Catskills - Sullivan County - Ulster County Real Estate -- Catskill Farms Journal

In St Pete’s for the holiday, with my son and 2 fellow gangbangers from his HS coming down on the 28th.  Only problem is the top floor corner unit is really nice and we are outfitting it with fancy furniture so the idea of 3 sticky, stinky, sweaty and smelly teens touching and sitting and laying on everything is not really something I’m eager to experience.  There are going to be some rules around here!!

It’s funny to experience the resurfacing after 24 years of being submerged in business building, business sustainment, business rescuing, and business pivoting.  It’s strange to think there is another side of life than that day in and day out stress, rush, productivity, uncertainty go go. I don’t even know what that would look like.  It would look like an instagram post.

Funny too without even trying I took most of the month December off.  That’s a lot of time.  It wasn’t really ‘off’ off, but the end of the year just coincided with the completion of a lot of projects, the beginning of the pre-construction on a few, but pretty modest in the actual boots on the ground construction. That translates into a lot of different workload reductions - book-keeping, check writing, inspections, quality control inspections, communications, corralling and managing the subs and employees.

It also translates into a lot of small businesses that I’ve solely supported for years if not decades are seeing a real need to pivot in their business strategic outlook, and I can’t say it’s going to be easy for a lot of them.  We provided a safe, profitable home for a lot of them, looked after them, cared about their success, mentored them, assisted them above and beyond the call of duty.  Being out there on their own - marketing, chasing work, chasing payments, having the risk in each deal - that’s new, that’s hard, but the writing has been on the wall for a while.  I’m slowing down in business, and I can’t be everyone’s daddy forever.

My guess is we will go from $13m to $8m this year, and at least 3.5 of that 8 is stuff I’ve already built and just waiting on the election dust to settle and the new year to begin - a natural reset for people and also bonus time - to begin marketing my 4 mostly completed homes in 2 counties.

As I’m selling off some of my lightly used assets, I get to make a decision down here in St Pete’s for the car I’ll tool around in - the parking garage at the Unit is filled with nice rides, so do I flex and feel good about it or do I go modest hybrid and feel just as good about it? I really like my Son’s new 2021 Hyundai Kona, but I really like my 2018 Mercedes 400.  With the sale of my 1972 Malibu, and that sweet sorry that accompanied it, I think I could part with the Benz as well with only cursory pain.  It’s sort of like the ‘cutting’ troubled teenage girls do - anything to feel something!  Just kidding, that should have been saved for the $500 an hour NYC shrink (actually $550 but who’s counting).

Turns out the battle has been lost - like Pickett’s charge at Gettysburg, Germany’s foray into Russia, Napoleon's defeat wherever he was defeated (my history is a little light there)- it’s clear the battle for people of all ages NOT to have their phones on speaker for all things phone related is lost.  People of all ages aren’t even thinking about it anymore- You Tube, Tik Tok, - you name it, it’s now on speaker without a second thought.  At first, you knew you were being rude and did it as a way to act out.  Now, be it an airport, a restaurant, a bus, a pool - there’s a phone somewhere blasting someone’s topic of choice.  I’m a little noise sensitive, and this is worst case scenario for me, but one of my strong traits - learned after one too many quixotic lost cause anti-hero losses - is knowing when to give up, and it turns out now if I want to avoid the random cross noise of competing phones I’ll need to be the one with headphones on - defensive headphone use - seems unfair, and I actually can’t think of another cultural rotation that was so patently inward looking.  Among the first worlds, I wonder if it’s just America, or if it’s everywhere.  I bet it’s not in Japan.

My son is attending a bunch of QB camps in Lancaster PA run by my HS football coach. Comes full circle.

Speaking of my strengths, my son - who seems to be watching me very closely as of late, and then rapping on all the things I’m doing right and wrong with great wit and thoroughness, a ready roast for any mis-step - says I’m one of those guys that has real strengths and real weaknesses.  Really smart and really dumb at the same - he’s not wrong.  But, then he ended it with  he thinks my smart moves outpace my dumb ones.  He says it’s close, but ….  That’s a real win for me.

