Comment by saiya-jin | Hacker News Reader

Comment by saiya-jin | Hacker News Reader

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I have one such in extended family. Not a stellar personality (while he thinks he is a rockstar with amazing life, folks are mostly fed up with him and he is raising at least 2 kids with 2 separate women he doesn't date/isn't married anymore).

Anyway he owns and does long term rental of maybe 20-30 apartments mostly in Munich (not airbnb or similar). No problem for him buying additional apartments and houses in very expensive places across Europe on spur (or recently Egypt). Also some old sports cars etc. Yet often a penny pincher when it comes to investing into relationship.

The weird part is, when asked what he was doing before becoming a rentier, 'he had some manager job', in Germany. Now I haven't lived there specifically but I know net salaries don't go that high if you work for somebody else, and taxes and social deductions are brutal. This ain't US where 10x performance can give you 10x salary if you do it right and are lucky. And he ain't a C-suite material.

He keeps claiming its all just his own effort but I just can't calculate a realistic path where even a highly capable person can get in their early 40s such vast net worth from 0 (I could grok some lucky exponential path via airbnbs but thats not what he does).

This is a very conservative investment path of ending up with maybe 2-3 apartments if you really push it hard and do all the right choices at the right time. So he is either laundering money for some mafia/gang (but certainly doesn't seem like so) or got a small help from family initially and refuses to admit that.

Nobody thought about that until I came along and just wondered about those numbers a bit.

It’s not impossible for someone to have 30 apartments by the time they’re 40. It’s a matter of convincing mortgage companies to loan you money, which is what they want to do given it’s their job. I know several people who’ve done this 100% legitimately, the real question is how much equity they have

It’s impossible to buy 30 apartments in Munich for normal people with normal salary. You need at least 40 million euros, more if you are not only buying in unattractive areas.

The situation is a bit different if you tell the bank you are planning the rent it out, not pay for the mortgage yourself.

The above poster has explained how one can get loans for those 40 million euros.

Ah so I show up at the bank and tell them “Please give me 40 million so I can buy apartments and rent them out - oh and I also have no money or safety of my own so just hope that I will be able to pay it back”

Good luck with that at a German bank.

no bank would let you do that in the UK either. The way this typically works is that a bank will lend you ~75% of the purchase price on a Buy-to-Let mortgage, so you buy a £200k property with £50k down payment. This is achievable for normal people with good salaries, let's say they're earning £100k.

The mortgage is likely interest only so the landlord can make approximately £10k/year from rent from that one property. The next year they buy another, their earnings are now £120k. It now only takes them a few months to save another £50k to buy their next property, and the more properties they own the faster it is to acquire the next one. After a few years of this let's say they have 10 properties in total. They are now earning £200k, which makes the bank's decision to lend them more money an easier one, even though they have £1.5m in mortgage debt already.

If they already have 10 properties then it's not that much of a relative leap to get to 20, then 30. With 30 properties they're earning £400k a year and can finance a new property every 2 months. They do have £4.5m in mortgage debt that is not being paid off though, but they're making a bet on the value of those properties exceeding the purchase price by the time the balance of the mortgages becomes due 20 years from now. In the past that was a pretty safe bet.

The risk of doing all of this is that the property market can slow down, rates can go up, values can fall, property maintenance can become a significant cost, bad tenants can ruin a property and wipe out several years earnings and the government can change tax rules that makes all of this far less profitable (as happened in the UK quite recently). But it's absolutely not impossible.

About a decade ago I worked with a perfectly normal guy in his mid 50s who worked as an accountant in a small software company, he had 200 BTL mortgages! He just kept reinvesting the profits and buying more each month.

That's a nice theory, but it doesn't work like that in most EU countries where banks are reluctant to give you a loan even for the 2nd property, let alone for tens of it unless you have collaterals to cover the cost.

You're assuming getting a mortgage (in the UK) is a click-click-approve process, but it is far from that

Purchasing any property is a many-month endeavour with solicitors/banks etc

I don't know how it works in the UK, but in the US the types of people hustling properties in real estate are not using the same banks/financing an average person looking for a mortgage would. It seems from talking to small time real estate folks that you use these lenders (likely lie or stretch some truth to do so in many cases) to get your first 1 or 2 loans, then move on to specialized lenders.

There are specialized firms w/ private capital that are happy to fund these midsize deal flow guys and finance them. Once you get a working relationship with a few such vendors it seems rather easy to get marginal deals done others would find impossible.

I don't know if this simply doesn't exist in the UK at all - but I'd bet money that it does in some form. Since bankers and finance make their money off the points on deployed capital, especially the loan officer making commission on the deal flow, the incentives are aligned to make more loans vs. less.

I think the hardest part of getting something like this going is the first 2 to 3 properties. After that and a few years of proven ability to manage cashflow here in the US your lending options open up exponentially both in number of lenders and the creative/exotic means of financing now available.

Yes it can take several months but it's also a well oiled process that's quite straightforward as long as you have the relevant paperwork ready to go and assuming the properties you want to buy are easily mortgageable (and you have a large enough deposit and a good credit rating)

In Germany?

In the uk. Do buy-to-let mortgages not exist in Germany?

I am sure they do/did but this still doesn't match resulting reality. By financial swings he does, he has 1-2 mil euros of disposable cash, on top of that vast amount of flats. Judging by his age and career path, he had to amass most of it (80-90%) within less than a decade.

No German bank is going to give you 100% mortgage (in fact 110-120% for taxes/fees/additional reconstruction) when you already have 10 properties mortgaged in exactly same way. You also don't build any cash reserve like that, owning properties is always more costly than financial projections make it so.

At the end it doesn't matter, good for him (apart from everything that makes a man the man) but his vague background story as told simply ain't true, and folks were eating all that till I came along and thought about numbers for few seconds.

As other posters have stated, this sounds more like someone leveraging themselves to the hilt than it does someone with mafia money. Perhaps both, but here in the US there are plenty of these small time self-described hustlers who overextend themselves in rentals, then when a minor downturn happens it all blows up. Some do get lucky and exit or die before a downturn happens, but in the interim the universal common theme seems to be they spend it like they won't have it tomorrow - likely for good reason.

Real estate is one of those things where if you have a certain personality that likes to gamble and don't mind operating in a shady manner you are rewarded handsomely for it until a wider economic shift happens. It's the only socially acceptable gambling anyone can do where a bank will give an average joe 5x or more leverage and we see it as totally socially acceptable. Change that to the same guy trying to operate the same strategy in the stock market and he would be laughed out of the room by the bankers he requested the loan from.

When you find banks willing to finance 90-70% of a building on an interest only loan, it doesn't take a very long time to roll that into your next building. It then snowballs as you use the cashflow from those buildings to leverage into new buildings. It works great until it doesn't. So long as rent gets paid and buildings continue to increase in value everything works out fine. Once you get the first half dozen or so buildings set up, it appears to me it's harder finding new deals than it is finding the financing for them. I did the napkin math once and after around half a dozen to a dozen properties (depending on size) you start having enough cash to roll into a similar sized building every quarter.

Pretty much all the "real estate guys" I know own absolutely nothing of their buildings other than appreciated value, as they operate on interest only loans leveraging their monthly cashflow.

tldr; Leverage is a hell of a drug.

It's hard if you pay in full. But if you borrow money and rent the apartments it's not that hard.

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