The Top 10 Things to Ask Before Investing
Ryan Gibson, Spartan Investment Group
How to find great operators
- Online:(506 investor group, forms D)
- Funds: fund of funds
- Syndication groups: meetups groups
- Projects: something you see in your area because most are syndicated
- Referrals: from other operators
Your interview with the operator
- Ask open ended questions: When interviewing operators, see if they are interested in what you have to say
- Write down notes
- Keep a log of operator Q&A
- Portfolio projects
- Property location
Are they an operator or syndicator? Determine what role the company plays. How are they compensated, how are they aligned with you? Are they aligned with the success of the project?
Tell me about a deal gone bad? This is Ryan’s favorite question. Having no deals that have gone bad indicates low experience or a lie while having deals that have gone bad helps you judge the grit of the syndicator.
What is their mission, vision, and values? Does their mission, vision, values, align with yours? Ask them to give an example of how they’ve used their values recently.
Who is on the team? Are they a one-man band or do they have a deep bench? Are they vertically integrated? Are they using the fees they charge to hire a great team or to pay themselves?
What is their core business model? Selling education? Working elsewhere? Focused on deals? Gurus?
What is your investor communication plan? Ask for last three communications to get a better understanding of their communication style. Is the plan in writing? Can you verify property performance against projections?
What is the performance of their portfolio?
- Historical performance (proforma vs actual): comparison is more important than absolute return since it gives you the right context
- Was it project level IRR or investor IRR: total project may look better than investor level
- Consistent metrics: Ryan likes to use equity multiple and how long it took gives true time tested return, IRR might be misleading or not the best metric
Obtain reference and conduct a background check
- Don’t ask for a reference, find your own, because no one gives bad references
- Find others that have invested in the company
- BBB, Google reviews, 506 Group, etc. – search for the company name and name of the principles
- Does SEC attorney provide E&O insurance to cover for lawsuits
- What exclusions are included on their title insurance?
- Is there property insurance at least from an A rated Carrier?
Decision to exit
- What would make an operator exit early? What is their justification for selling?
- Have they sold early in the past? How many time and, how did the actual returns compare to projections?
- How do they brief investors?
Market-Driven Strategies for Investment and Operations
Greg Willett, Real Page Inc.
Where we are at right now
- We suffered sizable job losses which have impacted real estate market. However, occupancy rates are at healthy level and we’ve experienced rent growth in some places. Overall, there is huge variability in results in one part of the country and product niche to another – the highest I have ever seen.
- Best rent growth is about 8% – Inland Empire, Sacramento, Virginia Beach, Memphis, Midwest
- Gateway metros are really struggling – Bay area and metro New York: rents cut 15% to 20%
Three Investing Strategies
- Throttle up your Sun Belt assets. Simply getting in front of renter demand can help fuel performance success: Really solid demand results across state of Texas, Carolinas, Tennessee, Atlanta, Phoenix, and Denver. Be careful in Florida markets, because there are a lot of tourism centers. Places like Tampa, Jacksonville are doing well. Don’t rule out the Midwest. Demand is not as strong as it is in the Sunbelt but low supply will drive demand.
- Don’t bank on a flight-to-quality. Rent discounts at top-tier product are not delivering move-up renters to the extent experienced during previous economic stumbles: Renters have had the tendency to move down and downgrade to class B and C to save money.
- Explore a low capital value add strategy. Lower price points are boosting occupancy and supporting resident retention at lease expiration: Focus on maintenance issues and appearance but hold off on bells and whistles to keep property more affordable for bigger group of renters. Turn around on a vacant unit is faster for lower quality upgrade and leaves money on table for a future buyer.
Three Operational Strategies
- It’s the right time to adjust the recipe for your operational “secret sauce.” Measure what’s working now: You don’t want to be doing what worked well in the past, you want to be doing what works well now. Pay attention to what young adults are doing and how it impacts the types of units that are in demand. Then determine how this impacts your marketing needs, because certain strategies are better and worse. The bottom line is to measure everything to see what is different now compared to two years ago
- Focus on renewals. Resident retention at initial lease expiration has gotten harder to achieve in some locations and product segments, so make it a priority to hang onto today’s best residents: There is large variability in renewal rates across the country. But the goal is to hang on to the good residents who are making payments. Taking a hit on rents on a renewal lease might be a good thing. Pay attention to the type of units with lower and higher renewal rates and ask yourself, why aren’t they renewing? Pay attention to the non-pricing factors, like maintenance and customer service.
