Best Ever Apartment Investing Blog Posts

If you are reading this, you are probably interested in making some smart, life-changing decisions in the real estate industry. Without question, apartment investing can be a great path to take. Multifamily properties are often easier to finance than others, for one; additionally, you can grow your portfolio quickly, and property managers can take a lot of stress off your plate. Whether you have never invested a penny in real estate before, have been in the industry for decades, or fall somewhere in-between, I believe I have the tools, knowledge, and experience you need to make the most money—and, in turn, get the most out of your time. A great way to start would be to check out my multifamily and apartment investing blog posts, which can provide you with a foundation of knowledge and answer a lot of questions you may have. Want to learn how to add value to apartment communities, how to figure out if you should be getting into passive or active apartment investing, or how to spot commonly overlooked expenses? Maybe you’d like to know how to effectively evaluate a multifamily deal and save thousands of dollars on your taxes. All of this, and other tips regarding apartment investing, can be found below. If you like what you read, I encourage you to also read the rest of my blog posts, of which there are hundreds, and to check out both volumes of my book, Best Real Estate Investing Advice Ever.
How Apartment Owners Can Leverage Smart Technology

How Apartment Owners Can Leverage Smart Technology

You’ve probably heard this saying before: You have to spend money to make money. As Mike Rovito could tell you, that notion definitely applies to smart technology.

Mike is the CEO of Dwelo, a San Francisco-based company that’s been in business for more than four years. Dwelo specializes in making apartments smart, focusing on midsize to large multifamily complexes. Its devices include locks, light switches, and thermostats.

These technologies help property owners attract and retain renters. They also make daily life easier, and they reduce energy expenses to boot.

 

Smart Tech: A Smart Investment

It’s amazing how often apartment buildings use energy needlessly. Take vacant apartments as an example. Naturally, painters and other workers turn on the lights and air conditioning when entering them. But, when they leave, they often neglect to turn them off. And, in some cases, no one checks on those vacant apartments for days or weeks. In the meantime, plenty of electricity gets wasted.

Smart technologies can regulate the air conditioning and lights in vacant units, ensuring they’re not on when no one’s there.

In addition, with a smart lock, you can control who accesses your home and when. Smart locks make it easy, for instance, for someone to enter your apartment when you’re out of town. That person could water your plants, bring your mail inside, and so forth.

You could provide certain people with a temporary PIN to open your lock or allow them to open your door with their phones. Alternatively, you could use your phone to open your door while you’re miles away from your apartment.

Not to mention, at any time, you could lock your door remotely. You’d never again need to worry about whether you locked your door before leaving home.

Many people, especially younger people, seek out smart residences. Mike believes that popular voice controllers like Google Home have increased public interest in these technologies.

In fact, Dwelo has empirical evidence indicating that many people will pay more for a smart apartment. For some renters, a high-tech home is a point of pride. Such systems can make a community feel progressive and exciting.

Then there’s the fun quotient. No matter how many times you’ve done so, you might still get a kick out of turning your lights off with your voice. For his part, Mike still really enjoys this task.

 

The Professional Education of Mike Rovito

Mike started his career in the field of energy efficiency. Working at ERS, an energy consulting company, he collaborated with many New York real estate owners. He showed them ways their properties could reduce energy consumption.

Those techniques included code generation, storing batteries properly, utilizing smart thermostats, using energy-reducing lights, and streamlining industrial processes. And such methods could be customized according to clients’ needs.

However, as Mike delved deeper into property management, he became increasingly fascinated. He examined how owners plan their capital expenditures, manage operational expenses, and optimize net operating income.

Eventually, Mike realized that he could combine his newfound knowledge of real estate with his energy efficiency expertise. He would create a new business to do so. Dwelo was born.

 

The Dwelo Difference

Mike labels Dwelo a technology and service provider. In essence, it offers property owners an entire infrastructure for implementing and using smart technologies.

To begin with, Dwelo recommends the optimal smart devices for a given property. It then sells, delivers, and installs those items. And its employees can answer questions and explain best practices to owners and managers.

The result is a property that’s completely connected and fully automated, able to conserve energy to the greatest possible degree.

Once Dwelo installs smart technologies in apartment complexes, it gives the property managers a special app that serves as a switchboard. With that tool, they can control the energy consumption in vacant units and other parts of the building. They can also lock and unlock all of the doors except the tenants’ doors.

When residents move into a smart apartment, all of the devices have already been set up and integrated. It’s a seamless technological experience. The manager simply emails them a link to an account that will let them control that tech. About 30 seconds after clicking that link, they can access every smart device in their new home.

To make matters even easier, if property owners prefer certain types of hardware or software, Dwelo can comply. The company sells Amazon and Google gadgets, for example, and it offers integrations with RealPage and Yardi software.

In fact, Dwelo doesn’t make any of its own hardware. And, while the company produces an app, customers don’t have to use it if they don’t want to.

Dwelo’s offerings are affordable as well, generally averaging in the $500 to $700 range per residential unit.

For sure, some property owners approach smart tech with skepticism. They might believe that it’s not necessary or that it can wait. They may fear it won’t really work or will lead to extra maintenance problems. They might doubt they’ll see any benefits from it at all.

However, the Dwelo team, which has already worked on tens of thousands of units, can make a persuasive case for smart technology in multifamily homes. With hard data, they can demonstrate that it leads to rent premiums of 1 to 3 percent. They have documentation to prove its energy savings, too.

As Mike Rovito notes, though, the strongest argument for smart technology comes when a nearby, competing apartment complex installs it. Building owners can then see how appealing that property becomes to renters.

 

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Knowledge without Action Is Nothing with Adam Bazia

Knowledge Without Action Is Nothing with Adam Bazia

Adam Bazia moved from Poland to Seattle in his twenties hoping to work in the construction industry, but soon realized that most of the jobs he had his eye on required a degree. Refusing to let this stand in his way, Adam attended the University of Washington, where he took classes in business and earned a degree in construction management.

After graduation, he went to work as a superintendent on a government project but soon discovered that working for other people wasn’t for him.

“I decided to leave because I found there were good opportunities to build houses at the time, so I started my own business. Luckily, I started it when the economy was on the rise,” Adam said. “Now anytime I purchase a lot and know I’m not ready to build on it, I know I’m going to build it within an eight-month time frame. But I didn’t know that then, so I risked it a little bit.”

With some good timing and a lot of hard work, Adam’s risk paid off. In 1998, he started his contracting business renovating and eventually investing in multifamily projects.

“I was a builder and then a land developer, then the business cycles redirected me to find a more secure business that created cash flow on a regular basis. That’s how I found the multifamily market,” Adam shared.

Adam’s desire to learn didn’t stop after graduation. In the investing world, he learned by example. Emulating what he saw working for others, he built his own hybrid of contract work and investing.

“I was always seeking more business education here in the United States. Along the way, I would ask, ‘This guy is successful — what’s he doing?’ He’s doing the construction, but at the same time, he’s investing in various areas, like buying a piece of land or buying an older home and renovating it,” Adam said.

This enthusiasm to learn inspired Adam to seek out experienced investors to surround himself with. For investors of all experience levels, it’s essential to associate with people who have the wisdom to impart, who have made mistakes already, and who know how to avoid making them again.

“I choose people who have been in business for a while. They’ve faced certain challenges already; they’ve already figured out how to solve those problems, and that makes their business stronger,” Adam reflected. “Beyond that, honesty and integrity are important, too. I look at what someone is trying to accomplish and what they’ve added to their life that has enabled them to be successful.”

From watching and learning from other investors, Adam knew he had to use his resources and connections wisely.

“I purchased a couple of multifamily buildings. I had some relationships with the bank so I built one fourplex, then another, and designed them so I could sell them as townhomes. In Seattle, small projects were not penciling out,” Adam said. “I was the one that said, ‘Okay, well, I have this resource, so I’m going to utilize it.’”

With the confidence of a solid foundation built on his network, Adam also expressed the importance of another resource: the backup plan.

“I think it’s very, very important to invest money in organizations, and have a system in place where if something happens, there’s always a plan B, C, and D. Because if you call in with a crisis that you can’t solve on your own or you’re not prepared for it, that’s a big deal. You have to be prepared for things,” Adam explained.

Being prepared is a necessity, and it’s just one of many lessons Adam has gleaned over the years. While he’s learned a lot from his colleagues by example and at school, he concedes that knowledge must be followed up with action.

“Working with syndicators, I would say my biggest insight is that knowledge is power, but knowledge without action is nothing.”

 

About the Author:

Leslie Chunta is a marketing consultant with nearly 15 years of experience in creating dynamic marketing programs and building brands for startups to enterprise organizations. She has worked agency- and client-side with high-growth companies that include Silicon Valley Bank, JPMorgan Chase, SailPoint, EMC, Spanning Cloud Apps, Ashcroft Capital, Netspend, and Universal Studios. www.thelabcollective.com

 

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Why There is a Big Uptick in Deals in 2021

Why There Is a Big Uptick in Deals in 2021

This year, we have sold two properties, acquired one property, have another two properties under contract to sell, and we are under contract to buy another property. That’s six multifamily transactions in 2021.

We had zero transactions in 2020.

We’re not the only ones seeing a big uptick in transactions in 2021. There was $53 billion worth of apartment transactions in Q2 2021, the highest transaction volume for Q2 in recent history. In fact, it was the highest between Q1–Q3 for the last 15 years.

So why have we seen a big uptick in deals in 2021? For starters, many sat on the sidelines in 2020 building up eagerness in would-be buyers. These investors recognized the signs of an unstable economy and decided to wait until things settled down. In addition, inflation has spiked, and the growing concerns are forcing investors to act now as their cash holdings lose buying power.

Investors want to park their money in cash-flowing, appreciating assets that can weather an economic downturn and fight inflation. Multifamily has fared better than most asset classes during COVID and other recessions and is a proven inflation fighter, so it’s understandable that investors expect it to perform well going forward. This increased demand has pushed cap rates even lower, making it a great time to be a seller to cash out on current valuations.

However, this creates challenges for buyers who now face increased competition and higher prices for apartment buildings. This increased competition is across the board, but it’s especially competitive for older, value-add properties. The valuations have increased to the point that these older properties trade at just a small discount to newer, better-quality apartments. It’s like a used 2015 Cadillac selling for $50,000 when a brand-new 2021 Cadillac can be bought for $55,000. For the extra $5K, why not just trade up to the newer model?

Some may suggest that you wait for demand to dip and prices to fall. However, you could be waiting a long time. There are investors who have been saying the market was overheated as far back as 2016. Those investors have already missed out on a full cycle and the wealth that could have been used to fund future endeavors. And while the market can certainly swing, investors who utilize sound fundamentals have already protected their downside. This includes sticking to cash-flowing properties in growing areas, where appreciation can be forced using conservative leverage.

So, what are we looking for in a deal in this market?

For starters, we want to protect our downside. The labor shortage and supply chain issues have decreased our interest in heavy value-add opportunities. Instead, we are focusing on properties where we can drive value through operations, not just renovations. We’re paying attention to the price of newer properties, as well as the traditional value-add apartments. As with the Cadillac example, where it makes sense, we will opt for the newer model.

As sellers, we’re exiting properties where we’ve executed the bulk of our business plan or feel the additional upside potential is minimal. Many of these properties still have a value-add opportunity for the next buyer if they continue what we started. It allows us to exit early, exceed investor expectations, and seek out the next opportunity to create value.

If you are looking to buy in this market, you will need to adjust your expectations. It is unlikely that you will uncover the elusive dream deal at a steep discount as most apartment owners are not in a distressed situation. You will want to understand the key terms for an owner beyond just the purchase price. There may be other factors that can weigh in your favor such as time to close, earnest money, non-refundable deposits, and contingencies.

Transactions happen when both parties are willing to work together to solve each other’s problems. We’re now seeing both sides willing to negotiate and deals getting done at a record pace. Creative buyers are making offers that give owners what they need in a deal while helping the buyer make the returns they seek. While we don’t know exactly what the future holds, we do know 2021 is seeing record levels of transactions as investors adjust their portfolios. Like others, we are both buyers and sellers in this market.

 

About the Author:

John Casmon has helped families invest passively in over $90 million worth of apartments. He is also the host of the #1 rated multifamily podcast, Target Market Insights: Multifamily + Marketing. Prior to multifamily, John was a marketing executive overseeing campaigns for Buick, Nike, Coors Light, and Mtn Dew: casmoncapital.com

 

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From No Real Estate Knowledge to Over $40 Million AUM

From No Real Estate Knowledge to Over $40 Million AUM

Michelle Bosch has been a full-time real estate investor since 2002, and she is a co-founder and Chief Financial Officer at Orbit Investments. Over the years, she has purchased more than 4,000 properties, and the company currently holds more than $40 million in assets under management (AUM). However, she came from humble beginnings.

She immigrated to the United States from Honduras, and her husband is also an immigrant. Michelle spent her first several years in the United States attending business school and working in a professional position. She quickly realized that she wanted a different life experience and turned to real estate. She and her husband had no prior real estate knowledge, so they started investing in land rather than in homes as most other investors do. This quickly led them to own and manage a live auction company that hosted quarterly land sales.

Those profits were used to purchase single-family homes starting in 2009. They purchased homes priced between $30,000 and $50,000, and they rented them out for up to $1,100 per month. They grew their portfolio and branched out to multifamily properties in 2016. To date, they have been involved in three syndicated multifamily deals. However, they continue to work on land deals as their bread and butter.

Specifically, they reach out to landowners who may not be interested in holding their property any longer. Because of technology like Google Earth and others, they no longer need to walk properties. Instead, they focus on identifying properties and lining up buyers for them through their auction platform. The couple has assembled a great team of skilled individuals who share core values and goals.

Because of their current real estate knowledge, Michelle Bosch and her husband focus on three primary types of land. These are infill lots in cities, land in the path of growth, and recreational land in desirable locations. After they identify an area they want to focus on, they buy a list of people who own vacant land. Over the years, they have fine-tuned a prospectus letter. They now just send that same letter out to property owners each time they identify a promising market. Typically, they can get two to three good deals off of a 100-piece mailer. Michelle noted that they only send out 100 letters at a time because they cannot handle more volume. However, she did note that they could handle more volume if they preferred to not provide personalized service and develop a relationship with each buyer and seller.

