10 Markets with More Than 4% Rent Growth in Last 12 Months

Another important factor to analyze when you’re evaluating potential target investment markets is historical rent growth, which is also tied to supply and demand.

A strong year-over-year rent growth indicates a strong multifamily market.

Additionally, one of the important assumptions set when underwriting an apartment deal is annual income growth. That is, how much will my revenue naturally increase each year? Generally, somewhere between 2% and 3% is a solid, conservative assumption, due to being close to the national and historical rent growth and inflation averages. Therefore, if you are investing in a target market with a true rental growth that is greater than 2% to 3%, you are able to automatically add value just by selecting the right market!

Each quarter, CBRE gathers the most recent multifamily data and releases it in their U.S. Multifamily Figures Report (click here to view their most recent report, Q1 2019). The national year-over-year rent growth was 3.0%. But here are the 10 markets that saw a rent growth greater than 4.0%:

 

10. Jacksonville, FL

Y-o-Y Rent Growth: 4.1%

 

9. Raleigh, NC

Life Storage

Y-o-Y Rent Growth: 4.1%

 

8. Charlotte, NC

Greyhound

Y-o-Y Rent Growth: 4.2%

 

7. Tampa, FL

Parade

Y-o-Y Rent Growth: 4.3%

 

6. Austin, TX

GrandView Aviation

Y-o-Y Rent Growth: 4.7%

 

5. Riverside, CA

AreaVibes

Y-o-Y Rent Growth: 4.8%

 

4. Sacramento, CA

Y-o-Y Rent Growth: 5.1%

 

3. Atlanta, GA

Y-o-Y Rent Growth: 5.4%

 

2. Phoenix, AZ

Y-o-Y Rent Growth: 8.0%

 

1. Las Vegas, NV

Booking.com

Y-o-Y Rent Growth: 8.0%

 

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.

8 Metro Markets with Most Multifamily Completions in 2018

One of the most important factors to analyze in order to select a target real estate investment market is supply and demand.

In general, the more demand there is for your product, the more you can charge. In the context of multifamily investing, the more demand there is for rental units in your target market, the higher the occupancy rate and the higher the rents.

One great way to measure the demand of multifamily rentals in your market is to determine the number of new units completed and the number of completed units that were rented. This measure is known as the absorption rate. The absorption rate is the ratio of the number of completed units rented to the total number of completed units. For example, if 100 units were completed and all 100 of those units were rented, the absorption rate is 100%.

Each quarter, CBRE releases their U.S. Multifamily Figures report, which tracks the absorption rate (among other factors) nationally and by metro. Click here to view the full report.

In 2018, the total number of completions was 267,900 units and the net absorption was 286,600 units (which was the highest new absorption since 2000). That gives us a national absorption rate was 107%.

Here are the 8 markets with the most multifamily completions in 2018, along with the net absorption:

 

8. Miami/South Florida, FL

  • 2018 Completions: 9,500 units
  • 2018 Net Absorption: 8,000 units

 

7. Boston, MA

  • 2018 Completions: 9,700 units
  • 2018 Net Absorption: 10,800 units

 

6. Denver, CO

  • 2018 Completions: 11,700 units
  • 2018 Net Absorption: 11,500 units

 

5. Washington, D.C.

  • 2018 Completions: 13,600 units
  • 2018 Net Absorption: 15,200 units

 

4. Seattle, WA

  • 2018 Completions: 14,400 units
  • 2018 Net Absorption: 13,500 units

 

3. Los Angeles/Southern California, CA

  • 2018 Completions: 20,000 units
  • 2018 Net Absorption: 20,400 units

 

2. Dallas/Ft. Forth

  • 2018 Completions: 20,500 units
  • 2018 Net Absorption: 19,800 units

 

1. New York, NY

  • 2018 Completions: 32,300 units
  • 2018 Net Absorption: 37,800 units

 

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.

 

 

urban apartment building with balconies

How to Invest in Apartments Like a Pro

You’ve had some experience with investing in homes, but now you’re ready to take your real estate investing efforts up a notch by taking the plunge into apartment syndications.

The question is, are you truly ready to enter the “deeper end” of the real estate investing pool?

Investing in apartments is a major commitment; in fact, it’s often viewed as more than just a passive investment strategy: it’s a career. To invest in apartment complexes, you’ll likely need more commitment than you would with a single-family home, both financially and physically. At the same time, investing in an apartment building offers benefits that you won’t get with other kinds of real estate investment strategies.

Here’s a rundown on how to invest in apartments like a pro.

Assess if Apartment Investing is the Proper Fit for You

First, make certain that this investing approach is really right for you. This is critical, whether you are totally new to investing in real estate or you already have a massive portfolio of investment homes.

One of the main reasons you need to be confident you’re making the right move is that working with multifamily properties requires two valuable commodities: time and cost. Those interested in mastering how to invest in apartments must be prepared to meet the upfront capital requirements. They’ll also need to become accustomed to managing multiple units simultaneously to generate continuous cash flow.

Some unique challenges that come with choosing to invest in apartment complexes include addressing tenant turnover, maintenance issues, and leasing paperwork. So, before you become involved in apartment investing, make sure that you have an idea of how you’ll secure the capital (whether that comes from financing or private accredited investors) and the schedule required to accommodate such a large endeavor.

Consider Your Target Apartment Building Type

Apartments, much like homes, come in a wide range of sizes and shapes. For instance, if you’re exploring how to invest in apartments, perhaps you’re eyeing a community that is actually a rehabilitated Victorian home that someone has divided into multiple units. Or maybe you’re looking for a modern building with multiple stories located in a metro area.

To make your choice easier, first, determine your target asset class. This will help you narrow down your search for new deals and help you pinpoint what kinds of buildings would give you the greatest return on your investment based on your budget. You must also consider how much you’ll need to charge in terms of rent in light of the property purchase price and the cost of renovation and repairs.

Identify Your Target Property

After you’ve settled on a certain type of community to invest in, you can start looking for properties. As you explore how to invest in apartments like a pro, it may behoove you to consult with experts who have experience investing in apartments, as this may help you to avoid making costly mistakes from the start, especially when it comes to financing (more on that later) and setting post-acquisition income and expense assumptions.

You could also connect with local industry professionals, such as fellow investors, property management companies, or real estate agents, through a community club focused on real estate investing. Networking with these types of professionals may help you to connect with an investor who knows about certain properties for sale. Agents could also point you to potentially lucrative properties, since they can easily access commercial brokerage listings and multiple listing services.

Practice Due Diligence

If you’re interested in learning how to invest in apartments, note that exercising real estate due diligence is one of the most important steps you can take. In other words, you need to analyze a potential deal in depth before moving forward with it.

Your Analysis

To invest in apartment complexes, you need to take into consideration factors like location, available amenities, the condition of the target building, how many units the building has, and the historical and current market rents and expenses. All of this information can help you to calculate what your rent amount should be and how much you’ll have to pay for necessary improvements and repairs.

The building’s overall condition could tell you how frequently you’ll need to perform repairs, which will impact your cash flow each month. In addition, your property’s location will point you to the socioeconomic factors in the local area that will impact your long-term profitability. These factors include, for example, capitalization rate, rental growth, population trends, and occupancy rate.

Other Considerations

Furthermore, to invest in apartment complexes successfully, make sure that you hire a reputable inspector to check out an apartment complex before you buy it. At the same time, you’ll want to secure copies of legal documents, such as leases and tax returns, from the complex’s previous owner. These documents will be most helpful for discovering hidden problems with the property.

Finance the Deal through Syndication

As you explore how to invest in apartments, note that an important part of this process is financing the deal. A smart way to do this is through apartment syndication. Syndication is where you pool money from multiple passive investors and use this capital to acquire a property; you can use the money to purchase an apartment community outright or to cover part of the cost of the property while using a commercial mortgage to cover the remainder of the purchase price.

The benefit of syndication is that it offers a rapid way of purchasing apartment complexes and producing profits from them. The investors with whom you work will cover various apartment syndication expenses, and you’ll receive this money since you’re assuming responsibility for managing the deal.

Master Your Portfolio Like a Pro!

If you’re ready to elevate your real estate investing income, now is an excellent time to learn how to invest in apartments like a pro. Get in touch with me, Joe Fairless, to find out more about how you can make your first apartment investment deal, the first of many successful ones in the years to come.

people in an auditorium for a Real Estate Investor meetup

Real Estate Investor Meetups You Should Attend

The good news? You’ve got the passion and determination to succeed in the competitive and constantly evolving real estate investment world. The not-so-good news? You may have no clue where to start or how to continue to expand your business.

Fortunately, you don’t have to embark on the path to a thriving real estate investing career all on your own. You can surround yourself with experts who can guide you each step of the way, whether you’re starting from ground zero or simply looking to restrategize and network with high net-worth individuals.

Here’s a rundown on a few real estate investor meetups you should attend this year.

Cincinnati Real Estate Investor Meetup: Best Ever Cincy Meetup

If you reside in Cincinnati or plan to visit the area soon, you can’t go wrong with the Best Ever Cincy Meetup. Regular attendees have repeatedly praised the meetup for being one of the highest-quality real estate conferences around.

At this meetup, you’ll have the chance to talk with real estate investing experts and fellow investors, like myself, about the latest trends and goings-on in the real estate industry. You’ll also learn how you can maximize both your assets and your time to get the biggest return on your investment.

To take advantage of this real estate investor meetup and build your real estate investment network, you can stop by Deer Park’s Francis R. Healy Community Center between 6:30 p.m. and 8:30 p.m. on the final Tuesday of each month. The conference costs $2.50 each time, with the majority of the proceedings being used to cover appetizers and raffles for the group. A tenth of the proceeds is donated to a nonprofit organization called Junior Achievement of Cincinnati.

Networking in Indianapolis: Indiana Real Estate Investors Group

If you live in the Circle City, the Indiana Real Estate Investors Group is an excellent place to come into contact with aspiring investors and high net-worth investors alike. This group has made it its mission to help their fellow investors.

The creators of this real estate investor meetup have emphasized that they are all about sharing stellar content with attendees, rather than selling a product. In fact, you can discuss what you are interested in buying or selling during a segment of the meeting called “Buy, Sell, Trade.”

This event takes place at Indianapolis’s Broadmoor Country Club on the second Tuesday of each month. If you are eager to expand your real estate investment network, you can start networking with other investors at 6 p.m. before the meeting commences at 6:30 p.m.

Atlanta Real Estate Investor Meetup: Atlanta Real Estate Investors Alliance

The Atlanta Real Estate Investors Alliance is an attractive event for investors looking to tap into a robust network in The Peach State. This membership-based networking and education club is designed for investors as well as other professionals in the real estate world.

The creators of this group pride themselves on catering to every level of experience and knowledge. So, it’s a fitting group for you, even if you’re just getting your feet wet in real estate. During their real estate investor meetup, you can access local experts and even international and national investors and trainers. You can also get connected with local service providers and vendors who could help you with your future deals. In addition, you can use the meetup as a platform for marketing your properties or buying other investors’ properties.

The Atlanta Real Estate Investors Alliance holds its main meetings on the very first Monday of the month. Then, specialty meetup groups get together at various times of the month in select locations throughout the city. You can attend the meetups for free, but if you wish to become an official member of the alliance, the fee is $100 per year.

Dallas Real Estate Investor Meetup: CashFlow Renegades Real Estate Entrepreneurs

Maybe you consider yourself to be a “cashflow renegade” in Dallas, meaning you’re passionate about making money in unique ways while simultaneously impacting people’s lives for the better. If so, the CashFlow Renegades Real Estate Entrepreneurs meetup may be appealing to you.

What’s unique about this group is that it is set up to help beginning investors to earn money, even as they learn how to invest. It is also helpful for those who have already begun to invest in real estate but do not want to hurt their current lifestyles as they strive to achieve that next level of wealth. The event is additionally helpful for those who want to raise money to invest in real estate and need help finding the perfect deals.

This group is known for its regular fix and flip tours, where you get to take part in a home walk-through and learn firsthand what you need to do to make any residential real estate investing deal work.

Participate in a Real Estate Investor Meetup and Start Making Money Today!

If you are serious about making more money —and not at a 9-to-5—now couldn’t be a better time to join real estate group or event in your local area. The right meetup will introduce you to a top-tier real estate investment network, which will allow you to grow your connections, your knowledge, and even your investing opportunities.

