Buying houses can be as addictive as buying domains
August 17, 2008 by Rick Latona
Can someone tell me if I’m crazy? I’m about to take a very expensive domainer’s approach to the battered housing market.
I’ve been spending a lot of time on Foreclosure.com since reading about that company’s acquistion of Rick Shwartz’s property.com.
I’m fascinated with the Real Estate industry. There is more value in my neighborhood than the total value of all domains ever auctioned off. There is SO very much money out there in land and buildings.
So after looking at the daily email alerts I setup for myself at Foreclosure.com I’m starting to develop a strategy.
The image here in this post is a map of downtown Atlanta. For those that know the area, they’ll notice the red marker’s proximity to Georgia Tech, Morehouse College, Phillips Arena, The Georgia Dome, downtown and midtown. How much is the asking price for the 3 bedroom 2 bath single family home? $17,900.
Granted, the neighborhood is bad, bad, bad. I have no desire to be a slum lord or to take a machine gun with me to collect rents so I’ll sum up my strategy like this: Basically, it’s to buy one crappy house in each major city in the country, maybe the world. I’ll only buy houses that are very close to downtown areas. Each house I buy I’ll pay cash for them and have them knocked down and fenced off. Then I’ll wait ten years.
Some of those neighborhoods are going to be completely revitalized over the years, don’t you assume?
I’ve always likened the domain business to a mine-field. The more names you own, the more likely some end user is going to step on one. The larger my portfolio gets, the more offers I get on names. Would it be any different with these houses?
Perhaps the cities will have to buy them for improvement projects, new runways, stadiums, and what-nots.
Am I crazy? My goal is 100 of these houses in 100 cities in 12 months.
Since you opened the floor……….my vote is that you’re frigging crazy, but you’ve gotta love the energy & enthusiasm. My vote for ‘crazy’ relates to the number of cities you want to be in, versus the number of properties you want to buy. Don’t underestimate the logistics/time-consuming management of a vacant piece of property, especially when it’s not within driving distance of your home (or driving distance of a manager that you trust). Taxes, insurance, cutting the grass, keeping off the squatters, cleaning up the crack pipes, demo’ing improvements, getting a demo permit, environmental cleanup, etc, etc, etc. Suggest you first stick your toe in the water with 10 properties in Atlanta over the next 6 months, then decide if you really want to branch out to other cities. (That’s not the normal ’sticking your toe in the water’ approach, but hey, I’ve tried to adjust it to your style.) If you don’t believe in the toe in the water approach, suggest you focus your investments in 3-5 cities, versus 100.
You’re not crazy. Large cajones, yes. But, not crazy. You obviously know Atlanta from living there and will therfore likely make a smart buy decision. How well do you know the other 99 cities, though? And, how much time do you have to learn them well enough to make 99 wise buys in the next 12 months.
I say go for it…it may keep you so busy that my domaining gains one half of one percent on your domaining…now THATS crazy
This is an investor market in real estate, if you have the money do it. Hold for a number of years and cash in when you sell it.
I’d buy 1 or 2 high value foreclosures.
Southwest is probably good for that, but I like some sleepy beach towns in the northeast.
Here are some other contenders, but Trump just bought Ed McMahon’s
http://www.luxist.com/photos/celebrity-foreclosures/
Rick, I wouldn’t.
Broker 31 years.
Can you make money? - Sure, but do you need it?
Not to mention liability.
I think you would help more people with your time teaching
the Who, What, Why, When and Where’s of domaining, similar to now.
But Domaining changes, and many changes are to come. Teachers needed!
Maybe you should open a Domain School. Very Gratifying to teach.
Buy a building, Latona School of Domaining. Teach others to Teach.
Leave a legacy. Hmmmmmmmmmmmmmmmmmmmmm………now that’s a thought.
JMHO.
thanks, Ed - Michigan
Century 21 AccSell
If Donald Trump can do it, you can do it too =)
Rick!!! You spelled FORECLOSURE incorrectly; another typo again LOL?
If you are considering doing this be sure to read many, many books.
The one thing the experts suggest is buying investment property within
driving distance of your home. You don’t want to ever be put in a position
where you’d have to fly around for problems. Another thing to keep in mind
LIABILITY as Ed mentioned. If you do it you better be sure to have each property
in it’s own name/LLC with a million plus of insurance if not more.
When people find out you have a few bucks they could accidentally slip and fall
on the ice you forgot to clear. If you do decide to move ahead I’d be happy to
sell you some property I’m selling in New York, just let me know
which of the following will be worth most after 10 years…
a) 100 houses at $20,000 each
b) 100 dot com domain names at $20,000 each
c) $2,000,000 Cash with 5% interest rate per year
Answer C, guaranteed earning.