They also have refined a script for gathering details and gauging interest once a landowner reaches out to them. More than that, they have developed proprietary software to help them screen their calls and to ensure that each caller gets prompt, personalized service. Some of the questions they ask upfront relate to the owner of record, easements, access, utilities, and more. These questions ensure that they are talking to the person who has power over the deal, and they enable Michelle and her husband to quickly gauge value.

When the couple started out, they were relatively new immigrants and had thick accents. They were concerned that their accents would discourage people from working with them. However, Michelle says that was never actually the case. Instead, people loved to talk about their land. Often, the land was inherited or was purchased by an out-of-state buyer who ultimately changed his or her plans for using it.

They have two different purchase processes for the land they find. One process is to pay cash for the land themselves before trying to find a buyer. The other option is to do a double close if they have already identified a buyer. Michelle Bosch and her husband use a variety of platforms to identify buyers. For example, they list land for sale through platforms like LandWatch, Craigslist, Facebook Marketplace, and Zillow.

They utilize a software program linked to Zillow and Trulia to review comps quickly. This enables them to estimate value more accurately without having to walk the land or spend hours conducting research. For infill lots that do not have a lot of comparables available, they often look at the developed value of the land nearby and subtract construction costs. They make an offer that is approximately 20% or less of the land’s researched, present-day value. While some people may be offended by such a low offer, others quickly act on it.

Michelle Bosch and her husband have spent the last few decades building up their real estate knowledge, and they have learned a few things along the way that they are happy to share with others. She wholeheartedly believes that the road to prosperity is rooted in simplicity. You do not need to create a complex deal structure in order to profit from it. She also places emphasis on building a solid team. These are individuals who believe in your goals and who are able to fully support you because of that shared vision.

When Michelle reflects on the past, she said she would look at larger and more valuable pieces of land from the beginning. These enable them to turn a “one-time cash” profit by flipping the land. Otherwise, they can lease it out to get “temporary cash” from monthly payments. When they pull together profits and park the cash in a long-term investment, such as through multifamily syndications, they create passive income. In hindsight, she believes that focusing her goals on building that strategy earlier in life would have made a significant difference in their current situation and opportunities.

 

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More Than a Side Hustle with Henry Lai

More Than a Side Hustle with Henry Lai

Henry Lai always knew that real estate would be more than just a passion project for him. So in 2018, he started his own real estate company while also working a demanding full-time job. Identifying his skills in developing corporate strategy and management consulting, Henry noticed that there was an opportunity for him to take these essential skills he’d learned and apply them in the field of real estate analysis.

His first investment began like many others — with a traditional house hack. After quickly realizing that this model had many benefits, Henry was able to apply the lessons he learned to additional investment opportunities.

“I mostly learned that being a landlord was quite a hassle and a lot to do, especially being out of state. Though, I would still start my journey by house hacking. You can learn a lot by being a single-family landlord,” Henry said. “I would even say instead of single-family house hacking, depending on the market that you’re in, I would probably get a fourplex because you learn a lot by managing a fourplex as well.”

Looking to grow his portfolio beyond active investments, Henry started attending real estate meetups and conferences to expand his network and identify potential mentors. After more than a year of attending different networking groups, Henry developed a deeper grasp of the advantages and disadvantages of various investment types. He then took the leap from single-family to multifamily and passive investing.

“I started learning more about multifamily investing, just kept networking with folks, started going to real estate conferences, and in doing so, I met a lot of folks who were doing multifamily real estate. I started thinking, ‘Well, you know what? I want to take more action than just passively investing,’” Henry shared. “I was passively investing in other people’s deals, but I was hoping to learn more about it and get my hands dirty and be part of the managing group. Through this, I was able to not only get into a number of passive investments but also become a general partner in six different deals now.”

As Henry has continued to grow his real estate business alongside his full-time career, building relationships has been critical. In addition to the connections he formed in the networking groups, creating partnerships with syndicators and other investors is pivotal to the success of both active and passive investments.

“Just like in most other business ventures, I think trust is so important,” Henry said. “You never really know how a real estate partner is going to be until you get into a deal with them, so I would advise developing that relationship over a number of years, a number of situations, and starting small in partnering with them rather than just getting into a large deal with them.”

Another relationship that is influential to Henry’s real estate investments is the one he has with his family. When he evaluates a new investment, he carefully considers the impact of a deal on his availability to his wife and two young children.

“I want an investment opportunity where I can be there and back in a day so that I can leave in the morning and then come back at night and still spend it with my kids. So I try to spend as little time away from my family as possible,” Henry said.

Throughout Henry’s real estate journey, he has learned the value of delayed gratification. Henry transitioned from investing in properties that deliver immediate cash flow to opening his portfolio to the less traditional real estate deals like new construction that may provide a return in years to come.

“Now, my lifestyle doesn’t really change if I get money immediately versus in five years, so I have learned to be a bit more risk-taking,” Henry said. “Sow your seeds today so that you can harvest in the future. A lot of investing is delayed gratification and remembering that delayed gratification actually helps people succeed.”

 

About the Author:

Leslie Chunta is a marketing consultant with nearly 15 years of experience in creating dynamic marketing programs and building brands for startups to enterprise organizations. She has worked agency- and client-side with high-growth companies that include Silicon Valley Bank, JPMorgan Chase, SailPoint, EMC, Spanning Cloud Apps, Ashcroft Capital, Netspend, and Universal Studios. www.thelabcollective.com

 

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The Quest for the Holy Grail of Real Estate Investing

The Quest for the Holy Grail of Real Estate Investing

In the investment space, the term “holy grail” is thrown around quite a bit, implying there exists one perfect investment opportunity that can help you achieve your financial goals. However, while there are certainly many good investment opportunities out there, the term “holy grail” can be a bit misleading — the investment opportunity that is best for one person might not be what is best for another.

So, if you have a little bit of capital saved and are looking to enter the competitive real estate investment space, you might be wondering where, exactly, you should begin. When all else is equal, here are a few of the characteristics we find to be desirable in an investment:

 

High Rate of Return

Naturally, the return — or the amount of money you earn on your principle — is why you choose to invest in the first place. Return is how the market rewards us for taking risks. At a bare minimum, you need your investment to keep pace with inflation, which lately has hovered around 2% to 3% per year. In most cases, you want your return to be much higher. In real estate, 8% to 10% is a commonly cited goal, with some risk-tolerant investors seeking returns that are even higher.

 

Minimal Effort

Once you make an investment, you’re probably not going to want much additional work. A passive investment, as the term implies, is one in which the post-investment effort from the investor is minimal. There is a huge difference in the amount of effort required to simply put money in a REIT and trying to actually buy and sell specific properties.

 

Low Risk

In a speculative market, like real estate, there is always a risk that you might end up losing money. Your willingness to tolerate risk will likely depend on many factors, including your current life situation, the amount of money you have, and your personality type. Before making any investment, whether in real estate or not, ask yourself, “How much could I potentially stand to lose and what are the (reasonable) odds of me losing it?”

 

Defining the Holy Grail

Keeping these factors in mind, it seems the best way to define the holy grail of real estate investing is as an investment that offers high expected returns, minimal effort, and minimal exposure to risk. Usually, risk and return are positively correlated (i.e., more risk means more reward), so finding this exact holy grail can be relatively difficult. However, there are still plenty of instances — particularly in the dynamic real estate market — where there is a bit of a mismatch and returns significantly outweigh the risk.

In many cases, you will need to make quick decisions. But with the need to be decisive, there is also a need to be prudent and make sure the investment you choose is compatible with your investment profile.

 

Minimizing the Likelihood of Loss

Oftentimes, the expected return you’ll receive on an investment is much more speculative than the expected risk. The final return you’ll receive can depend on many factors beyond your ability to control, such as how the geographic market matures, how long a property remains on the market, whether tenants are able to fill a property, and even local legislation.

With expected risk, on the other hand, there are a few things we can typically look for that help signal a low-risk real estate investment:

 

Collateral

The collateral is what will be taken in the event of non-payment. This is the key differentiator between real estate and many traditional investment vehicles. When you invest in real estate, you are investing in tangible, real property, rather than an idea. In real estate, the property itself is usually the collateral, which offers some additional downside protection.

 

Management Team

When making a real estate investment, it is important to work with a competent, transparent, and disciplined management team. These will be the individuals who help direct the project once it is actually in motion, allowing you to put in minimal effort. With better and more experienced management on your side, you’ll be much more likely to have your principal investment protected should any problems emerge.

 

Cautious Underwriting

Depending on the type of investment, cautious underwriting can present itself in many forms such as conservative market assumptions and rent growth, which we could dive into for days. However, for the purpose of this article, we’ll discuss one very important item: leverage. Leverage is a term used to describe how much capital you can access for how much capital you are putting down. If the value of the project is significantly greater than the down payment, this represents a high loan-to-value ratio (LTV), which is considered risky. It might be possible to access a $1M loan for only $50,000 down, but this LTV of 95% is incredibly high, and such a loan should only be entered into upon careful consideration. For commercial projects, stick to investments with an LTV of about 75% or lower.

 

Diversification

Diversification is the surest way for investors to limit the overall risk of their current portfolio. In real estate, there are multiple ways to diversify. The most obvious way is to invest across many different types of property including multifamily, residential, senior living, industrial, self-storage, mobile home parks, triple net single-tenant retail, raw land, and others. Furthermore, you can also diversify by geographic location. Purchasing property in different markets across the country, along with purchasing property in different areas (urban, suburban, rural, etc.) can help protect you from the future unknown.

 

Finding the Holy Grail

Now that you know what to look for — and more importantly, what to avoid — you might be ready to make a significant real estate investment. As suggested, there are several ways to enter the private realm.

A real estate syndication, for example, is an organized group of real estate investors, led by a specific investor in such group (aka a sponsor). The sponsor will be responsible for running the fund and making key decisions, along with communicating with potential investors. Rather than saving to buy a rental property on your own, you can invest in a group that purchases several properties, helping you reduce your exposure to risk and your need to be hands-on.

When comparing funds, there are many things you’ll need to think about. The payout timetable and the types of investments being made by the fund should both be carefully considered. Most importantly, you will want to make sure that the return you are receiving appropriately matches the risk you are being asked to take.

There might not be such a thing as a perfect investment, but with some basic principles in mind, you can move closer to finding the type of investment that’s right for you. In that sense, the holy grail just might be within reach after all.

 

About the Author:

Seth Bradley is a real estate entrepreneur and an expert at creating passive income while still working as a highly paid professional. He’s closed billions of dollars in real estate transactions as a real estate attorney, investor, and broker. He’s the managing partner of Law Capital Partners, a private equity firm focused on multifamily and opportunistic acquisitions.

 

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Falling into Passive Investing with Jeff Anzalone

Falling into Passive Investing with Jeff Anzalone

What was supposed to be an adventurous and stress-free vacation led to a moment that changed the trajectory of Dr. Jeff Anzalone’s financial perspective. While enjoying a skiing trip with his family, another skier cut Jeff off as he was exiting a ski lift with his wife. Jeff swerved in an attempt to avoid injuring himself and the other skier.

The result was a badly injured wrist, which might seem like a minor injury to most skiers. However, Jeff Anzalone has been a periodontist for nearly 20 years, a profession that requires constant and steady use of both hands. For the first time, Jeff had been forced into the position of thinking about what his lifestyle would be like if he were unable to work.

“I knew that I needed to do something, but I had no clue where to start. I didn’t want to work more or longer hours. But I knew that I needed extra income streams. I had read some books from people that were successful, and I learned two things,” Jeff Anzalone shared. “Number one, 90-plus percent of millionaires had real estate in their portfolio. I had zero; besides my primary residence, I had none. The second thing, which was even more eye-opening, was that the average millionaire had anywhere from three to nine extra income streams. I had one.”

Jeff’s knowledge of real estate led him to believe that to be an investor you had to be a landlord, which automatically didn’t meet his criteria since it would require working longer hours. But after starting to network with other like-minded professionals, he discovered passive investments through syndications.

After starting with syndications in 2017, Jeff’s investment portfolio quickly grew. As he continued to broaden his investments, he asked other investors where they found deals and what avenues they used to help grow their knowledge. They repeatedly recommended networking conferences.

“The majority of the investors were saying that they had been to the Best Ever Conference, and it just kept coming up, so that piqued my interest,” Jeff shared. “I am always looking to learn. I eventually want to get to the point where I start doing my own deals once my kids are out of the house and I have more time, but right now, I want to just be a passive investor.”

When it comes to the conference experience, one fundamental difference separates the investor community from dental professionals: the openness to share information, lessons learned, and best practices.

“It’s been amazing how giving people are at those types of conferences and in real estate. I guess from all the training that I’ve had, whether that’s in dental school or my residency, everybody was trying to compete with everybody, so nobody would share anything. They always kept it to themselves,” Jeff said. “Then you get to somewhere like this and people are very open in sharing. It’s always in the back of your mind: ‘Why are you telling me this? What’s the catch?’ And it wasn’t a catch. I think most people realize, myself included, that we wouldn’t be where we are today if it wasn’t for other people and sharing information and helping people along.”

For other investors like Jeff Anzalone who are looking to broaden their network and expand their understanding of real estate, Jeff’s advice on how to approach the conference to get the most out of it comes back to identifying goals that you want to walk away from the event with.

“It can be a bit overwhelming, for sure. It’s best when you go with maybe two or three specific goals that you’re trying to accomplish, whether that be wanting to syndicate your first deal or meeting people to invest with,” Jeff reflected. “That way, you can figure out which person you should go listen to, or what networking event you should do.”

The next chapter for Jeff Anzalone in his investment journey has already started, thanks to the confidence and knowledge that he’s gained from the Best Ever Conference.

“Now that I have gotten into something that I’m really passionate about, I thought, well, how can I share this information, this journey, the path that I’m going down? So about three years ago, I did something that I never thought I’d do: I started a blog, debtfreedr.com,” Jeff said. “All that started out as the information I was learning and what I thought doctors and other busy professionals should know about educating themselves about passive income and real estate. It really has started to take off and allowed me to potentially get out of my practice within five years and go full-time into real estate.”