You can expect a high-quality group to teach you skills related to flipping foreclosures, finding money to do investing, short sales, and finding a cash buyer. Other subjects you can explore at these groups include marketing techniques, rehabbing, and even property management.

I can also provide you with an additional layer of support thanks to my extensive experience with generating wealth through real estate investing. In fact, I can even show you how to create the largest real estate meetup. To earn more about how you can take your real estate investing venture to the next level, apply to my private program or become a passive investor with me on one of my apartment deals.

corner apartment building with balconies

Good Apartment Property Management Practices to Look For in the Company You Hire

You’ve done all of the hard legwork needed to purchase your income-producing apartment property, so naturally, you’re committed to its long-term success. Unfortunately, one of the quickest ways for your real estate ownership dream to die a quick death is to hire the wrong property management company to oversee your property for you.

On the flip side, the right apartment management companies will help you to retain tenants, optimize operations, and thus add to your bottom line, not detract from it.

In light of the above, here’s a rundown on property management best practices to look for when you’re on the prowl for the top management companies in your area.

A Well-Oiled, Service-Oriented System in Place

One of the most important pieces of information you need to gather from a prospective company is the quantity of properties or units they are currently managing. In addition, be sure to ask them how many people they have overseeing the units. One of the most essential practices you should see from the best apartment management companies is having an adequate number of employees available to service all clients’ portfolios at a high level.

The reality is, an employee who is properly trained and equipped to manage properties can easily manage 30-40 units at one time. Of course, this doesn’t include the accounting function. So, let’s say you come across a property manager who has no staff and is already managing 40 units. Handing your 20 units over to that real estate property management company may not be in your best interest.

Clear Focus on Managing Properties, Not Owning Them

As you’re screening the property management company options in your area, consider whether the owner of the company has rental properties himself or herself.

Your first inclination may be to think that the best apartment management company is one whose owner is involved in apartment investing, too, which means he or she has rental properties as well. However, the truth is that, even though the property manager may relate to you on an investing level, he or she may also be in competition with you.

For instance, if both you and the property manager end up having vacancies at your individual properties, are you sure that yours will end up being filled first? There’s no way of guaranteeing that your best interests will be placed ahead of your property manager’s.

Use of Automation

As you interview apartment management companies, be sure to ask them if they’re using any of the automated systems for tenant management that are available today. Then, ask each to provide for you a sample of an output report from the system they’re using.

If they aren’t using software to boost their efficiency, or if they’re hesitant about giving you reports, you may end up not having very profitable experiences with them.

A Willingness to Perform Property Inspections

One of the most important property management best practices is completing inspections of clients’ properties. That’s because the best apartment management companies can get into their clients’ properties routinely.

In light of this, ask prospective managers how frequently they are willing to inspect your investment property. In many situations, a property manager will have no problem accommodating your request. However, in some cases, they will look down on this requirement. In fact, he or she might even use this as an excuse to boost the property management fee you’re charged.

The reality is, your chosen property management company should not view conducting formal inspections as an extra perk you should pay for. It should be part of the company’s normal service package for you.

A Fair Property Management Fee

As a general rule of thumb, look for apartment management companies that charge a fee of anywhere from 3% to 10% of your rents for overseeing your property, charging a lower fee as the number of units managed increases.

Also, find out for certain what determines the percentage you’re given. Sometimes property managers will make you pay that 7%, for example, on the full amount of rent that you could collect, even if this total is not actually collected. Instead, look for management companies that will charge you based only on the rents you actually collect.

Additionally, determine what services are included in their fee and what services require extra payment. For example, they may charge lease-up fees or construction management fees.

A Strong Maintenance Approach

Another essential question to ask a prospective property manager is how he or she will handle maintenance issues. A couple of options exist in this area.

First, your property manager could make all maintenance decisions on your behalf. In this situation, you could have the manager spend no more than a previously specified amount of your rental property cash flow before having to get your permission to make a repair. For instance, you could make $250 your limit.

Note that many apartment management companies will also add a fee of 10% on top of any invoice. Management companies often make this a requirement that cannot be negotiated, but it’s still worth trying to talk them into waiving this fee, if you can.

Timeliness When It Comes to Paying You

Finally, be sure that your chosen company gives you reports on your property in a timely fashion. Ideally, you shouldn’t get these reports no later than the sixth day of the month.

Likewise, the percentage of the rental amounts due to you each month should be in your coffers by the sixth of the month. If your target management company cannot guarantee this, look for one that can.

Start Hiring One of the Best Apartment Management Companies Today!

Now that you’ve acquired a money-generating apartment property, you need to take your\y management company search seriously. After all, the quality of your chosen company will either make or break your real estate business.

Understanding the top property management best practices is critical for helping you to make a wise decision when it comes to partnering with a property management company. Get in touch with me to find out more about how to select the best apartment management companies and watch your profits grow like never before in the months ahead.

man sitting on his bed in student housing reading

Tips for Attracting Student Tenants to Your Housing Investments

At the start of each new semester, a flood of students pour onto your local college campus, and, as a real estate investor who owns housing investments nearby, you couldn’t be more excited.

The question, though, is, how can you draw these students to your properties, rather than the many others lining the streets leading to the university campus?

Here are a few tips for attracting student tenants to your student housing investment this year.

Produce a College Student–Friendly Lease Agreement

To draw tenants to your property, it’s critical that you produce a lease agreement that meets college students’ unique needs.

For example, you’ll want the start and end dates for occupancy to align with the local university’s school schedule. Also, you should rent by the room when renting to college students, as this will ensure that one person can be evicted or leave the rental property without necessarily impacting his or her roommate’s status.

Promote Attractive Amenities Near Your Student Housing Investment

Living off campus offers many benefits that on-campus students don’t have the opportunity to enjoy. For this reason, if you’re interested in renting to students off campus, you’ll need to play up these benefits in your advertising.

For example, your property may be much closer to healthy and cheap eateries than the on-campus dorms are, or you may offer amenities like a pool or volleyball court. In addition, your property might be close to a local grocery store or a popular cafe and offer plenty of convenient parking. All of this can quickly grab the attention of a potential student tenant.

Offer the Essentials Right Away

Your student housing investment should come with essentials that will make your tenants’ lives as convenient as possible. For starters, consider including furnishings in the property. You’ll also want to include utilities and the Internet, as campus dorms already do this.

When it comes to Internet and cable, make sure that you have these services set up and ready to be used when your tenants arrive. If you can guarantee this, you might discover that the students and their parents would be glad to choose you, no matter what the cost may be.

Start Drawing Student Tenants to Your Housing Investment Today!

Having an investment property in a prime location is certainly a smart move, but it’s only half the battle when it comes to generating income as a real estate investor. You also need to know how to draw the right tenants to your property.

As the owner of a student housing investment, you must master how to encourage students to check out and ultimately rent your property versus other investors’ properties. Fortunately, you don’t have to figure this out on your own. I can guide you through the process of promoting your property to potential student tenants successfully through effective apartment marketing.

Work with me today to learn more about how to go about renting to students and thus watching your bottom line grow in the school seasons ahead.

10 Markets with Most Job Growth Over Last 12 Months

Each month, the commercial real estate firm HFF reports on the current total number of jobs in each metropolitan statistical area (MSA), as well as the total number of jobs 12 months prior in order to determine the absolute and percent job growth over the past year.

The employment situation in a market is an indication of the demand for real estate. Essentially, people need jobs to pay for rent or to buy a home. The more people with jobs, the more potential customers (renters or home buyers) for real estate investors.

I recommend checking out HFF’s MSA Employment Report for the Year each month to see where your target investment market ranks. Here are the top 10 MSAs with the most job growth between March 2018 and March 2019:

 

10. Orlando

Livability

Total Jobs March 2018: 1,287,500

Total Jobs March 2019: 1,334,900

Total Jobs Added: 47,400

Percent Jobs Added: 3.68%

 

9. Los Angeles-Long Beach-Santa Ana

Road Affair

Total Jobs March 2018: 6,140,800

Total Jobs March 2019: 6,192,700

Total Jobs Added: 51,900

Percent Jobs Added: 0.85%

 

8. Seattle-Tacoma-Bellevue

Total Jobs March 2018: 2,021,900

Total Jobs March 2019: 2,075,100

Total Jobs Added: 53,200

Percent Jobs Added: 2.63%

 

7. Miami-Fort Lauderdale-Pompano Beach

Coastal Living

Total Jobs March 2018:2,680,200

Total Jobs March 2019: 2,735,700

Total Jobs Added: 55,500

Percent Jobs Added: 2.07%

 

6. Phoenix-Mesa-Scottsdale

Time Out

Total Jobs March 2018: 2,101,200

Total Jobs March 2019: 2,159,700

Total Jobs Added: 58,500

Percent Jobs Added: 2.78%

 

5. Atlanta-Sandy Springs-Marietta

Total Jobs March 2018: 2,759,300

Total Jobs March 2019: 2,819,600

Total Jobs Added: 60,300

Percent Jobs Added: 2.19%

 

4. San Francisco-Oakland-Fremont

Total Jobs March 2018: 2,416,900

Total Jobs March 2019: 2,478,900

Total Jobs Added: 62,000

Percent Jobs Added: 2.57%

 

3. Houston-The Woodlands-Sugar Land

Total Jobs March 2018: 3,064,200

Total Jobs March 2019: 3,132,000

Total Jobs Added: 67,800

Percent Jobs Added: 2.21%

 

2. Dallas-Fort Worth-Arlington

Total Jobs March 2018: 3,639,500

Total Jobs March 2019: 3,750,200

Total Jobs Added: 110,700

Percent Jobs Added: 3.04%

 

1. New York-Northern New Jersey-Long Island

Total Jobs March 2018: 9,722,600

Total Jobs March 2019: 9,845,900

Total Jobs Added: 123,300

Percent Jobs Added: 1.27%

 

Click here for HFF’s full report.

 

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.

7 Markets With More Than 15 Fortune 500 Companies

Everyone has a different opinion and methodology for evaluating and selecting target investment market. Some investors simply prefer to invest where they live. Some investors place less importance on the market and more importance on the deal. Some investors will perform an in-depth evaluation, analyzing factors such as unemployment, population growth, jobs, historical rents, etc.

Another unique strategy (or at least something else to think about) for selecting a target investment market is to consider locations with a large number of Fortune 500 companies.

The logic behind considering markets with a large number of Fortune 500 companies is simple: a multibillion-dollar corporation is likely capable of performing better due diligence on a market than you.

Now, this doesn’t mean that you should only invest in markets with Fortune 500 headquarters or that the number of Fortune 500 headquarters is the only relevant market factor. However, when a Fortune 500 company decides to remain in or move to a market, one can assume that they based their decision on the current and future economic strength of the market.

That said, here are the seven markets that are home to more than 15 Fortune 500 headquarters as of 2018:

 

7. San Jose, CA MSA

Number of Fortune 500 Companies: 16

Top Fortune 500 Companies: Apple, Inc. (4), Alphabet Inc. (22), Intel Corporation (46), HP Inc. (58), Cisco Systems, Inc. (62)

 

6. San Francisco, CA MSA

Number of Fortune 500 Companies: 17

Top Fortune 500 Companies: McKesson Corporation (6 – recently moved to Dallas MSA), Chevron Corporation (13), Wells Fargo & Company (26), Facebook, Inc. (76), Oracle Corporation (82)

 

5. Minneapolis, MN MSA

Number of Fortune 500 Companies: 18

Top Fortune 500 Companies: United Health Group Incorporated (5), Target Corporation (39), Best Buy Co., Inc. (72), CHS Inc. (96), 3M Company

 

4. Houston, TX MSA

Number of Fortune 500 Companies: 21

Top Fortune 500 Companies: Phillips 66 (28), Sysco Corporation (54), ConocoPhillips (95)

 

3. Dallas, TX MSA

Number of Fortune 500 Companies: 22

Top Fortune 500 Companies: Exxon Mobil Corporation (2), AT&T Inc. (6), Energy Transfer Equity, L.P. (64), American Airlines Group Inc. (71)

 

2. Chicago, IL MSA

Number of Fortune 500 Companies: 35

Top Fortune 500 Companies: Walgreens Boots Alliance, Inc. (19), The Boeing Company (27), Archer-Daniels-Midland Company (48), Caterpillar Inc. (65), The Allstate Corporation (79), United Continental Holdings, Inc. (81), Exelon Corporation (92)

 

1. New York, NY

Number of Fortune 500 Companies: 79

Top Fortune 500 Companies: Verizon Communications Inc. (16), JPMorgan Chase & Co. (20), CitiGroup Inc. (32), International Business Machines Corporation (34), Johnson & Johnson (37),  MetLife, Inc. (43), Pfizer Inc. (57)

 

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.

