cap rate Archives - J Darrin Gross Podcasts

CREPN #141 – Multifamily Underwriting Basics with Michael Becker

Multifamily Underwriting is full of opportunities to over or under analyze numbers to determine if a deal is a winner or not.

Michael Becker with Strategic Property Advisors has been both a lender and investor. He has seen the cycle of ups & downs and shared his thoughts on what investors should look for when underwriting a multifamily real estate opportunity.

Rents & Taxes

Value add deals are what every real estate investor is looking for. When you look at rent comps, make certain you are comparing like product. Are you comparing a C class property to a B class property or are you comparing C vs C? If the comparable property not the same class or in the same neighborhood, find a different property.

Taxes are an easy way to upset your deal. You must understand how the local taxes work and will affect your deal. Using the seller tax expense is not reasonable regardless what the selling broker prospectus says.

Exit Cap Rate

Cap rate is the measure of market supply and demand. If there are more buyers than sellers, the cap rate will compress. When the reverse is true, the cap rate will expand. What will our exit cap rate be? A conservative estimate is to increase your purchase cap rate by 10 basis points per year held.

Expecting your exit cap rate to be the same or lower than your purchase is unrealistic, but a nice benefit if it happens.

Rent & Expense Growth

Rent growth is what every real estate investor wants. It is not uncommon to find a property that is under rented with substantial room for rent growth in year one. However, it is unwise to project subsequent years rent growth beyond national averages of 2 – 3 percent.

Expenses should also be projected to increase at similar 2 – 3 percent.

These are some basic underwriting points every investor should consider when underwriting your next multifamily deal.

For more go to:

http://www.oldcapitalpodcast.com/

http://www.spiadvisory.com/

CREPN #28 – Big Data for Real Estate Investing

Big Data for Real Estate Investing

Is Big Data for real estate investors looking to maximize return on their investment?

How do you know the potential value of your property compared to other similar properties in your market?

How do you know if now is a good time to start a new apartment development project?

You need data.

Since 1995, Axiometrics has been providing investors the needed information to make investments based on the most current month end reported data. Each month, Axiometrics gathers data from over 40,000 professionally managed apartment properties of 50 plus units plus across the USA.

Rents for every floor plan offered
Occupancy rates
Concessions
Ryan Kimura provides insight on how big data provides the answers investors need to make informed investment decisions in order to maximize the return on investment.

For a FREE sample Market Narrative Summary ($1500 Value) contact Ryan

E rkimura@axiometrics.com | D 469.621.9635

Ryan is the Regional Director for the East Coast and specifically the Mid-Atlantic Region for Axiometrics Inc., headquartered in Dallas, TX. Currently, he assists companies operating in the Apartment and Student Housing space understand how to make the best decisions when buying, selling and managing assets by providing access to better, more accurate data.

Prior to his tenure at Axiometrics, Ryan helped a Dallas based private equity hard money lending firm grow from $18MM to over $40MM in less than 18 months by originating transactions and raising capital from equity investors. During his time with the PE firm, he supported numerous aspects of the business including being an integral part of a JV partnership with a large hedge fund to buy, rehab and rent over 1000 foreclosed single family properties in Texas.

Prior professional experience included growth and branding of a $500MM self-directed IRA and 401k administrator, from a local firm to a national firm. Ryan also has extensive background in real estate debt from residential to commercial to hard money. He has vast experience personally, and professionally, working with self-directed retirement accounts (IRAs & 401ks), investment syndications and non-controlling equity investors.

Ryan graduated from the University of Puget Sound in Tacoma, WA where he was a double major in Business Administration and Economics, as well as played 3B/DH for the NCAA Division III Logger baseball team.

CREPN #49 – Real Estate Investing Strategies with Jake & Gino

Profitable Real Estate Investing requires strategy and discipline. Jake & Gino have grown from zero to $32M portfolio in just three years.

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Most beginners struggle to get out of the gate. It took two years of rejection before they landed the first deal, and from there, they have never looked back.

Along the way they were methodical, kept notes, learned what not to do, and what worked. The result is they have developed a system.

Real Estate Investing Strategy:

Buy Right.
Manage Right,
Finance Right.

In order to Buy Right, you have to know what works for you and be prepared to walk away from the deal. Every deal.

Once you have a the deal, you have to Manage Right. Make certain the property has curb appeal so that it attracts tenants willing to pay market rents. This can be as simple as landscaping and paint, keep the grounds picked up and free from trash.

Additional strategies can include RUBS, Ratio Utility Billing Systems which allow utilities such as water to be billed to the tenants instead of paid for by the landlord.

Finance Right. This relies on your ability to actively market your property to local community based lenders. To do this, you have to be able to present your numbers is the standard format the bank needs in order to evaluate your property and the opportunity, including: Rents, Expenses, Net Operating Income, and Cap Rate. Typically a bank will look for a 1.25 debt service cover ratio.

If you want to follow the model that Jake and Gino, a pizza boy and a drug rep, developed to go from zero to a $32 million in in portfolio assets, check out their Wheelbarrow Profits Academy.

If you are looking for some direction from experienced investors, I encourage you to get with Jake and Gino.

Clone of Wheelbarrow-profits-launch

CREPN #52 – Multifamily Syndication with Joe Fairless

Leverage is the catapult that gives real estate investors exponential buying power. To increase the power of leverage creative investors are turning to Multifamily Syndication. Syndication gives like minded investors the opportunity to scale up and share in bigger risk and potential gains not available to new and smaller individual investors.

