Real Estate developer who specializes in retail ground-up / value-add.
Average unlevered IRR (no debt) of ~40%.
Just sharing my thoughts and experiences.
@aeste015 Unfortunately, there are only so many hours in a day.
Currently in the midst of the highest-intensity phases across several projects, and will hopefully be past the hump in 2-3 months 🥳
We created the worlds first bus bus stop for ~$27,000
Our first advertisement deal starts in 2 weeks. $4,000/month.
Unsure I will be able to do a real estate deal that delivers this type of return to both the community, the building, & in general.
You can just do things.
The fastest path towards socialism is through an economy which prevents the new generation from having a stake in a capitalist country’s economic future.
Historically, this was achieved via home ownership. Now we’ve straddled the new generation with 6-figure student debt that should/could have been used as their downpayment for a home.
Trump took a very, very small step towards this by creating the Trump Accounts ($1k per baby invested into the stock market).
We need to take this idea, and add steroids to it.
I’m of the opinion that first time home owners should be given an entirely new set of incentives that doesn’t exist in the tax code today. This can include, for example, tax deductions for their mortgage payments (maybe even the principal as well), property taxes, accelerated depreciation, etc.
Why do rich doctors get to benefit from accelerated depreciation when we can’t give the same treatment to a new family buying their first home? 🤷♂️
@Industrializer Depending on the CapEx required, you need to 3x the NOI for it to make sense at a 3% cap.
Him being flabbergasted that a 60% lift wasn’t enough highlights the inexperience.
Pathetic.
I do not understand the controversy around this.
The other way of looking at it is consumption vs. investment.
Residential is a product that is 'consumed', lived in, and enjoyed. Yes, some consumable products can grow substantially in value over time (e.g. vintage cars, certain types of purses, etc.), but the majority are not wealth creators.
Owning a home has substantial qualitative/psychological value, which can't be benchmarked against IRRs. Also, borrowing at 3%-4% (not now) with a 30-year amortization makes it an interesting play.
With that said - most people are better off simply renting, and investing the downpayment (they would have put into the house) into the S&P 500.
Certain homes in Beverly Hills can be rented at +- 1.5%-2% of the home value. This barely covers the homeowners property taxes + insurance (at current FMV). This is an extreme example, but illustrates that rentals can, and often are, better for most long-term.
Negotiation strategy is a fun topic.
When leverage is arms-length, and interest is mutual, the vast majority of negotiations follow a very similar pattern:
- Initial LOI pushes for a wide array of unnecessary chips, which can be traded away later
- Follow a 'tit-for-tat' approach, in which each side wears out the other on what they want
- Eventually, an 'equilibrium' is found, and if that middle-point is within a tolerance zone for both sides, then a deal will effectuate
The alternative approach is a clean cut initial offer, which has extremely limited tolerance for movement.
Both tactics are effective, but the former is more common in lease negotiations, and the latter is more common in sales transactions.
Where negotiations can become very interesting is when leverage is lopsided.
This is where you hear the most entertaining stories of how a particular strategy was pulled off.
The most common?
Negotiating a price the Seller desperately wants, dragging out the LOI/PSA process, dragging out the escrow process, then slamming the Seller with a massive price reduction at the last second.
If a Seller is in financial distress and has limited/zero alternative options, they may be forced to accept. This happens more than you may think.
My favorite one?
This only works under very niche circumstances:
- Leverage is entirely sided towards one party
- The counterparty is highly logical, and driven by the numbers, and will agree to a lesser deal than they want if they still benefit somehow
- The counterparty has to transact with you, and no one else (e.g. Landlord-Tenant relationship, in which the lease is terminating on a high performing store with no extension options left, and no immediate relocation options available)
I've found that sometimes, when all these stars align, it's best for your counterparty to simply think you're crazy.
Like actually batshit insane.
I had a blend & extend deal which followed the parameters above.
I penciled the pro-forma rent at $180k-$200k/year.
Decided to interview a few brokers, and get input on valuations:
- Broker #1: $180k
- Broker #2: $150k
- Broker #3: $400k
I knew Broker #3 was completely off with his number. I did not care that he was wrong - I pushed him hard just to see how entrenched he was that he's right.
He was completely confident in it, and did not bend an inch on his assessment. So confident, in fact, that he gaslit me into (briefly) second guessing myself 😂
Structured a commission agreement in which he's paid 3x if he signs a lease with a new tenant - in effect, making him indifferent to killing a transaction with my existing tenant.
(This is an extremely high risk maneuver that I would not recommend, but I only did so because I knew how lopsided the leverage was in this particular situation. A key element was I maintained a backchannel with the COO in case my broker's negotiations soured, and I needed to 'clean up' his mess)
Puffed him up, then sent him into the negotiations and told him I will not accept a penny less.
Very quickly after, the deal landed at $275k/year, 3% annual bumps, and a happy Tenant.
In some situations, you need the other side to think you're absolutely nuts to maximize your position.
This is not a political post 😜
@realEstateTrent It's very simple - just hope for the best.
Focus on what's in your field of influence (e.g. family, friends, work), and don't sweat what you can't control.
Doubt it.
This creates too much exposure for Sellers during the transaction process, and shifts the burden fully onto a Seller for representations made / documents produced.
What happens when a Buyer closes escrow, and finds out the building square footage is off by 5%?
It's always a good practice to give Buyer's a proper due diligence period just to avoid post-close issues.
I've received 7-day DD offers before from Buyers, and I counter them with at least 15 or 21 days.
Working on a development project which has environmental contamination (former gas station site).
Not my cup of tea, but there is a long story behind this.
Engaged my environmental consultant to perform a Phase 2 investigation, and to provide a recommendation on how to handle the matter.
He does so.
His recommendation feels too 'light' 🙃
I decide it's best to get a second opinion, and hire a very well known, national company for this.
- Proposal is presented
- Contract signed
- Retainer funds wired
Off to the races.
ETA: 10 Business Days (ending last Friday).
On Thursday, I send a follow-up to check-in on the status.
"The report is under final review - we're expecting to get it to you by tomorrow"
Okay - nice 🥳
Friday rolls around - no report.
Monday rolls around - no report, but I get an email notification that I have a package being delivered by USPS.
Tuesday - nada
Today - my USPS package arrives.
I open it.
It's a gift box of fancy pecans, and a note from this environmental company about how important my relationship is to them 🤨
How much is this upcoming report going to end up costing me? 😂🤣