 

8 Markets With The Most Millennial Migration

Did you know that according to the National Association of Realtors, the average age of a first-time home buyer is 32-years-old?

This means that if you are a rental property investor who wants to maximize the demand of your rental properties, you should focus on markets where the demographic below the age of 32-years-old (i.e., Millennials) is large and growing. For many reasons like higher student debt, starting families later, and the higher likelihood of moving, Millennials prefer renting to owning.

Here are the top 8 cities where more Millennials (ages of 20 and 34) are moving in than moving out, as well as the city’s total population, and the median rent price according to Census.gov.

 

8. Denver, Colorado

Denver.org

Number of people ages 20 to 34 moved in: 40,647

Number of people ages 20 to 34 moved out: 35,541

Net migration: +5,106

Total population: 704,621

Median rent: $2,195

 

7. San Jose, California

City of San Jose

Number of people ages 20 to 34 moved in: 19,943

Number of people ages 20 to 34 moved out: 14,447

Net migration: +5,496

Total population: 1,035,317

Median rent: $3,390

 

6. Newport News, Virginia

Wikipedia

Number of people ages 20 to 34 moved in: 11,664

Number of people ages 20 to 34 moved out: 5,997

Net migration: +5,667

Total population: 179,388

Median rent: $1,200

 

5. Jacksonville, Florida

TripSavvy

Number of people ages 20 to 34 moved in: 23,327

Number of people ages 20 to 34 moved out: 16,973

Net migration: +6,354

Total population: 892,062

Median rent: $1,199

 

4. Minneapolis, Minnesota

Livability

Number of people ages 20 to 34 moved in: 21,758

Number of people ages 20 to 34 moved out: 15,229

Net migration: +6,529

Total population: 422,331

Median rent: $1,795

 

3. Sacramento, California

The Crazy Tourist

Number of people ages 20 to 34 moved in: 16,181

Number of people ages 20 to 34 moved out: 9,501

Net migration: +6,680

Total population: 501,901

Median rent: $1,695

 

2. Columbia, South Carolina

21 Oaks

Number of people ages 20 to 34 moved in: 13,352

Number of people ages 20 to 34 moved out: 6,415

Net migration: +6,937

Total population: 133,114

Median rent: $1,155

 

1. Seattle, Washington

Bekins

Number of people ages 20 to 34 moved in: 29,628

Number of people ages 20 to 34 moved out: 22,326

Net migration: +7,302

Total population: 724,745

Median rent: $2,700

 

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.

11 Best Markets to Invest in Assisted Senior Living Facilities

If you are a loyal Best Ever Listener and attended the Best Ever Conference 2019, you have heard and seen Gene Guarino of the Assisted Living Academy discuss the power of investing in senior housing.

During my interview with Gene, he explained why he believes that assisted living facilities will be the next mega trend over the next 20 years, in part due to the fact that over 10,000 people turn 65 years old every single day.

To learn more about the business plan for this strategy, check out Gene’s interview or this blog post about how to make an extra $5,000 to $20,000 per month by investing in senior housing.

If you are interested in pursuing this “booming” investment strategy, here are 11 metropolitan statistical areas to target. These are the MSAs with a total population over 500,000 that had the greatest increase in senior population (65 years and old) between 2010 and 2016:

 

11. Colorado Springs, CO

Wikipedia

65 years and older population growth 2010 to 2016: 37%

 

10. Santa Rosa, CA

Shutterstock

65 years and older population growth 2010 to 2016: 37%

 

9. Cape Coral-Fort Myers: 37%

The Florida Living Magazine

65 years and older population growth 2010 to 2016: 37%

 

8. Las Vegas, NV

Wikipedia

65 years and older population growth 2010 to 2016: 37%

 

7. Houston, TX

iStock

65 years and older population growth 2010 to 2016: 39%

 

6. Durham, NC

Livability

65 years and older population growth 2010 to 2016: 41%

 

5. Atlanta, GA

GrandView Aviation

65 years and older population growth 2010 to 2016: 41%

 

4. Charleston, SC

10Best.com

65 years and older population growth 2010 to 2016: 42%

 

3. Boise, ID

Idaho Statesman

65 years and older population growth 2010 to 2016: 43%

 

2. Raleigh, NC

Design Milk

65 years and older population growth 2010 to 2016: 44%

 

1. Austin, TX

65 years and older population growth 2010 to 2016: 51%

 

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.

Source: Census.gov
large two-story investment home

How to Market Your Fix-and-Flip Investment Homes and Score Local Buyers Fast

You found your income property and perhaps even assembled a team of professionals to fix it up. Now, your fix-and-flip property is magazine worthy, and you’re ready to watch the money come rolling in.

 

Of course, you have to sell first.

 

The good news, though, is that research shows investment homes’ gross profit margin is more than $29,000 for successful sellers in the United States, and if the home you’re selling retails at between $100,000 and $200,000, you could easily enjoy a return on your investment of 54%.

 

So, how exactly can you market your fix-and-flip property? Here’s a rundown on how you can score local buyers fast!

Take Professional Pictures as Part of Your Real Estate Investment Marketing Plan

If you can showcase your fix-and-flip home using professional photography, you may be able to sell the home several weeks faster than you would with subpar pictures. That’s because higher-quality images spotlight the special features of investment homes, like granite countertops and crown molding. Professional pictures additionally add valuable depth to those smaller spaces, such as bathrooms and closets.

 

Photography Tips

 

If possible, produce a photo sequence that mimics walking through your house. Also, try to make the rooms look bigger by using a wide-angle lens. You can also use drone photography. Aerial views offer a broad overview of your property, so they can come in handy for drawing attention to a nearby lake or other noteworthy features.

Capitalize on Social Media

Make sure that you utilize social media marketing because most home buyers today search for potential properties online. You could choose to list with a real estate agent, investment company, or just do it yourself!

 

Before hiring an agent or choosing an investment company, take a look at the related website and social media profiles first. The website will show you how professional the individual or company is, and the social media profiles will let you know if the agent or company has the wide following they need to successfully market your property.

 

Tap into the Power of Your Own Social Media Profiles, Too

 

You can also take advantage of your own presence online by showing off your investment homes’ photos on Facebook, Instagram, Twitter, Pinterest, and even Houzz. Instagram and Facebook are especially helpful for spreading information about property listings via your family, friends, and even other investors with whom you are networked. Meanwhile, Pinterest is an excellent place to share images of the property you’re trying to sell.

Put Together Eye-Catching Video Walkthroughs

Years ago, real estate video marketing was like icing on the cake. These days, it’s become a part of the cake. In other words, it’s paramount that you understand video marketing if you want to compete effectively against other home sellers.

 

Video Walkthrough Tips

 

Ideally, the video walkthrough of your property should take three minutes or less, as people tend to have limited attention spans. Also, note that before sunset or after sunrise are two of the best times to shoot your video. This is because the lighting is soft enough to let visitors see outdoors through the windows, in addition to seeing indoors. If you shoot video at any other time, artificial lighting will be necessary to achieve an appropriate level of brightness.

 

The great thing about video walkthroughs for investment homes is that they make personal tours unnecessary in some situations, thus saving you time. They can also reach a relatively wide audience, which includes home buyers who might live in a different town.

Establish a YouTube Following

YouTube is yet another wonderful way to get the word out about your new property listing. You can simply post slideshows or videos of your property.

 

Keep in mind that you’ll draw the most traffic if you frequently add varied and new content to your YouTube channel, as YouTube gives priority to its active posters. Varied content could include a narrated video walkthrough of your property’s neighborhood, as well as a discussion about general topics related to real estate.

 

The more of an expert you appear to be, the more you position yourself as an industry professional. This will make it much easier for potential buyers to locate you online and check out your investment homes for sale.

Include a Property Listing Blog

Finally, try creating a blog for your property listing. A blog offers the benefit of providing more details than you can in the Multiple Listing Service used to market homes. Also, blogs can include links to extra information regarding the home’s neighborhood, as well as pictures and videos.

 

Another major benefit of blogging when you’re trying to sell investment homes is that you can capture buyers’ email addresses by asking visitors to sign up for notifications. With your email list, you’ll have a list of prospects whom you can contact when you have additional properties to sell in the future.

 

If you don’t have a blog, you should create a website for your property listing. The Web page should include a description of the property, its location, and its amenities.

Get on the Path to Successfully Marketing Your Fix-and-Flip Property Today!

If you are ready to sell investment homes, now is as good of a time as ever to start implementing the tips above. The sooner you market your property, the sooner you can start reaping the fruit of your labor and move on to the next property.

 

Get in touch with me today to find out more about what should go into your real estate investment marketing plan!

Who Should Your Target Audience Be for Your Apartment Marketing Campaign?

You’ve just renovated your apartment income property, and you can’t help but beam with pride when you look at your work of art. But now, it’s time to rent out your apartment—and the sooner, the better.

 

Here’s why.

 

Research shows that nearly 60% of the United States’ 100 largest cities have witnessed increases in rent month over month during the past year. In other words, it couldn’t be a better time to be a landlord from a financial perspective.

 

The question is, who exactly should your target audience be for your rental property? Here’s a rundown on how to determine who should be on the receiving end of your apartment marketing efforts.

How to Find Renters: Visualize Your Apartment’s Target Demographic

Figuring out your apartment’s target demographic can be a challenge when you consider that certain amenities appeal to different types of renters. In addition, renters look for rentals differently, so it’s critical that you alter your marketing approach based on whom you are trying to attract.

 

For instance, millennial renters typically look for apartments on the Internet. They also look for vibrant areas featuring affordable places, and they value feeling as though they are part of a strong community. Baby Boomers, on the other hand, often look for classified ads and signs that say “for rent,” in addition to searching for apartment homes online. In addition, they value living in safe neighborhoods.

 

Factors to Consider When Planning Your Apartment Marketing Strategy

 

If you’re wondering how to find renters, you should take into consideration several factors to make sure that you’re attracting the right apartment residents. These factors include the following:

  • Age
  • Gender
  • Income
  • Lifestyle
  • Family or marital status
  • Education
  • Hobbies
  • Interests
  • Location
  • Occupation

 

Note that you shouldn’t be narrowing down the people you will rent to, as this is discriminatory. Rather, you should simply be fleshing out your ideal apartment residents. These are the people you should visualize when you’re writing your property listing and completing other apartment marketing tasks, like creating a slideshow for social media.

Students as Apartment Residents

As a general rule of thumb, students will look for apartments that come with three or more bedrooms, as they can fit in more fellow students to save on costs. In addition, is your apartment within walking distance to a university campus, or is it near a bus stop?

 

If you’re interested in targeting students in your apartment marketing, your complex should also be near nightlife and shops. In addition, it should ideally be fully furnished with items that are inexpensive and relatively simple to replace. Secure storage for bikes would be an added bonus.

 

Pros and Cons of Targeting Students

 

If you’re wondering how to find renters and you’re thinking about pursuing students, the great thing about this demographic is that tenant changeover is predictable every school year or semester (depending on if you offer long or short-term leases). In addition, parents may serve as guarantors, and they might pay six months’ worth of rent upfront.

 

The cons of renting to students? You may end up with messes, parties, and careless behavior. As a result, you might incur heftier maintenance costs long term. However, if you educate students on how to care for your property and warn them that they will lose their deposits if they damage anything, this may help.

Young Professionals as Apartment Residents

A young professional typically looks for an apartment with one or more bedrooms that is fully furnished. These professionals also value rentals that are no more than 10 minutes from bus stops, for example. Reasonable rent rates are also high on the priority list for this demographic.

 

Pros and Cons of Targeting Young Professionals

 

Young professionals are generally responsible. However, as with students, you may need to educate them on their responsibilities when it comes to not damaging your property.

Young, Professional Couples as Renters

Your community may work for a young professional couple if it features apartments with one or more bedrooms and is a few minutes away from a train station, for example. You should also provide adequate parking spaces for these renters. In addition, offering furniture that is up-to-date may help to draw them in, although they still may be interested in buying their own home.