Three reasons not to do this.
a) liability insurance - as previously mentioned, a potential nightmare
b) taxes - just because you are purchasing the home at $20k does not mean that is whay you are paying taxes on…it will take work to get them all reassessed to that value
You have to pay for (a) and (b), so your price is not a one-and-done $20k.
c) its a crowded speculation game - much like the early days of the Internet, only development will drive prices up for you longer term. The Internet had technology demand behind it to drive development. The real estate market has no demand, and TONS of supply. There is no need for development. You will soon find that all of your neighbors are sitting there twiddling their thumbs doing the same thing as you…waiting for the next guy to build something big nextdoor to them.
I do no see any reason the real estate market has to bounce. The credit-back asset inflated economy is coming to an end. Real estate will and should trade sideways for many years to come.
Many savvy real estate investors take this approach already — focussing on very very close proxmity to downtown or financial district areas. Right idea about tearing down the actual house and fencing it off. Also, depending on how quickly development in the area progresses, you can easily turn the land into a parking lot and possibly generate revenue with parking fees. A lot of neighborhoods end up being re-zoned as commercial, too.
Also, the answer is A, if you are buying in the right areas. Emil — guranteed earning is not the answer to ‘worth the most,’ IMHO. Cheers.
I would say you were crazy, property does not offer the same return as domains/online investments, unless that property had some kind of development potential.
I think some of the comments miss the vital point Rick said “Each house I buy I’ll pay cash for them and have them knocked down and fenced off”
So there shouldn’t be running back and forth or problem to worry about as Rick is buying is for land and not leaving run down houses on them, as long as you work out the pricing for knocking them down as that can be expensive.
Hi Rick,
I think this is a great idea - If you have the CASH, It is the time to buy!
House prices here in the UK & over in the USA are at an all time low, if you dont need to borrow the money from a bank you are guranteed to make a large profit on these properties and you wont have to wait 10years either!
I know from doing something similar with a few properties local to my, same idea bought and spent a little cash doing them up and sold on for large profits within two years!
The market is slow but I also work in construction industry and we have a good idea how the market is going to be for the next 18 months and its going to be quiet! I would wait till January before you start buying thats when you are going to get some real steals!
Trust me now is the best time if you have CASH!
Hit me up on email and I can tell you about a guy that just bought a house in Scotland for $600,000 and has it now valued after 1 year in this market at $4,000,000 !!!
Good Luck! Look forward to hearing from you soon to discuss more!
Regards,
Robbie
you are not crazy, you are right 100%, am doing this since 6 years, I already bought and built or renovated 4 building, now I know the market very well and I’M a specialist. If you need I can help buying home around the world. Off course I’M a domainer and if you need help just let me know.
Mike
With domain names you do not have to pay property taxes annually. Taxes in Atlanta are about to become outragous. Look what Shirley Franklin has done to the city. I still think you’ll be on the winning end, but you may want to consider purchasing tax leins. Payment is made when the property sells and you earn 15% compounded annually.
Rick: I think you are crazy, better to buy 10 at $200,000 and hire a property management firm to collect rent, etc than to go with $20,000 homes, you will still have property taxes etc to pay.
Great comments about domain names as an investement, however, all eggs in one basket is never a good idea.
Good luck with whatever you decide.
Why not partner together with other investors to have entire neighborhoods knocked down?
As others have stated, this doesn’t seem like it would be the best use of your time, talent, or money. Your strategy is basically counting on the fact that the government or a developer will come along and buy up those neighborhoods and your lots in the process. If that doesn’t happen you’re left with vacant lots in really bad neighborhoods, the types of neighborhoods people generally don’t look at when they’re searching for an empty lot to build a house on. Then there are all the other things previously mentioned: taxes, insurance, upkeep, etc. I think your idea of investing in foreclosures is a good one, just not at this price level. To make it work and make it worth the risk I think you’d need to go with higher value foreclosures and stick to a single market that you know well.
I love your enthusiasm. But I’d be scared shitless of the liability. You are spreading yourself too thin to be involved in 100 separate properties and transactions. It’s too much of a headache. Rather than buying a separate house in 100 different locations, I think you are much better off buying a larger piece of property in one or two places. When a neighborhood turns around, you want to be able to submit a development that makes sense for the whole revitalized neighborhood rather than focusing on one single family property in the area. Good luck. But be careful!
You guys are giving me lots of good feedback.
