How Can Real Estate Investors Make Money In A Local Down Market?

Been havin’ fun talkin’ with a veteran of the real estate income property wars the last week or so. He’s retired outa state now, but we still talk when the spirit moves him, and the fish ain’t bitin’. He’s more private than I am, which is sayin’ something. He’s also one of the smartest real estate guys I’ve met in person — ever. Jim and I met about eight years ago, shared office space, and have cracked each other up consistently since. He was also a real estate licensee. We’ve almost always arrived at the same solutions to challenges or interpretations of markets. That said, he would usually be waiting patiently for me to arrive where he’d been nearly instantly.

I’m a smart guy, but Jim’s unreal. How smart is he? He once took a job teaching in a small college. The subject was chemistry, something he hadn’t studied since high school. He just stayed a couple chapters ahead of his students and pulled it off for two semesters. They offered him a raise to stay! His intelligence literally dominated a room.

He said he liked me ‘cuz though slow on the uptake, (always the comedian) I was able to get to the core of his ideas. One such idea was one for which I’d been using myself for quite awhile, which amused Jim no end. His amusement I suspect came from the delight with which I informed him of my prior knowledge and implementation. He’d refined it a bit, but we were in immediately agreement that when executed as designed, the results were tasty at worst, and incredible at best.

I’ll be writing about it in the next few days, so stay tuned.

Back to the recent post on rents. I’d asked a question about increased rents through solving functional obsolescence. I was to answer the question in yesterday’s comments section. Seems I was more beat than I thought, ‘cuz I fell asleep last night before answering. Go figure.

Anywho, here are my thoughts. The question was:

If you were eyein’ a fourplex, and your personal operation clipboard showed that $30,000 would raise the rents on each unit by $200 monthly, what would ya do? Well, it depends, you answer cagily. Fair enough. Let’s say you can buy it for the market capitalization rate of 6% in that area. Now would ya do it? Would ya?

The rent increase totals $9,600 annually. Though I didn’t impute a vacancy factor, let’s use 5% for giggles. Let’s further mess things up by also subtracting an arbitrary amount for operating expenses. And yeah, I realize the expenses won’t increase by virtue of these improvements. In fact, they could arguably decrease. Still, we’ll factor them in so when Andy Amateur applies whatever amount the latest ‘How To’ book says, we’ll be close. Let’s use 30% for operating expenses, which gets us to 35% total of vacancies and expenses.

That gives a Net Operating Income increase of $6,240 annually. When we apply the 6% cap rate, we get an increase in value of about $104,000 or so. (NOI/Cap Rate = Value) Not a bad payoff for a $30,000 investment.

So, uhm, yeah, I’d do it in a heartbeat.

How many heartbeats ’till it’s time for you to retire? Based upon your Plan, and its execution in the last 10 years, will you be retiring in more or less heartbeats than you’d hoped? Exactly. Give me a nudge, and let’s chat about those heartbeats, OK? Nothin’ like a superb Purposeful Plan to bring your retirement into closer focus. Have a spectacular weekend.

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2. How Would The California Real Estate Investor Describe Their Local Market?
3. How To Make Money In West Valley Real Estate In Phoenix
4. Thoreau Still On The Money — Real Estate Investors? Stop Pretending
5. How Does The Real Estate Investor Know When It’s Time To Make The Next Move?