 

Pros and Cons of Targeting Young, Professional Couples

 

The benefit of targeting these individuals during apartment marketing campaigns is that they likely have enough income to pay rent easily. On the flip side, they may be demanding, and if they decide to split up, managing the fallout may be difficult on your end. Also, these professionals may not stay in your apartment long, as they are often interested in buying homes to live in long-term.

Young, Professional Singles as Renters

Your apartment property may be a fitting option for a young professional who is single if you can offer him or her an apartment home that has at least one bedroom and, again, is near public transportation. As mentioned earlier, having a parking space is also important to members of this demographic.

 

With these professionals, mid-range furniture will likely suffice, although they may bring their own. In addition, single individuals who would like to share their apartments with other people may look for apartments with bedrooms that are equal in size, as well as two bathrooms. Outdoor space is also an amenity they may enjoy. Furthermore, security and privacy may be especially important.

 

Pros and Cons of Targeting Young, Professional Singles

 

These are usually some of the best tenants, as they have a tendency to look after properties well. You may also find them to be respectful—yet another reason to target them in apartment marketing campaigns. Of course, you may run into challenges if their partners move in without your consent.

Families as Renters

If your apartment building has units with two or more bedrooms, you are in a good position to target families during your campaign efforts. An added bonus is if your apartment building has a garden (or space for a garden) as well as child-friendly park nearby. You may also want to offer storage for scooters or bikes on your property, along with parking spaces for families.

 

Note that the best apartments for families are those with no stairs or only a few stairs leading up to the front door. Also, you might want to keep your apartment unfurnished, as families typically have furniture already.

 

Pros and Cons of Targeting Families

 

The benefit of choosing families to be the focus of your apartment marketing is that they are very stable. In addition, they often stay in one place for a long time so that their children can continue to attend the same school. The downside of families? Young children and pets may cause costly damage to your units.

Target the Right Audience Today!

If you have apartments you’re ready to rent out, now is a smart time to start visualizing your target audience by implementing the above-mentioned steps. Read my text, Best Ever Apartment Syndication Book, to find out more about how to find renters and make sure that you are attracting the right types of apartment residents.

12 US Cities Experiencing the Most Explosive Rent Growth

One of the most important factors used to evaluate a potential target investment market is supply and demand.

The demand side of the equation is measured in part by the change in median rent year-over-year – an increase in median rent indicates an increase in the demand for rental properties in a particular area, and vice versa.

Ideally, the change in rent for your target market is positive (obviously) and is greater than the average national change in rent. From October 2017 to October 2018, the average national change in rent was +1.1% (compared to +2.8% and +2.6% over the same time period in 2016 and 2015 respectively). This would indicate that rent growth is sluggish on a national scale compared to previous years. However, the top markets in the country are continuing to outpace the current and past two year averages.

Here are the top 12 US cities where rents increased the most from October 2017 to October 2018:

 

12. Richmond, Virginia

Sean Pavone/Shutterstock

Median 1BR rent: $891

Median 2BR rent: $1,028

Year-over-year change: +2.6%

 

11.Tampa, Florida

Shutterstock

Median 1BR rent: $1,011

Median 2BR rent: $1,258

Year-over-year change: +2.6%

 

10. Jacksonville, Florida

Shutterstock

Median 1BR rent: $881

Median 2BR rent: $1,078

Year-over-year change: +2.7%

 

9. San Jose, California

Silicon Valley Stock

Median 1BR rent: $2,102

Median 2BR rent: $2,634

Year-over-year change: +2.7%

 

8. Arlington, Texas

Kid101

Median 1BR rent: $990

Median 2BR rent: $1,230

Year-over-year change: +2.8%

 

7. Riverside, California

Flickr

Median 1BR rent: $1,064

Median 2BR rent: $1,330

Year-over-year change: +3.0%

 

6. Mesa, Arizona

Redux

Median 1BR rent: $865

Median 2BR rent: $1,078

Year-over-year change: +3.0%

 

5. Phoenix, Arizona

Phoenix New Times

Median 1BR rent: $846

Median 2BR rent: $1,054

Year-over-year change: +3.0%

 

4. Corpus Christi, Texas

Expedia

Median 1BR rent: $846

Median 2BR rent: $1,057

Year-over-year change: 3.1%

 

3. Knoxville, Tennessee

Mapio

Median 1BR rent: $776

Median 2BR rent: $953

Year-over-year change: +3.6%

 

2. Las Vegas, Nevada

Visit Las Vegas

Median 1BR rent: $927

Median 2BR rent: $1,149

Year-over-year change: +3.6%

 

1. Orlando, Florida

iStock

Median 1BR rent: $1,063

Median 2BR rent: $1,273

Year-over-year change: +4.4%

 

If you are investing in one of these markets, do not assume that the future rent growth will be the same. Always conservatively estimate the annual income growth factor – 2% to 3% maximum. That way, if the rental rates slow, you’ll still hit your projections. And if the rental rates continue or increase, you’ll exceed your projections, which means more money for you and your investors!

 

Want to learn how to build an apartment syndication empire? Purchase the world’s first and only comprehensive book on the exact step-by-step process for completing your first apartment syndication: Best Ever Apartment Syndication Book.

6 Red Flags That Disqualify a Real Estate Investment Market

We post a new question to the Best Ever Show Community on Facebook every week. The Best Ever Show Community is where real estate entrepreneurs of all experience levels can come together and network with each other, me, and the guests featured on my real estate investing podcast. The idea is that everyone can help one other reach the next goal in their businesses and personal lives.

 

This week, the question was “what is the biggest red flag for you when evaluating a market?

 

We’ve all heard the investing cliché “real estate is all about location, location, location.” While I believe the ability to execute the business plan is more important than the real estate investment market, the quality of market comes in close second. So, what factors should you analyze in order to determine the quality of an area? First, I recommend reading my ultimate guide to evaluating a real estate market. Then, read on to learn the 6 red flags active real estate investors said will disqualify an area when conducting real estate market research.

1 – No Job Diversity

If the dominant industry employs too large of a percentage of the population and that industry collapses, many people will likely become unemployed. And when people become unemployed, their ability to pay their rent or purchase a home is reduced, which will reduce the amount of rent you can demand or price you can sell a property at as an investor.
When I evaluate a market, I want to see that no single industry employs more than 25% of the population – 20% or lower is ideal. Then, if any major industry is negatively affected, the damage to the real estate market is minimized. Visit the US Census website for job diversity information.

 

Similarly, Garrett White would disqualify a real estate investment market that lacks a diverse economy or has major employers leaving the area. A quick Google search of the real estate market research already completed will show you if any major employers have left or are expected to leave the market.

 

John Jacobus puts a small spin on the job diversity question. He will disqualify a market if one or two dominant employers derive their revenue from highly cyclical sources. This is determined by finding the business sector (i.e. manufacturing, technology, medical, etc.) of the top employers in the market and seeing how that sector fairs during the high and low points of the economic cycle.

2 – High Rent to Income Ratio

People can only spend a certain amount of their yearly salary on home expenses. Therefore, if the ratio of the median home expense to the median income exceeds a certain threshold, housing expenses are too high or the median incomes are too low for the population to afford housing expenses in the long-term.

 

When Theo Hicks evaluates a real estate investment market, if the annualized median rent is more than 35% of the median income, the market is disqualified. Matt Skog has a similar approach – if the annualized median rent is more than 40% of the median income, he won’t invest.

 

Both the median rent and median income data can be found on the US Census website.

3 – Population Decline

The most basic and obvious red flag to look for during your real estate market research is a decline in population. A declining population likely indicates a declining overall economy, which includes a declining real estate market.

 

There are a few factors that indicate a population decline. Hai Loc and Neil Henderson look are the overall population trend, with a negative trend disqualifying a market. Garrett White looks at the trend of the number of households, with a negative trend disqualifying a market. And Youssef Seamaan looks at the net migration, with a negative net migration disqualifying a real estate investment market.

 

Population, household and migration data can also be found on the US Census website.

4 – No Job Growth

Another basic and obvious red flag is no job growth. Again, if fewer people have jobs, the lower the demand for real estate. Hai Loc and Neil Henderson look at both the population and job trends. A lack of population and/or a lack of job growth will disqualify a location during initial real estate market research.

 

Yearly job and employment data can also be found on the US Census website.

5 – High Inventory

“Supply and demand” is one of the golden rules of economics. The higher the supply, the lower the demand and vice versa. And the lower the demand, the lower the price. Therefore, markets with high inventory indicate a low demand.

 

Harrison Liu analyzes the supply of apartments in within real estate investment market. If there is an oversupply, he disqualifies the market.

 

Luke Weber also analyzes the supply of real estate in a market, using the factor “months of inventory.” Four to six months of inventory is bad, while six or more months of inventory is even worse.

 

The number of apartments in a market can be found on the US Census site or on the local county auditor/appraisal site. In order to determine the current “months of inventory” factor, reach out to your real estate agent.

6 – Local Regulations

Something that some investors may forget to think about during their real estate market research is the local regulations governing the real estate market. But not Blaine Clark. As a note investor, he says local government processes and regulations trump the economic environment.

So, prior to putting time and money into a real estate investment market, obtain a basic understanding of the local regulations governing the real estate market and how they positively or negatively affect real estate investors.

 

What about you? Comment below: What is the biggest red flag for you when evaluating a real estate market?

rental comparable analysis on phone

How to Perform Your Own Rental Comparable Analysis Over the Phone

The rental comparable analysis is the process of analyzing similar apartment communities in the general area to determine the market rents of the subject apartment community.

As an apartment investor or apartment syndicator, the three main times you will perform a rental comparable analysis is 1) during the underwriting process when initially analyzing a deal, 2) as a part of the market survey during the due diligence process and 3) on a recurring basis after closing on a deal.

Ideally, you’ve partnered with property management company who agrees to perform the rental comparable analysis during all three of the three stages – and most importantly, during the due diligence phase. However, there may be times when you will need to perform the analysis yourself. For example, if you find a deal before partnering with a property management company, if you only have a few days to submit an LOI or if you want to perform you own analysis for comparison purposes. Therefore, it is important that you have the ability to calculate the market rents on your own. And in this blog post, I will outline the process to do so without the use of fancy property management software. All you will need is an internet connection and a phone.

The first step of the rental comparable analysis is to find 5 to 10 apartment communities (i.e. rental comps) that are similar to the subject property. That means they were built around the same time, are in the same submarket and have the same level of interior upgrades and amenities. The best resource to find rental comps is on www.Apartments.com.

Once you’ve located the 5 to 10 rental comps, log the property address, year built, number of units and contact phone number. Then, pick up the phone and call the property. The purpose of the phone call is to collect data required to confirm that the rental comp is similar to the subject property, as well as to collect the rental data so that you can determine the market rents of the subject property. And in order to obtain this information, you will pose as a resident who is interested in renting a unit.

Here are the 6 main pieces of information to obtain:

 

1 – Rental Data

One of your main goals is to obtain the rental data for the rental comp. Sometimes, this information will be listed on the rental comp’s Apartments.com page. However, you still want to confirm that the information is accurate on the phone call.

If the rental comps has 1-bed and 2-bed units only:

  • First, ask “I am interested in renting a 2-bedroom unit. How much do those rent for?” to which they will respond with the rental amount. If they offer multiple 2-bed units, whether they are different floorplans or have different upgrades, they will provide you with a range of rents.
  • In order to obtain the 1-bed unit rents, say, “Oh. Your 2-bedroom rents are slightly outside of my price range. I was hoping for an extra bedroom but how much are the 1-bed unit rents?”

If the rental comp has 1-bed, 2-bed and 3-bed or more units:

  • Follow the same approach for the 1-bed and 2-bed apartments
  • Call back a few days later and ask for rents of the other unit sizes

At this point, you will have the rental data for all of the unit types offered at the rental comp.

 

2 – Upgrades

One of the most important factors in the rental comparable analysis are the unit upgrades. You want to make sure that the units at the rental comp are of the similar type and quality at the subject property.

When gathering the rental data, ask, “have you performed any unit upgrades recently?” The upgrades to the kitchen and bathrooms, in particular, must match the upgrades at the subject property in order to qualify as a rental comp.

Additionally, ask “have you performed any property-wide upgrades recently?” The quality of the common areas must also match those at the subject property as well.