Rick, As many have mentioned it’s not worth your time..On another note, many people may not find a good property in the driving distance..
thanks,
Hey Rick, I’m not qualified to comment on your 100 cities strategy so I’ll just say it sounds “ambitious”. As for the property in Atlanta, I was in that area recently and was amazed at how cleaned up it was from the last time I was over there. Sure, it’s still blighted but it looks like there is major developer interest judging by what they’ve done already to the main streets like MLK. I’m sure you’ve driven by the property so you probably see what I mean. Drive by the Dome, then think about what it looked like 5 years ago.
In the real estate the most important things are the money, I mean if you have money the best place to invest is real estate, of course you should learn and than act but believe me its the most easy thing on the planet to learn, for sure as some are suggesting there are things like hire a property managements and stuff like that, the real estate already has all that things set upped, in Italy for example buying an house/building/whatewer, is like win to the lottery, for sure you should know the area but there are agency that they are doing it for you, there are agency that they find you the building and than they take care of responsability to rent it out.
4 years ago I bought an ex hotel on the beach, I made the renovation (not myself) than an agency taked all the apartments (33) and made me a contract for the full building, they give me the rent for all the 33 apartment they rent it or not (well they rent all the time), you know what, to buy this building I made a loan for the half I needed and with the money I get from renting I already paid off the loan, I can go on and on. Again for sure you should know things like better to buy on the beach or not, or things like buy on downton or not, every area is different. Here for example there are people from England that are buying entire village and rent to people from england. If you are interested I can send you picture of building I bought and that I made renovation or that I build from zero, I’M doing this just with my free time, I spent more time domaining than building and believe me I make a lot on building, and believe me too I have many thousands of good domains but as I can see the real estate market its much much biger than domains.
When I was a kid I loved playing Monopoly and rarely lost.
I soon discovered the best strategy to win was to be the Banker, in charge of the money, and making loans to other players.
Nuf said. LOL
On a serious note, I wouldn’t touch US real estate right now with a 10 foot pole. Prices are not going up anytime soon, and the bottom is no where in sight.
Read This New York Times Article - Dr. Doom!
http://www.nytimes.com/2008/08/17/magazine/17pessimist-t.html?em
I’d encourage you to focus your efforts on a particular area, and look for an area that has natural boundaries (like one that is surrounded on 2 or 3 sides by water). They have proven to rebound faster in a rehab environment, and you can do more to raise property values yourself in smaller isolated neighborhoods. I’d also encourage you to look more at $75k type properties that might be able to be rented for $600 per month. Find a niche area, you’d be surprised, you might be able to personally impact a neighborhood if you choose a smaller one with strong borders.
DO NOT DO IT!!!!!
You should find someone who knows real estates and find the good places to look for a bargain. If you wouldn’t want to live there is a good way to tell if you should buy it.
The headaches you will get will kill you. Renters will tear the house up and maybe not even pay rent forcing you to spend 6 months evicting them. Buyers won’t want it unless it is a good neighborhood. Be careful.
the “knock down the entire neighborhood” approach sounds interesting.
If your man Obama gets elected, be prepared to pay a nice hefty sum in capital gains taxes!
In a fairly long life so far, I’ve seen many hard-working people make a lot of money in their own areas of expertise, and then blow the lot by jumping into areas where they have no expertise at all. The ‘new’ field always seems so easy, just waiting to be exploited …. The danger is compounded if the the ‘new’ field is already full of street-wise sharks just waiting for new blood. You may survive the experience. Probably not. Best of luck. As you asked for comments … mine is .. stick to where your ‘edge’ is greatest … domains.
I find Real Estate and Domaining to be pretty much the same thing. Actually I just sold my real estate companies a few months ago to get into domaining full time. If you need any help drop me a line, I have bought and sold roughly 300 single family homes in the last 3 years.
From my experience, I would focus on cashflow. If you can get breakeven cashflow based on total interest cost of your purchase price & all the expenses (taxes, maintenance etc…) vs the gross rent you collect, that is a great investment. Cashflow improves as your mortgage gets reduced on a monthly basis. Whether prices go down more, and eventually up you’re still making money. The power of leverage when interest rates are cheap is a huge advantage of making the most of your money. Having a mortgage is not necessarily bad debt.
An interesting fact, 90% of all millionaires make their 1st million from real estate. If you can hold property in the long run, you’ll never look back. In order to do so, my key criteria is cashflow at a break-even level at a minimum.
Cheers!
Tony
3 days ago just finished to buy a building in south of Italy for 1.8M Euro and already has reservation with down payment for lets say 30% of the building and already made 1.2M Euro from the reservation. Renovation will cost 400K Euro, time 1 year to finish renovation and the rest of the building will be sold for sure 100% in less than 3/4 months from now. do the calculation.
I’M not saying this things based on what I think but because has been made dozen of times already.
you should check out property in Savannah