Getting equity out of rental property

[z987k]

@WRO had it though.

I would bet that 2 years from now the valuation / profitability of the firm is down 25-45%. In the construction industry this feels alot like 2007. Alot of stalling and wait and see in the economy. I dont think we will go full 2008 though. Not to mention most valuations are made of 2 to 4 years of previous business and its pretty safe to say that the next 2 to 4 years wont be as good as the last. I would op to start my own firm rather then buy in.

Even if that's true, unless the firm goes under in whatever downturn is next, looking 10-15 years into the future, as if it was 08, you'd have made a killing buying into anything at the height of 07. But that's true of real estate as well.

 

[Reburn]

What segment/region of industry are you in? From my subjective viewpoint I think there’s still a ton of opportunity out there, but concurrently some floundering as well. Not disputing your notion, just saying I don’t think it’s something that can be painted with a broad brush. Interest rates going down in near future probably won’t hurt.

Side note, we still don’t know for sure if OPs engineering firm is even in construction.


Sent from my iPhone using Tapatalk

I'm closest to Austin and in residential / light commercial construction industry. We have pretty much been recession proof.

Fair that the engineering firm might not be in construction or civil.

Even if that's true, unless the firm goes under in whatever downturn is next, looking 10-15 years into the future, as if it was 08, you'd have made a killing buying into anything at the height of 07. But that's true of real estate as well.

The firm going under due to economic downturn would be my worry.
Without knowing more specifics than he probably wants to put out there I would err on the side of caution.
Owning a company can make more money then income producing properties but the risk is much higher too.

 

[Beendare]

Whomever said have the owner finance the buyout of the business was right on the money.

Business owners don’t have as many options to sell as one would think. Depends on the business of course but an engineering firm is tricky- has to be the right guy. Assuming you are the right guy….and the business has a large repeat clientel…should be good.

If you don’t work there already, i would talk to a bunch of their existing clients to get a snapshot of good/bad.

I can tell you I have fired engineering Co’s that didn’t want to work with me on various issues that come up, they weren’t flexible at all.
For example; do not require expensive concrete testing ( for 3,000psi) on piers. Its ridiculous- costs everyone time and $$$….an effing bag of concrete at Home Depot is 3,000psi. Our tests on 5 1/2 sack are coming back at 4,600 psi plus

 

[MattB]

It sounds like the OP is buying a fractional equity stake in the firm he works for, not buying the entire business.

 

[WRO]

What segment/region of industry are you in? From my subjective viewpoint I think there’s still a ton of opportunity out there, but concurrently some floundering as well. Not disputing your notion, just saying I don’t think it’s something that can be painted with a broad brush. Interest rates going down in near future probably won’t hurt.

Side note, we still don’t know for sure if OPs engineering firm is even in construction.


Sent from my iPhone using Tapatalk

I just left multi family because all our projects died, industrial is struggling as it’s over built in many locations, residential is slow, the only bright spots right now are data centers and some government work.

Most buy ins are based on EBITA and profit sharing/div multiplier on a moving 3 year average. Many firms worked for wages in the 2008-2012.


Sent from my iPhone using Tapatalk

 

[Beendare]

It sounds like the OP is buying a fractional equity stake in the firm he works for, not buying the entire business.

I figured, and thats even harder to sell especially if its not a controlling interest.....and he is more likely to get owner financing.

 

[KsRancher]

Shits about to get rough in construction engineering work, so keep that in mind. The valuation could be significantly less in years to come for your buy in.


Sent from my iPhone using Tapatalk

I hate to be that guy and come across like a dick. But weren't you the guy that was screaming from the roof tops for everyone to move all their money in cash since the market was "going to crash" a couple of years ago. You may very well be right on the construction work. But in my area they are building massive housing additions as fast as they can build them. And not low end stuff either.

 

[WRO]

I hate to be that guy and come across like a dick. But weren't you the guy that was screaming from the roof tops for everyone to move all their money in cash since the market was "going to crash" a couple of years ago. You may very well be right on the construction work. But in my area they are building massive housing additions as fast as they can build them. And not low end stuff either.

Yup I’ve been wrong once a bunch of times, that being said, I’ve got a bit more knowledge about the industry I’ve been in for the last 2 decades vs the stock market.

The higher end house is still moving and self financed builders can still build, big commercial is not doing great. I’m in acquisitions and development and it’s trending down overall.

Housing is a weird bubble right now, as those of us in our sub 3% mortgages aren’t going anywhere so the new construction guys have a life line until allot of these severance packages run out locally.

New project starts are down, talking to architects in the business, there’s a lot of projects mothballed. There’s also I pile of very leveraged raw land and commercial (mostly office) that’s bound for repossession in the next 2 years.

Everything coming up right now, was put into place 2-5 years ago.

With an election year coming, I think we’ll see the true drop post election.

Like I said I’ve been wrong a couple times, so take it for what it’s worth.

You can’t finance a proforma built on a 5 cap in a 7+ cap market.

 

[HuntHarder]

The markets and job market has been "going to crash" for 5+ years. Just wait, the guys who have been saying it for the last 5 years will say, " I told you so". Lol

I work for a large Utility in a major city. Our new customer meter sets have increased yoy for quite a while now.

Lots of uncertainty in the world, look for the bad companies to go under first, as they are just picking up the crumbs from good companies. If you are struggling right now, you might work for a bad company.

 

[Beendare]

The other factor many in the Building industry know:

The requirements for engineering on ANY structure has gone up a lot over the years, much more work for engineers.
The cities, counties and states are pushing more of the responsibility off on your engineer and not just calcs and plans but special inspections and such.

 

[KsRancher]

Whomever said have the owner finance the buyout of the business was right on the money.

Business owners don’t have as many options to sell as one would think. Depends on the business of course but an engineering firm is tricky- has to be the right guy. Assuming you are the right guy….and the business has a large repeat clientel…should be good.

If you don’t work there already, i would talk to a bunch of their existing clients to get a snapshot of good/bad.

I can tell you I have fired engineering Co’s that didn’t want to work with me on various issues that come up, they weren’t flexible at all.
For example; do not require expensive concrete testing ( for 3,000psi) on piers. Its ridiculous- costs everyone time and $$$….an effing bag of concrete at Home Depot is 3,000psi. Our tests on 5 1/2 sack are coming back at 4,600 psi plus

This exact thing got brought up yesterday with a GC owner I was talking with. He said he has only had one job in 15yrs that the concrete didn't pass. He said it didn't pass the 7day test. He said that isn’t common, but not unheard of. But when the 28 day test comes around they all pass.



Well, this one didn't. And by the time that 28 day test came around the building, wiring, finishing, etc was completed. He said they set down with owners and insurance and all came to an agreement to not do anything unless there was a problem. 15yrs later and still nothing.

 

[BRTreedogs]

Take a second out on the unit that is your primary. Soon as it closes make a tenant swap with you.
Then take another 2nd out on your new primary.
Etc etc

 

[WRO]

The other factor many in the Building industry know:

The requirements for engineering on ANY structure has gone up a lot over the years, much more work for engineers.
The cities, counties and states are pushing more of the responsibility off on your engineer and not just calcs and plans but special inspections and such.

Not really, special inspections are done by low paid workers and reviewed only if they fail, this has been industry standard at least the last 20 years in my market.

Engineer just writes a final letter and on occasion does a site visit.

The growing trend is integrated design and design build MEP systems, middling out mep engineers.

Engineering won’t go away, but it’ll get more competitive again and the margins will fade.