 

About the Author:

Leslie Chunta is a marketing consultant with nearly 15 years of experience in creating dynamic marketing programs and building brands for startups to enterprise organizations. She has worked agency- and client-side with high-growth companies that include Silicon Valley Bank, JPMorgan Chase, SailPoint, EMC, Spanning Cloud Apps, Ashcroft Capital, Netspend, and Universal Studios. www.thelabcollective.com

 

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5 Ways to Select Multifamily Properties

5 Ways to Select Multifamily Properties

When you’re learning how to make your money work for you, it’s only natural that you’d consider real estate investing. For beginner investors and new real estate enthusiasts, the multifamily property sector continues to hold great appeal. Smart investors recognize that multifamily real estate investing offers tantalizing yields and beginners view multifamily properties as excellent cash flow opportunities.

Other residential real estate investors view this asset class as the natural progression from a single-family home or rental property. Multifamily investments are a great way to generate passive income, boost tenant cash flow, and bolster your bank accounts. But, of course, this is all dependent upon your ability to find the right multifamily properties for your investment portfolio.

When you’re looking for an investment opportunity — in real estate or another market — you must know how to vet your multifamily prospects. So, whether you decide to work with some real estate pros or you’re interested in a real estate investment trust (REIT) that offers multifamily portfolio options and stock market trading, here are some of the best ways to find top multifamily opportunities.

 

1. Choose your multifamily property type.

To better narrow down your results and get more relevant multifamily listings, it’s effective to narrow down the type of multifamily unit you’re looking for. While multifamily is its own investment type, some subclasses include duplexes, triplexes, apartment complexes, and other housing types. When you’re trying to decide on a real estate opportunity or multifamily property, you should consider your current experience, your general risk tolerance, and how much money you’re able to invest in a rental property.

To determine which multifamily housing options make sense for your investment strategy, you should also refine your commercial real estate or multifamily property real estate goals. For example, depending on your personal finance, your borrower history, and your experience as a property manager, you may want to consider fix-and-flip opportunities (much like you’d do with a single-family property or single-family home), or you could hire a property manager and delegate landlord tasks, tenant communications, rent collection, and maintenance.

If you choose to work with a property manager, it’s helpful to contact a financial advisor to discuss how these expenses, lender fees, mortgage payments, and down payment amounts could impact your financial stability. For individual investors looking to generate rental income, deciding on a property type and reviewing your personal finance goals is the first step towards multifamily property success and can help you find the right opportunities.

 

2. Work with a real estate agent.

For those that don’t want to be as involved in the multifamily housing search, a real estate agent can help you in the long run. Realtors can educate you on each type of investment opportunity, help you learn the amount of money you can afford to put down, connect you to lenders, and help steer you away from higher-risk situations. For instance, if you’re trying to make the jump from homeownership to apartment building management, a realtor can help you understand that the cons might outweigh the potential of a higher return.

Realtors can also facilitate long-term success. Working with an agent is a good way to generate a better return on your investments, mitigate investment risk, and find residential and commercial properties that align with your financial goals. With MLS access and real estate industry knowledge, a simple reason to work with a realtor is that they’re typically incredibly well-informed about market conditions.

Though realtors aren’t always potential investors or silent partners, you can work with an agent to network, connect to property owners, and potentially open up off-market rental real estate that isn’t currently on the local housing market. So, to make money work for you, build wealth, and make sound investment decisions, working with a multifamily realtor is a sensible choice.

 

3. Network to the best of your abilities.

For some homeowners, individual investors, or borrowers, networking can seem like a hassle. After all, working with different sellers, lenders, individual investors, and potential partners can take a long time. However, it’s often an essential next step when trying to find the best multifamily property opportunities, no matter your financial situation. If you already work with renters or you manage a duplex, condo building, or similar multifamily property, you should consider joining a landlord association if you haven’t already. Doing your due diligence can cut down on the amount of time you, your spouse, and your partners have to spend on multifamily networking and connect you to top opportunities in your area.

If you’re lucky, multifamily networking will provide the same steady appreciation as one of your investments. It’s one of the smartest ways to connect to other landlords, property managers, and investors, many of whom will eventually want to sell their multifamily properties as part of a retirement plan, retirement fund, or other financial situation. When you have these established contacts, it’s easier to negotiate the purchase price of any rentals and other upfront costs.

 

4. Drive around your local neighborhoods.

One of the easiest ways to find a multifamily property and start generating additional income is to browse your local markets in person. Instead of relying strictly on real estate websites and multifamily property searches, start making your money work for you by driving around your preferred neighborhoods. In most cases, you’re liable to see “For Sale” or “For Lease” signs throughout many multifamily and commercial spaces. Depending on the property, you may be able to negotiate low interest rates and collect stronger dividends from your investments.

Many listings you’ll see out and about may require some degree of renovation, which is particularly appealing for fix-and-flip projects. Necessary renovations can lower mortgage expenses, down payments, and interest rates, which is always helpful in a seller’s market. Any chance you get to save money (think of it as free money) or keep funds in your savings account or checking account is a win for a prospective investor.

 

5. Search for off-market multifamily real estate listings.

Sometimes, to find the best multifamily property deals, you need to be more proactive. As you’re learning the ins and outs of the multifamily investment space, there will likely be a time when on-market listings aren’t enough for your financial goals. As your credit score grows and your paycheck expands, you’ll probably want to consider building your real estate portfolio. Often, the best way is to find multifamily properties that fit your criteria and look up the owner through public directories. With a little bit of info, you can hopefully find ways to make in-person contact and discuss any investment opportunities. If you’re directed to an LLC or business listing, look up that listing directly.

You can always keep their information and wait if a person isn’t ready to sell. This goes for single-family homes, too. In the real estate industry, circumstances change more frequently than you’d think. Since most real estate investing is a numbers game, it’s about casting a wide net, following up on leads, and closing on valuable investments. While you may only close a few deals out of every 100 contacts, these high-value multifamily property investments can bolster your checking account, help you build wealth, and grow an emergency fund.

Once you’ve found the right multifamily properties, you can lease out spaces, research amenities that millennials and Gen-Z tenants crave, and find ways to fill property vacancies.

 

About the Author:

Annie Dickerson and her partner Julie Lam are founders of Goodegg Investments — an award-winning real estate private equity firm — and creators of the Real Estate Accelerator Mentorship Program. They are authors of the book Investing For Good and hosts of the popular Life & Money Show podcast: https://goodegginvestments.com/

 

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Investing in and Managing More Than $2 Billion in Real Estate with Alexander Radosevic

Investing in and Managing More Than $2 Billion in Real Estate with Alexander Radosevic

Alexander Radosevic currently owns and manages more than $2 billion in commercial real estate, but he was not born into money. In fact, he started working at his family’s retail store when he was eight years old, and he has had his nose to the grindstone since that time. This Beverly Hills-based property investor spoke with Joe Fairless about some of his experiences and his strong desire to give back to others who aspire to rise up as successful investors.

Long before Alexander Radosevic launched his investing business, Canon Business Properties, he worked in commercial finance at Lehman Brothers. Some of the many property types that his business manages and owns today are hotels, retail, industrial, and residential real estate. The company is also active in construction, construction management, and debt financing. One of the reasons he made the transition from a financing executive to an active entrepreneur and investor is because his current side of the business is far more lucrative.

While Alexander was propelled into commercial real estate through market conditions, a passion for earning, and motivation from those who were already active in the industry, he had to find the right property to invest in. He identified 2.5 acres of land in Laughlin, Nevada before the area was the mecca that it is today. Upon selling the property, he turned a profit. That profit was seed money for his future real estate investments.

One of his first major projects was the rehabilitation of an abandoned, fire-damaged bakery in South Central Los Angeles. This 40,000-square-foot commercial building had been damaged in the 1994 riots, so Radosevic saw both risk and reward as he ventured into it. He could only obtain 40% loan-to-value financing, so he had to come up with 60% upfront. He ultimately cleaned up the building, converted it into a nine-unit warehousing and manufacturing property, and turned a great profit.

When Alexander Radosevic reflects on what has helped him grow his business from a fledgling startup to its current level of success, he quickly cites due diligence. Specifically, he focuses his research on his personal investments and for his clients on financing, management, marketplaces, and cash flow. These are researched in relation to what he or his clients want to achieve through the deal. Digging deeper into marketplaces or locations, he focuses on retail properties in Los Angeles and Beverly Hills. For industrial properties, he has a wider scope and looks at properties in major cities close to airports. While Radosevic focuses on a variety of commercial property types, his investing activities in industrial properties have consistently been among his most lucrative over the last 15 years.

As a recent example, Radosevic identified a great opportunity in the construction of small boutique hotels. After an extensive search, their client found the perfect piece of land on the coast of California. It was originally zoned for a different use, and it took them several years to get their rezoning request approved. This process was in combination with challenges related to the Coastal Commissions regulations and interests.

Radosevic states that many people may have thrown in the towel at some point in the lengthy process, but persistence is key in these situations. His client specifically benefited from his team’s experience in hotel development and operation. With this in mind, Radosevic believes that professional expertise in niche areas is sometimes critical for getting deals done.

The project is still in the works as they are trying to get approval for 131 hotel rooms, and they are currently only approved for 101 rooms. He anticipates that the project will take another four years before the details are finalized and construction is complete.

Alexander Radosevic has worked on many projects that have yielded a tremendous profit in far less time. In fact, one of his earlier projects was 32 acres in San Diego. He intended to carve the land into small acreage estates and create a 16-home residential community. When he asked a client to help him develop the land, however, the client advised him to create the parcels, lay utilities, install streets, and sell the individual parcels. Ultimately, he was able to turn a $130,000 profit on each parcel he sold without spending the time and effort to build on them because of the advice he received.

When Radosevic looks at real estate investing on a larger scale, he talks about buying and holding land longer than what other people may hold it for. He says there is often a rush to sell a property and trade up, but there may be a multifold profit if you hang onto that property for a little longer.

When he looks for land investment opportunities, he specifically looks at the top five U.S. markets for living and working. These are areas with true growth and where financing is usually readily available. More than that, the properties are in demand, so they are usually relatively easy to sell when he is ready to do so. However, when he looks at other property types, he has other criteria as well. Industrial properties, for example, are most ideal in areas close to airports and in areas that have tax benefits.

Alexander Radosevic attributes his success to hard work, his focus on due diligence, and plenty of luck. He built his multibillion-dollar business from the ground up, and he has a passion for helping other aspiring investors establish their roots as well. Specifically, he strives to offer one-on-one guidance to those who work for him or to those he comes in contact with in various capacities on details.

Going forward, Radosevic will continue to apply the principles that he has developed to his efforts, such as a focus on due diligence and market research, as he continues growing his commercial real estate business and helping others.

 

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9/30—Scaling the Real Estate Ranks with Cory Boatright

Scaling the Real Estate Ranks with Cory Boatright

Cory Boatright is a successful real estate investor and investing coach who started his journey off the same way many other investors get started. To date, he has more than 1,000 property transactions tallied at more than $100 million under his belt. He also owns and operates 422 multifamily units through syndications. Boatright has a wealth of knowledge from his extensive hands-on experience. He spoke with Joe Fairless to share some of his valuable insights with others.

 

From Single-Family to Multifamily

Boatright, who lives in Oklahoma City, purchased his first single-family house 21 years ago. Over the years, he transitioned from bird-dogging to short sales and loss mitigation. For the last six years, he has worked extensively on wholesale activities. Today, he is focused on finding off-market multifamily properties with between 75 and 150 units that have value-add potential.

Boatright sees a gap in direct response marketing to identify potential sellers without the need to pay for a broker’s fee. Because his wholesaling business only takes up approximately 15 hours per week, Boatright has ample time available to directly market for apartment projects.

 

Time Optimization

He also spends time tracking his activities. By doing so, he trains himself to focus on things that move the needle forward in his life. This is a concept that he also teaches to his investing students. Essentially, he monitors activities over each hour and identifies those activities that were valued at $10 per hour versus $100, $1,000, and $10,000 per hour. By focusing on the things worth more and delegating low-value items to others, he is able to optimize how he spends his time.

One example of a high-value way to spend time is building a relationship that ultimately may pay off dramatically in the years ahead. Another example would be getting a small commission from lining up a deal and letting someone else handle the hard work on that deal.

 

Identifying an Ideal Target

When Cory Boatright reflects on his direct response marketing efforts, he talks about extracting data from ListSource to identify owners of apartment complexes with 10 or more units. Through his effort to date, he found that some owners were not aware of their vacancy rate, net operating income, and other critical factors that are tied to the successful and optimized operation of a multifamily investment property. Others have found themselves in over their heads because they failed to anticipate the amount of time and energy it takes to keep up with such a large property.

These and other factors are common in medium-sized apartment complexes in the Oklahoma City area, and Boatright sees the opportunity to target those owners through direct marketing. Often, after getting a phone call response from his direct marketing efforts, he asks the property owner to have coffee and discuss their pain points. This lays the foundation for a potentially lucrative wholesale deal.

 

A Personal Touch

Notably, Cory Boatright has been using direct response marketing with single-family homes for more than a decade. While he has found that postcards are a cost-effective way to reach those property owners, another approach is needed to reach apartment complex owners.

One approach that he has taken recently is to create a personalized letter and to send it out via a FedEx envelope. After all, everyone opens a FedEx envelope and looks at its contents. He looks for the best way to actually get in touch with an individual and to get them to take interest in what he is saying. He believes that spending a little more money to be successful in this area is a true value-add activity that yields incredible rewards through an executed deal.

 

Additional Resources

Cory Boatright has used a variety of methods to identify potential deals and to build a database of apartment property owners. When a real estate agent is used, the seller generally has to pay a five- or six-digit commission to the agent. When Boatright does the legwork himself, he saves the owner that money and potentially builds value into the deal from the first step.

In addition to ListSource, one of the methods that he uses to find the owners of commercial projects is CoStar. The cost to use this service is steep, so it is up to the investor to analyze the pros and cons. Boatright also uses skip-tracing, but it is most effective with marketing to single-family homes. He uses American Tracers, Delvepoint, and IDI to save time and energy in this area.

 

Persistence Is Key

On a broader scale, Cory Boatright states that one of his best pieces of advice to other investors is to be persistent with single-family properties. He believes that many investors give up too soon and may find value if they keep going.

For commercial real estate investments, he advises other investors to take things slowly. An entire apartment transaction boils down to finding success in that last week leading up to closing. There can be extensive delays, so being patient as you navigate through the delays can ultimately pay off on a grand scale.