At this point, you will know the upgrades for all of the unit types offered at the rental comp, as well as any property-wide upgrades.

 

3 – Amenities Package

Another factor that must match between the rental comp and the subject property are the amenities offered to the residents. Because, like the level of unit and property upgrades, the type of amenities offered will dictate the rental rates demanded.

Ask, “something that will heavily weigh into my decision to rent are the amenities offered. What are the individual unit and property amenities?”

Examples of unit amenities are the type of flooring, washer and dryer hookup or actual washer and dryers in unit, storage availability (i.e. closet space), pet-friendliness, patios/balconies, fenced in yards, etc.

Examples of property amenities are fitness center, clubhouse, pool, online rent payment, online maintenance request, type of parking, common area, utilities included in the rent, etc.

Then, for all of these amenities, ask “are there additional monthly fees for any of the amenities you listed?”

At this point, you will know if type and quality of amenities offered match those of the subject community.

 

4 – Rent Specials

Next, you want to know the types of concessions offered. Concessions are the credits given to offset rent, application fees, move-in fees and any other revenue line items, which are generally given to residents at move-in.

Ask “do you currently offer any rent or move-in specials?” Examples are security deposit specials, rental discounts for signing longer leases, referral programs, etc.

Concessions are generally offered to boost occupancy rates. So, understanding the types of concessions offered at your competitors will give you an idea of the types of concessions you will need to offer at the subject property. Additionally, if they are offering a lot of concessions, that implies that either the demand is low or the rental rates are too high.

 

5 – Demand

Understanding the rent specials offered will give you an idea of the demand at the property (which will give you an idea of the demand at your subject property).

For additional demand information, ask “I am relocating to the are in the next couple of months. Do you have any available units are is there a waiting list?” If they have a waiting list, that implies that the rental rates may be too low, and vice versa.

 

6 – Customer Service

At the conclusion of the phone call, take a few minutes to take notes on the level of customer service you received. If you own the subject property or end up closing on the subject property, the person you spoke with will be your competition!

 

Determining the Market Rents

At the conclusion of the phone call, you will have confirmed or disproved that the property is a rental comp, keeping in mind that the upgrades and amenities do not need to be an exact match – just similar. Also, the rental comps should be similar to your stabilized subject property. That is, for value-add apartment syndications, the unit upgrades should match the post-renovation upgrades and not the current level of upgrades.

Repeat this process for all 5 to 10 rental comps.

After all of the phone calls, the apartments that aren’t similar to the subject property can be eliminated. For the ones that are, determine the rent per square foot for each of the unit types in order to determine an average rent per square foot for each unit type in the overall market. Then, you can determine the market rent of the units at the subject property using this average rent per square foot and the square footage of the subject property’s various unit types. For example, if the average market rent per square foot for 1-bed units is $1.09 and the 1-bed unit at the subject property is 900 square feet, then the market rent is $981.

 

Conclusion

This was a general outline for how to approach performing the rental comparable analysis over the phone. It is not an exact step-by-step guide to be followed verbatim. Instead, it should be used as a guide for what questions to ask to obtain the information you need to gain a better understanding of the market and the market rental rates.

Also, the results of this rental comparable analysis should be used in tandem with a more detailed analysis performed by your property management company. This analysis can be used as a starting point for the market rental rates but should not be the sole basis for purchasing a deal.

Finally, if you are just starting out, I recommend doing a few practice calls on non-rental comps to get a feel for the flow of the conversation.

 

What about you? Comment below: How do you perform a rental comparable analysis for apartment communities?

 

Subscribe to my weekly newsletter for even more Best Ever advice www.BestEverNewsletter.com

 

urban river real estate

Should I Buy An Investment Property In A Flood Zone?

Last updated 9/13/18

 

Through late August and into early September 2017, Hurricane Harvey, a Category 4, devastated parts of Texas and Louisiana. Next, it was Irma, a Category 5 hurricane, that hit numerous islands off the coast of the Southeastern United States, eventually making landfall in Florida. That same week, Hurricane Jose grazed several Caribbean islands, stalled in the Atlantic Ocean, then began making its way to the East Coast.

Almost exactly a year later, Hurricane Florence is set to hit the east coast and is considered to likely be the storm of a lifetime for portions of the Carolina coast by the National Weather Service.

The economic losses caused by hurricanes are shocking – for Harvey and Irma, the damages were in the hundreds of billions while it is too soon to tell how much damage will be caused by Florence.

As real estate investors, we must take the possibility of flood damage into account when considering an investment. A property located in a flood zone by no means automatically disqualifies a potential investment. However, it will require additional upfront due diligence on your part so that if a hurricane or flooding occurs, you have your bases covered and your investment isn’t negatively affected.

 

Should I buy flood insurance? 

For a property that is in an area designated a high risk for flooding and will be purchased with a mortgage, it is required by federal law to have flood insurance.

However, with Hurricane Harvey, neighborhoods not considered flood zones were impacted. Since flood insurance wasn’t required, many families will have to bear the tremendous financial burden themselves. According to FEMA, more than 20% of flood claims come from properties not located in high-risk flood zones. Therefore, if an investment property is on the border of a flood plane, you may still want to consider buying flood insurance.

For information on flood hazards and official flood maps, use the FEMA Flood Map Service Center. This tool allows you to enter an address or area to obtain the most up-to-date flood map. And when in doubt, contact a local insurance agent to determine if the property is at risk for flooding.

 

How much does flood insurance cost?

Compared to the economic burden placed on those without flood insurance, it’s relatively inexpensive. A study conducted by FEMA found that just one inch of interior flooding can result in nearly $27,000 in damage. The amount reaches over six figures if the flooding is a few feet or more.

Contrast that to the typical cost of flood insurance. According to Cincinnati Insurance board director Ron Eveligh, a flood policy with $250,000 in coverage will run you about $500 a year for a residential building. So, to determine if a property in a flood zone is a good investment, it is vital to account for the cost of flood insurance during the underwriting process.

If the addition of the monthly expense results in a financial return that’s outside your investment goals, you need to pass up on the deal or investigate ways to increase income or decrease expenses elsewhere. In other words, plan for flood insurance the same way you do for other expenses, like maintenance, property taxes and vacancy.

 

How do I buy flood insurance?

Damage from flooding is not covered under your basic homeowners’ or renters’ insurance. It must be purchased separately, and you can only buy flood insurance through an insurance agent. If a property is in a high-risk flood zone, it will require flood insurance before a lender will close on the loan. So, the purchasing of flood insurance will need to be taken care of prior to close in that case.

If a property is not in a high-risk flood zone, but it’s either in a moderate to low-risk flood zone or just outside the border of a flood zone and you want a quote for how much insurance will cost, it’s a good idea to reach out to your local insurance agent for a quote. If your insurance agent doesn’t offer flood insurance, you can request an agent referral from the National Flood Insurance Program Referral Call Center by calling 1-800-427-4661.

 

In general, owning investment property requires proper planning. With underwriting, lender communications, inspections, etc., your list of duties fills up quickly. However, do not neglect to determine if the property is at risk of flooding.

Taking the time to figure out if a property needs flood insurance, how much it costs and the process of obtaining it upfront can save you tens of thousands of dollars and a huge headache should disaster strike.

 

Want to learn how to build an apartment syndication empire? Purchase the world’s first and only comprehensive book on the exact step-by-step process for completing your first apartment syndication: Best Ever Apartment Syndication Book

 

north america on a globe

Should You Go Big in One Market or Diversify Across Many?

I recently closed on an apartment community, which increased my company’s portfolio to over $190,000,000 worth of apartment communities under our control. We have 11 apartment communities and… 11 out of 11 are in Texas. In fact, 9 out 11 are in Dallas Fort Worth (DFW). I’ll get to the relevance of this in a second.

 

But first, after every closing, I document a lesson learned with the purpose of helping others who want to pursue apartment syndication or multifamily investing. You can read about the 16 lessons from those deals here: 16 Lessons from Over $175,000,000 in Multifamily Syndications

 

Now, let’s look at my company’s portfolio a little closer and dig into this lesson learned – or really, an observation I had. We have 2,613 apartment doors in total with 85% (2,208 doors) in DFW. So clearly, we are going deep in one market and are not currently diversifying across multiple markets. But, I frequently hear about how real estate investors should diversify.

 

I don’t agree.

 

As apartment owners and operators, if we diversify across other cities/states just for the sake of diversification, then I believe we would actually incur more risk, not less. Here’s why: all real estate deals have risks, which can be separated into three categories:

 

  1. Risk in Market and Submarket
  2. Risk in Deal
  3. Risk in Team

 

By sticking to one market that we know very well and have a proven management team in place with economies of scale, it allows us to mitigate risk factors 2 and 3 – not eliminate, but mitigate. Conversely, if we were to branch outside of one market, we’d have to find the following:

 

  • Property management – one of the biggest keys to success. Yes, we have a plan, but it must be properly executed
  • Vendor contacts – not as big of a deal if you hire a 3rd party management company since they can provide these contacts, but it is a big deal if you don’t
  • Local legal experts for contracts – a bad one can burn you
  • Knowledge of tax assessments – fairly easy to figure out, but still a learning curve
  • Build a reputation among the brokers – intangible and is vital to finding the best deals

 

Additionally, we’d have to evaluate and qualify the market and submarket. Basically, we’re opening ourselves up to all three risk factors by branching out. So, when we decide to go deep into one market, the key is to make sure that market is solid.

 

Here are the primary things I look for in a market:

 

  • Job diversity – no one industry makes up more than 20% of the jobs
  • Population – growth over the last five years and current projections show a continued growth
  • Supply and demand – look at vacancy trends and absorption rate

 

Of course, as with all generalizations, there will be exceptions. Here is a couple I can think of:

 

  • This is only in reference to being an owner/operator (i.e. active investor). If you are a passive investor and can passively invest with multiple owner-operators (i.e. syndication or turnkey companies) who have the systems in place in different markets, then that seems like a good strategy to me. In this scenario, the deal and the team (risk factors 2 and 3) are already given to you. Knowing if they’re good and reputable is something you’d obviously still need to qualify, but it makes conceptual sense to diversify if you’re a passive investor
  • While we are going deep in DFW, that doesn’t mean we’ll always only be in DFW. In fact, we actively get sent deals across the country every week – lots of them. However, in order for us to branch outside of DFW, it’s going to take an extraordinary deal combined with a local expert partner to compel us to pull the trigger.

 

To summarize, I believe you lower your risk when you go deep in a market. It’s better not to diversify across multiple markets unless the opportunity is significantly better than what you can get in the market in which you are already investing.

 

What do you think? Should you go big in one market like us, or are you finding success by diversifying across multiple markets?

 

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aerial view of real estate market

Ultimate Guide to Selecting a Target Real Estate Market

A well-known and widely accepted dictum in real estate investing is “it’s all about location, location, location.” That’s because the exact same property in two different cities can have drastically different rents, quality of residents, and values. And the same is applicable for two submarkets in the same city, or two neighborhoods in the same submarket, or two streets in the same neighborhood.

With this being the case, how do you determine which city, submarket, neighborhood, or street to target?

That’s where a market evaluation is performed in order to select a target market for real estate deals. A target market is the primary geographic location in which you search for potential investments.

How to Select a Target Market

Specifying a target market is important for more reasons than location. If your target market is undefined or is the entirety of the United States or a certain state, the number of opportunities will be so large that your deal pipeline will be unmanageable. If it is too large, it will be extremely difficult to gain the level of understanding required to make educated investment decisions. If it is too small, you’ll have problems finding enough deals that meet your investment criteria. Like the porridge in the story of Goldilocks and the three bears, your target market must be just right.

When attempting to select a target market for real estate, for both my clients and for my business, I advocate a three-step process. First, identify 7 potential target markets. Then, evaluate those markets using 7 variables. Finally, analyze the results and narrow down to 1 or 2 target markets.

Step #1 – Identify 7 Potential Target Markets

First, identify at least seven potential markets to evaluate. There are a few strategies for selecting these initial markets. One method is simply choosing the city in which you live, especially if you’re just starting out or are uncomfortable with the prospect of investing out-of-state. But even if you’re fearful of out-of-state investing, it is still important to select additional markets to evaluate so you can compare your city’s data to that of other cities to ensure that your city has a strong real estate market.