He’s not wrong.  My ex used to just look at me and say ‘and you run a million dollar business?”  (boy was that a long time ago, both being married and running only a million dollar business- I pocket that now).

Annual dinner party was a ton of fun.

As I watch my St Pete’s building struggle through its punchlist phase, and see what it delivered in many ways not what was promised, I see why I’ve done well.  We’ve been committed to a good process, and kept getting better, from the beginning.    I’ve literally been serious about delivering a best in class product from the very beginning and have worked for 25 years to deliver it - still falling short and still getting better.  That’s a humble mindset that is rooted in and invested in our client’s success.  And they’ve been incredibly successful.

Amazingly, I lost a book I was making good progress on.  Didn’t lose it - I know where it is - it’s in my seat pocket in the United airplane from Newark to Tampa.  I wasn’t even supposed to be reading it  - I thought I was starting the Confederacy of Dunces, but instead picked up Confederates in the Attic and it took me 30 pages to figure out why the book was so different than what I thought it was going be (see above paragraph about my strengths and weaknesses - really good example). One is fiction, the other non-fiction, but in the end the mid-90’s study of America was truly pertinent and reflective of current politics - just at the beginning of this trend that led us here - I was digging the study by a good journalist into the enduring impact of the Civil War in the South’s psyche and self-perception - and now I’m going to have to go buy the book in order to finish it, since I intend to finish it.

Queen Diva Lulu.

Merry Christmas from me to you.  I can picture all the families in our homes: safe, happy, inspired and living life. 

Housing as an investment, be it personal or business - be it your personal home, or a rental home or a rental portfolio, is a lot more complicated and nuanced than we’ve been led to believe.

I mean it’s accepted wisdom that buying real estate is a good avenue to wealth building, and anyone who bought pre-2020 might actually have that idea bode well for them, but over all, over time, now that I’m 25 years into playing around with real estate, it’s evident to me that while it has its advantages, it certainly isn’t the end all be all. 

My friend George at our hometown bank has been keeping track of me through my blog and decided to contribute to my pancake production process (PPP) when Lucas Petersheim has 15 friends over with a gallon of Maple Syrup. That's George saddled up to the bar at our annual Christmas party (picture below), waiting for a ginger ale or beer - note, not his shot glass!

On owning a home for a family - a personal residence - I’m not sure there is a worse investment in terms of pure ROI $$$.  Monthly utilities, yearly taxes and insurance that are no joke anymore, upkeep and maintenance, mortgages and interest, things that break and the itch to improve leave the math pretty lacking even if you do see a steady appreciation, which is no lock.  Even the real estate fee of 6% to get out of it in the end impacts the value of the investment.

I mean the math is simple - buy for $500,000, pay $35k a year in the above costs (without the costs of projects and improvements), and 10 years later you have $850k or more in it.  Few periods of appreciation keep up with that cost of ownership.  And since people can’t do math, a 25% appreciation over 20 years isn’t 25% APR.

Rent and save that $100,000 down payment and $20k a year in operating costs, and you can see the wealth-building diversion between the two.  It’s a little bit like the college vs non-college tracks - that the community college and get to work track leaves that person hundreds of thousands of dollars ahead by the end of their 20’s in many cases where the person pursues intelligent ready to go positions whereas the ROI on the cost of college and the course of study pursued never really pays off for lots of people.

What owning a home does do, for a country of mostly financially illiterate people, is turn a home into a forced savings program - money losing, but forced savings, with a tangible nest egg over a lifetime.  The 30 year mortgage leaves you with a nice little chunk of change. 

Dave Ramsey the personal finance guru is always hating on whole life insurance as an investment but is always high on owning your own home.  But I think all things being equal, they both are pretty lackluster as investment vehicles.  But I like and own both, since they serve a purpose, and it might not be solely or even primarily a pure financial return on investment (ROI).  They both provide security, they both are sort of outside the chaos of the day to day, and they both can be cashed in an emergency.