 

Looking Ahead

Today, Cory Boatright identifies distressed apartment complexes. He specifically focuses on the Oklahoma City area because he is familiar with that market and has a detailed list of property owners in the area. Once he purchases an apartment complex and turns the property around, he sells it for a sizable profit. These are often through syndications.

To be successful in his wholesaling activities, he has to ensure that he has all of the facts upfront. Missing out on a key piece of information upfront may ultimately cost tens of thousands of dollars or more down the road.

Looking forward, Cory Boatright strives to focus on being grateful. This concept reminds him that his worst day could be someone else’s best day. It also keeps him centered so that he can identify the things that are most important and meaningful in life despite the highs and lows.

 

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What Stage in the Market Cycle Is Your Target Apartment Investment Market?

What Stage in the Market Cycle Is Your Target Apartment Investment Market?

Each year, Integra Realty Resources releases its Viewpoint report, which tracks major trends and development in the commercial real estate industry. One of the data points in this report that is relevant to you as a multifamily investor is their categorization of the major cities into their respective stages in the market cycle. That is, which markets are expanding, which are recovering, which are experiencing hypersupply, and which are in a recession.

Based on the most recent multifamily market data, there is an approximate 50/50 split in markets deemed in expansion or recovery (50.8%) versus those in recession or hypersupply (49.2%).

According to IRR, “There appears to be an intriguing disconnect between the elements that renters themselves and investors are prioritizing in the stress test that is this pandemic. For while market cycle indicators seem to reflect advantage accruing to the least expensive rental markets, the cap rate data show a preference for urban properties over suburban assets and Class A over Class B apartments — and this is true across regions, as well as being consistent in the discount rate and reversion rate pricing metrics.”

Before showing you which stage in the market cycle your target market is in, let’s first define the four stages:

Market Cycle Expansion Hypersupply Recession Recovery
Vacancy Rates Decreasing Increasing Increasing Decreasing
New Construction Moderate/High Moderate/High Moderate/Low Low
Absorption High Low/Negative Low Moderate
Employment Growth Moderate/High Moderate/Low Low/Negative Low/Moderate
Rental Rate Growth Medium/High Medium/Low Low/Negative Negative/Low

 

These four categories are a part of a cycle, which goes like this: recovery to expansion to hypersupply to recession back to recovery:

 

IRR also broke each of these four categories into three sub-groups, which for the purpose of this blog post I will label as 1, 2, and 3. Using expansion as the example, markets in the 1 subgroup have the strongest expansion market factors (i.e., the vacancy rate is decreasing the most, new construction is highest, absorption is highest, employment growth is highest, and rental rate growth is highest), whereas markets in the 3 subgroup still meet the expansion criteria but not as much as the 1 subgroup (i.e., vacancy decreasing at a slower rate, moderate new construction, high absorption, moderate employment growth, medium rental rate growth).

Since this is a cycle, markets in subgroup 1 are closer to the previous market stage, and markets in subgroup 3 are closer to the next market stage. So in reality, the market cycle looks more like this:

 

That said, here are the market cycle categorizations for all of the major cities/markets:

 

Expansion

Expansion 1

  • Phoenix, AZ
  • San Jose, CA

Expansion 2

  • Atlanta, GA
  • Baltimore, MD
  • Cincinnati, OH
  • Columbia, SC
  • Dallas, TX
  • Fort Worth, TX
  • Greensboro, NC
  • Greenville, SC
  • Hartford, CT
  • Jacksonville, FL
  • Las Vegas, NV
  • Minneapolis, MN
  • Oklahoma City, OK
  • Providence, RI
  • Raleigh, NC
  • Sacramento, CA
  • San Diego, CA

Expansion 3

  • Austin, TX
  • Boise, ID
  • Charlotte, NC
  • Columbus, OH
  • Grand Rapids, MI
  • Nashville, TN
  • New Jersey, Coastal
  • Orlando, FL
  • Salt Lake City, UT

 

Hypersupply

Hypersupply 1

  • Broward-Palm Beach, FL
  • Charleston, SC
  • Cleveland, OH
  • Detroit, MI
  • Kansas City, MO
  • Louisville, KY
  • Orange County, CA
  • Richmond, VA
  • St. Louis, MO
  • Syracuse, NY
  • Washington, D.C.

Hypersupply 2

  • Indianapolis, IN
  • Pittsburgh, PA
  • Sarasota, FL
  • Tampa, FL

Hypersupply 3

  • Denver, CO
  • Los Angeles, CA
  • Naples, FL
  • San Antonio, TX
  • San Franciso, CA

 

Recession

Recession 1

  • Birmingham, AL
  • Houston, TX
  • Miami, FL
  • New York, NY
  • Oakland, CA
  • Philadelphia, PA
  • Portland, OR
  • Seattle, WA
  • Wilmington, DE

Recession 2

  • Chicago, IL

Recession 3

  • Boston, MA
  • New Jersey, No.

 

Recovery

Recovery 1

  • Little Rock, AR

Recovery 2

  • Jackson, MS
  • Memphis, TN

Recovery 3

  • Dayton, OH
  • New Orleans, LA

 

What Does This Mean for Me?

Each of these markets is categorized based on the following factors: vacancy rates, new construction, absorption, employment growth, and rental rate growth trends. So, one thing to think about is if you can find a submarket or neighborhood within one of the hypersupply or recession markets that have expansion or recovery factors. In other words, just because the overall market isn’t in the expansion or recovery phase doesn’t mean that you should abandon that market nor that you won’t be able to find great investment opportunities. In fact, you’ll likely be able to find more deals and have less competition when you’re not pursuing expansion markets.

Additionally, if your market is in the 1 or 3 subgroups, you’ll want to monitor those market factors to see if the market has moved to another stage. This would be a good thing if your market moved from hypersupply 1 to expansion 3, and it would be concerning if your market moved from expansion 3 to hypersupply 1.

Lastly, just because your market is in the expansion phase doesn’t mean that every deal is a good deal. You should still complete a full underwriting analysis based on your business plan and perform the proper due diligence on all prospective deals.

 

Are you an accredited investor who is interested in learning more about passively investing in apartment communities? Click here for the only comprehensive resource for passive apartment investors.

 

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Are Short-Term Rentals Worthwhile for the Multifamily Community?

Are Short-Term Rentals Worthwhile for the Multifamily Community?

Due to their cost-effective nature, sharing economy apps such as VRBO and Airbnb have established themselves as a popular new way to secure a place to rent for a short term. These short-term rentals, popularly known as vacation rentals, are typically used for one month or less. They give renters a feeling of home with all the necessary amenities, but do not tie them down to a long-term commitment. Such rental spaces are generally located near tourist destinations. Some renters even use them for business trips.

 

The Rise of Short-Term Rentals

The popularity of such short-term rentals can be gauged from the fact that Airbnb alone has more than 6 million listings across 100,000 cities around the world. They cater to a whopping 500 million guest arrivals. With such impressive figures, this aspect of the rental business has rightfully earned a gold-star rating in the minds of budget-conscious travelers, who can get a rental for an average of $80/night. However, short-term rentals are not limited to budget travelers. There are plenty of listings for luxury homes and villas that cater to the well-heeled as well. This across-the-spectrum clientele makes short-term rentals highly sought after among many multifamily communities.

When the economics of short-term rentals are analyzed, we find that such apps provide a cost-effective renting option to a wide array of travelers such as business professionals, vacationers, and many other categories. More than half the renters who use these apps do so because they feel they are getting value for their money. The level of satisfaction with these rented properties is a mind-boggling 93%, with about 2 million renters clocking in each night. These excellent fundamentals make a valid case point for offering short-term rentals in addition to the standard long-term options as a part of a multifamily community’s leasing and marketing strategy.

 

Benefits for Homeowners

For homeowners, short-term renters are a source of extra income. Why continue to waste money on an idle asset when it could make you money instead? The buyer effectively receives all benefits of short-term ownership without any long-term costs, and that makes it a win-win situation. This industry is expected to be worth more than $300 billion by 2025. It makes sound economic sense for multifamily units to take part in this sharing business and reap the economic benefits.

The popularity of such sharing apps is driven by Millennials and Gen Z, for whom the internet is their breathing, living world. They form the largest class of renters of apartments, both long- and short-term. It makes sense, then, for a multifamily community to offer them the facilities that best suit their lifestyles. Their active presence on various social media platforms can also ensure many more leads for a multifamily community.

 

A Proactive Approach to Subletting

Airbnb has done its research well and has found a new category of sublets, which are longer than the usual short-term stay, but shorter than the standard one-year lease. They have a dedicated page for sublets greater than 28 days and up to 6 months. Currently, most of the sublet listings are from single homeowners or from those who rent out individual units. So far, these listings have mostly affected those with less than 50 multifamily units. However, given its increasing popularity, it is only a matter of time before larger multifamily businesses are also forced to cash in.

About 43% of vacation rentals have taken place in multifamily units such as apartments and condos without the knowledge or permission of multifamily unit managers. It is in the best interest of these managers to change their stance and allow such short-term rentals by joining vacation rental app listings. As the saying goes, “If you can’t beat them, join them.” Property managers might as well get a slice of the pie when the going is good.

 

Final Thoughts

It has been apparent for some time that residential units have been aligning with the hospitality industry, and that it has been going on for many years. The niche between an apartment and hotel, a comfortable place to call home in the short term, is what vacation rentals are all about. This trend can be converted into a steady cash flow for multifamily communities, which will help them to lower operating costs, boost brand recognition, and have a positive impact on the bottom line.

 

About the Author:

Veena Jetti is the founding partner of Vive Funds, a unique commercial real estate firm that specializes in curating conservative opportunities for investors.

 

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3 Ways to Make Your Multifamily Rental Property a Better Investment

3 Ways to Make Your Multifamily Rental Property a Better Investment

When you’re making a more significant property investment, it’s critical to take the time to ensure every unit, amenity, and feature is up to your standards. After all, multifamily properties are more significant investments with unique quirks, charms, and special considerations.

So, with that in mind, how do you make a rental property investment better? Since real estate and investment properties are trendy markets, you must factor in several key components if you want the best ROI. So, whether you’re looking to improve your cash flow from rental income or max out a building’s capacity, here are a few tips to help you find a better rental property and real estate investments.

 

Start smaller until you understand the real estate market.

Real estate switches and shifts more quickly than you might suspect. While rental property investing is an ideal way to develop alternative cash flows, you also have to keep in mind that the more you scale, the more tenant requests you’ll need to address and the more responsibilities you’ll have to juggle. So even if you’re going to hire a full-time property manager or landlord, you still need to consider how involved real estate can be. While plenty of real estate investors have the resources to fully outsource their property managers, landlords, and maintenance staff, other investors should consider starting small and scaling accordingly.

Though this doesn’t mean that you need to buy a single-family home as your first investment property, it does mean that you should start with a rental property with a handful of units instead of hundreds. If you’ve never considered rental properties or real estate before, it’s ideal to begin with something along the lines of a duplex. This helps you familiarize yourself with charging rent, setting up effective lease agreements, divvying up utilities, and maintaining renter capacity. Some beginning real estate investors even purchase a duplex or a similar type of property as a primary residence and rent out the other half. Though this type of investment isn’t for everyone, it’s an easier way to get into an income property and familiarize yourself with generating rental income.

Even if you’ve previously worked with a property management company or you’ve managed a single-family home, it’s helpful to consider how different apartment complexes and multifamily properties can be. Rental property owners have to ensure that they can scale their services to meet significantly increased needs while still developing a positive cash return. Even if you’re charging a higher monthly rent in a desirable part of town, tenant needs may quickly outclass business needs. When you struggle to keep tenants happy, this can muddy your investment strategy. Instead, leverage a small start, build experience, and try for more significant residential properties or commercial real estate opportunities.

 

Make improvements or add amenities.

Whether you’re listing a vacancy in a vacation rental or you’re trying to encourage long-term leases, your investment opportunity can always grow or improve, mainly if it’s your first property. Of course, there are a few pros and cons to making upgrades and renovations. As far as cons are concerned, each upgrade is a deduction from your positive cash flow, which can limit how quickly you can achieve financial freedom. Also, some renovations, repairs, and replacements require a lot of time and enough money. Even if you have an existing relationship with a contractor, an individual property’s maintenance costs can start to climb a great deal.

The pros are that when you invest in your first rental property, add amenities, and improve the curb appeal, you can improve the property value, expand your operating expenses, and grow your own money. This can help ward off depreciation should it come time to sell. You can even note some energy-efficiency tax advantages, which are excellent ways for homeowners to save enough money for larger projects and purchases.

Beyond that, it’s a good idea for active real estate investors to do their due diligence to maintain any residential or commercial property, whether they own a condo complex or have vacancies in a commercial real estate space. It’s the best way to show prospective tenants that you’re invested in every property within your real estate portfolio. Upgrades, amenities, and repairs mean a great deal to a lot of people, so you must consider the different ways you can improve a home’s value and meet tenant needs.

 

Work with qualified professionals.

Whether you’re a lifelong adventurer, an individual investor, or you’re simply looking to generate passive income, it’s always helpful to lean on industry professionals, especially when you think you’ve found the right property. Lenders, real estate agents, marketers, and other real estate professionals can help you navigate complex concerns surrounding monthly rental income, dividends, mortgage insurance, and other financial questions. You can also discuss what makes a good investment and how to find property management services to help maintain your family homes.

Some of these rental property and income property investment brands can even teach you the basics about taxpayer guidelines, how to avoid bad tenants, and how to find long-term relationships with contractors. In addition, some investment firms, local real estate agents, real estate developers, and rental property investors even have connections to local services so that you can find a good deal on partnered contractors, tradespeople, and designers.

Many active real estate investment firms also maintain portfolios of similar properties that can help investors make the best decision for their multifamily housing strategies. From office buildings to mobile home parks, there are plenty of property types that can help you generate monthly income.

 

About the Author:

Annie Dickerson and her partner Julie Lam are founders of Goodegg Investments — an award-winning real estate private equity firm — and creators of the Real Estate Accelerator Mentorship Program. They are authors of the book Investing For Good and hosts of the popular Life & Money Show podcast: https://goodegginvestments.com/

 

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From Getting Started in College to Running a Successful Real Estate Investment Company

From Getting Started in College to Running a Successful Real Estate Investment Company

College is a time for classes, internships, friends, and parties. For Prady Tewarie, it was also a time for launching a commercial real estate business. That’s right: He became a buy-and-hold investor while still an undergraduate.