- Take back control of your brand. Know what you are selling and who the target for your product and message is in this marketplace: The overall message should focus on service, appearance, ease of living a the property, the location – don’t focus on price.
The Devastating Impact of Climate Change on Your Real Estate Investments in the Next 10 Years
Neal Bawa, Grocapitus
Impact of climate change in 2020 and questions to think about
- 2020 had $95B in damage from climate disasters
- What will happen to your investments when taxes increase to pay for massive sea walls?
- Where will the money come from to fix Texas’s power grid?
- In California, the six greatest wildfires happened in 2020, and will double in five years. How will this impact California cap rates?
- Cities with sea level rise exposure are already priced at a 7% discount
Many climate risks may become uninsurable: Insurance companies are starting to buy climate data from Moody’s and creating city-by-city insurance plans.
Climate data is being used to downgrade entire cities: When a city is downgraded, their ability to borrow goes down, making it harder to fund re-construction projects. As a result, people move out, and it continues to spiral.
The end of the 30-year mortgage: Full cities may change to 20 year or 15 year mortgages options
The cities with no climate risk will be the next gold rush.
Overall, the people who set ratings, cap rates, insurance rates, mortgage terms, as well as cities are taking climate risk into account, and so should you.
The State of Fundraising in 2021: Key Risk Areas for Capital Raisers in Today’s Regulatory Environment
H. Gregory Baker, Lowenstein Sandler LLP
Capital raising regulations have been relaxed over the past presidential administrations, but that is changing.
Section 5 of Securities Act: One of the most important rules in the federals securities laws. In 2020, 1/3rd of all SEC enforcement cases concerned offering of securities. The SEC does not need to prove that you intended to violate the rule: they just need to show that you violated the rule,
A security must be registered or have an exemption. The common exemptions are:
- section 4(a)(2) of securities act, private placement exemption
- Rule 506(b) of Reg D, private placement safe harbor
- Rule 506(c) of Reg D, general solicitation
- Reg. Crowdfunding,
- Intrastate offerings
The consequences for violating Section 5 can be severe. The investors can get their money back from you. The SEC can fine you. And your reputation will be harmed.
How people or companies get tripped up on Section 5
- Relying on 506(c) but failing to ensure that your investors are accredited
- Relying on 506(b) but you advertise
- Relying on intrastate exemption but selling to investors in multiple states
Expect to see more of these cases under new leadership. Gregory’s advice is to work with your attorney to ensure you follow rules, and document how you followed rules.
How to Scale Your Syndication Business
Michael Blank, Nighthawk Equity
Who should consider building a thought leadership platform? Anyone raising money for real estate. Anyone who has already raised some money 1 to 1. Anyone who is ready to scale capital raising ability. Anyone who wants to raise millions of dollars in a few days.
What will a thought leadership platform achieve? Automatically attracts the right investor, raise more money so you can do bigger deals, create more revenue, invest revenue back into market to do more deals, effortlessly scale and serve your investors
Three pillars of a thought leadership platform
Identify your ideal avatar: in order to attract the “right” audience who is interested in what you have to offer, you have to identify your ideal potential investor
Capture leads: when you attract the attention of your ideal avatar you need to know who they are. The best way to do that is to offer them a “Lead Magnet” in return for their email addresses
Serve and lead: Serve your audience and earn their trust with valuable free content that educates them about investing in syndications. Serving = content = trust
Lead them on their investing journey with continuous content
Scale: Make a compelling offer that generates revenue and reinvest a portion of your revenue to attract more leads
How to automatically attract more passive investors
Create a lead magnet: When someone downloads a lead magnet, they get tagged in system as “downloaded”, and put on email list to receive educational emails
Join the club: After downloading the lead magnet, they are invited to fill out a detailed questionnaire, and get tagged as “joined”.
