell.
Sam Zell’s Supply & Demand: Invest In Real Estate
“if there’s no supply then real estate performs very well..almost without regard or reason to the economic conditions. When there is oversupply it doesn’t matter what’s going on, real estate is going to suffer.”
This quote is by Samuel Zell an American billionaire businessman and philanthropist. A former lawyer, Zell is the founder and chairman of Equity Group Investments, a private investment firm, founded 50 years ago, in 1968. The company invests opportunistically across industries and geographies and throughout the capital structure. Wikipedia
This is the primary reason I invest in developing countries where I have relatives to assist in all phases of our projects and where small amounts of money, $10,000 to $100,000 can be deployed to produce double-digit appreciation over a few tears and 20% to 30% positive cash on cash returns. For example, a $10,000 investment will give me a 30% return. You can’t get that investing in REITs or FundRise (see below examples of Crown Funding Real Estate companies.)
Deals I’ve done:Invest In Real Estate
I am not a forecaster as some bloggers promote. Therefore I can only say what I have actually experienced in the markets I know. So here’s what I’ve done.
- Simultaneous close. The buying and simultaneous selling of properties valued at over $400,000 each at the day of purchase and close. My returns on these transactions are well in excess of 100% the same day. I’ll explain this later. It’s not as difficult as it looks.
- Buying multiple properties at the same time. The maximum for me is 15 at the same time. I’ll explain how I did this too. It’s done with builders who are in trouble and decide to exit a market they had no business being in, in the first place.
- Purchased properties well below appraised values in Markets like Austin and Las Vegas. These discounts were between 25% and up to 40% below appraised values based on actual purchases. The lending banks agreed with my appraisals. If the bank doesn’t agree with you then you have nothing but air.
- Built several commercial residential properties. From 10,000 square foot commercial properties in San Antonio Texas for the largest Mexican Steel company, plus 3 story Medical buildings for doctor groups,and residential properties in Texas and Ethiopia east Africa.
- Acquired contracting businesses, mainly through default (will explain this later too). Built several commercial and residential properties through this contacting business.
- Bridge loan lender to contractors. Being a lender to builders is not a good idea, there are many other ways to make a buck. This isn’t one of them.
- Owned and managed over 16 big residential properties in Las Vegas (all in excess of 3700 square feet and up to 6200 square feet with rents ranging from $2500 up to $6500 per month.) I don’t recommend this either, will also explain why.
You can read the details in my book. “How to Get Rich, making Big Money from Home”, 2nd addition, free on Amazon. Look under this blog Books.
Mortgages: Invest In Real Estate
The only house I have a mortgage on is the California house located near the ocean in San Diego. In other words, all the other houses have been paid for and built with cash. My 7th house will be completed before the end of this month located in Ethiopia. I already have tenants and relatives for the properties when completed.
I always look for appreciation first. So these are long-term investments and cash flow is not as much of an issue since I have zero debt. In other words, zero debt means more cash flow. Not only that but I pay my taxes several years in advance.
Alternatives to owning properties outright
Bloggers often promote alternatives to owning whole properties. So be advised that these bloggers are promoting sites that give them ad dollars. I do not have any such arrangements, and if or when I do, I’ll make it clear that I am.
Here is a list of several alternatives that I do not use but am researching.
- https://fundrise.com/ FundRise (assorted properties/commercial)
- https://www.acretrader.com/ Acre Trader (farmland)
- https://www.crowdstreet.com/ CrowdStreet (Commercial Real Estate)
- https://www.realtyshares.com/ (now taken over by II Management Services)
- https://www.realtymogul.com/ Realty Mogul
- https://www.equitymultiple.com/ Equity Multiple
- https://cardonecapital.com/ Cardone Capital
Why I don’t do Crowd Funding…Yet
There are several reasons I don’t do crowdfunding like the above mentioned.
- I have cash (for as little as $10,000 I can own a whole property in a foreign country, assuming I have a way to manage and maintain it. I know people that do the same in the states too.
- Don’t like paying fees. Crowd Funders like Cardone Capital make their money from fees
- Small Returns. Crowd funders payout small returns in single and low double digits per annum.
- There are alternatives like Publicly traded REIT’s and McDonald’s (which owns 40,000 locations)
- Saying I own a building in Texas (using the above crowd funders) may sound cool, but I’m in it for the returns, not the glory.
Will I do Crowd Funding?
I believe if it’s easy to do then returns are usually thin. Therefore by lowering my return expectations I can invest in anything. So check these alternatives out and make the investment, but look at high paying public REIT’s first that are more liquid in case you want to cash out. Alternatives like McDonald’s Corp will allow you to be in the real estate business by owning part of 40,000 locations because MCD owns them all and leases them back to franchisees.