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Joe Fairless is an experienced investor and an active multifamily syndicator, and podcast host. In just three years, Joe and his investors have grown the assets under management to an impressive $54 million.

He started investing in single family properties while still working as an advertising executive in New York City. He learned how to invest and then taught others what he learned.

Some of his single family investing students indicated that they were interested in investing with him, but in something larger than single family.

When he realized that he wanted to get into multifamily and he had willing investors, he recognized he could do much more through syndication than he could on his own.

How to create a Multifamily Syndicate

Syndication is matching investors with opportunity. The steps to syndication are:

Build anticipation with investors
Learn about what your potential investor goals are. Are they passive or active?

What do they expect. Once you determine their goals, ask them,

“If I find something that meets your goals would you like me to share it with you?”

Get Commitment:
It is best to make certain you have 30% more commitment than what you need. Why do you need greater commitment than the deal calls for?

Life happens. Things change. There will always be someone who raised their hand when asked, but when it is time to commit, some investors will back out.

How much do you raise?

You need enough to cover all of the upfront expenses, including:

Down payment
Legal fees
Inspections
Closing costs
General Partner Fees
Fund the operating budget
Identify the community and property parameters for your investment including:

Market Characteristics, learn the market including these Two key Indicators:

Rental market
– What is the supply compared to demand?
– Occupancy & Vacancy rates
– What are the sub-markets like?
Employment
– Is there a diverse number of employers?
– Is there job growth
Is there a recognized path of progress?
Is the state friendly to Landlords?
What are the natural resources?
CAP rate
– Lower than a 5 is speculating

Find the property
Use all the resources available to you:

Brokers
– Tell them what you are looking for.
Off market properties
Approach owners directly.
The Truth

Obviously, this is a simplified explanation of what truly happens. In addition to what is listed there are several legal documents required in order to set up a syndicate, including:

Private placement memorandum
Operating agreement
Investor qualifier
Accredited investors
$250 Networth
$250 Annual income
If you are successful in syndicating a deal, momentum can build. The more you put yourself out there, the more consistency you can achieve. Joe’s podcast has created a nationwide network of opportunities.

His goal is to grow to $1 billion by the time he reaches 40 years old.

There are Investors who are looking for those who have a proven track record. If you can you do it, they will come.

Joe’s advice to anyone considering getting into syndication:

Get the knowledge
The learning curve is steep.
Do the research.
Immerse yourself in the content.
Get a mentor
Surround yourself with successful people doing syndication.
Work with someone who has done it.
Deals are dynamic. You need to have people who have experience on your team.
Follow the Blueprint
Do what others before you have done and you should have similar results.

The truth: “It’s a shark tank!”

When you compete in large multifamily real estate deals, you are competing at the highest level of real estate investing. This is not single family! You are bringing in other people’s money.

You have to know how to do this.

If you screw it up you will be screwed for a long time.

For more information go to joefairless.com.

CREPN #53 – Value Add Accounting with Telma Landhorian

Commercial Real Estate value is simple. What’s the Net Operating Income? If you don’t keep up with market rent and expenses, your property’s value will suffer. Value Add Accounting is an easy way to increase the NOI and the value of your property.

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Telma Landhorian is a CPA & MBA with experience in Commercial Real Estate. She makes the case for an outsider’s professional review.

One client gained $20M additional valuation after working with Telma.

Real Estate investing can be so lucrative that even if your bookkeeping is sloppy, you can make money. You know this to be the case when the selling broker’s listing offer is missing actual and “trailing 12” expenses and uses “underwriting average”.

If the numbers can not verified, the value is suspect.

The primary goal of investing is increase value and not lose money. The next goal is to generate a cash flow, a return.

In order to grow a portfolio, operations have to be delegated, and outsourced. This includes property management. The goal of property management is to keep the units rented and the property maintained.

In larger primary markets, professional property management firms compete for clients. To compete, they have to provide valued services. It is the market. These firms tend to provide more comprehensive reporting and the ability to control expenses and NOI.

Investors with properties in secondary, tertiary and rural markets, will likely have less qualified competition for property management. At this level, there is a lack of accounting sophistication and consequently cost controls are likely to not be present.

If it ain’t broke don’t fix it.

The motivation to look into the numbers is minimal, especially if you are making money.

But eventually, the day comes when you want to sell or refinance.

If you have an urgent need to sell, or borrow money, you probably will get a lot less than you could. All because your books are not in order.

Value add accounting:

The good news, you can fix this. If ownership is willing to take have a trained professional, an outsider, take a look at the books and asses what is.

First – Look at the current books. If the NOI varies greatly from month to month with no explanation as to why, you likely have a problem.

The assessment takes a look at each and every line in the operation budget to determine how it compares to the market, and if any improvements can be made.

When irregularities are found, policies and procedures are made to correct.

Next – Implement the changes.

In order for change to be adopted by the staff, it has to be demonstrated that ownership supports the change. Without this, nothing will change.

Resistance to change is natural. It is important to explain the benefit of making the change to each team member in a way that does not make them feel threatened, or disposable. Show how the changes will improve the entire operation.

Ongoing – It usually takes about 6 months to make the transition from the old way to the new way. The procedures need to include regular review and monitoring for real success. The pain of change is the price of progress. The benefits will be lasting and help increase the value of the property.

For more information contact Telma Landhorian

https://landhorian.com/

https://www.linkedin.com/in/telmalandhorian

case study: https://landhorian.com/case-study/