Today, Prady’s based in Boston, and his real estate investment company specializes in converting condos. And he currently has more than $100 million in assets.

What’s behind Prady’s astonishing success? His intelligence, creativity, and business aptitude account for a great deal of it. For example, he recently bought a property in East Boston with two condos, and he turned those two spaces into four luxury condos. In essence, he purchased two condos for free.

Then there’s Prady’s willingness to work really hard. As a college and law student, he often spent more than 100 hours per week on his coursework and fledgling firm. He’s remained a prodigious worker to this day.

Beyond those attributes, three other qualities have played an outsized role in getting Prady to where he is now.

 

1. An Eagerness to Evolve

Over the years, Prady’s career has continually progressed. In college, he bought and sold small businesses that were struggling: cafes, barbershops, and so on.

Later, Prady started purchasing multifamily properties. He rented many of those units to Boston-area college students.

A major step forward came when Prady started developing his own properties. He was craving a new professional challenge, and one of his brokers suggested apartment development.

Becoming a project developer definitely changed Prady’s life. He had to learn multitudes of new skills. He had to be a hands-on leader, and he needed to be present at construction sites for many hours a day. He had to set up his own complex systems and stay exceptionally organized at all times.

Prady also had to take some serious risks. Development projects can be extremely expensive, and they generate no cash flow until they’re finished.

 

2. The Ability to Build a Team

Teams of experts have been instrumental to Prady’s success. In fact, he assembled his first such group when he was still in college.

Soon after getting started in business, Prady realized he could only do so much himself. Even more challenging, his real estate knowledge was scant at best.

Prady understood that, without contractors, brokers, and others to assist his projects, it would take him a long time to learn everything he needed to know.

Thus, with some humility, Prady approached various professionals. He told them about his new real estate investment company, and he freely admitted his lack of knowledge.

The alternative to seeking help was to feel underskilled and overwhelmed. In that case, he might have abandoned his entrepreneurship dreams at a young age.

Prady says that many budding business people don’t even try to contact experts in their field, believing there’s no chance they’ll get a response. Naturally, some people won’t ever respond. But Prady has found that many pros are willing to give advice to newcomers.

Some of those experts may eventually want to collaborate with you. However, you should do a few things to forge that kind of partnership:

  • Express your love and enthusiasm for your industry.
  • Build those relationships slowly, putting care and effort into them. Over time, bonds can form.
  • Have an enticing incentive structure in place.

Because Prady was so persuasive, he assembled a team of real estate authorities relatively quickly. And he was able to leverage their expertise to dramatically scale up his business.

In addition, whenever Prady wants to add someone new to his team, he looks to his existing team members to find that person. That is, if he wanted to hire an architect, he wouldn’t just go out and recruit one. Instead, he’d ask his employees to recommend architects they know personally.

That way, everyone on the team is connected to each other. There’s a greater sense of loyalty within the group, and Prady can feel confident in his hiring choices. After all, if someone ever failed to deliver, the employee who recommended that person would, as Prady puts it, “feel the heat.”

That level of trust and camaraderie is vital. Indeed, Prady relies on his team before a project even begins. Whenever he goes to an open house, he brings along several of his experts so that they can all evaluate the property together. That input leads to much more lucrative purchasing decisions.

 

3. The Personal Touch

Throughout his career, Prady’s people skills have provided him with major advantages as well.

For example, when Prady was renting multifamily units to Boston-area college students, he added high-tech elements like iPads and automated systems to those residences. By contrast, his competitors focused on upgrading the look of their apartments: installing new countertops, flooring, and so forth. But, since most students were more interested in technology, Prady could significantly raise his rents.

Nowadays, when Prady passes by properties that appeal to him, he’ll often stop and chat with the owner. He’ll also state that he’d be interested in buying the place should it ever go up for sale.

Furthermore, Prady offers to assist property owners in making those sales. For instance, he might pay their brokers’ fees, help them move their belongings, or supply them with legal counsel. Once again, this human touch can pay considerable dividends.

In the end, Prady’s overarching philosophy is simple. While skills and knowledge are valuable, the most important thing in commercial real estate — and every other business — is taking action. Those who take action are those who win. And Prady Tewarie will surely be taking bold, decisive actions for a long time to come.

 

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3 Reasons to Invest in Others' Apartment Syndication Deals

3 Reasons to Invest in Others’ Apartment Syndication Deals

Many investors prefer to take part in apartment syndication deals as a general partner, which allows them control of what is going to happen with the property. Even if that accurately describes you, there are several reasons why you should also take part in these types of deals as a limited partner. Here are three of the more significant ones.

 

1. You Learn How to Be a Better General Partner

One of the most important things that you can do is educate yourself on the investment process as much as possible. A way for someone who is generally a GP to do that is by being an LP, experiencing exactly what this process is like for those on the other end. Learning more about this perspective and putting yourself in their shoes will help you know how to better attract the types of LPs you are looking to get involved with.

This learning process applies to every aspect of the experience that you have as an LP.

For example, consider the initial email that you receive from a GP. Analyze it. What about it works for you, and what about it does not? These can be things that you see working or not working for most people, and they could be things that simply do or do not work for you personally — this doesn’t mean that they are necessarily wrong.

A significant benefit of going about this process in this manner is that you can learn new ways of doing things that work for you that you had not considered before. You can also realize aspects of how you had been going about things that you thought were working fine but, from this new perspective, you have realized are not working nearly as well as you had thought.

Of course, this learning process does not just apply to that opening email. You want to apply the same principle to how a GP goes about the rest of the steps. These include things such as the sign-up process and the deal itself. Does the former go smoothly? Does the latter provide financing that works for you and makes sense, being broken down in a way that an average LP would understand it? Also, do the fees make sense, and are they appropriate? How is the profit split? How is the underwriting structured?

What about the deal presentation? How is it structured? What would you change about it, if anything? Are you continuously updated on the status of your investment? How often? Are the updates regular and detailed? How often and with what method do you receive distributions? Do you receive distributions within the original time frame that had been communicated?

Also consider what happens when something goes against the plan, such as something adversely affecting the property. Are you kept abreast of those developments, or are you suddenly kept in the dark, unsure of what is happening? It is a significant red flag to receive slow or nonexistent communication from a GP once challenges are being met and addressed.

Another thing to consider is what happens when a GP comes to an investment agreement with you or other LPs but then later backs out. How is that decision communicated? Is it a simple “we backed out” message with few or no details, or does it include specifics on exactly what had caused this decision to be made?

More communication is generally better than less, whether things are going according to plan or not. Of course, GPs should also make sure to not inundate LPs with information. Finding a good balance is important.

 

2. You Can Test Drive New Markets as a Limited Partner

If you want to invest in a new area, you should learn about it beforehand. This can involve thorough research that you pay for. Another way that you can go about this is to take part in apartment syndication deals in these markets as an LP. For example, if you are currently focused on properties located in Georgia, but New England starts intriguing you for a number of reasons, you could then invest as an LP in Massachusetts and nearby states before you decide if you want to be a GP there.

This will not only allow you to experience these new markets as an LP, but you can also gain a much greater insight into how these markets are going for GPs. In addition, you can generally gain access to market research that any GPs that you are working with have done on the area without needing to pay for it yourself.

 

3. You Are Able to Better Network With Other Investors

Networking is one of the most important things that any person in any aspect of the business world can do, and that is very much the case with apartment syndication deals. Going to invest in deals that GPs have put together and serving as an LP on them is one of the best ways that you can improve as a networker.

One of the most significant reasons for this is that this process provides a natural way to remain in contact with other GPs Staying in contact with others in this manner is generally better than doing so through sporadic lunch meetings or similar means.

 

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3 Questions to Ask Before Investing

3 Questions to Ask Before Investing 

Is this a good deal?

This is one of the questions every investor is trying to answer when evaluating real estate. There are calculators and rules of thumb to help people answer this question. However, the answer for one investor may be completely different for another. Many investors like to use key metrics like IRR, cash on cash, or equity multiple to determine if a deal is good, but we’ve already talked about why you need to stop using return projections for these decisions.

Let’s illustrate this with a quick example. Say you are evaluating an opportunity to invest in a multifamily property that was built in 2010 in a growing market. It is 94% occupied and has projected returns of 15% IRR, 8% annual cash on cash, and a 1.9 equity multiple.

Is this property a good deal?

Before you answer, understand that the question should be: Is the property a good deal for me?

Just because others think an investment is a good deal doesn’t mean it’s a good deal for you. Whether you make decisions based on a formula or your gut, you need to answer key questions first. Once you answer these, you will be able to decide if a deal is good for you.

 

1. Why am I investing?

Yes, I know you’re investing to make money, but you need to dig deeper if you want to be able to evaluate opportunities. What are you trying to solve? Are you looking to live off of monthly cash flow? Or is your primary goal to build long-term wealth? Maybe you just want extra income to pay for vacations, tuition, and other expenses.

If you want passive income, you may be disappointed with an investment that requires you to be actively involved, no matter what returns you are getting. Too many investors get into real estate for financial freedom and wind up with a second job instead. The clearer you are on the problem you want to solve, the easier it will be to find good deals.

 

2. What’s the business plan?

Once you are clear on your goals, determine the business plan for the properties you want to explore. Are you looking to buy and hold rentals? Are you looking for value-add properties? Or are you looking for a flip or distressed property to rehabilitate?

Each strategy has its pros and cons and should align with your investing goals. The business plan to carry out this strategy is critical to each deal. This is what separates a good deal from a bad deal. Good deals have a clear business plan and proof of concept for execution.

Let’s use our example property here. If the business plan is to perform cosmetic upgrades when residents move out, we can keep occupancy high, while bumping rents on the unit turns. We may be confident because three comp properties have similar finishes and amenities and are achieving the projected rents.

 

3. What could derail the business plan?

The last of these questions requires understanding the risk involved in the business plan. You need to understand what can derail the plan, how these risks can be mitigated, and your comfort level with the risk. If you’re doing a buy-and-hold investment, the biggest risk may be incurring a major repair. The best way to mitigate this is to have proper insurance and cash reserves set aside.

Going back to our example property, what if we’re not able to get the rent increases we hoped for? First, the ability to achieve these rents should have been confirmed in the business plan, but if something was missed or changes, you want to make sure you have a Plan B or other ways to mitigate the risk. You may decide to focus on the most important upgrades and only perform those instead.

Identifying the risk in the business plan allows you to proactively address it, making it easier to sleep at night. There isn’t a metric or formula that can calculate the importance of peace of mind. Maybe we should call it the new IRR for Inner Rest and Relaxation. When deciding if a deal is good for you, this IRR may actually be the most important metric.

 

About the Author:

John Casmon has helped families invest passively in over $90 million worth of apartments. He is also the host of the #1 rated multifamily podcast, Target Market Insights: Multifamily + Marketing. Prior to multifamily, John was a marketing executive overseeing campaigns for Buick, Nike, Coors Light, and Mtn Dew: casmoncapital.com

 

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High-Performance Real Estate Investing With Nonperforming Notes

High-Performance Real Estate Investing With Nonperforming Notes

Great entrepreneurs often share a special talent: They can turn bad situations into good ones. They can earn profits from seemingly unprofitable properties and take opportunities that might scare many other businesspeople away.

Paige Panzarello epitomizes this ability to spin straw into gold. As a Simi Valley-based entrepreneur and investor, Paige is responsible for real estate transactions totaling more than $150 million.

What’s particularly fascinating is that much of Paige’s income now comes from nonperforming notes — in essence, loans that are going unpaid.

Paige’s story provides valuable lessons, especially in terms of the personal attributes that are crucial to professional success.

 

1. Boldness

About 20 years ago, Paige started out in real estate. She inherited a number of properties in California and Arizona when her grandmother passed away, and she decided to turn that bequest into a business. Paige began by overseeing 38 residential units in Arizona townhomes.

In itself, the decision to manage those properties rather than sell them was bold. A high percentage of their units were unoccupied. Taken together, the properties were $4 million in debt. On top of that, Paige knew nothing about the real estate industry at that time.

Paige was unrelenting, however. She gathered real estate experts around her, and she learned new things all the time. It helped that she was in the habit of asking questions constantly.

In time, Paige compiled her own real estate investment portfolio, which included a sewer treatment plant that her grandmother had left to her mother. She increased that plant’s output, so to speak, before selling it to the local government.

Moreover, Paige didn’t stop at real estate. She also created a construction company with 36 employees. And, when she founded this business, she didn’t know anything about construction. But she soon mastered that field as well.

Paige’s construction firm handled its own projects along with those of other companies. Most of them were located in Arizona, and some were in California.

 

2. Integrity

Integrity is vital to Paige. For example, after the economic crash of 2008, she sold many of her assets to stay afloat rather than declare bankruptcy. All told, she lost about $20 million in cash, but she managed to pay back everyone she owed. As a result, she now views that painful chapter in her life as a learning experience.

For a while after the crash, Paige avoided real estate investments altogether. Instead, she founded small businesses in other fields. One was a teeth-whitening business, a company she still owns.

However, those smaller companies never provided the personal fulfillment that real estate investing did. And they certainly didn’t provide the cash flow. Paige realized that she couldn’t stay away from her true calling, and she returned to the profession she loves.

 

3. Tenacity

Unfortunately, by this point, Paige had sold off every real estate asset she once owned. She had to start again from scratch.

Instead of looking back with regret, though, Paige focused entirely on the future. She rebuilt her real estate brand quickly and forcefully. She became active in wholesaling, tax liens, and tax deeds. She fixed up and flipped properties, too.

Most important of all, Paige started learning about real estate notes, which changed the course of her career.

 

4. Finding Positive Opportunities in Negative Situations

Earning money from a nonperforming note is a terrific example of turning a liability into an asset.

Basically, a note is a legal document through which a borrower promises to pay back a lender. Of course, for various reasons, borrowers sometimes fail to make those agreed-upon payments. In such a case, an investor might purchase the note from the lender.

As a result, the lending institution gets some or most of its money back and no longer has to worry about missed payments. And the buyer will try to make money from the note.