A second strategy is to Google “top real estate markets in the US.” If you’re an apartment investor, search “top apartment markets in the US.” Or substitute “apartment” with whichever investment niche you’re pursuing.

A third option is to review detailed real estate reports and surveys, created by different companies, about the condition of the markets. Even if you are selecting a target market for real estate at random or are using the Google approach, I would still recommend reading these reports for a deeper understanding of the overall real estate economy.

If you’re an apartment or multifamily investor, the reports I recommend are:

Step #2 – Evaluate 7 Markets

Next, once you’ve selected seven, you will perform a detailed demographic and economic evaluation of each. What follows is each of the seven market variables I analyze, including what to look for, where to find the data, and how to log the data.

1 – Unemployment

Specifically, you want to calculate the unemployment change over a five-year period. This will require the unemployment percentage for the city for the last five years. This data can be found on the Census.gov website under the “Selected Economic Characteristics” data table. A decreasing unemployment rate within your target market for real estate is ideal. A low, stagnant rate is acceptable. A high and/or increasing rate is unfavorable.

2 – Population

Calculate the population growth for both the target market city and metropolitan statistical area (MSA). This will require the population data for the last five years. An increasing population is ideal. A stagnant or decreasing trend is unfavorable, especially if supply and/or vacancy is on the rise. Both the city and MSA population data can also be found on the Census.gov website. The city data is located in the “Annual Population Estimates” data table. The MSA data is located in the “Annual Estimate of the Resident Population” data table.

3 – Age

Similarly, calculate the population change for the different age ranges, which can be found under the “Demographic and Housing Estimates” table on Census.gov. This will require the population age data for the most current year and the previous five years. The increasing or decreasing of specific age ranges within your target market for real estate will dictate the property types that will be in the most demand. For example, an increasing population of 25-to-34-year olds will put luxury apartments with nicer amenities in demand, while an increasing retirement age population will put assisted living facilities in demand.

4 – Jobs

Determine how diversified the job market is. This will require the employment data for the different industries for the most current year. A market with outstanding job diversity will have no one industry employing more than 25% of the employed population. Twenty percent is even better. That is because, if a certain industry is to dominate, the market will struggle or even collapse if that industry were to be negatively affected. This data can be found on the Census.gov website under the “Selected Economic Characteristics” table.

5 – Employers

Additionally, figure out who the top 10 employers are in the target market for real estate. Similar to job diversity, a market with one company that employees the majority of the city is unfavorable. Also, understanding who the top employers are will allow you to track developments with that company (i.e. are they creating a new facility, cutting jobs, etc.). This data can be found by Googling “(city name) + top employers.”

6 – Supply and Demand

Discover the change in rental vacancy rates over a five-year period and the number of buildings permits created for 5 or more unit buildings. A low, decreasing vacancy rate is ideal. A high vacancy rate that is decreasing is also a positive sign. A stagnant rate is okay too, but an increasing one is unfavorable. If the vacancy rate is decreasing, you will likely see an increase in new building permits, and vice versa. A high volume of building permits and an increasing vacancy rate is a huge red flag. The vacancy data can be found on the Census.gov website under the “Selected Housing Characteristics.” The building permit data can also be found on the Census.gov website. Locate the MSA annual construction page and select the data table for the most current year.

7 –Insights

Based on the “what to look for” standards outlined above, you will analyze the data and create “market insights” for each of the six market factors based on the following questions:

  • Unemployment: Has the unemployment rate increased or decreased over the last five years? Is it currently trending upwards or downwards?
  • Population: Has the city population increased or decreased over the last five years? What about the MSA population?
  • Age: What age range has the largest population increase? Largest decrease? Based on the largest increasing and decreasing age range populations, is your target investment type in demand? For example, if the largest population increase is the 45-to-54-year old range, assisted living facilities would be an attractive investment type.
  • Jobs: Which industry employees the largest portion of the population? Does that percentage exceed 20%? 25%? 30%?
  • Employers: Does one company employ a large percentage of the population? Are the top employers in similar or different industries?
  • Supply and demand: Are there a large or small number of new buildings permits? Is the trend going up or down? Is the vacancy rate increasing or decreasing? Is it higher or lower than five years ago?

Step #3 – Narrow Down to 1 or 2 Target Markets

Finally, after logging the data for all seven potential target market for real estate, analyze and compare the results and determine the top one or two best/ideal markets. Keep in mind that the markets you select will depend on your investment criteria as well.

A simple analytical approach is to rank each of the seven markets 1-6 for each of the variables. Then, add up the scores, and the market with the lowest total ranking is the “best.” For markets with similar rankings, use the market insights to determine which is superior, again, based on your investment criteria.

Trump giving the peace sign

Three Ways To Thrive In A Trump Real Estate Market

This post was originally featured on Forbes Real Estate Council on Forbes.com.

 

If you’re a real estate investor and been keeping up with current events, chances are you’ve asked yourself this question: “How will Trump’s presidency affect the market?”

 

Since Donald Trump has made millions as a real estate entrepreneur, common sense says he will likely implement policies to strengthen the real estate industry. At the very least, he wouldn’t make a decision to undermine it. He wouldn’t hurt his own bottom line, right?

 

But with the current political climate as it is, it’s difficult to predict what Trump will do. If you’ve tuned in to any of the major news networks since the beginning of the 2016 presidential campaign, one of the most consistent things you’ve seen from Trump is … well, inconsistency.

 

 

I don’t know what will happen over the next four to eight years, and I don’t think anyone does —Trump included. I am not a politician, nor a political strategist. But I am a real estate entrepreneur. And the good news from a real estate perspective is that Trump’s actions shouldn’t matter.

 

Ultimately, as investors, we can’t make decisions based off of who the president is or who controls the House or the Senate. While Donald Trump’s inauguration and the ensuing tweetstorm are causing some Americans to celebrate and others to mourn, there are three simple principals that real estate investors must follow to thrive in the current market of uncertainty — tried and true methods that work in any market, at any time in the market cycle.

 

1. Don’t buy for appreciation.

 

Natural appreciation is a simple concept. It’s an increase in the value of an asset over time. From 2012 to 2016, for example, real estate prices in the U.S. as a whole increased by 13%, according to Zillow. If you purchased a property for $1 million in 2012 and sat on it, making no improvements, the property would have been worth $1.13 million in 2016.

 

Sounds like a good investment strategy, right?

 

Not necessarily.

 

It’s important to make a distinction between natural appreciation and forced appreciation. Forced appreciation involves making improvements to the asset that either decreases expenses or increases incomes, which in turn, increases the overall property value. Unlike forced appreciation, natural appreciation is completely outside of your control. Say you purchased the same property in the example above for $1 million in 2008. Four years later, the property value would have decreased by $229,000.

 

Many investors, past and present, buy for natural appreciation, and it is a gamble. Eventually, they all get burned—unless they’re extremely lucky. Buying for natural appreciation is like thinking you’ll get rich at a casino by playing roulette and only betting on black. Maybe you can double up a few times, but sooner or later the ball lands on red or — even worse — double zero green, and you lose it all.

 

That’s why I never buy for natural appreciation. Instead, I always buy for cash flow. When you buy for cash flow (and as long as you have a large supply of renters), you don’t care what the market is doing. In fact, if the market takes a dip, the demand for rentals will likely increase. When real home prices dropped 23% from 2008 to 2012, the number of renter-occupied housing units increased by 8%.

 

 2. Don’t over-leverage.

 

Leverage is one of the main benefits of investing in real estate.

 

Let’s say you have $100,000 to invest. If you decide to invest all of your money in Apple stock, you would control $100,000 worth of stock. On the other hand, if you wanted to invest all of your money in real estate, you could spend $100,000 on a down payment at 80% LTV (loan-to-value) and control $500,000 in real estate. If you’re a creative investor, you could use that $100,000 to control an even larger value of real estate. That’s the power of leverage.

 

But there’s also a catch.

 

The less money you put in the deal — or more specifically, the less equity you have in a deal — the more over-leveraged you are. Consequently, the higher your mortgage payment will be. In a hot market, over-leveraging may seem like a brilliant idea, but what happens when property values start to drop?

 

According to Zillow, from 2008 to 2012, real property prices in the U.S. dropped by over 20%. If you purchased a property in 2008 with less than 20% equity and wanted to sell in 2012, you would have lost a decent chunk of change.

 

My advice? Always have 20% equity in a property at a minimum. Avoid the tempting 0% down loans at all costs. Doing so (in tandem with committing to not buy for appreciation) will allow you to continue covering your mortgage payments in the event of a downturn.

 

3. Don’t get forced to sell.

 

When you’re forced to sell, you lose money.

 

The main reasons people are forced to sell or return properties to the bank are that they speculated and bought for appreciation, or got caught up in a hot market and were over-leveraged.

 

Another reason you would be forced to sell is if you have a balloon payment on a loan. This is typical for commercial real estate but not residential. The problem investors have is when they have a balloon payment come due during a downturn in the market.

 

A way to mitigate that risk is to be aware of when your balloon payment is due and plan years ahead of time for what type of exit strategy you are going to pursue.

 

Some common exit strategies are:

 

  • Selling the property
  • Refinancing into another loan
  • Paying off the balloon payment

 

By sticking to the three principles above, I’ve personally accumulated over $170 million in real estate assets over the past four years, and at the same time, I’ve helped countless of my investors generate passive income streams. Regardless of what President Trump does or doesn’t do over the next four or eight years, if you stick to these principles and invest in income-producing real estate, your investment portfolio will not just survive. It will thrive.

 

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vintage USA map

3 Techniques to Evaluate an Out-of-State Real Estate Market

Can’t find cash flowing deals in your local market? Don’t throw in the towel just yet. Have you considered looking elsewhere, in out-of-state markets?

 

If you decide to seek investment opportunities outside of your local market, you’ll need to learn how to evaluate a new market, and how to do so quickly – preferably in one trip. You don’t have years, or even weeks, to get to know a new market organically. You need to quickly develop a basic understanding of the market. And once you’ve qualified a potential market, you need to know which areas are trending and which areas to avoid.

 

Omar Ruiz, who’s been an investor and asset/property manager for over 10 years, is an out-of-state investor. He lives in Orange County and invests in Texas and more recently, Indianapolis. In our recent conversation, he explained the three techniques he used in order to learn the Indianapolis market prior to buying his first investment.

 

Related: How These Two Market Factors Will Make or Break Your Real Estate Business

 

#1 – Talk to the locals

 

Omar’s first approach is to speak with the locals. Who better to speak with to learn the story and attributes of a market or neighborhood than the people who actually live there. In fact, without speaking to the locals, there are certain facts and pieces of information that would be nearly impossible to uncover otherwise.

 

Omar said, “when I was down [in Indianapolis] for one of my first visits, I actually ate at a Bob Evans restaurant. I went and had breakfast there, and I was talking to the waitress girl. She was a student, and I was actually asking her – she was giving me some info about where she lives and what she was paying, and I told her ‘Yeah, I’m looking at some of these places over here, blah-blah-blah.’ And she would tell me ‘Oh, stay away from this area’ or ‘Stay away from that area…’ She was a student at the college, she kind of gave me some information about the college as well.”

 

Think about it. if someone asked you which areas are the best and which areas are the worst in the market in which you currently live, you’d probably have enough to say to fill an encyclopedia. I know I would.

 

When visiting and studying an out-of-state market, speak to the locals. Waiters/waitresses, baristas, gas station attendants, bartenders, the neighbors, current residents (if touring a property), etc. Essentially anyone who is willing to talk to you, and obtain as much insider information as you can.

 

#2 – Drive the market and take notes on a printed map

 

Another approach of Omar’s is to drive the entire market. However, rather than stare at his iPhone using Google Maps to get around, he picks up a printed map at a local gas station (and speaks to the attendant of course – see #1).

 

“What I like to do actually is instead of using the map on my phone, and Google Maps or something digital there, I’ll actually go up to a gas station and I’ll pick up a regular map of the city, a printed map,” Omar said. “Then what I do is go as much as I can throughout town and make notes on that map. Because when I’m driving around the area and I just use my phone, if I see an area that ‘Okay, this looks interesting here,’ when I come back and I try to recall that moment, it’s not that easy. But when I have that paper map there, and I actually make notations on there, I’ll say, ‘Okay, this area is bad’ and I’ll probably pinpoint and circle some properties that I looked at, put the name of it, and then I can see ‘Okay, this property was there. This is what I remember about it,’ and then certain areas that are just bad, I’ll try to kind of circle around that area. That’s been very helpful for me.”

