An amazing real estate story

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Apologies for the slow posting; it’s been a very busy few weeks.
Heard an amazing story from one of our management clients over the weekend and want to share with you all, to let you know what’s possible with a ton of hard work, risk acceptance, and good luck.

For ease of storytelling, am going to call this guy G, but that’s not really his initial.

We’ve managed several buildings for G for a long time, but we had never had a really in-depth conversation about his business until the other night. To be honest, I had always assumed he got his start with a big slug of family money, since he didn’t appear to use outside investor capital.

Turns out I was wrong, and that G built a veritable empire of Los Angeles apartments, starting from ~$90k in cash and a home equity line on his mother’s house of ~$80k.

G got his start after signing up for a real estate class on a whim around 2003. His instructor, who later became his mentor, recommended to the students that they buy Los Angeles real estate, and specifically 4plexes.
His argument was that 4plexes maximize the number of units you can buy and still get a 30 year, fixed rate mortgage. And, over decades, he had noticed that 4plexes in LA double in value approximately every 10 years.

Unlike probably every other student in the class, G went out and followed the teacher’s advice. He cobbled together some savings plus a bit of his mother’s home equity line, and bought his first 4plex.

Over time, he and his brother used their incomes, and cashflow from the original building, to pay down the line of credit. During the same period, the 4plex appreciated, and G was able to refinance it, pull out more money, then buy another.

Loans were incredibly easy to get in 2004, 2005, and 2006, and G managed to get his hands on ton of buildings. But he was extremely highly leveraged.

You can guess what happened in 2008-9. Rents and values cratered, and G was massively under-water. For most people in similar positions, all across the country, this was the end. They gave their buildings back to the banks and went on to do other things with their lives.

But G was not an ordinary person and he did not give up. For years, 2008-2012 or so, G fought and fought and fought some more with the banks, getting loan modifications and forgiveness. During that entire, horrific period, G only lost a single building (ironically, the original 4plex, via short-sale).

Obviously, G is a tenacious person. But he had something else going for him: His buildings were in Los Angeles. And, beginning in 2011 or so, the rents and values began to creep back up. In the beginning, the recovery was kind of slow, but it rapidly accelerated, such that, by 2013 or 2014, he was all the way back. And the values kept going, allowing him to begin refinancing and buying again. 

At this point, he has approximately 100 units, all in very interesting neighborhoods. I didn’t ask him and he didn’t say, but my very rough guess is that we’re talking about a portfolio worth $30-40MM, though obviously there’s a ton of debt against it.

I don’t want to make it sound like accumulating that portfolio was easy. Doing what G has done required a ton of brains, guts, pain tolerance, and, frankly, luck. But G did it; he took like $160k, approximately half of it borrowed, and parlayed it into a gigantic empire. 

What a story, right?

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