Do your ears hang low?

3 Feb

I’ve only had one job in my life outside of poker – ice cream truck driver.  While I kicked ass at selling ice cream no doubt, Crazy Ray, will tell you I just had a good route.  The day I brought in the single day record shattering haul, he famously mumbled under his breath while shaking his head in disbelief, “Those Mexicans sure love their helado.”    Maybe he had a point, maybe my success was due entirely to my demographic, but I like to think I knew how to push a Choco Taco on a 3 year old better than the next guy.   If was all about the hustle.  If you weren’t playing, “Pop Goes the Weasel,” at full volume most of the day, you weren’t trying. I’d mix in a little “Entertainer” for variety but only at ear drum breaking volume.  It was a war of attrition – kids against their parents.  You play those chimes long enough, the kids keep asking for a buck. Every parent has a breaking point.  At 20% commission, you take no prisoners.  The assumptive upsale.  If a tiny tot comes out with a twenty dollar bill, you assume he or she wants 20 ice creams until told otherwise.  I was good, Crazy Ray wasn’t, and the Mexicans did love their helado.  That’s all there was to it.

As prolific as my summer as an ice cream truck driver was and as impressive as my $780 mark would be to a prospective employer – the rest of the resume was blank.

The good thing about not being able to get a real job was that at least I never had plans for one.  I’d always had an interest in real estate investing and everyone starts somewhere right?  Fake it til’ ya make it.  Like the first time I saw a 10-20 limit holdem game when I thought that everyone at the table was either Johnny Chan or a millionaire – eventually you sit down and realize no one knows what the hell they’re doing – at anything.  I’ll fit right in.

I’m hoping for a lot of feedback on this blog, so I’m just going to lay out what’s going on and you’ll see every deal I make – good or bad – and hopefully maybe you’ll steer me clear of some lemons and get me into something good.  We’ll choose our own adventure.

So here’s plan.

The mission:  To develop a self-sustaining investment portfolio generating enough passive income after taxes to provide a comfortable life for my family.

The model:

I didn’t know where to start out, so I used this thread on 2+2 as my guide.  It’s a great guideline for me and other beginners to get thinking about real estate in a reasonable way.  I would recommend the “spex” method to people starting out because it’s very disaster proof.

The Porfolio (aka what I got so far) –

23430 Allor

– acquired for $31,000 + 7,000 in additions = $38,000 total investment. Currently rented – $800/month

23103 Avon

Acquired for $50,000 + 3,000 to pass inspection = $53,000 total investment – Currently rented – $1000/month

29810 Greater Mack – Under Contract 

– investment $61,000 (roughly) –  projected rent – $1100-1200/month

Land Contracts – two purchased for $44,000 – receiving $1045/month total

$25,000 Promissory Note – receiving 15% interest

Vacation rental (not bought as an investment originally)

This used to be my second home, and it’s worth about 50% of what I bought it for in 2007.  I don’t use it as much as I’d like so I was thinking about selling it . On the advice on my CPA, I decided to turn it into a vacation rental for a little while before I sold it to catch a big tax-break.  I listed it on the first site I googled not expecting any action.   Shockingly, my phone’s been ringing off the hook.  It might end up being a nice surprise.

I have one new land contract that will close soon that I will blog about separately because I think they are a very interesting type of investment.  So that’s what I’m working with.

5 Responses to “Do your ears hang low?”

  1. Nick VanNewkirk February 3, 2012 at 6:02 am #

    Really looking fwd to this blog. Sounds like you have a great start. Good luck.

  2. Jenny February 3, 2012 at 3:50 pm #

    I never knew you were an ice cream man (or a writer)! This’ll be an interesting way to keep up with you guys when you’re so far away. Miss you all and best of luck with the new adventure! I know you’ll be a success.

  3. Matt Clarkin February 3, 2012 at 7:56 pm #

    How are the neighborhoods that these properties are in? Just working class poor or are they gang infested?

    The cap rates you’re getting are very impressive. From an IRR perspective, back of the envelope, looks like you’re getting at least 20% (assuming you paid in cash), that’s hard to find. Find a good renter and you’ll get your cash back in a few years time and then some.

    And I like your comment on never having plans for a real job, that does really force you to think outside the box and explore your interests. I enjoy my work, but sometimes you wonder if it’s also holding you back from greater pursuits. I’ve started actively managing some cash on the side in deep value and special situation equities, keeps things interesting.

    • justinsadauskas February 3, 2012 at 8:14 pm #

      The area is definitely decent. I would describe as mostly blue collar with a mix white collar. The houses I buy are a block or two off Lake St. Clair so they are always near expensive houses – I think this is a good bet against long-term neighborhood deterioration – which is always a threat being near Detroit. It has a lively bar/restaurant strip that attracts a lot of younger people in there twenty’s. The area is buffered from Detroit by Grosse Pointe, which is the old money area, I think Grosse Pointe Farms at one point held the highest per capita income in the country. Those days went down with the auto industry – buts its not a bad little area. If you can stomach buying in the D, and do it well, I think you can pull in cap rates in the 30’s and even higher but that’s way out of my league. You really have to know your areas. I know a guy that manages down there and I might give it a whirl a some point, but I got to ease into things.

      I’m not doing anything too special, it just happens that the market here is really strong. I’ve got a few good tricks I’ve been using – I’l blog them soon. Investment teams are starting to come from all over, I’ve met a guy runnning one from Sweden, I’ve heard Russia, and all over Europe. I don’t have a great handle on how all the investment will effect the market, but I imagine it can’t be that bad. Right now less than 15% of the homes are rented.

      I definitely think there is opportunity cost with any job, like everything else, your a really smart guy, so you’d probably have success on your own just like you are in the corporate world. Either way, I think keeping something active and to build on your own on the side is a good idea – keeps you engaged and building toward something. How’s the equity world been going? Hit any homeruns lately?

      • Matt Clarkin February 3, 2012 at 11:38 pm #

        If the 20s is easing into things, I think you’re going about it the right way, not going to find that many places, might make sense not to get too greedy and stick to area you’ve been targeting.

        The one I’m into heavily now is Gramercy Capital, Jeff and I have been buying up both the common stock and preferreds, it’s a microcap that’s basically an option on commercial real estate CDOs. My job is based around being a trustee for CDOs, so I feel like I have a little bit of an informational edge, but the basic idea is that they have more cash on their balance sheet than the entire market cap of the company, so you’re getting the cash flows from their three CDOs for free. And then they’ve also put the company up for sale. I guess the lesson, same with real estate, need to be willing to get into the weeds a bit to make a high return.

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