But of course, that just looks at housing in investment terms, which of course it is not.  It’s a place of safety, creativity, security (for many people) and something you can call your own, improve as you wish, etc…  Even if there would be a trend to rent over buying and the stigma of renting over buying would be erased, in most parts of the country the rental stock variety doesn’t nearly parallel the options on the purchase track, meaning less options in less areas.  When you buy, you can really dial into what you want - area, house style, property type - it’s rare to have the same choices, unless you are in a city or urban environment.

But the point of this post is more investment than personal real estate. I’ve been messing around with rentals for 13 years, as it seems the dream of progress - to own several pieces of real estate, a real marker of professional success and growth.

What I’ve learned, and I’m sure this is not local but national, single family rentals are hard to make money at, and if the home is older, or if you are holding a mortgage on it, geez, good luck with that.  Squeaking out a few hundred dollars a month at best if everything goes well, waiting on questionable long-term appreciation, hoping none of the inevitable happens. 

Non-paying tenant squatting in your home for 6 months as you try to evict.  Damage to the unit.  Improvements to units.  Maintenance to the Units.  Increasing taxes and operating costs.  Tenant management.  Collecting rents. Legal costs.

Above, My Playstation 5 boxer I created named Upper Cutt. Almost as clever as my PGA golfer named Hole Inone - he's from Hawaii.

There is literally nothing passive about owning a rental portfolio.  It’s a ton of work, and it’s 24/7.  My first foray was a condo in Miami, and 2 older homes (like 100+ years) in the Barryville and Eldred areas.  All with mortgages.  All with modest at best rental prices.  They were money losing, though you don’t really realize or notice it month to month, especially if you have another business where most of the cash flow juice is coming in from.  Tough learning curve, made more difficult cause it was in the height of covid when I was messing around with the houses in SuCo and we were too busy to begin with.

I transitioned into new homes when we really started making money - sometimes on purpose, sometimes by accident.  I’d be building a home in a good spot, and our sales would be good for the year, and I didn’t want to book another and would decide to test the rental market.  Also, I personally used to loan the company lots of my profits, so to square up Catskill Farms would gift me a finished house to pay back and square up the loan.  Currently we have 8 I believe.  Four in PA, 1 in St Petes, 2 in SuCo, and one in Rhinebeck.  They all show a profit, but less than you would think, given there is no debt involved.  Any debt would make the purpose of the exercise questionable, and the monthly expenses eat up the cash flow.

But if you are playing with cash, it’s a great way to diversify, and not be all-in on the stock and bonds game.  It’s a great tax savings vehicle, with real returns juiced with the impact of basis/cost depreciation.  In the end, all things considered, we are seeing a 5-6% return on these homes - I read or see about some sages say don’t do it unless you can get 10% cap rate, but I literally have never seen a route for a 8-10% cap rate, or annual ROI.  5-6% is pretty good, long-term, with some long term appreciation helping those returns hopefully.

And this is with an existing business infrastructure and staff that sort of does a lot of the portfolio management as part of their daily job scope.  We are pretty good at vendor acquisition, book-keeping and accounting and a lot of the day to day is marginal in the whole scheme of our related business activities.  If you’d have to hire someone, or pay 20% to a management company, that changes the equation.  If your existing business or line of work has little to do with construction, real estate or rentals, that increases the lift too.

Absolutely nothing passive about real estate investments, and I think my takeaway is the only time it makes sense to get involved in real estate investment is when you’ve built some wealth in some other fashion, and real estate investment is a hedge in a large portfolio, or you are in real estate in some fashion already.

Our recent St Pete’s purchase will breakdown like this - $800k purchase, $20k annual expenses, $60k in rent.  That’s a 5% cap rate.  Add in the depreciation tax savings of $30k (27 years divided by purchase price) and that cap rate climbs to 6.6% with the help of $30k of depreciation (the savings of not paying $13k in taxes) - though using depreciation is not commonly used in cap rate formulas, but it is useful for a real study of the ROI.

