A Portfolio of 638 Units Built Up from Scratch
by Deke Keasbey, Real Estate Investment Specialist, Tierra Properties
Stan Sirott’s success is due to his using a basic investment strategy and sticking to it consistently over time. He bought his first building in 1964. It was a modest nine-unit apartment on Mariposa Street in Hollywood.
Stan is a physician who was then starting up a practice in anesthesiology. He was motivated to do real estate investments after reading a book entitled “How I Turned $1,000 into Five Million in Real Estate in My Spare Time,” by William Nickerson. One of the book’s messages was to buy a run-down property, fix it up, and then sell it at a profit.
Start with Partnerships and Then Invest Individually
Stan bought the nine-unit building on Mariposa for $55,000 and sold 14 months later for $65,000. In a family partnership, he then bought an eight-unit building in Hollywood for $57,500. This one he sold a year later for $100,000.
Because of his early success, some of his colleagues wanted to invest with him. He formed one partnership that bought two buildings, then formed another partnership that bought five buildings, all in the San Gabriel Valley.
With his own growing funds and with those of his partners, and by using the same methods, Stan had bought 12 buildings by 1968. In the early 1970s he borrowed enough money to buy a 27-unit building in Whittier. This was the first building he owned alone.
During the late 1960s and early 1970s, Stan’s income from his profession increased to the point where he was able to cover his living expenses and save enough for another down payment. Because of the tax benefits of real estate depreciation, he has paid almost no income taxes for 30 years.
Shortly after acquiring the Whittier property, Stan decided that he wanted to be in sole ownership of his assets henceforth. By 1976 he had dissolved his last partnership. Throughout the 1970s he stayed sole owner, buying one building in 1974, one in 1976, and one in 1979.
By 1980 he knew he would retire in 1986 at the age of 55. Anticipating this, he refinanced and began to buy more and larger properties. In 1980 he bought two buildings; in 1984 he bought a 41-unit building, in 1985 three buildings totaling 67 units, and in 1986 four buildings totaling 130 units. Also in the early 1980s he decided to start investing with his girlfriend Dolores. As a separate venture, they now own together five properties totaling 75 units.
Keep the Good Ones, Sell the Problem Ones
Stan’s investment philosophy is to hold properties of real merit, and only sell problem properties. During earlier phases, he kept good buildings of 20 units and above and then refinanced. Today Stan advises keeping good buildings of 30 units and above. Larger buildings are more efficient than smaller buildings, he says.
Stan has always done his own off-site property management. He has had a bookkeeper from the beginning. Today the total portfolio consists of 22 properties and 638 units mostly located in the San Gabriel Valley.
There are three aspects to Stan’s investment and management model: location, condition, and competition.
Location: Stick to “A” or “A-” locations, says Sirott. This means better areas in upper working-class communities. In these communities a best buy is often a property where you must pay slightly more than you would like.
Condition: It’s all right to buy a building that needs cosmetic repairs; for instance, a new roof, plumbing repairs, paint and carpet. But walk away from a building that has a poor floor plan or units that are too small. A vacant unit that is offered for rent must be of a size and layout comparable with those of the competition.
Competition: If you can offer a larger apartment at a slightly lower price, you can be more selective with tenants and you will have a well occupied building. You need to be able to compete with regard to both quality and price.
Sirott believes that someone could start from scratch today and build up a substantial real estate portfolio. It would be harder, he says, because larger sums of money are needed. But his plan has proven a winner over time.
(Courtesy of Deke Keasbey, Commercial Real Estate Specialist with Tierra Properties, 11941 Santa Monica Blvd, Los Angeles, CA 90025. Phone: (310) 477-3192. Web site: http://www.tierraproperties.com. Email: firstname.lastname@example.org. Adapted from an article by him that appeared in “Apartment Age,” the official magazine of AAGLA (the Apartment Association of Greater Los Angeles).
Read more @