Do it for your grandchildren

I have always said that the mucky mucks in the apartment association were the grandchildren of European immigrants who started buying property in the early to mid 20^th century. They had the “advantage” of having a tough life and so being tough themselves. The industry had much less regulation back then and was a much simpler business than it is today. The power of compounding, time, and their guts and hard work allowed them to amass huge real estate portfolios that are literally being managed by their grandchildren now and as a result their families are wealthy and will continue to be for the foreseeable future.

My friend’s step-mother is the daughter of just such a man. He spoke with a heavy European accent and passed away in his late 90’s. His daughter manages the hundreds of units that he amassed, all of them now in nice neighborhoods. As the story was told to me, he was a cutter in the garment district for many years, and he saved his money to invest in a chicken farm, which at the time was considered to be a very safe, secure and savvy investment. Being in vogue they were hard to come by. So with his money ready and him standing by waiting for the right opportunity, he was approached to go in on an apartment building. He was forty years old. They did so well, that after a few years he bought his partner out. He kept buying and never looked back.

Discussing my situation with him and his daughter (my friend’s step mother), I was saying how I had finally gotten a troublesome building under control after almost five years of management. I was complaining about a persistent roof leak, that I finally fixed after three tries on my own, and three tries by a roofer whom I paid almost $500 to do the repair. After the 3^rd attempt by the roofer, he went out of business, and not being able to get anyone else interested in a $500 job I attempted it myself. I was saying I don’t really want to spend my time on the roof, but I was left without a choice. The elderly gentleman beamed as my friend’s step mother explained that there were plenty of days when he came home from work, and then climbed on a roof to fix a leak, coming home tired and dirty.

If this sounds like too much work for you, keep in mind that I prefer to hire out that kind of work when I can. You can not achieve success in any field without some hard work. And that this man, and many others like him have amassed a fortune and have lifted their families from poverty to wealth in a single generation.

What Does Cap Rate Really Mean?

Cap rate is supposed to be a measure of price, which is inverse to the sale price: i.e., the higher the cap rate, the lower the sale price, the lower the cap rate, the higher the sale price. This is because the cap rate measures the rate at which an income stream, in the case of multifamily buildings, it's the Net Operating Income (NOI) after all expense, but before financing, is capitalized. If that's a little complicated, look at the table below for a simpler explanation.

Cap Rate	Price	Manageability	Condition
13%	War Zone	Harder to Manage	Poor
12%	Cheap
11%	Cheaper Than Average
10%	Average	Average	Average
9%	More Expensive Than Average
8%	Expensive
7%	Really Expensive
6%	You Can't Make Money	Easier to Manage	Excellent
5%	Fagetaboutit

On This Day In 2002…

July 5th, 2002, I did a roof job on a building I owned in Newark, NJ. The roof leaked and quite frankly needed a total rip down and re-do. But being a cheap landlord of an inner city property, I tried the cheap way out. There was a local guy, Jalil, that did odd jobs in the neighborhood, and I asked him if he wanted to work on this project with me, and could he bring another guy. He said yes and that he could get his girlfriend’s son to come. I told him to meet me at my house at 9:00AM. He admonished the kid to be on time, and then failed to show himself. The Kid showed on time, and we waited for Jalil for an hour before leaving.

I had an Econoline van at the time, which I loaded the day before with about two dozen green five gallon cans of Karnak fibrous asphalt roof coating, and one red can of Karnak roofing cement. It was 102 degrees in the shade, and must have been 150 on the roof. The good news, if there was any, was that there were internal stairs to the roof, so we didn’t have to haul all those cans up a ladder. I brought two gallons of water, one for each of us, and we drank it all. But we sweat so much, we never had to stop to pee.

The Kid wanted to quit in the middle and finish another day, but I urged him to continue on. After we finished the job, I drove him from North Newark, to his grandmother’s house, where he lived, in South Newark. I paid him and he went in. Standing at the rear of my van, I noticed tar on my leg, so I started to wipe it off with a rag soaked in paint thinner. Being literally the only white guy for miles around, people walked or drove by, staring at me like I was out of my mind. As I drove away in my blue van, hot, sweating and stinking, satisfied that I had saved thousands of dollars and had at least staved off the inevitable roof job, I couldn’t help thinking as I so often have, “I went to college for this?” I didn’t…