Bethany Holdings Group

[JakeRodgers]

Does anyone have any more info about this company going under?
Here's the article: http://www.msnbc.msn.com/id/29697413/

I was blown away after reading about the Bethany group that has apparently crashed and burned. This is an asset management company that owns THOUSDANDS of rental units all over the country. How do you mismanage your cash-flowing assets so poorly that you have to abandon them and shut down your business!!! Most of us investors dream about owning that many properties and running a business of that magnitude, while the morons running that company clearly either have no idea what they're doing or simply take it for granted! Again, I was just fascinated by the story and though maybe someone from CA could provide a little more info on the company. The story also raises many issues about renters rights (and clearly renters rights DO exist, contrary to what the mainstream media would have you believe). At this time more than ever we need responsible landlords and property owners to help dispell the bad stereotypes that are given to us by companies such as the Bethany Holdings Group.

[propertymanager]

How do you mismanage your cash-flowing assets so poorly that you have to abandon them and shut down your business!!! Most of us investors dream about owning that many properties and running a business of that magnitude, while the morons running that company clearly either have no idea what they're doing or simply take it for granted!

I haven't seen a single large apartment complex yet that will cash flow properly.  These complexes are often owned by wealthy individuals that are using them for a tax write-off.  The owners of these properties rely on IRR, cap rates and other gibberish to convince themselves that the property is making money, when in fact they are not.  The delusion occurs in the assumptions that are put in the IRR, cap rate, and other calculations these people make.  They assume rents will rise signifcantly each year while expenses stay the same.  They assume properties will continuously appreciate.  It's all nonsense.  That's one of the reasons these complexes bite the dust.  It's a house of cards. 

I don't know anything about this company, but clearly they didn't do the math correctly!  It's a simple business and when you have to do complex calculations with a lot of assumptions to convince yourself that you're making money - you're going to crash and burn!

Mike

 

[Bluemoon06]

They assume rents will rise signifcantly each year while expenses stay the same.  

It depends on the property.  If you buy a property that has been mismanaged this can happen.  What I mean by mismanagement is that the owners can’t keep up with area rents because the property is running down.  Since rents are low they don’t do maintenance, and since they don’t do maintenance they can’t ask for market rents.  So when you buy the property you fix everything then you can now raise the rents to market rents on this now fixed up complex.  New stuff don’t break which drives expenses down.  So you can have significant rent increases and significant reduction on expenses.

This effect can't be projected forever and that is how properties get overleveraged.