And McDonald’s currently pays a dividend of $5.18/2.48%. If you were smart and bought in March as I did with Ford and GM, then you would have paid $147 and now at $208. The price today is too high with a PE around 33. So time to wait and see how it pulls back because the market is way too overpriced except for maybe Tech Stocks because who knows how those will turn out. In the meantime, I continue to hold AAPL (Apple), GM, and Ford (the car companies I am up over 100% on the year).
How to get a mortgage today if Your Are SELF EMPLOYED
I am an entrepreneur so I pay myself very little income. Therefore my wealth comes from the companies I own growing in value and Real Estate appreciation. Getting a mortgage with little income to show can be a daunting task, even if I put a large chunk down like 40% or more.
Wells Fargo for example is the biggest and toughest mortgage lender out there. This is my bank and I am a preferred customer which means I have over $250,000 in cash sitting in my account. So does it matter to Wells that I am special? Of course not, it just means I get another 1/8th of a point off my loan.
I use a good Mortgage Broker. He’s very good at putting my package together but he’s not cheap.
I say look at Rocket Mortgage which is also Quicken Loans
Average 30-year mortgage rates at major banks
Rocket Mortgage (Quicken Loans)
Bank of America
Average 30-Year Interest Rate, 2019
Monthly P&I Payment
Median Loan Costs, 2019
Median Origination Charges, 2019
If NO W2 Tax Returns
In other words, I have very little taxable income. Our income comes primarily from Royalties we’ve created (more on royalty income in other blogs). So how do I get the loan? My wife is my go-to gal for buying properties because of her income on our return. But we are not buying properties because everything in California is overpriced and inflated. So it’s refinancing time and I look for 2021 to provide us with a very low rate based on the current economic conditions.
In other words to get a low Mortgage Rate you really need a fat Tax return, which means YOU HAVE TO PAY TAXES. In other words bloggers, I’ve read brag about their sub 3% mortgages because they pay big taxes. They also never tell you how much equity they have or the size of their mortgage. In fact, I haven’t seen any advisors give out any details except to say “I have a low rate”.
My Mortgage Broker and Bank Statement Mortgage Loans
When we bought our dream house near the ocean in a beautiful North San Diego California coastal city called Carlsbad, we had one little problem. We didn’t show enough income on our tax return to get this big ass Jumbo Loan. $850,000 to be exact on a $950,000 appraised value, now appraised 18 months later at $1.150,000 and ready for refinancing in 2021.
If you don’t show enough income on your Tax Return you are not going to get a conventional or Jumbo Loan (the reason is I have a C corporation and like Warren Buffet, we pay ourselves just enough to live, reducing our personal tax liability and keep our cash in the corporation). Therefore Bank statement loan was my only alternative at the time. I first contacted one Mortgage Broker who started the process but 10 days later nothing was happening, so I dumped him fast for another Broker.
A soon as I dumped him he miraculously came back with the 10% down money/bank statement loan I wanted. However in my world, once you jerk me you are out so I went with my new broker who closed the deal within the remaining 21 days I had left on my purchase agreement contract.
Bank Statement Mortgage Loans
I used a Bank Statement loan because my tax returns weren’t fat enough to qualify for an $850,000 Mortgage. Therefore the loan was made with a 10% down and ZERO PMI Insurance.
Look below at what PMI is and how much I was required if I got the PMI insurance.
So my bank statements loan required 12 months of personal and business bank statements, along with YTD for the three months in 2019. With this was a credit score in excess of 750 (see Fico scores). Since I was renting at the time, having moved back to California from Austin Texas, I also provided 24 months of rental payments.
“Private mortgage insurance, also called PMI, is a type of mortgage insurance you might be required to pay for if you have a conventional loan. Like other kinds of mortgage insurance, PMI protects the lender—not you—if you stop making payments on your loan.
PMI is arranged by the lender and provided by private insurance companies. PMI is usually required when you have a conventional loan and make a down payment of less than 20 percent of the home’s purchase price. If you’re refinancing with a conventional loan and your equity is less than 20 percent of the value of your home, PMI is also usually required.” Consumer Financial Protection Bureau cfpb
My Jumbo Mortgage Loan
Bank statement loans do not require PMI insurance so I saved about 1.5% per annum on my $850,000 mortgage or about $12,750 a year or $1000 a month.
Therefore my 6.4% rate almost 2 years ago without the PMI reduced my actual rate to about 5.5% if I had to have PMI.
The Key to buying these big houses on the coast is you know the value will go up and I can always refinance later which I will do in 2021. This will drop my mortgage way down as it’s my only real debt. I’m looking at around 3% plus equity at around 25%.
NO MONEY DOWN DEALS
I can’t have a real estate section without talking about my no money down deals of which I had a few to get cash. Therefore here is how I did my no money down deals using these steps. All this is also explained in detail in my book How to Get Rich book…which you can see on this blog.