Investors can acquire nonperforming notes at steep discounts. At one time, Paige was able to buy them for 40 to 55 percent of their value. The price now tends to range from 55 to 62 percent, which is still a significant bargain.

Asset managers bring these notes to Paige’s attention. She and her team sometimes buy bundles of notes, which are called tapes. Other times, they’ll sift through tapes to find the most promising notes.

While there’s some competition in the note-purchasing space, buyers can be surprisingly collaborative. They’ll often bring each other leads, for instance, or find ways to divide up tapes among themselves.

Furthermore, note investors occasionally combine their money to purchase tapes together. They then split the monthly payments. This strategy can be ideal for closing deals whenever tapes are massive and expensive.

But how does Paige actually make money from nonperforming notes? Well, once purchased, such a note goes to her loss mitigation team.

Those professionals will rely on one of 23 methods to make money from the note, techniques they call exit strategies. In most cases, they’ll employ one of these four exit strategies:

  • Foreclosing, which is Paige’s least favorite option.
  • Arranging a short sale, which means selling the property for less money than is still owed.
  • Seizing the property’s deed as payment for the loan.
  • Collaborating with the borrower to help that person pay the mortgage once again. This choice happens to be Paige’s favorite.

Before Paige buys any nonperforming note, she and her colleagues will carefully study the situation to determine the optimal exit strategy.

 

Don’t Be Afraid to Fail

Summing up, Paige Panzarello believes two attributes are most responsible for her professional accomplishments: her due diligence and her unwillingness to fear failure. And, along the way, she’s been able to aid many borrowers in paying their mortgages. It’s a great example of a successful person helping others turn difficult situations around.

 

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Cash Flow vs. Appreciation: 5 Expert Investors Share Their Insights

Cash Flow vs. Appreciation: 5 Expert Investors Share Their Insights

When investing in real estate, one of the most frequently asked questions is whether it is better to invest for cash flow or appreciation. In this article, we will examine what expert investors have to say about these two investing strategies.

As an investor, you should understand that both strategies are valid and can be combined when evaluating a trade. Therefore, it is important for you to know how to determine the real estate cash flow rate and the property appreciation rate.

With COVID-19 and the consequent eviction moratorium, many investors have had to deal with reduced or negative cash flow while appreciation rates are through the roof. So, should one invest for real estate cash flow or for property appreciation?

 

Real Estate Cash Flow Strategy Overview

A cash flow strategy offers consistent cash, typically in the form of rent, to real estate investors. Over time, the property may also benefit from appreciation. With equity accumulation, an investor could refinance, sell, and use returns from cash flow and appreciation to invest in new properties.

But it is not always as simple as this. In many cases, you choose one or the other. You could have high cash flow when you buy property in a low-cost neighborhood and improve it with some sweat equity. On the other hand, in more developed areas like San Francisco and Washington, D.C., you might find it difficult to find cash flow investments, and therefore have to rely on appreciation.

 

Reasons Investors Opt for Cash Flow

1. If you’re cash-flow positive, rent covers your expenses, e.g., mortgage payment, monthly maintenance fee, insurance, and property taxes, and provides you with extra cash.

2. Conventional loans are readily available for cash flow investors. Cash flow is not only used by investors to evaluate deals. Lenders use it too, as mortgage payments will make up a large part of the property’s costs and will definitely affect your cash flow. Lenders use the debt service coverage ratio (DSCR) to determine if, after mortgage payments, a property will be cash-flow positive. To calculate your DSCR, you need to know your net operating income (NOI).

3. Investors who desire financial freedom, passive income, and early retirement will opt for a cash flow strategy because steady cash flow helps you reach your financial goals faster.

4. Rental property cash flow offers more versatility. Instead of a conventional long-term rental strategy, you could place your listing on short-term rental websites like Airbnb. You could also make monthly income through systems like house hacking. On a larger scale, you could build a portfolio of both multifamily and single-family properties and earn steady rental income.

5. Your cash flow grows over time as you pay down your mortgage and build equity.

 

The Downside of a Real Estate Cash Flow Strategy

It is more difficult to find cash-flow positive properties, especially in today’s market as prices have appreciated at unexpected rates. In many markets, you’ll readily find cash-flow neutral (property profits can only cover running costs) or cash-flow negative (investor spends some money out of pocket on property maintenance) properties.

Also, cash flow depends on market performance and tenant quality. If there is a real estate downturn, real estate cash flow gets hit. And bad tenants will cause you to lose money.

 

Real Estate Appreciation Overview

While there are straightforward approaches and formulas for measuring real estate cash flow, measuring real estate appreciation presents a challenge. This is probably the main reason why many investors opt for a cash flow strategy.

The best way to measure the current market value of your property is to look at comps (comparable properties) in your area.

 

How Much Does Real Estate Appreciate on Average?

On average, appreciation rates for real estate in the U.S. have stayed between 2% and 4%. In a market crash or downturn, property prices could depreciate as they did during the 2008 recession. But in a real estate bubble, as we’re currently experiencing, investors could greatly profit from appreciation.

According to an article on Millionacres:

“Over the past year, the average appreciation of real estate has increased 14.5%, a staggering number compared to historical performance. While many homeowners and real estate investors look to the average home-price valuation as an indicator for future value, it’s important to remember that housing prices and the rate they appreciate can change dramatically year over year — the current average appreciation rate is 14.5%, a stark difference from 4% in 2019.”

As mentioned before, you can combine real estate appreciation with a rental cash flow strategy. Rents typically grow over time, leading to increased cash flow. So, a negative cash-flowing property could turn positive over time and also allow you to make a significant profit through appreciation. Essentially, the way to make money with appreciation is when the property is sold. Hence, it is playing the long game.

 

Reasons Investors Opt for Real Estate Appreciation

1. Appreciation is a conservative way to make money as an investor. Real estate values usually increase over time, so if you make sound investments, you can sell them for a profit. This chart from the Federal Reserve Bank of St. Louis shows how average home prices in the U.S. have grown since 1963.

2. Appreciation is a great way to pass on real estate wealth to younger generations. Hence, lots of people who have already achieved financial independence invest in real estate majorly for appreciation.

3. As a new investor, you can make quick profits via fix-and-flips. You purchase a property and tune it up to make it appreciate in value. Then you sell. You can also buy and hold, make positive cash flow in the interim through rents, then sell.

4. You can defer taxes on real estate sales through 1031 exchanges. Although under President Biden’s new policies, 1031 exchanges would only be available to investors making less than $400,000 in annual income.

 

The Downside of Relying on Appreciation

When relying on appreciation, you’re making a bet on the market. You have to dig into the city plans, study municipal data, and invest in places close to transport facilities. In other words, you have to keep an eye on where and to which areas people are moving en masse. All the same, you might make a wrong guess. No one can predict a market crash or what happens when a pandemic hits. Check out some strategies real estate professionals recommend during a market crash.

 

Depreciation

With both types of rental strategies, you have to worry about depreciation. This PropertyCashin article touches on three main types of depreciation you may have to deal with:

1. Physical depreciation — caused by wear and tear.

2. Functional depreciation — occurs when a function of the building becomes outdated or obsolete. For example, an old multifamily building with no elevator and laundry facilities located in the basement has functionally depreciated in value.

3. External depreciation — the result of an adverse neighborhood or local economic conditions. For example, the closing of a corporate headquarters in one city contributes significantly to the external depreciation of nearby office buildings.

Overall, if you employed an appreciation strategy, you would need to keep your property in pristine condition since you are practically betting on it. And you would most likely have to spend out of pocket on maintenance and tech.

 

Cash Flow vs. Appreciation: What Investors Say

Tyler Cauble
President, The Cauble Group

“We never invest for appreciation since that is out of our control. Our team selects projects where we can create value and force appreciation through value-add or development from scratch. Any appreciation is just icing on top.”

 

Riley Adams
CPA, Owner of Young and the Invested

“I readily admit to any hesitation I may have as a real estate investor for buying properties with the explicit intention of reselling them in the next few years. I say this because of the tremendous growth we have seen and the specter of rising interest rates in the not-too-distant future as the economy recovers and the Federal Reserve attempts to normalize interest rates.

“For people interested in investing in real estate at this time, I would advise caution or a strategy that involves bidding below what it would have cost to buy a home even three months ago. The inability to purchase a home in this market has caused many potential buyers to walk away. This could present some softness in weaker markets, allowing buyers to bid below asking prices, renovate, rent, and ultimately sell for a profit in the future.”

 

Dustin Olson
Principal Broker & Owner, Venture DO LLC

“There are multiple ways to answer your question due to the plethora of variables, and all of them may be viable solutions for different investor strategies. But in general, appreciation (not forced) is hypothetical and dependent on the local market, while cash flow is real and more stable.

“If an investor is focused primarily on appreciation (again, not forced), and ‘hopes’ the property’s value will continue to increase, just because their property increased in value yesterday, then yes, their return may be higher, but they will also have more risk. And many suggest that ‘hope’ is not a viable strategy at all. Typically you will see investors use both metrics, but a property that cash flows with an opportunity for appreciation is a solid investment overall and if appreciation does not happen, you’re still protected by cash flow.

“Now, on the other hand, there are many different variables, but the cornerstone seems to be the investor’s personal financial situation and the desired outcome for the investment. Investors with less capital to invest generally focus more on cash flow, so they can supplement income, but as their passive income grows, their focus tends to shift more into a balance between the two. Some investors even focus primarily on appreciation only as a place to park capital. So, it’s hard to say that one method is better than the other, and many investors use both measures within their investment strategy.

“Keep in mind that the same property with the same purchase price can have very different cash flow scenarios depending on the investor’s location, mortgage rates, holding time, money down, tax protection, deductions, expenses, renovation plans, etc. With all these considerations, most investors should focus on their desired overall return on investment (ROI) or internal rate of return (IRR) to determine if their strategy is best for the given investment, rather than just looking at cash flow vs. appreciation.

“Many investors will also look for opportunities to force appreciation by reducing expenses and increasing income, through renovations, restructuring, rent increases, etc., to eliminate some of the risks around speculated future appreciation. One good thing, though, is that if a property appreciates in value, the rents typically go up, and if your property’s value increases, you may be able to borrow against that equity without even selling, and stack leveraged equity to invest in more investment properties.”

 

Parker Webb
Principal, FTW Investments

“Primarily, we employ a value-added strategy. In today’s market, these transactions are not priced for immediate cash flow, but we typically target 8%–10% cash on cash within 12–24 months of acquisition. For us, appreciation is about adding value by addressing deferred maintenance, improving the look and feel of the properties, improving lighting and security, employing best-in-class management, increasing revenues, and reducing operating expenses. Capitalization rates are very low, and we typically underwrite very conservative reversionary cap rates, which means that appreciation comes down to operations, not financial markets.”

 

Julius Mansa, M.Fin.
Investment Analyst and Lecturer

“I have always been a strong proponent of developing and maintaining long-term passive income opportunities from real estate, especially since net rental yields can often be more predictable than equity markets. While I agree that taking advantage of current market trends can yield excellent short-term capital returns for investors, the net cash flow from rental units can provide an excellent source of income for investors that are seeking to expand their real estate businesses even further.”

 

Jonathan Barr
Principal, JB2 Investments

“I would say: always cash flow — but inevitably, increased cash flow is followed by appreciation.”

 

Final Thoughts

There is neither a winner nor a loser. Both real estate appreciation and real estate cash flow complement each other, especially in situations where it is difficult to predict the future. Owning investment properties that produce income based on both strategies is a good idea.

 

About the Author:

Agnes A Gaddis is a writer for Inman News, Influencive, and the TSAHC (Texas State Affordable Housing Corporation). She has over 7 years of experience writing for the real estate industry. Connect with her on Twitter: @Alanagaddis

 

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The Difference Between Real Estate Funds & Single Asset Syndications

The Differences Between Real Estate Funds & Single-Asset Syndications

Passive investors in private real estate often have two investment structures available to them: a single-asset offering or a fund-style offering. Today, I want to explore the two options from the passive investor’s standpoint. In this analysis, I am comparing closed-end funds to single-asset, closed-end offerings.

There are often more similarities to these two structures than there are differences, but each sponsor has the ability to cater their offerings to match the needs of their investors. And from a technical standpoint, funds are syndications since the fund is combining investments from multiple passive investors.

From a legal structure, a single-asset offering and a fund are often very similar. Both structures entail the investor taking ownership in a limited partnership. During the subscription process, the investors will be asked to execute a subscription agreement, limited partnership agreement, and private placement memorandum. It is common for sponsors to carry over many similar terms, particularly if they are transitioning from a single asset to a fund model, but this isn’t always true.

With specialist sponsors — for example, those focusing on unanchored strip centers or value-add multifamily — the business plan is often consistent because the returns of a fund, just like a single asset, are driven by the actual operations of the asset. With diversified investments, the sponsor may offer funds with specific asset classes — for example, a retail or an office fund.

The biggest differences between a fund and the typical single-asset offering come down to when the assets are named. The common route for a single-asset offering is for the sponsor to source and get an asset under contract, then take the offering out to their passive investors. A fund will often take the offering out to the investors and raise commitments before naming any, or most of, the assets the fund will ultimately acquire. Additionally, a fund will often retain the rights to acquire multiple assets, creating a diversified portfolio of assets under a single investment offering and limited partnership.

Just like any private offering, there are many variations of offerings available, and the highlights above are what I would call “typical” structures. There are funds that own a single asset, and occasionally syndication offerings that are presented as a portfolio of assets.

The biggest benefit to a fund is the diversification a fund offers. Similar to a mutual fund or ETF in the public equities market, a fund investment often provides exposure to multiple assets with a single investment. Additionally, there can be operational efficiencies and cost reductions that occur in a fund model — for example, a single legal document versus unique documents for single-asset offerings, or a single K-1 from the fund versus multiple if invested in multiple single-asset offerings. In some funds, your investment can get to work faster, as some funds accept capital regardless of acquisition timing.

The benefit to single-asset offerings is the control you are afforded in your investment decision. Depending on the fund you are comparing to, a single offering also gives you a little more control over when your capital is deployed, as many funds, but not all, utilize a commitment and call style of funding, which could result in having to sit on idle cash during the investment period of the fund.

As noted in the opening, there are many different ways a sponsor can structure single-asset offerings and funds, so this article cannot be all-encompassing. At the end of the day, the two structures can be very similar, if the sponsor structures them as such, and the investor’s decision then becomes whether or not they value diversification over the ability to select which assets they choose to invest in.