If there's ever been an example of the endless expense of tinkering with a house, it's mine - though I think most people would define what I'm doing over the last 7 years as a bit more than tinkering.

Weird how the time has disappeared since November 29 when we left PA after Thanksgiving family meal, only to re-enter just 14 days before Christmas, with Christmas music in the taxis and the need to compress everything Christmas into a still generous but seemingly ‘rushed’ 2 weeks, including pivoting to the Christmas mentality. Who knows if there are even any trees left?

We took a tour through a crocodile infested estuary (tide-driven meet up of fresh and salt water) with thick mangroves on either side, with branches bent aggressively downward like straws to drink the brackish water, only to prosper, sprout leaves and then bend slowly up towards the sun like a regular branch.

In my reflective state, I contemplated the natural selection, the competition to survive - each branch of each tree.  Each leaf of each of branch.  Zero sum game of winners and losers.  And termites prepared to assault weak or dying or dead trees with gigantic nests the size of a football duffle bag.  Big crabs, termites, monkeys, birds, crocs.

We started like I often do - with a map, and me randomly pointing my finger at a point on the map, doing some cursory research, seeing who is available - in this case my wingman nephew, Eli, who I’ve introduced before, my son, Lucas Petersheim (full name for SEO purposes) and his good friend Cameron Jared Stark IV.

The randomness was offset with a lifelong travel experience that gives me a good instinct for destinations.  Tamarindo, in the Guanacaste (Pacific NW) region of the country below Nicaragua, is where my finger pointed, as a seemingly a good fit of beach town, surf town, and centrality of the coast that would allow us to day trip up and down.  The AirBnB looked great - but to honesty, there are actually a ton of great short term rental houses without a huge cost.  This good looking home served all four of us well, until Monday morning when construction commenced next door, which seemed like a real deal-breaker moment for me.  But since I had mentioned ‘zero construction noise’ in my very first query, the absentee Dutch woman owner quickly acquiesced to a full refund for days unused as my hunt for new accommodations was well under way.

Turns out, last minute rental shopping has a few advantages - 1, you have house owners who are flexible since they are facing an lost week of rental revenue and are happy to make a deal, 2, you get the benefit of people and families who had cancelled at the very last minute.

So, after 3 days of fun in the busy beach town of Tamarindo, and with my son and his friend Cameron set to head back to school navigating international flights and airports on their own, Eli and I moved rentals from busy beach town to Playa Grande, an isolated beach only a mile walk from Tamarindo via beach (with a 100’ estuary crossing), but by road more than 45 minutes as you had to drive around the estuary and make your way back to town.  You can walk to Tamarindo via the beach, and take a little $2 canoe across an innocent-looking 100’ clear water estuary, but that ends at 5:30pm since that’s when the crocodiles become more active.  It looks innocent enough, but unlike all the ‘no dog’ signs on the beach because of nearly-extinct nesting turtles, I didn’t see anyone ignoring the rusted ‘crocodile’ warning signs and navigating across by swimming or walking.

We lucked into a $1000 a night beach front house in a surf town with only 10 beach houses, and we got it for $300 a night since we wanted it that very night and it was available.  That’s a good tip to remember as my travel plans become more, not less, flexible.  I always knew that with sea cruises that seriously good deals could be had at the last minute but it seems to apply to lots of travel-related situations. I've definitely had it happen in reverse, where last minute did not pay well at all.

You think Costa Rica is just a hop skip and jump away from the States but it’s actually pretty far out there, almost Europe distance from NYC.  Southern Central America, west coast, wedged between Nicaragua to the north and Panama to the South.  On the Pacific side.  It’s out there.

Last time I ventured around the southwest, on the border of Panama, and for Costa Rica, that’s the less beaten path since its more bio-reserve than beach towns and zip lines.  I had a pickup truck and toured and zipped around on unpaved roads from Pavon Bay to Drakes Bay without much issue.

