Wizardspride wrote:Interesting read.
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during 2009-2015 i used to buy a lot of foreclosures.
boarded up and abandoned 2,3,4,6, even 12-18 multi-units.
for pennies on the dollar.
often 10-20% of their 2007 value.
I would repair and usually update the buildings with cash as well.
then....after the work was complete, I would rent out the units usually for large increases in rent because everything was "shiny and new." Here's the beautiful part. I would then be able to borrow against the building at high value due to the high amount amount of income(aka "cash out" at the extremely low interest rates). If you "cash out" on multiple properties, AKA portfolios with healthy cash flow, you get even lower rates and can take more cash out...sometime 100% of what we call value, aka appraised value, which is based on the rental income. For example. I could buy a foreclosed typical 3 unit in chicago for $200,000 that was worth around $700,000 just a few years prior. convert it to 4 units by "finishing" the basement and repair and update the entire building for $150,000. My cost would be $350,000. Typical rental income for this type of building would be $3600 in 2007 as a "dated" 3 unit. would now rent for $8000 per month. 96,000 per year. as it was updated and also has an additional unit in the basement. $96,000 in rental income for a fully repaired/updated multi-unit with taxes around $5k per year would appraise for around $800-1.3M depending on location in 2009-2015. And the exact same building could appraise for as much as 1.8 million today because the rents in that same building would go to $11,000 per month 132,000 per year. So a bank would typically loan you back 80% of the appraised value at low interest rates. Again, put 5-10 building like this in a portfolio and you are much more attractive to a bank. From 2009-2016 you could easily find a bank to give you 100% loan to appraised value on a 5 year arm at 2.25% interest rates. 4% on a 30 year. So $350,000 cash in. and $1,000,000 cash out. with 10 buildings like this. 3.5M in. and upwards of $15,000,000 out. and you go buy 50 more building just like that with the $15 million.
It's legal. Its an amazing wealth building strategy so long as interest rates are low.
there is no doubt in my mind that Trump was doing his own version of this but with much higher end real estate. Same for Kushner's dad. And with each building or portfolio being its own LLC where each is its own "corporate entity", you typically only need to show 1 year of tax returns to borrow against it. as opposed to 2 or even 3 for personal loans.
So you give up the equity to gain the cash. The cash allows you to buy even more dilapidated buildings because lender for "lend" for them or the loan process is too complex for bank to deal with it when they just want to move foreclosed property.
And guess what??? sometimes we borrow the money from chinese banks!! Sometimes Japonese!! Sometimes even Russian. Its quite common. despite the crash, our markets are more stable than nearly every single real estate market on the planet. And we have seen steady appreciation of around 4%(or more) in our major metro areas for over a century.
like i said, its a full rebuild.