 

About the Author:
Evan is the Investor Relations Manager for Ashcroft Capital. As such, he spends his days working with investors to better understand their investment goals and background. With over 13 years in real estate, he has seen all sides of real estate from acquisitions to capital raising on the equity and debt side, to operations, and actively invests himself. Please feel free to connect with Evan here.

 

 

 

 

 

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Making the Move from Active to Passive with James Sumaya

Making the Move from Active to Passive with James Sumaya

There were several reasons for James Sumaya to head for the blossoming city of Denver, Colorado. Leaving Los Angeles meant an opportunity for him to be closer to family, and to experience a better cost of living and quality of life. But beyond these benefits, moving to Denver also opened a new field of professional opportunities, as well.

Over the last 10 years, James had worked with asset management firms overseeing real estate transactions involving a wide range of asset types including hospitality, office, industrial, multifamily, and retail, ranging from as small as $10 million to more than $100 million. After spending much of his career gaining broad but in-depth professional experience, the time had come for James to narrow his professional focus.

“Now that I’ve moved to Denver, I am working with a group that focuses only on doing multifamily deals directly with a value-add business plan. So I’m narrowing down from a broad focus, doing all types of assets and all manner of business plans, and now I have the opportunity to focus more on one asset type and in one market,” James said.

James had also become increasingly interested in multifamily syndications for his personal investments. Both his personal and professional goals aligned with a renewed passion in passive investing.

“I was really focused on finding reliable and stable cash-flowing investments with some opportunities for appreciation. I do own some investments directly and in the syndications. And I’ve debated where I want to focus my efforts going forward,” James shared. “Given my professional background, I certainly have the ability to pursue the direct approach, but it’s really difficult to beat the ease and simplicity of investing in a syndication with a good sponsor.”

As with many investors, James manages a diversified real estate portfolio with a combination of single-family assets and multifamily syndication investments. However, to James, each investment comes with a completely different approach to ownership.

“They each have their pros and cons. In syndications, you’re really vetting the sponsor more than anything else. If you end up with the wrong group, you don’t have any recourse to rectify that,” James said. “Whereas with the direct approach, you have more control, but you’re also dealing with all of the decisions, too.”

Managing the element of control between passive and active investments also has implications beyond the bottom line of your portfolio. For James, passive investments are an opportunity to build additional wealth without creating an additional job.

“It’s easier to do syndications when you’re working a more traditional day job because the attention required on those deals is so much lower than doing something direct,” James said. “If you move into that direct space, then you’re effectively creating another job for yourself. One that you’re in control of, but at the end of the day, it’s something that’ll require more time and effort and still have elements of being a day job in some manner.”

For James, genuine pride in real estate has come in the quality of his syndication portfolio, not necessarily the quantity of investments within it. His excitement for his future in real estate is woven into the diversity of assets, from the location all the way to the age of the investments. The depth of his portfolio also isolates the bottom line if a deal were not to perform as expected.

“My focus on syndications was born out of looking to hit a cash flow number. I think that a lot of people looking for financial independence have a number that they would like to hit,” James shared. “Continuing to find deals that will generate consistent cash flow will build a portfolio up to a level where you have some options for yourself to do something else and walk away from a traditional day job.”

 

About the Author:

Leslie Chunta is a marketing consultant with nearly 15 years of experience in creating dynamic marketing programs and building brands for startups to enterprise organizations. She has worked agency- and client-side with high-growth companies that include Silicon Valley Bank, JPMorgan Chase, SailPoint, EMC, Spanning Cloud Apps, Ashcroft Capital, Netspend, and Universal Studios. www.thelabcollective.com

 

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Keys to Achieve Passive Income Through Real Estate Investing

Keys to Achieve Passive Income Through Real Estate Investing

Earning a passive income through commercial real estate isn’t just about flipping houses. Ryan Enk is a real estate investor and author who is passionate about helping people develop a customized strategy that allows them to create a passive income in unique ways. His sports arenas and RV rental fleet have helped him achieve financial freedom. But he started out as a dad of five boys with a dream to be more available to his family. His real estate investing tips can help others who might think that they don’t have the money or resources for this type of enterprise.

 

What Would You Do if Money Didn’t Matter?

Many successful real estate investors started their journey with a significant amount of income. Enk did not. He was selling copiers, feeling overworked and underappreciated. He wanted more time to be with his family, and he wanted to give back to the community.

So he asked himself, “What would I do if money didn’t matter?” After some introspection, he realized that he wanted to help people. If money wasn’t a factor, he would open up a sports arena, play music, or mentor others. When his wife agreed, Enk realized that he needed to pursue his passions.

Even though his bank account was sparsely filled, Enk didn’t let his lack of financial resources stop him. He knew that someone would have the money to support his big dreams, and he began his search.

 

The Importance of Mentorship

Enk’s first deal involved building a sports arena. Because this was something that he had never done before, he knew that it would be a hard sell to investors. That’s why his first step was to hire a consultant.

A consultant serves as part of your team. It also gives you a chance to prove that you’re working with someone who has experience. When you hire the right mentor, you don’t have to worry so much about selling yourself. You’re selling your team.

Hiring a consultant isn’t always cheap, though. Enk took out a second mortgage to pay his mentor. He also offered the consultant equity in the project. This allowed him to present his mentor as his business associate, which gave him clout when pitching to investors.

Hiring someone with experience in the business will help you create a solid business plan. However, even the perfect business plan may not convince investors if you don’t have the experience to run that type of business. Therefore, you should either have someone on your team with the know-how that your investors are looking for or build up your resume.

In Enk’s case, he developed a strategy for bringing daytime business to the sports arena. He launched a soccer program for youths while he was seeking investors. Initially, he rented space from gyms and churches to support the program. Eventually, he would run it in the arena. This plan not only served to demonstrate that the arena could bring in business during the day, but it also showed that he was able to launch and run a profitable business.

 

Own the Real Estate, Not Just the Business

The key to Enk’s success was that he realized the benefits of owning the real estate for the sports arena. At first, he sought investors for the business. But he didn’t own the property.

When Enk made a deal to purchase the arena from the landlord, he saw how high his returns could be. The landlord earned $300,000 by selling the property. Once Enk owned it, he was bringing in returns of 20 to 30 percent.

 

Rolling Real Estate

Eventually, Enk owned several single-family and multifamily properties, earning a passive income on those. But his wife wanted to purchase an RV, which would be a liability. Enk decided that he could transform it into an asset with plenty of cash flow by renting it to others.

When that pulled in $32,000 in profits in the first year, Enk realized that he could help others capitalize on this type of passive investing. He created a company that managed RV rentals, earning income from other people’s RVs without having to invest in purchasing more vehicles.

 

Keys to Passive Investing With Real Estate

Enk has learned a great deal from his endeavors. He shares his wealth of knowledge because he believes that commercial real estate investing is a lucrative way to earn a passive income. These keys have become part of his overall strategy.

 

Invest in Today Instead of Speculating About Tomorrow

Speculating happens when you purchase a property that will eventually bring in an income. This happens when you flip a house, improving it to raise its value before you sell.

But investing involves putting your money into something that is already working. When you start out, look for properties that are already doing well, such as a multifamily apartment home with regular tenants. That way, you can begin earning immediately, and you’ll be up against less risk than a speculative deal.

 

Project Your Losses

Most businesses struggle in the first few years. It can take three to five years to begin pulling in profits. Many startups fail because they neglect to factor in these losses. Moreover, investors could become antsy if they expected to rake in the money but aren’t seeing it come through.

Planning for these losses is important. You may need more capital than you expect to cover the overhead and your income for the first few years. With the right balance of capital, you can keep moving forward. Plus, your investors won’t be disappointed when they know that your plan accounts for these losses and a strategy for overcoming them.

 

Take Advantage of Trends

The RV rental business worked well because it capitalized on a popular trend. Private property rentals through sites like Airbnb were giving owners a chance to capitalize on their unused space. The same could be done for RVs.

Not every investment is going to be a long-term one. However, if you can take advantage of the current market, manage the business well, and sell when the time is right, you can earn a decent profit while you sleep.

 

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4 Tips To Scale Your Business From Single-Family Homes to Apartment Communities

4 Tips to Scale Your Business from Single-Family Homes to Apartment Communities

Yusef Alexander is a Los Angeles-based real estate investor who has been in that field since the 1990s. Although he started off with Los Angeles rentals, he later focused on apartment communities located in Georgia and elsewhere in the South. As he did so, he transitioned from spending his time on commercial real estate and single-family homes to focusing on those aforementioned multifamily apartment communities. As a result, he is a solid person to listen to in order to learn how to scale your business in a similar manner.

One property that he got involved with in early 2019 is a 172-unit multifamily building in an upper-middle-class part of Atlanta, which ended up having a purchase price of $8 million. He then planned to engage in light-rehab and high-end rehabs, costing $3 million in total and ultimately selling it for nearly three times that.

 

Consider Various Costs

Of course, also be sure to consider all of the costs that will go into rehabbing these units. These include the costs of hiring workers and paying for what needs to be installed as well as any costs connected with consulting with a design firm to determine just how these rehabbed units should look when all is said and done. And take into account that the design costs could be significant if you will be making major renovations to the apartment community property as a whole, such as installing a pool, building a gym, and so on.

An additional aspect to consider is that some of the units that are being rehabbed are going to need to be de-leased — i.e., empty — during those times and won’t be bringing income in.

Another recommendation to consider if you are looking to scale your business from commercial real estate or a different type of real estate to apartment communities is to fully research similar properties in the area. For example, if you discover that a similar real estate venture is offering spaces to rent for a similar price that you are, go through the process of applying for a place there, see what they are offering for that price point and consider why.

 

Determine Value

Also take into account that if you are going to join in on a purchase with one or more others, you should ensure that the split is as fair as possible. In Alexander’s case, three owners were reduced to two. As a result, he and the other person agreed to have a third party (a broker) determine the price (the worth) of this particular asset (the apartment community). They also had a desktop appraisal from a financial group that is trained to do appraisals on properties such as these do the same and compared the figures.

If the two numbers are not in close agreement, you will want to either go with whichever one is trusted more, go with the average of the two, or, if simply getting the deal done is of utmost importance, go with the higher one. In Alexander’s case, they decided to go with the higher appraisal, which was from the broker.

 

Diversify

To scale your business, it is also worth considering combining being an active investor with being a passive one. For example, Alexander is an active investor in that 172-unit place while he is a passive investor in a 355-unit apartment community, also in Georgia, that he became a minority partner of a few years prior. In total, he’s active with two communities — both in Georgia — and passive in five others.

However, note that these investing focuses require different skill sets. For example, knowing as many details as possible about the other partners in a passive investing opportunity is of utmost importance, as you will not have as much control over the situation after the money has been invested.

 

Remain Diligent and Disciplined

For those new to investing in apartment communities, one of the first pieces of advice that Alexander would give is to surround themselves with people who are already knowledgeable in this field and soak up that knowledge.

And, as they progress through the years, continue to remain diligent and disciplined. Also make sure to keep long-term focuses in mind, including ways to exit these opportunities later. When you get into a project, determine how you expect the entire process to go from beginning to end, throughout any renovations and other aspects of owning it, until it has been sold.

Also, make sure that you take into strong consideration just how important location really is as it relates to real estate.

One of the mistakes that Alexander made early in his real estate career was buying a residential property next to a gas station. Of course, making that type of purchase does not necessarily make something a bad deal, but in this case, it did. Unexpected issues related to the gas station, such as the smell that emanated from there, various people constantly loitering, the significant and annoying lights that it had up and on at night, all contributed to lower the property’s value.

Conversely, you may also be able to secure a place with an enviable location that hasn’t made that aspect of its listing obvious to other investors, getting a nice deal on it as a result.

 

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Active vs. Passive Income

Active vs. Passive Income

Real estate investors love to talk about passive income. But what is passive income? Is there active income? This article is going to answer those questions and more.

 

Passive Income

Passive income includes rental net income, limited partnerships, and other enterprises in which the recipient of income from those sources is not materially participating. Such income is usually taxable but is treated differently by the IRS. That different treatment has guidelines for the recipient to consider:

  1. If you have dedicated 500 hours to a business or activity from which you are profiting, that is considered material participation.
  2. If your participation in that business or activity has been all the participation for that year, that is considered material participation.
  3. If you have participated up to 100 hours and that is as much as anyone else involved in the activity or business has participated, that is also considered material participation.

Thus, only truly investing in a business and stepping back to receive profits can be categorized as passive income. For example, if you put $25,000 into a business and the owners pay you a portion of the profits each year, then you have passive income. IRS Publication 925 sets out the specific criteria for passive income treatment, for those of you looking for further authority on this topic.

Passive income is taxed anywhere from 10% to 37%. Depending on what Congress does this year and during this administration, taxes may increase. While it may not feel like you are passively investing in your real estate activities, the IRS has concluded that unless activities are performed to fulfill responsibilities as a real estate professional, like a real estate agent or broker, those activities are passive. 

More importantly, your passive income is only offset by passive deductions such as:

  • Property management fees
  • Maintenance and repairs
  • Utilities
  • Landscaping
  • Professional and legal fees
  • Wages paid to a W-2 employee who receives a salary or hourly wage
  • Advertising costs
  • Tenant screening fees
  • Commission, leasing, and referral fees
  • Mortgage interest payments
  • Property tax
  • Insurance premiums
  • License and registration fees
  • Travel expenses directly related to the rental property
  • Home office expense
  • Office supplies
  • Telephone and internet
  • Dues and subscriptions for professional organizations such as a real estate investor club
  • Continuing education expenses such as attending seminars or enrolling in courses and coaching
  • Depreciation expense to reduce taxable income
  • Pass-through tax deduction (or QBI deduction) of up to 20% of the net rental income, subject to certain limitations

 

Active Income 

Active income generally refers to wages, tips, salaries, commissions, and income from materially participating in activity or business. For purposes of real estate, there are two criteria that MUST be evaluated:

  1. More than half of the personal services the taxpayer performed in all trades or businesses during the year were performed in real property trades or businesses in which the taxpayer materially participated.
  2. The taxpayer performed more than 750 hours of services during the tax year in real property trades or businesses in which the taxpayer materially participated.