This time, however, maybe because I was in areas with higher density of population, the traffic and auto issues of the Guanacaste region, specifically in and out of Tamarindo, was unpredictable and horrific at times with 2 lanes busy with trucks, cars, pedestrians, motorbikes and what have you.  Partner that with no traffic lights or stop signs, lack of merging strategy, no law enforcement, and lots of traffic, you can really run into situations where an easy solution is hard to find, and taking an hour and a half to go 30 miles is par for the course and considered good speed.  Add an accident, or a slow construction vehicle, add some time.  A lot of time.  Perhaps hours, as one road and one road only is the only route in and out of these towns.

I didn’t have a lot of goals that revolved around driving around randomly, but even heading into town last night, we drove 35 minutes to the outskirts where we hit a standstill, based on an accident or breakdown or something - which forced us to turn around and go back home unfed.  3rd world countries with little to no infrastructure strategy and a burgeoning tourism trade is a combustible mix.  We left the car parked for the most part, which is always a victory for me since I spend 45,000 miles a year tooling around to job sites, and the like.

I typically like to pick up a book or two about a country when I go, but I couldn’t find anything of interest, fiction or non-fiction, about Costa Rica.  But now I’m interested in what combination of corruption and incompetence has kept the tourist trade tax receipts and construction permitting and real estate taxes unallocated towards stormwater and traffic infrastructure, as well as any sort of standard of living improvement among the population.  The 40 year vision to position Costa Rica as a preserve of extreme natural diversity seems to be a pretty big success with an abundance of natural wonders and tourism, but this prosperity has failed to filter through the country.

Playa Grande reminded me of Tulum in 2005 (with a few more new homes constructed in Costa Rica).  Actually advanced for what Tulum was back then but you get the idea - dirt roads, no cops, a few places to eat and bunch of travelers, not so much tourists.  The surf vibe is fun, with the best waves around, and a destination for the surf crowd.

One thing this part of Costa Rica is not is cheap.  The common meals, groceries, gas, lessons, beers and alcohol the same or more than USA.  The Tamarindo area, and possibly the Guanacaste region as a whole, for lack of a better phrase, is just expensive.  When I was down south in the country it was a different story altogether, so the idea of Costa Rica as a retirement destination is something I’d have to see exactly what areas they are talking about, and how the basic services are being obtained, because from my 10 days here, I didn’t see a lot of work arounds.

Back home we got a few homes under construction, and whippet quick, those homes are mostly being driven by contracts and pre-sales instead of spec driven.  That a little bit just came out of the blue, and in 60 days we put $2m under contract with another $3m on the horizon.  The cash flow and percentages of profits from being paid as we go as opposed to at the end of a finished project will leave me in a flexible situation for 2025 as new opportunities arise, possibly building out the $3.7m rental portfolio. We also have $3.9m of nearly finished homes that I will sell in 2025 with little to no construction activity left on them.

All in all, another rotation of taking cash out of the game that has been circulating and growing and at high risk for 23 years. Not taking it out of the game, not taking it off the table, but rotating into other assets be it residential rentals, land development, stock market, or cash.  I don’t know how to calculate starting with negarive $500,000 in 2003 and turning it dollar by dollar, year over year into 8 figures, but that’s my life’s work.  And at the same time, creating an environment of excellence that has resulted in hundreds of millions of dollars being stuffed into the pockets of employees, clients, municipalities, real estate companies, and a super long list of supporting cast vendors.

On a plane to Costa Rica with my nephew Eli, apparently my traveling wingman until he gets a girlfriend or something.  We are going for 10 days or so.  My son and his friend Cameron are also along but I haven’t seen them for a bit since they are in the back of the plane. They are coming home Tuesday night to get back to school after the extended Thanksgiving Holiday.

We are heading to the Guanacaste region on the northern Pacific side of country just below Nicaragua.   The rainy season was supposed to wind down weeks ago but rain it has, mostly every day for most of the month of November.  Then came a hurricane, Sara I believe, that pushed the saturated land over the edge and pretty significant flooding occurred, damage, etc…. The one international airport we are to fly into - Liberia - suffered damage, sinkholes and degraded pavement to the point they had to shut it down, which is a gigantic impact on the mostly tourism-funded area and put our plans in flux.