- I loaned the down money. Found the lender through a lawyer that posted an ad in the local paper under money lender (this was in Las Vegas).
- Used the simultaneous close which means I gave the lender his money back the same day I bought and resold the property. This happened within minutes of closing the deal.
- The cost of this down money was about 7%. So $30,000 was $2100 for about two hours. Looks like a lot but when you are making a $50,000 profit on a $30,000 bet it’s peanuts.
- When I cashed out my first deal for about $50,000 after paying off the lender, I continued to use him but got a lower rate.
Note: No money down deal to me means I put none of my own money down, I just rented it for a few hours.
REITs are required by law to pay 90% of their taxable income to shareholders in the form of dividends.
No. 3: The Best REIT for Apartments
“There has been a lot of noise around apartment rents and the difficulties faced by some tenants leading to problems for property owners.
This created selling in many apartment REITs, including market leader Equity Residential (NYSE: EQR).
It should not have.
Equity Residential collected 97% of its expected residential revenue in the third quarter of 2020.
Equity Residential owns 305 properties consisting of 78,568 apartment units, located in Boston, New York, D.C., Seattle, San Francisco, Southern California, and Denver.
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The company’s properties tend to be among the best in town, with tenants that have close to six-figure average incomes.
It did experience some big city flights due to COVID-19 and civil unrest in 2020. But EQR is still experiencing a 94.8% overall occupancy rate, so there’s no need for investors to fear there.
When a vaccine is approved and widely disturbed, occupancy rates will stabilize even more for Equity Residential.
Although we will see many businesses and potential tenants leaving key markets, they won’t leave Equity Residential’s premier properties.
Older buildings with fewer amenities may struggle, but these top-tier apartments should continue to perform well.
Shares of Equity Residential yield a little over 4% right now. There is also the potential for appreciation of 50% or more in 2021 as REITs come back into favor.
No. 2: The Best REIT for Mid-Sized City Offices: Invest In Real Estate
City Office REIT Inc. (NYSE: CIO) owns office buildings in what it calls “18-hour cities” in the West and Southeastern United States.
These are mid-sized cities with attractive amenities, higher-than-average population growth, and a lower cost of living and cost of doing business than the biggest urban areas, according to Investopedia.
CIO’s key markets include Dallas, Denver, Orlando, Phoenix, Portland, San Diego, Seattle, and Tampa.
These are the types of cities that many of those fleeing bigger cities (like New York and Los Angeles) will be moving to in 2021. These cities have the arts and culture and even the sporting events of the big cities.
What they do not have is the population density that causes pandemics to thrive, near-constant civil unrest, and rising crime rates.
These cities also having growing populations and favorable economic growth trends. They all have access to top-tier universities and large national employers.
City Office REIT is seeing strong demand for its office properties, and tenants are paying the rent. Their buildings have a 93% occupancy rate, and 99% of expected rents have been paid.
The shares are yielding 8.4% right now and have substantial upside potential in 2021.
As the office markets improve and City Office continues to see demand from businesses leaving the big cities, this REIT has the potential for a triple-digit total return in 2020.
Insiders like what they see as they have been buying shares since March. The CEO and CFO were both buyers in September.
The Best REIT to Buy for 2021:Invest In Real Estate
WP Carey Inc. (NYSE: WPC) should also be among the leading REIT performers in 2021.
This is one of the best and largest “triple net lease” REITs. Its portfolio of net leases consists of 1,215 properties, comprising 142 million square feet leased to 351 tenants, with a weighted-average lease term of 10.6 years and an occupancy rate of 98.9%.
The company’s properties are in the United States as well as Western and Northern Europe.
Its tenants paid 98% of expected rents in the third quarter.
WPC’s portfolio consists of industrial, warehouse, office, retail, and self-storage properties leased to single tenants on a long-term basis.
Under the triple net structure, the tenant pays maintenance, insurance, and taxes.
Forty-seven percent of the portfolio is in the industrial and warehouse space that will benefit from e-commerce trends.
W.P. Carey shares are yielding 6.2% right now, and I expect to see substantial appreciation in the share price as well over the next year.
After a tough 2020, real estate and REITs should be back in favor in 2021, and we expect these three top REITs to be among the industry leaders.” excerpt from a post on REITS
My primary business is an investor. I own businesses, invest in others (all privately owned), and invest in public companies and as you already know real estate.
In other words, I do not consider myself to be a “real estate” investor, but just a plain old investor. Real Estate just happens to be one of several asset classes I invest in.
Therefore this blog will continue to change and grow on this RE topic as I add to my experiences and knowledge. When changes are made I will inform you as to what they are. I expect there will be several this coming year.