 

Related: How to Successfully Familiarize Yourself with an Out-of-State Real Estate Market

 

WARNING: if you follow this method, make notes and markings when the vehicle is completely stopped! Fail to do so and understanding a new market will be the least of your worries…

 

Likely, there are cell phone apps that can accomplish the same thing, but the point is to log neighborhood information – the good, the bad, and the ugly –  while it’s still top of mind, rather than waiting until you get back to the hotel or home.

 

If you want to get fancy, you can use highlighters and a color-coding system to track information on a street-by-street basis (i.e. red for ugly, yellow for bad, green for good) or however detailed you want to get. When Omar performs this exercise, he looks for things like stores with “EBT accepted here” signs, boarded up homes, the types of vehicles on the street, Starbucks-type businesses, markets and convenient stores, and retail. But again, you can be as detailed or as ambiguous as you please.

 

Related: How One Market Factor Can Tell You It’s Time to Invest or Sell

 

#3 – Leverage the Census

 

Omar’s third approach, which can be done prior to or after visiting a market in-person or back in the hotel room, is to use Census data to find income statistics. “I look at the income statistics for a certain area, and I use a very methodical way of doing it,” he said. “If the majority percentage of incomes are on the low end of the scale, then that right there tells you that it’s going to be a lower income area, high crime, management intensive. Not to say that that might be a bad [market]. There’s some people that target those kind of properties in those areas and they probably do very well, but you have to have the right team in place. You have to have the right type of manager, and the right team around that manager to make those types of deals work out.”

 

Look up income statistics on the Census and within a few minutes, you’ll know exactly the type of person who is living in that market. Add in the information gained from speaking with the locals and mapping out the territory and you’ll have enough knowledge to find the cash flowing friendly areas, start analyzing deals and submitting offers with a good degree of confidence.

 

Conclusion

 

If you have the desire to invest out-of-state, you need a plan for how to gain a basic understanding of a new market.

 

Here are three techniques to help speed up the learning curve:

 

  • Speak to the locals
  • Map out the territory (literally)
  • Look up income statistics using the Census

 

 

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How These Two Market Factors Will Make or Break Your Real Estate Business

In most markets across the United States, the apartment market is strong, which is great for multifamily syndicators like myself. However, what happens when the market takes the inevitable dip? How do we know that our properties will continue to cash flow?

 

A strong housing market can mask the weaknesses of inferior properties, but when the market weakens, those inferior properties will be the first to be negatively affected.

 

Peter DiSalvo, who has over 20 years of experience providing market research and has consulted on over 1,000 projects across 46 states, has a strong understanding of this phenomenon. In our recent conversation, he explained the two market related items you should analyze to ensure the long-term viability of your properties.

 

Related: Blueprint to Successfully Invest in ALL Market Conditions

 

#1 – Location

 

The first thing to analyze is the location of your property, which can be broken down into five factors.

 

One area to analyze is the property traffic. “Ideally, you have an apartment that has visibility to a lot of traffic,” Peter explained. “If you’re not one of those that are getting 10,000 to 15,000 cars a day in front of you, that may mean you’re going to have to spend more dollars marketing for people to find your property.”

 

Luckily, you don’t have to sit outside of your apartment with a tally counter. Here are three sources Peter provided for finding the traffic information on your property:

  • ESRI, a demographer
  • Department of Transportation for the state
  • City Municipality

 

Being hidden from traffic is a red flag and a sign of an inferior property.

 

Another location-related area to consider is your property’s accessibility. Peter said, “Good ingress, egress, how easy it is to get in and out of your property – that can play into it too.” For example, “if it’s a right out only, but you know that all the traffic goes left to go to work in the morning, that may be an issue.”

 

Also, see what is located next to your property. Does the surrounding real estate complement your properties demographic? For an extreme example, Peter said, “I recently saw an apartment development that was built near a strip club… The strip club would park their billboard sign next to the entrance. It was a family project where you had this enormous billboard sign of the next ladies that would be dancing there that night.” Other examples would be a storage facility, graveyard, construction site, landfill, or anything else that isn’t aesthetically pleasing or that isn’t contributing to the property’s demographic.

 

Depending on your demographic, the quality of school may be important. “Renters are having less kids, but I would say if you’re looking at a property that has a really heavy mix of three bedrooms, that’s when you really need to look into the schools,” Peter explained. “If the [public] schools aren’t particularly good, what are the private schools like? Sometimes that’s enough to negate that issue.”

 

Finally, if you want to attract the millennial generation, Peter said there are three location-based items to consider:

  • Are they close to jobs?
  • Do they have quick and easy access to highways?
  • How close are retail opportunities?

 

If millennials are your target demographic, the answer to these three questions will be vital to your success.

 

Related: How to Find a Cash Flow Friendly Real Estate Market

 

#2 – Product

 

The second item, which is often overlooked, is the product. Peter said, “When I’m talking about product, there are multiple opportunities with this, but looking out for that functional obsolescence. If it’s something that can be remedied, there’s a big potential for rent increases… If not, it’s a big red flag. If the market has those hiccups, you may be the first to experience problems.”

 

One huge red flag is a galley kitchen. Peter defined galley kitchens as “essentially a closet with your appliances in it.” Open kitchens are in and galley kitchens are out. If it’s possible to open up a galley kitchen, that is a great value-add opportunity, but if it’s unconvertible, it’s a big red flag.

 

A compartmentalized floor plan is another form of functional obsolescence. Peter said these are floor plans “where there’s a hallway everywhere, and your unit feels like a lot of doors and hallways.” Similar to the kitchen, renters like open floor plans. If you have the ability to open up the floor plan, great. If not, that’s another red flag.

 

Access to closet space is another important factor. Lack of closet space, Peter said, “can create some high turnover once they get [in] and say ‘Well, I don’t have enough space to put my clothes.’ Without the storage stuff, you’re going to have high turnover in your property, and maybe even [be] difficult to rent.”

 

A final product-related red flag would be a sub-grade unit, or garden-level unit. Peter said, “those apartments that are partially underground, in a basement. Those are … the ones that you need to keep an eye out for. That’s a big red flag. Those are tough, no matter how you look at it. Even in good time those can be difficult to rent.”

 

Conclusion

 

To ensure continued success, even in down economy, it is vital to analyze the location and product prior to investing.

 

Peter said, “understanding that just because you have a site in a strong housing market doesn’t mean you have a great site. Make sure you have those [two] fundamental market characteristics is important to having a long-term viable project.”

 

Related: How One Market Factor Can Tell You It’s Time to Invest or Sell

 

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bonfire

How to Find Deals in a Hot Market

I recently closed on another apartment building in Dallas, TX, and will be closing on a second building that is directly across the street in early April.

 

After completing a deal, I reflect to find a lesson I learned that I can apply to future deals, as well as share with other investors.

 

Here’s a link to an article where I provide the 15 lessons I learned from my first seven syndicated deals: https://joefairless.com/15-lessons-100000000-multifamily-syndications/

 

For these two most recent deals, I had one major takeaway. But first, I want to provide some backstory.

 

There was an on-market deal that was highly publicized and marketed by a broker. My partner and I loved the deal. However, due to competition, the price kept creeping higher and higher so we weren’t sure if the deal would make financial sense.

 

Directly across the street from this on-market deal was another apartment complex. The on-market deal is over 300-units and the majority of units are 1-bedroom. Whereas the property across the street was over 200-units and is primarily 2 and 3-bedroom units. Therefore, the two buildings naturally complemented each other.

 

Fortunately, we have a very good relationship with a broker in Dallas who also happened to know the owner of the apartment across the street. The broker reached out to the owner and since it was an off-market deal, we were able to negotiate and get the property under contract at a significant discount.

 

At the same time, we were in negotiations for the on-market deal. Since we were purchasing the property across the street at a significant discount, we were comfortable bidding higher on the on-market property because we would have the cost savings that comes from economies of scale.

 

One of savings that results from economies of scale, for example, is the lead maintenance person. Instead of having one person onsite and paying them let’s say $50,000/property, you can split that cost. There are also economies of scale for marketing and advertising, leasing staff salaries and commissions, and property management.

 

Also, since one building is primarily comprised of 1-bedroom units and the other is comprised of 2 and 3-bedroom units, we have a natural referral source. If someone is looking for a 1-bedroom unit, we’ve got it covered. If someone is looking for a 2 or 3-bedroom unit, rather than saying “no can do,” we can send them across the street!

 

Now, the lesson I learned is in regards to how to find deals in a hot, competitive market: create opportunities. Don’t just look at what the brokers are giving you. Instead, get creative. Look at what else is around the on-market property and maybe you can package two deals into one transaction.

 

I can almost guarantee nobody on the face of this earth was doing that for this deal. Everyone was looking at the on-market deal, but nobody looked across the street (or elsewhere in the surrounding area) and thought to themselves, “Hmm, I wonder if I could buy that property too?” Because if they had, they might have seen the same thing we saw – a natural opportunity to combine the two deals.

 

I can also tell you that this is the first time we’ve purchased two apartment buildings simultaneously. We had to self-reflect and say to ourselves, “Okay. If we get this one deal, then we can definitely pull it off from an equity standpoint, but what if we get two deals? We know we can do one, but can we really deliver on two?”

 

We had to have faith based on our track record of delivering on our previous deals. Lo and behold, we had one investor who’s invested with us in the past few deals put up all the equity that we needed for both deals (minus the money that we put in).

 

Overall, it was a learning experience across the board, from how to find deals in a hot market (you create opportunities) and also when to strategically stretch yourself based on the situation at hand.

 

 

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north america atlas

How to Successfully Familiarize Yourself with an Out-of-State Real Estate Market

Last Updated 6-20-2018

 

A common obstacle that real estate investors run into at some point in their careers is the need to start investing in an out-of-state market. Maybe you’re an experienced investor who needs to diversify to other markets. Or maybe you can’t find any local deals that fit your investment criteria.

 

Andrew Cushman, a full-time multifamily investor who has purchased 1,566 units in the last 5 years, fell into the latter category. He lived in Southern California and needed to go outside his state to find a more affordable market. In our recent conversation, Andrew explained the two ways he was able to effectively familiarize himself with an out-of-state market before buying his first multifamily investment property.

 

Technique #1 – Contact Active Real Estate Brokers

 

Andrew’s first idea for how to familiarize himself with an out-of-state market (in his case, the market was in Georgia) was to contact the most active real estate brokers in the market. “We started looking [for properties] in 2010,” Andrew said. “We went to Loopnet and just started looking and saying, ‘okay, what brokers have the most listings in these markets?’ Then I just started calling those brokers and figured if they have the most listings on Loopnet, they are probably some of the more active brokers and those would be the right guys to talk to.”

 

During these conversations, Andrew would try to gain as much knowledge about the market as possible. One specific thing he would always ask the brokers was if they had any research reports they could share. “Companies like Axiometrics, MPX Research, and Berkadia, they do all these great research reports,” Andrew explained. “A lot of them are expensive. But what I found is when I’m talking to brokers and looking at deals, I would say, ‘hey could you send me any research reports you have on this city (or this neighborhood or whatever),’ and they’re more than happy to send it to you. So I would just get reams of useful information on the market.”

 

 

Technique #2 – Interview Local Property Management Companies

 

Another effective technique that Andrew employees is researching and creating an extensive list of property management companies that covered the market he was interested in. His main research method was interviewing. Andrew says, “I would call and interview them. [I do that for two reasons.] Number one, to find property management companies, but then also to just learn about the market.”

 

After conducting countless interviews, Andrew has created a document that lists over 20 questions he most frequently asks when interviewing a property management company (a link to this list is included at the end of this post). Here are a few examples of questions he asks and his reasoning for asking:

 

  • “’Hey, what kind of properties do you guys specialize in?’ If they primarily do A [class properties], then I know they’re probably not the best fit for us.” (Andrew specializes in B class properties)
  • “’Are you strictly third party or do you own and do third party management?’ If they own a property a quarter mile down the street from the one I’m hiring them to manage, it’s just human nature that they are probably going to favor the one they own.”
  • “What kind of due diligence services do you provide?”
  • “How do you study markets?”
  • “’What is their structure as far as management?’ You’ve got the onsite people, but who do they report to? Usually, that’s a regional, and the question I like to ask is ‘how many properties does that regional oversee?’ If it’s 6 to 8, that regional is probably going to be able to give you a fair amount of attention. If it’s 15, something like that, then that regional is going to be running around like crazy and it’s probably going to affect just how much attention you’re property is going to get.”
  • “How do you determine what is a good area and not a good area?”