Schedule a call: Included is the option to schedule a call after filling out the questionnaire. After the call, they get tagged as “deal ready” and are now prepared to receive upcoming opportunities
Follow up automation: Automatically send follow-up emails to people tagged with “downloaded” and “joined” until they move forward in the process and set up a phone call or unsubscribe.
Multiplying Your Real Estate Portfolio
Deborah Razo, Women’s Real Estate Network
The secret success system blueprint: find success habits, cultivate habits through repetition, achieve mastery. This is a system that deals with growing systems and expanding your mindset.
The success cycle: potential, action, results, belief. The more we believe in our potential, the more action we will take and the more results we will achieve. The more results we achieve, the more we believe in our potential.
How to cultivate resourcefulness: Write down a problem and come up with three effective, intelligent, and viable solutions. Because one choice is no choice. Two choices is a dilemma. But three options and you are in the space of choices
Accelerate Your Returns Through Construction Management
Ashley Wilson, Bar Down Investments
A team member with construction knowledge is critical to maximizing the investment’s returns
Get creative: There is more than one way to solve a problem, so your focus and end goal should drive your solutions
Balance between evaluation & equity: Your focus should be on increasing equity, not the evaluation.
Time is money: Figuring out ways to decrease the time construction takes will maximize your return on investment
Building a Social Media Content Engine
David Toupin, Obsidian Capital & Real Estate Lab
Social media = attention = influence = income
Where to start
- Focus on 1-3 platforms at first to get traction
- Create Facebook, Instagram, and YouTube account to start, or pick one or two that you like and want to go with
- Block out one day every week to record a few hours of content to stock pile content and post throughout the week
- Block out 2 hours every day to post and interact with followers: respond to every comment and direct message
How to create a social media content engine
Create lots of content one or two times per month: Either by yourself of hire a videographer for one or two sessions each month, and upload all the content to a DropBox folder
Hire an editor to create a content database: Use month’s worth of content to create longer videos, shorter videos, and pictures with caption. The goal is to create at least 10 social media posts per one hour of video content
Hire a content manager: The content manager will use the content database to compile one month’s worth of social media posts.
Determine what the focus of your content is going to be: All posts should be directed towards achieving your end goal
You approve the posts: Once the content manager has compiled a month’s worth of posts, you review and approve
Schedule the posts: After you’ve approved the posts, the content manger schedules them throughout the next month.
Rinse and repeat
Top social media tips
- The number one secret to social media is consistency
- The number two secret is focusing your niche
- Be yourself, people will recognize if you’re not being real
- Interact with your audience
- Tell your story
- You will automatically attract people that like the same things you like. That’s how the algorithm works
- You do not need a fancy camera or equipment. Any modern cell phone is sufficient
- Don’t worry about your current audience. Create your desired audience over time – either create a new account or start on your personal account
- Don’t worry about what people might think about you. Have fund with it and be yourself
- Comment on posts of other big influencers
UTH Workforce Housing: Pairing Private Capital with New Construction Workforce Housing
Scott Choppin, Urban Pacific group of Companies
What is workforce housing?
- Built-to-rent, non-standard MF in historical terms – SF and attached townhome rental product
- Below market rate rents
- Housing for working families at 80% to 120% of median income: service sector/blue collar, large multigenerational family groups with 4-7 people
- Housing for professional “location agnostic” roommate groups working remotely: location agnostic and use extra bedroom for remote work
- Locations: urbanized suburbs of most major cities, close to amenities but not central business district
Why chose workforce housing as an investment?
- Deeply undersupplied
- Multi-earner households (families or roommates),
- Multi-generational households (reduces poverty rates)
- Work-from-home is accelerating absorption and rental rates
Sticky, long-term tenant base
- Strong social networks: kids in school, family nearby
- Economic sharing lifestyle: share income and expenses across the group
- Naturally affordable rents without government subsidies
What is urban townhouse (UBH)? Designed and built-to-rent but lives like a house
- Five bed/four bath, 1750 sqft.