So we are landing into an area 5 weeks of economic activity lost and then walloped by a hurricane.  The omnipresent greeting and otherwise sentence fill-in “pura vida’, translated roughly as 'the pure life or simple life', will be challenged. A lot of this blog post was written prior to leaving, but only posting now several days into it. On the flooding front, in the Tamarindo city area, no evidence of anything awry.

Business continues to decline on one front - spec home building - while exploding on another front - custom homes or ‘our homes your land’ initiatives.  While both exercises involve building homes, the way I’ve done it for 24+ years - getting a deposit, and getting paid at the end for the majority of effort - involved a ton of effort and risk.  Building for people on contract, getting paid as you go, is really kids stuff, after earning your wings cash flowing the whole project, 5 or 10 or even 20 houses at one time.  I never thought I’d like it, custom home type of the thing, but I actually do like giving up some control, ceding it to an architect and being the smart tool instead of the driver of everything on the project.

When I see how some other builders do it - where they force the client almost to become the contractor, kind of ‘lending’ their subcontractors to the clients to schedule, meet with, troubleshoot with, sort of ceding their whole job to the client. It’s weird - our clients would be hard-pressed to name one of our subs by name, and that’s the way it’s supposed to be.  In fact, most real contractors demand the clients not talk to the subs in any material way in order to avoid mis-set expectations and mis-communications.

The 6" grasshoppers were a surprise.

My nephew, a 27 yr old biz grad who is now in the construction bonding industry showed me a shocking graph of the median age of a homebuyer presently in USA - 57 years old.  At first, when I thought it was the ‘average’ I was really taken aback, but now that I understand it’s the median, I’m little less sure what it actually means - half the buyers of homes are over 58, half are under 58.   Regardless of the final meaning, the trends are stark and clear.  First time buying age has risen from XXX to XXX in just 15 years - Most times the ‘average’ is the least reliable metric easily influenced by a small number of outliers, but here I’m thinking the median - half over half under - might be harder to tease out the meaning, since we are talking only about home buying age people and that can only really realistically range from 30 to 70, thus making the statistics vulnerable to a few large outliers.

At Catskill Farms, we don’t really participate in that marketplace - we exist in our on little ecosystem - with buyers aged from 30 - 75+, many with another residence of some sort somewhere.  Low down payments, cash scarcity, leaving the closing table with empty pockets turned inside out, - that’s not my marketplace.    But it is my world, working with a large group of hard-working professionals piecing it together.

Night biking through the woods with our Milford bike club.

We had a big year - and we have some homes to sell, but I’m not too motivated right now.  I think the whole marketplace needs a post-election breather - time for the dust to settle, time for the bonuses to be paid, time for a ‘life goes on’ talk in the mirror, just like after the real estate collapse of 2008, just like the market crash of 2009, just like the non-plus years of 2011-2020, just like the pandemic, just like since then, and you can take a page out of Shawshank Redemption- when Andy says to Red - "Get busy living, or get busy dying.'- what I’ve seen over 25 years, it’s best just to keep on living, make the micro decisions in spite of the macro currents and winds.  There ain’t a family who didn’t buy from us into the teeth of the 2009 real estate collapse - when banking underwriters were calling employee’s places of work at the closing table to make sure they still had jobs - even those who braved a world wide financial panic to get on with their lives, ended up enjoying their homes, paying their bills and reaping both life rewards and financial rewards.  History, be it financial or political seems to move in 5 year and 10 year cycles - you’ll catch some right, you’ll catch some wrong, but most you will daily cost average into a lifetime of decision-making that averages out over of a lifetime - if the past is any indicator of the future. Quite a few of our homeowners from that period still own their homes; others have moved on. But they all share an experience of buying an upstate home that didn't turn their lives upside down, which is a foreign concept for most people buying since 2014 or so, and definitely since 2020, but prior to that, buying a home in the Catskills was as often a nightmare as it was a blessing, with undiagnosed home repair issues and a lack of liquidity if you ever wanted to sell.