 

Based on the answers provided, Andrew gains a better understanding of the market. But, he also knows if the property management company would make a good partner, based on whether they provide a good or bad answer. Only if the interview is successful do property management companies get added to his list.

 

A good answer to “how do you determine what is a good area and not a good area,” for example, would be, “well we look at crime rate, we look at population growth, we look at job growth, we look at median income, and we look at what companies are going into the area or leaving the area. And we send our people to investigate specifically.”

 

Andrew said a bad answer to the same question “would just be probably more vague. ‘Oh yeah that area is decent.’ They can’t give any reasons as to why it’s a good area or bad area.” Andrew continues, saying another example of a bad answer is, “if I get the sense that they’re just leading me along and saying, ‘oh yes it’s a great area’ so that I’ll buy the deal and give them the business.”

 

 

Conclusion

 

One of the most difficult aspects of investing outside of one’s backyard is familiarizing oneself with the new, out-of-state market’s conditions. Andrew overcame this obstacle by creating boots on the ground relationships with active real estate professions.

 

First, Andrew reached out to local real estate brokers. Through brokers, he was able to gain an overall understanding of the market via detailed research reports.

 

Also, Andrew reached out to local property management companies. He called in order to obtain market knowledge, but to interview them to see if they would be good partners as well.

 

Click here to download a copy of the questions Andrew asks prospective property management companies when conducting an interview.

 

What about you? Comment below: How do you familiarize yourself with an out-of-state real estate market?

 

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principal investment funds

How to Find a Cash Flow Friendly Real Estate Market

 

The main question that needs to be ask before evaluating a market is what is my business plan? Generally speaking, there are two main real estate investing model: invest for cash flow or invest for appreciation.

 

If you’ve been a loyal follower of this blog, you know that we NEVER invest for appreciation, so the answer to that question is simple. Now what?

 

Russ Gray, who is the co-host of The Real Estate Guys radio show, one of the top real estate podcasts in the world, with over 6 million overall downloads, also adheres to the cash flow model. In our conversation on my podcast, Russ provided a list of questions he answers when evaluating a market to determine if it’s a good candidate for cash flow investing.

 

Always Stick to the Fundamentals

 

It’s important to understand that when investing, there are always bubbles, hot money and hot markets, and all kinds of deformations that can occur seemingly at random. Therefore, it is important to always stick to the fundamentals in order to thrive in any market condition.

 

Looking at the fundamentals will tell you everything that you need to know about a market. For example, what is the cap rate trend? If you look at multifamily cap rates in a market and see that they are becoming compressed, meaning people are bidding higher than the income demands, cash flowing deals will be difficult to find.

 

Another important, fundamental question Russ asks is what is the interest rate outlook? If you see that interest rates are rock bottom low, you may not be able to count on refinancing down the road at a similarly low rate if you need to save a tight cash flow situation.

 

Besides the cap rate and interest rates, here is a list of other fundamental questions that Russ asks when evaluating a market:

 

  • Tenant
    • Who is your tenant pool?
    • Who do they work for?
  • Economy
    • What drives the local economy?
    • Is it business friendly?
    • Tax friendly?
    • Is it the kind of market that a CEO that is making decisions to survive in a tough economy will tend to gravitate towards, rather than away from?
    • What is the affordability index?
  • Infrastructure
    • How solid is the transportation infrastructure?
    • Education infrastructure?
    • The labor pool?
  • Stability
    • Do the market’s industries have a strong tie to the geography, so that jobs cannot be exported to China, India, Mexico, etc.?
    • Is it a distribution hub or energy-producing town? (Russ finds that these types of jobs are safe from relocation)
    • Is there a diverse number or industries or is there one company/industry that is dominate? (As a rule of thumb, I don’t like to see one industry that makes up more than 25% of the jobs. If that industry crashes or disappears, so does the real estate market)

 

When Russ says, “investing comes down to the fundamentals,” he really means that “investing comes down to cash flow.” Therefore, the questions above will give you an idea of whether or not the market will be a good fit for a cash flow investing model.

 

When you are investing for cash flow, you may not be getting rich quickly, but cash flow keeps you stable. Although, the upside, besides stability, is that if you discover a good cash flow market, then it will likely eventually attract the “hot money,” and you will get to see benefits on the equity side too!

 

Advice in Action

 

Follow Russ’s advice. Stick to the fundamentals. Ask the questions that will gauge the markets cash flowing prospects. And eventually see the equity benefits of the inflow of “hot money.” Then, since you initially invested for cash flow, you will be prepared to “ride it out” when the hot money recedes!

 

Related: 10 Laws of Successful Real Estate Investing

 

 

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How One Market Factor Can Tell You It’s Time to Invest or Sell

 

In my conversation Jeremy Lovett, who is a mortgage loan originator, as well as a flipper, custom home builder, and condo investor, he provided an uncommon market factor that he tracks, which enables him to determine whether or not he should invest in a certain area and if he needs to sell off part of his portfolio: the housing affordability index.

 

Jeremy’s best real estate investing advice ever was to “pay attention to your market.” It is not so much about the individual deals you are doing, but more about the entire direction of your target market. If you pay enough attention to your market, then you can make sure that you are buying when buying is smart and that you are selling when selling is a necessity.

 

The main market factor that Jeremy watches is the housing affordability index. According to the National Association of Realtors, the housing affordability index “measures whether or not a typical family could qualify for a mortgage loan on a typical home,” which is defined as the “national median-priced, existing single-family home.” The affordability index can be interpreted as follows:

 

  • Affordability index of 100 – A family with the median income has exactly enough income to qualify for a mortgage on a median-priced home. An index
  • Affordability index above 100 – A family earning the median income has more than enough income to qualify for a mortgage loan on a median-priced home
  • Affordability index below 100 – A family earning the median income doesn’t bring in enough income to qualify for a mortgage loan on a median-priced home

 

When looking at the affordability index’s historical data leading up to the 2007-08 real estate crash, it was totally out of control. It got to the point where almost nobody could afford the homes that they were living in.

 

Therefore, as long as the affordability index is high such that the overwhelming majority of a population in an area can afford to live in the median-price home range, then Jeremy is comfortable investing in that area. However, if the affordability index gets to the point where half of the people living in a given area cannot afford the median-price home, then he gets worried and knows that he is going to stay away, in regards to buying. If he owns properties in the area of a declining affordability index, he will look into unloading those properties while it is still possible

 

Jeremy uses local resources to track the affordability index. He doesn’t look at the national index because that doesn’t make any sense – the affordability index is best used at the local level. Therefore, you want to either find a local resource or a national resource that breaks it down to the local level. The best way to find your target market’s affordability index is to search “(insert target market) housing affordability index” on Google.

 

graphs and a mouse

Why Studying the Market Can Help You Avoid Disaster

I had a very informative conversation with Shannon Rose, who has been a real estate investor and a CFO of a venture capital firm in the past, but has transitioned to being a real estate agent. During her time as an investor, she had many personal growth experiences and made some mistakes, which she was willing to share in order to help other investors to not fall into these same traps. Shannon’s best advice ever is that “you have to study and investigate the market” if you want to be a successful real estate investor.

 

Before the market crashed, Shannon was an active real estate investor, consistently purchasing 2 residential buy-and-hold properties a year. At the same time, she had other colleagues that were purchasing properties at a much higher rate, some buying as many as 5 short sales a day. Shannon understands that 2 properties per year may be too fast of a pace for some, and too slow of a pace for others, but she believes that regardless of your pace, it is possible to spread yourself too thin. Therefore, it is really important to make sound, savvy investments and to not have too much of your own skin in the game.

 

When the market reached it’s peak, Shannon decided that it was a good time to sell off all of her properties. 18 months later, the market crashed, and her colleagues that were buying 5 properties per day ended up having to give many properties back to the bank, which resulted in their credit taking a beating and having multiple short sales under their belts. Shannon is very fortunate that she was able to sell off her properties when she personally thought that the market was at its height and beginning a downward spiral. Not only did she avoid facing the negative ramifications that many investors at the time faced, but she was able to get out with a few great success and some smaller ones as well.

 

Shannon didn’t have a crystal ball that told her that the market was going to crash. Instead, she was aware of the economic indicators that were pointing to the crash a few years in advance because she spent the time studying the market before she began purchasing properties. Many people make the mistake of wanting to just jump straight into investing because it sounds super sexy to buy something and make a ton of money off of it. However, you have to buy savvy and smart, as well as make sound decisions based off your investigation of the entire economic spectrum and what is going on in the local market.

 

Now, most of us don’t have the time to spend days looking at economic data, so Shannon provided me with a tip on how to quickly determine the market conditions:

 

Be aware of where the big companies are going.

 

Pretty simple! If a large company is moving into an area, they have already done a ton of economic research and selected that specific market based off those results. If a company is committed to coming into a market and the surrounding real estate is at a lower price point, then it is likely that those same properties will be on an upward swing 5 to 7 years from now.

 

4 Benefits When Investing in a Smaller Area

Here are 4 benefits an investor will have when they focus on investing in a smaller target area:

 

Spend less time on research

By focusing on a smaller area, you will ultimately minimize the amount of time you spend on market research. Obviously, it takes less time to research a 3 square mile area than it does to research a whole city or zip code.

 

Truly Master the Area

Spreading out your resources to larger target market or to multiple smaller areas will only give you a basic understanding of the market, compared to spending that same amount of time focusing all of your energies on a single, small area. In doing so, you will truly master the area in no time.

Also, due to the decrease in market size, you will be able to increase the frequency of driving for dollars, and you will have the ability to meet with more of the area’s sellers and investors. As a result, you will consistently be up-to-date with the market values and understand the area inside and out.

 

Have a Better Understanding of the Competition

By concentrating on a single smaller area, along with meeting with the local sellers and investors, you will be able to see when properties are being purchased, when the property goes back on the market, and what it is being sold for. Therefore, you will also be up-to-date on what the competition is doing. It will be much harder to keep track of all of this information if your area is too large or spread out.

 

Extra Time

When you eliminate all of the time consuming activities from having such a larger target area, you can take all the extra time to become laser focused on other aspects of your business.

Use the extra time to become educated on areas like the fundamentals of real estate and real estate law. Take the time to become the most competent investor by knowing the market values and market rents better than anyone in your area. Or, simply take the extra time to spend with family and friends!

 

What are some other benefits to having a smaller target market that you can think of?

Stupidly Simple Method of Picking the Next Emerging Real Estate Submarket

WARNING: FOLLOWING THIS METHOD WITHOUT DOING OTHER RESEARCH IS AS SMART AS PLAYING RUSSIAN ROULETTE.

I’m on the road visiting different markets and looking for my next acquisition.

I came across a couple locals and they started talking about this “terrible area” that has been crime ridden for a long time. I asked where it is and they told me it’s on top of a hill that overlooks downtown.

Reeaaalllyyy, I think. Hmm…I inquire further.

Turns out it’s got breathtaking views of downtown, it’s close to some major employers and it sits high up on a hill. If there’s one thing I’ve learned it’s that the rich people want the good views and they want to go higher up to get them. 

Take a look at your city and see if that proves out. I bet it does.

So then the question because, WHY? Why did it become a bad area? In this case it’s because of some political moves that had unintended negative consequences. There’s now a new political regime and there’s some ripples of it being turned around. In fact, it has a 4-star restaurant that is nestled between a couple crime-ridden communities.

Sounds like a good opportunity to get in before the gold rush begins.

I’m driving over there tomorrow to check it out. It interests me for three stupidly simple reasons.

  1. Good views of downtown
  2. High up on a hill or mountain
  3. Close to downtown

Please, PLEASE don’t think this is the way to evaluate if a submarket is ready to emerge. Because it ain’t. For that you’ll want to look at jobs, one and five year job trends, supply vs. demand, job diversity, new construction of McDonald’s and WalMarts, as well as other factors.

This is just a, well, stupidly simple way of potentially uncovering a gold mine. Or, a scary dud and money pit. Proceed with caution on this post (I hope I’ve put up enough disclaimers!).

Either way, it’s worth a drive to check out.