Lance Robbins started with no personal capital. In 1978 he formed a partnership and bought his first building using funds raised from family and friends. It was a 16-unit building in Palms.
With another partnership, he next bought an 18-unit building in Venice. He learned quickly that by painting, carpeting, and effectively maintaining these properties, he could get higher rents. He also learned quickly that buying properties in distress and solving their problems produced extraordinary rates of return.
Lance is an attorney who left law practice, except for his own account, and went into real estate development because he found greater satisfaction and rewards. By 1982, five years after he started, he had 220 units. By 1992 he had an interest in over 1,000 units.
Buy Properties with Problems, Then Solve the Problems
Most people are not willing to buy properties with difficult maintenance or management problems. Lance learned that properties with problems could be bought at greatly discounted prices.
At first he bought wood-frame buildings. Then in 1982 he read about the new Los Angeles City ordinance requiring seismic reinforcement of brick buildings. He saw an opportunity, and that year bought his first unreinforced brick building. His was the first apartment building seismically reinforced by a private investor in the city.
He hired a structural engineer and began to do reinforcement work on old brick buildings. He bought several properties, forming a different partnership for each building he bought. His investments have mostly been based on a fundamental plan: newly acquired properties are refurbished, rents are raised, and the properties are held and managed as income investments.
In 1987 Robbins noticed that increases in the cost of brick buildings in the Koreatown area of Los Angeles were lagging behind increases in rents. Slow growth in property values seemed to be because of uncertainty about the seismic issue. Over the next four years he bought 20 buildings in that area.
During the 1980s he invested in functioning properties with an eye to improving them and increasing income and value. So far in the 1990s he has been acquiring damaged properties and refurbishing them, still with an eye to increasing income and value.
Robbins has acquired many damaged buildings and has had to bring them into compliance with city regulations. He has had to do considerable repairs and eliminate a number of code violations. Today Robbins has an interest in 27 buildings altogether.
Dealing with City Compliance
In 1986 Robbins bought a 32-unit building on Union Street in Los Angeles that had 17 burned out units. The building had citations, was in a state of shambles and was gang infested at the time of acquisition.
Robbins proceeded in good faith to make improvements to the property; for example, new electrical, new heating, new plumbing, a tremendous amount of clean up, repairs to windows and doors, new paint, etc.
When he thought the building was ready he called for an inspection by the Los Angeles Slum Housing Task Force. What followed was a sequence of events and a legal dispute. The Task Force replied that more work was needed but they were not clear about specifically what additional work was needed. There was a case that went to court and both parties argued their respective side. Robbins pleaded no contest and the case was settled.
Violations of this type are straight liabilities and there is no defense. In the end, Robbins spent over $200,000 to repair the building and the Task Force signed off all citations on the property.
Robbins's story is useful to anyone who contemplates buying a damaged property. Anyone in this circumstance should be aware that substandard property must be brought into compliance with city regulations One should have knowledge, experience, and adequate capital in order to make all needed repairs.
Management Is Everything
Robbins vigorously took on the challenges of management. Many buildings he took over had large vacancies due to bad management, gangs, and drugs. In most cases he reduced vacancies by 50% within four months. He also restructured the debt.
One building he bought was in the heart of a local gang territory. He acquired the property from a partnership in distress and promptly placed it into Chapter 11 bankruptcy. He then used the rental income to improve the property.
He installed a new resident manager and a resident security guard, and made necessary repairs. With cooperation from police after a violent incident the local gang was swept from the street and has not been back since.
One method to take charge of a building containing "cholos" (gang members) is to place two security guards at the building's front door for two weeks, and take a photograph with name identification of every person who enters the building. Gang members generally prefer not to be photographed. Dogs are also a good deterrent. Robbins advises that potential buyers of low-income property or brick buildings should avoid buying in known drug or gang areas.
The main costs that must be controlled are utilities, maintenance, and debt. Low-flow toilets and low-flow shower heads should be installed. Solar heating helps. Robbins controls costs and keeps rents competitively low, and as a result his occupancy level is above average.
Brick buildings, according to Robbins, are very sophisticated investments. To be successful, one must understand all aspects. Sooner or later a significant problem will arise, such as utility cost increases, gangs, maintenance problems, vacancies, etc. An owner must be able to deal with these problems as they come up. In addition, many owners are paying too much for earthquake repairs.
One Could Easily Start Today and Build an Estate
Today, Lance Robbins has an interest in 27 buildings. He never expected to get into real estate to this extent. His portfolio grew step by step. He never had a mentor, instead learning through experience and using common sense. He likes to "push the envelope." It is a full-time job, he says. Yet Robbins also has a construction company, Compliance Construction, and does contract work for people with problem properties.
Lance thinks the opportunity to acquire wealth through real estate is better today than at any other time on record. It would not take a large amount of capital, he asserts. One could start with a smaller property. His advice is to buy damaged rather than operating buildings. There is less competition for damaged buildings and the price is often discounted enough to make the work and investment produce an above-average return. His strategy in today’s real estate market is to buy properties, then manage and hold them for their income stream.
You are welcome to use
information from "The Incredible Story of Ben Weingart" for
your own purposes, provided that you include the following credit when
reproducing, distributing, or displaying it:
Copyright © 1999-2009. All rights reserved.