Both of these criteria must be met. Moreover, IRS Section 469(c)(7)(A) and 26 CFR Section 469-9(g) require the taxpayer to make an election on their tax returns. Talk to your CPA or lawyer about these issues.

 

About the Author:

Brian T. Boyd, JD, LLM, www.BoydLegal.co

 

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Has Cash Flow Been Dethroned?

Has Cash Flow Been Dethroned?

Cash flow is king.

Well, it used to be king. Now, it might be a lord or duke, but I’m not sure investors see it as king anymore.

In the stock world, share prices for many firms are no longer based on actual profits; instead, they are based on speculation of the earnings the company could produce. Tesla is a great example of a company that is valued based on its profit potential instead of its actual earnings. As of June 30, Tesla was valued at $668 billion with a net income of $1.14 billion for the quarter. For comparison, General Motors was valued at $88.75 billion with a net income of $2.8 billion for the same timeframe. Yes, despite delivering close to 2.5 times more profit, GM is valued 7.5 times less than Tesla.

In real estate, this speculative investing isn’t as dramatic, but investors are drifting away from fundamentals with their eyes on the future possibilities. Many investors have accepted lower cap rates for the opportunity to buy a property where they can create value and deliver future returns. This means that they are willing to pay a premium and receive a lower return if they feel the upside is strong. This approach has gotten so popular in recent years that some investors are only focused on appreciation and dismiss cash flow altogether.

In their minds, cash flow has been dethroned. Appreciation is the new king.

Appreciation is simply the increase of the value of an asset over time. It can be organic, rise with inflation, or be stimulated by new developments and increased demand. However, instead of waiting for values to increase organically, investors look to force appreciation through strategic improvements and efficient operations. The ability to force appreciation is one of the reasons real estate is so attractive to investors. However, appreciation alone comes with great risks. It does not factor in the fundamentals of the investment in the same way Tesla’s value doesn’t factor in the actual profitability of the company. More importantly, it’s based on future assumptions that can easily change.

Market conditions play a major role in appreciation and anything from new developments, policy changes, renter preferences, and yes, global pandemics can impact the appreciation potential for a property. While we invest with appreciation in mind, these factors make it unreliable to serve as the primary reason to invest. It also leaves investors exposed in case of a down market. I know many coastal investors who are losing money on their properties but assume the values will appreciate over time. This is a dangerous and speculative approach.

Savvy investors know appreciation is a complement to cash flow, not a replacement. Together, you get risk mitigation and upside potential. And while they work well as a team, many investors are still going to prefer one of the components when making decisions. Determining which one you should focus on more is a personal decision. However, the fundamentals of evaluating opportunities and the value that can be created need to revert to the cash flow that can be created.

Markets change, preferences change, but the desire to earn a profit will never change. At some point, Tesla will be treated like every other company, judged on its actual performance, not what it could be someday. Apartment investing and commercial real estate are the same way. When reviewing investments, be sure the cash flow is sufficient for your investing goals, and don’t speculate on the appreciation. It’s important, but cash flow is still king (even if it has to share governing powers).

 

About the Author:

John Casmon has helped families invest passively in over $90 million worth of apartments. He is also the host of the #1 rated multifamily podcast, Target Market Insights: Multifamily + Marketing. Prior to multifamily, John was a marketing executive overseeing campaigns for Buick, Nike, Coors Light, and Mtn Dew: casmoncapital.com

 

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Meet Best Ever Conference Co-founder Ben Lapidus

Meet Best Ever Conference Co-founder Ben Lapidus

We sat down with Ben Lapidus, co-founder and host of the Best Ever Conference, to find out what he’s looking forward to most at BEC2022.

First, a little about Ben: He is the Chief Financial Officer for Spartan Investment Group LLC, where he has applied his finance and business development skills to construct a portfolio of over $300M assets under management from scratch, build the corporate finance backbone for the organization, and organize over $100M of debt capital from the firm.

In addition to completing over 50 real estate transactions at and prior to Spartan, Ben is the managing partner of Indigo Ownerships LLC. Before Spartan, Ben founded and sold a multimillion-dollar study abroad company and worked with several start-ups through IPO or acquisition. He graduated from Rutgers University with dual degrees in finance and economics, where he founded the Rutgers Entrepreneurial Society.

We asked Ben some questions about what to expect at this year’s conference — here’s what he had to say:

 

What are you most excited about for the BEC2022?

“What I’m most excited about is the opportunity that has presented itself in the operating environment for commercial real estate investors. Since this conference began in 2016, we’ve been talking about a market correction from which syndicators can execute a scaling strategy. For all of its destruction, the silver lining of the global health crisis is that it has accelerated or formed new trends that will allow for new creative investing and operating strategies.

“To take advantage of this for BEC2022, we are marrying all of our learnings from the past five years and compounding them with new partnerships. We are incorporating the components of virtual programming that worked in 2021, the networking that worked in 2020, the location that worked in 2019, and the late-night networking that worked in 2018. We have our biggest production budget yet to make sure it’s high quality, peak energy, and massive impact.”

 

Tell us about the experience. What can attendees expect?

“From the moment you register, you’re going to feel like you’re coming home. This is not a conference for beginner investors or tire kickers. Ninety-six percent of our attendees have transacted or invested in one or more commercial real estate deals in the last six months. There is no other conference with this kind of concentration of high-quality networking, and those who have attended before know that, so they treat every new handshake as an opportunity to make a new friend or partner. It’s an incredibly inviting atmosphere.

“When you first enter the main stage, you’ll be drinking from a fire hose. We like to start off the conference with back-to-back economic updates from those with access to massive datasets who are fantastic presenters. We’ll keep you well-fed and intellectually stimulated throughout the day so that you have the energy to carry the relationship-building into the evening where the real connections are made.

“You won’t find yourself avoiding the gaze of our sponsor tables as we’ve filtered them in advance and they’re likely to be highly relevant to your business or investing needs. Two years ago, we had a deal funded by a lender two business days after the connection was made at the Best Ever Conference.

“Finally, this will all take place at the newly built Gaylord Rockies in the peak winter season, which means you’ll have access to indoor water parks and some of the best skiing in the world.”

 

In your opinion, what are the top three reasons to attend the Best Ever Conference?

“Learn. Network. Invest. People come to the conference attracted to the speakers and subjects presented on stage, and this year will be the best yet. Our lineup is next level and with such a volatile year, there are endless subject matters to touch on to support the professional investor navigating the year ahead.

“But the true value that our audience walks away with is the networking, which ultimately leads to a new investment of dollars, time, or energy. Countless companies have been formed out of Best Ever connections, and hundreds of millions of dollars in capital have been placed in our community’s deals.

“And of course, we can’t forget the partying. If you are active in the syndication space, you’ve likely corresponded with dozens of folks who you’ve never met in person; the Best Ever Conference is the place to finally connect in person over a beer — or three.”

 

Any other exciting tips or best practices for attendees?

“Don’t set out to peddle an investment offering at the Best Ever Conference. There are dedicated spaces where that’s appropriate, and you can reach out to the Best Ever team if you’d like to take advantage of that. Rather, set out to make a few deep, high-quality relationships without an endpoint in mind.

“The deeper you can make a single relationship, the further it will carry your business or portfolio to success. Take the blinders off your periphery and identify how adding value to someone else’s life could creatively compound an outcome in yours. The more you learn about someone under a non-transactional premise, the deeper the reward will ultimately be.”

 

How will this year be better than ever?

“This year, we are leaning into the mantra, ‘collaboration beats competition,’ and partnering with several other communities outside of Best Ever to create an audience composition that will surely be the ‘best ever.’

“In partnering with investment groups, we are increasing the amount of available capital searching for real estate syndications. By partnering with other sponsor-facing organizations, we are increasing the exposure of high-quality commercial real estate sponsors to the passive investor community.

“Our audience might show up for the marquee content, but they leave pointing to the networking opportunities as the most valuable component of the experience. By investing in getting the right people in the room, we know more deals will get done, more capital will be placed, and more lifelong partnerships will form.”

 

How can attendees plan to make the most out of the Best Ever Conference?

“Set an intention — one relationship or one nugget of wisdom that you’d like to walk away from the conference with.”

To learn more or purchase your BEC2022 ticket, visit us at besteverconference.com.

 

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How to Use KPIs to Optimize Leasing and Retention Rates

How to Use KPIs to Optimize Leasing and Retention Rates

To ensure that a business is performing satisfactorily, keeping track of key performance indicators (KPIs) such as leasing and retention strategy is essential. If a comparison of this key metric vis-à-vis the competition shows that you are lagging, then it is time to fine-tune the strategy. A good management team will pay close attention to such metrics and take corrective action as soon as it becomes apparent that you are not a market leader, striving to be the trendsetters rather than followers.

KPIs give a quantifiable metric to measure if the set business objectives of a multifamily unit are being achieved. By paying close attention to KPI, a management team can take corrective action, if needed, to see that the multifamily property gets a stream of steady leads and to ensure that residents are satisfied with the various amenities available.

Every business has a set of variables unique to it. Therefore, blindly follow the industry KPIs may not work and at the end of the day, you will wonder what you did wrong. To ensure the KPI of each multifamily unit works as intended, the management team must assess the various relevant factors in the property and set its own KPIs. There are a few performance indicators that are common to all multifamily units and serve as the basic building blocks of a good KPI strategy.

 

Occupancy and Vacancy Inputs

One of the key performance indicators a management team must track is the rate of occupancy and vacancy in the property. The higher the occupancy, the better the bottom line will be. Due to the downturn in the economy, many property managers are grappling with the problem of apartments remaining empty for longer than average.

Due to this, it is paramount that every lead is turned into a lease. One strategy to keep track is to use an analytics dashboard, which will let the manager track vacancies in real-time and ensure that the business strategy is fine-tuned to increase the average occupancy rate.

 

Average Number of Days to Lease Empty Apartments

The length of time an apartment remains vacant before being leased again is a key performance indicator in the multifamily industry. By keeping track of the length of time the apartment is empty, the management team can calculate the cost of the vacancy. No management team wants a lot of empty apartments as a part of its track record. The moment they find out the number of vacancies is greater than the long-term average, they can take corrective action in their leasing strategy. For example, they can come up with added incentives for signing a lease or renewing it. There are a number of ways the management team can sweeten the deal to entice leads to sign on the dotted line.

 

Minimizing Resident Turnover

It is a fact in every industry that retaining an old customer is far less costly than signing a new one. Even if a single apartment is vacant, the marketing cost, preparing an apartment for lease, etc., will cost thousands of dollars per month. If this is multiplied over many empty apartments, the cost can be considerable indeed.

Resident turnover is a KPI a management team can use to measure and minimize the cost of keeping empty apartments in the complex. Using this metric, they can analyze whether it is a long-term resident who is vacating the place, or if is it a short-term resident who is not renewing their lease. Once this information is with the management team, they can figure out the reasons for such lessees leaving and can take countermeasures to plug the leak. It is a very important performance indicator.

 

Final Thoughts

By keeping a constant tab on KPIs, property managers can get an idea as to what has to be done to improve any problematic performance indicator. In the short term, the implementation of KPIs may add to a management team’s workload, but if attention is paid to KPIs diligently, they are a valuable tool to have at their fingertips. KPIs can help them improve the performance of the property in terms of amenities and improvements, as well as in improving the bottom line of the balance sheet.

 

About the Author:

Veena Jetti is the founding partner of Vive Funds, a unique commercial real estate firm that specializes in curating conservative opportunities for investors.

 

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Key Players Every Real Estate Team Needs

Key Players Every Real Estate Team Needs

If you are a regular on this blog, you have seen Joe Fairless talk about getting your team together. I have counted no less than 42 blog posts on this website about this issue. Thus, you, by now, know that having the right team is essential to your success. Joe could not be where he is today without a good team around him. And while I am sure he had to kiss a few frogs along the way to find his winners, he has that team in place. Creating a successful mix of personalities, expertise, and “get-it-done” team members is a very difficult recipe.

Whether you are putting a team together for your real estate investments or for something else, these are the players you have to save on speed dial.

 

1. CPA/Bookkeeper

I have used the largest accounting firms, the local 800-pound gorilla, and the local mom-and-pop shop. You would be surprised to know that the winning player for me was the mom-and-pop shop. I found a local accountant that loves to geek out on tax talk. She gets into the details that CPAs and tax lawyers talk about at tax conferences. Once she understood how things were structured, we discussed the goal of the project, ideas were bounced back and forth, and we found common ground that has been very satisfying. This does not mean that I didn’t switch up my accounting firms a few times before finding her. It took time, but once you find the right fit for you, things move much more efficiently.

 

2. Lawyer

Having a good lawyer that understands business, real estate, and taxes is paramount in this world. Not only does your lawyer need to understand your business, but they need to understand your industry as well. From those two perspectives, it benefits you that your lawyer can speak fluently with your accountant or CPA. Your time needs to be spent finding deals and managing your real estate goals. Your professionals need to take the legal and accounting off the table for you so you can focus on what you are good at — real estate.

 

3. Banker

The right bank and banker are make-or-break players. You need a relationship banker who understands what you are trying to achieve, will help guide you and your projects to get there, and makes your life easier. Get recommendations from friends, colleagues, and other investors. Banks make money on you, but really good bankers help you make multiples of that spent money back.

 

4. Insurance Agent

If you are buying real estate, or just running a business, you need to have a good insurance agent. They understand your needs and are the ones you call when things go south. All of my insurance is with one agent. That agent in turn has not only told me about deals, but he has also connected me with possible deal makers that have the potential to become deals. Plus, you only need insurance when you need insurance.

 

5. Property Manager

Do you take the 11 p.m. phone call about a clogged toilet? I don’t and won’t. Property managers are the buffer between tenants and owners. Good property managers solve problems, act as good stewards of your property and money, and make sure elevators work, the landscaping is clean, and the facilities are operational. Property managers usually don’t get paid unless the rent gets paid, so they are incentivized to make sure everything is in working order.

 

This list is not exhaustive, but it is a good place to start. Once you have a good team, the synergies will begin playing off each other and deals happen more frequently. More deals mean more success. Do not be afraid to kiss some frogs. Your team is mission-critical to your success. Good luck out there.

 

About the Author:

Brian T. Boyd, JD, LLM, www.BoydLegal.co

 

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