- Three-story townhouse
- Two-car direct access private garage
- Multigenerational and WFH space ground floor bedroom/bath
- Located in existing urbanized suburban neighborhoods where families and work from home roommates want to live
- Rent on average $3500 to $4000 per month
- Value ratio $2 to $2.28 psf. (average 50% below market)
- Per bedroom rent $700 per (40% to 50% below market)
Extended Stay Model – A Hidden Secret in the Hospitality Industry
Jennifer Maldonado, The Art of Raising Capital Program
Profitability and resiliency are the foundations to long-term profits.
During the pandemic, the extended stay hotel model worked well for first responders and essential workers.
Economy Extend Stay Hotels performed the best during the pandemic.
- Top tier: occupancy is down 29.7% and average daily rates (ADR) are down 17%
- Middle tier: occupancy is down 14.8% and ADR is down 13%
- Economy tier: occupancy is down 3.1% and ADR is down 3.1%
Don’t chase the herd! Chase the returns!
Ash Patel, Rivershore Capital
By searching the MLS five times every day, Ash was able to know about properties before anyone else, even the brokers.
Don’t make excuses when things get hard.
As a commercial real estate landlord, your only job is to make sure that you tenant is successful: treat your tenant like a partner and they will take better care of your property
Success follows selfless acts for others.
Look for unconventional ways to by real estate.
Bringing Property Management In-House: Why, When, and How
Frank Roessler, Ashcroft Capital
Why bring property management in-house
To improve performance: The only real reason you to it. If you can’t do it better, don’t do it at all
Alignment of incentives: Move away from issues of fee-based management. No other clients of higher priority.
Improve communication: Faster awareness of property vitals. More involvement in property operations.
When to bring property management in-house
Pros and cons of bringing property management in-house day 1
- zero disruption
- small overhead: won’t have to build out an entire organization, which is expensive and time consuming
- reduced upfront costs: offices and employee benefits
- no best practices: you will be learning on the job at the detriment of the first few properties
- starting at a loss: one property will not cover cost of managing the property, won’t breakeven until you have a couple thousand units
- no industry top talent: don’t have a track record to attract best of the best
Pros and cons of bringing property management in-house when you have scale
- Ability to attract top talent: people were eager to jump ship and provide a business plan
- Starting with a profit margin: breakeven or make a little bit of money
- Best practices: because you have the top talent
- Major disruption: terminating contracts, providing notice, transition process, a million moving parts
- Significant startup costs: hiring a full team before you even have revenue
- Relationships can be hurt
How to bring property management in-house
- Create a policies and procedures manual: a how-to guide for every single department and staff member in your portfolio
- Hire a president to run the company: don’t reinvent the wheel, leverage that person’s knowledge, experience, leadership, and contacts.
- Build out each department slowly and carefully before you take everything over: learning and development director, digital marketing director, revenue management, CFO, IT, HR, regional and area manager, regional maintenance director
- Culture matters
- Provide sufficient notice
Six Lessons in Becoming a Better Leader
Brandon Turner, BiggerPockets
The Four “Therefores”: Happiness and fulfillment is found through growth and achievement therefore, in order to grow, I need to focus on my superpower and less on other tasks therefore I need to hire a partner or outsource my non-superpower tasks, therefore I need to lead those people to where I desire therefore leadership is not an option for an incredible life
How to change your identity: mindset -> actions -> identity -> confidence -> actions …
You can be anything you want to be if you change your identity through your mindset actions and confidence
Brandon’s new mindset about leadership
- My job is to be a general
- Management is not leadership and leadership is not management
- When you work with people you love and care for, it’s not work, it’s a beautiful life, a symbiotic relationship of mutual growth and respect
- Leadership is the most manly of skills
- Freedom is found through great leadership
- Leadership is a skill
6 characteristics of a great leader
- Quitter: find a way to quit your job as soon as possible by paying an expert to do it
- Cutter: the one or two things you need to be doing
- Caster: write down the vision for where you want your company to go
- Coach: ask the right questions to improve performance of team
- Scout: find and attract talent
- Student: recognize you don’t know what you are doing and that you need to continually grow