Posts Tagged ‘Investment Real Estate’

Investors Poised to Capitalize on Multifamily Real Estate Market

Written by Landlord Property Management Magazine on . Posted in Blog

Shared post from wealthmanagement.com

apartment buildings

As volatility remains ever-present and investors search for yield, where do you turn? Alternative investment vehicles seem to be growing exponentially and investors and advisors remain at the forefront of the allocation debate.

One asset class has remained tried and true: real estate, more specifically, multifamily real estate. Value-add strategies in the multifamily space remain steadfast, even during the most trying of economic conditions, and is one of the best hard, non-correlated assets acting as a hedge against inflation. Furthermore, value-add enables investors to be flexible by offering lower holding periods, often around three years, and managers have agility to allocate based on evolving demographic and economic indicators.

While REITs seem to hog the spotlight in real estate, they are simply too correlated with the general market and interest rates to offer diversification. Of all the real estate streams, multifamily is perhaps the best place to generate absolute returns based on national trends that signal high occupancy, high rental demand and low supply. Let’s examine:

Surplus renter demand outpacing supply

U.S. renters are driven by two groups, lifestyle renters and primary renters priced out of homeownership. Lifestyle renters, 69 percent of whom are married with no children below age 18, can afford a home but opt to rent due to its ease and capital preservation. Public opinion polls reveal homeownership is no longer a central tenet of “the American dream” as maintaining an owned residence is expensive, labor-intensive and many folks would rather enjoy amenities apartment communities offer. The lifestyle renter cohort emerged as a definitive renter following the housing bubble of the Great Recession.

Prime renters, (between ages 20-34) or millennials, lead a mobile lifestyle to follow the job market. This encourages renting as it offers young people the greatest flexibility or liquidity to find a better opportunity elsewhere. The mobility desire is reinforced by the difficult consequences of the recession, forcing this somewhat nomadic demographic to search for jobs away from their cities of origin. The prime renter age cohort is growing at its fastest rate on record as the children of baby boomers come of age. This record pace of growth is projected to increase prime renters age cohort by 500,000 persons per year through 2023.

Student debt is also afflicting prime renters at record levels, having increased nearly three times since 2004 for those under 30. This prolongs their attachment to rental properties or drives some to reside with family. More than one in five Americans with student loans are at least three months behind on a payment. Today, the percentage of prime renters living with parents is at the highest level since 1967, when these statistics were first collected. Even if those living at home attain employment or improved jobs, they will naturally emerge as renters because the barrier to entry for home buying remains tall. Home buying events are also being delayed, lengthening one’s status as a renter. The decision to marry and to have children are now at the oldest ages on record.

Yet construction of new apartments to meet the demand has failed to keep pace, resulting in today’s high occupancy rates, averaging 95.2 percent as of June 2016 according to Axiometrics. Axiometrics also reports multifamily permits issued in the trailing 12 months of 381,000 units, which compares favorably to the aforementioned growth in the prime renter age cohort, resulting in continued high occupancy levels coupled with above-average rental growth rates. Additionally, home ownership rates have yet to find a bottom almost a decade following their peak. Each 1 percent decline in the home ownership rate is estimated to represent nearly 1.1 million new renters, according to Census Bureau statistics.

Millennials pick suburbs over urban centers

The most opportunistic multifamily investments are not in the nation’s biggest cities of New York, Los Angeles or Washington, D.C. Rather, they are often in suburban areas in the South and Midwest, buoyed by business-friendly policies that have opened new jobs for millennials. Enhanced business environments have led to the relocation of major corporate headquarters such as Toyota, away from traditional Californian urban cores, to Texas, for example. Other key markets with thriving suburban economies include North Miami Beach, Orlando, Florida’s Gulf Coast, Dallas and Denver. New and sustainable jobs are emerging in the tech, corporate and financial services industries. These higher wages will allow young people to rent higher-quality apartments all the while having a multiplier effect on the local economy.

How to make the most of multifamily investing?

Multifamily properties, especially those in the middle market, provide a combination of significant yield and absolute returns in these increasingly volatile times. For advisors and clients, this can be an attractive avenue to achieve a steady return stream as traditional fixed-income allocations provide low to negative yields. In addition, value-add multifamily investing offers the prospect of capital appreciation, which is expected to result in absolute double-digit returns per year, while U.S. public equities are reaching record levels of volatility. Only managers that follow an agile strategy, use deep macro research and maintain local operator relationships can unearth properties that are poised to benefit from both demographics and local economic dynamics that drive value.

 

How to Retire Early Investing In Apartment Buildings

Written by Landlord Property Management Magazine on . Posted in Blog

How to Retire EarlyWe all work hard at our J.O.B., don’t we? We work hard each day and hope to retire when we’re 65, that’s the American dream, right?

Many of us are looking for something better, maybe a scenario where we can retire earlier or perhaps enter a state of semi-retirement. The answer: investing in apartment buildings.

Imagine working really hard to find a good building at a fair price, putting the financing together, and hiring a property manager to run the whole thing. Was that a lot of work? Of course. But don’t you work hard anyway? Here’s the difference….

Apartment Ownership – What’s It Really Like?

Imagine the day you close on the building and your property manager takes over. Ask most apartment building owners, and they will say they spend anywhere between 2 and 5 hours per week on their building if it’s managed by a professional management company.

What have you done? You went from a job that took 40-50 hours of your time each week to one that takes a fraction of that. And you replaced part or all of the income of your job with that from the apartment building.

You’re working less while maintaining your income.

What would this mean to you? Maybe you could spend more time with your family. Maybe you want to travel more. Pursue a hobby. Give back. Or maybe do more deals.

How is something like this possible with apartment buildings? The answer is in how apartment buildings are valued.

How Do you Make Money On Apartment Investments?

The value of an apartment building is driven by its net operating income, the amount of income left after all expenses are paid. The more money the building spits out after all expenses, the more it’s worth.

In many parts of the country, a building is worth 10 times its net operating income. This “10 times multiplier” is referred to as the “capitalization” or “cap rate” for short. Don’t worry about this for now – it’s not important to the point I’m trying to make. Let’s just use a cap rate of 10 for our discussion.

Let’s say a building has a net operating income of $100,000, which would make it worth $1M. If you could somehow make the building generate $10,000 more each year, maybe by increasing rents or decreasing expenses, you would have generated $100,000 in value (a cap rate of 10 times the additional income of $10,000 is an additional $100,000 in value).

Let’s look at a more specific example, so that you can start visualizing how this “math” could work for you in real life.

Assume you bought a 10-unit building for $540,000, and you had to put 30% down. The building was bought at a “10-cap” based on our formula we’ve used so far. Which means its net operating income (or NOI) is $54,000 per year, times our cap rate of 10 is $540,000. The income per unit is $1,000, and the expenses are 55% of the income. The building is in great shape and has been managed by the owner himself.

So far there is nothing special about this deal.

However, suppose you found out that the average market rent in the area is actually a $200 higher per month. Suppose further that you meet a property manager who manages two similar buildings in the area, and he tells you that his expenses are only 45% of income.

Let’s say it takes us 3 years to get the building to where it should be, i.e. with each unit bringing in $1,200 per month and lowering our expenses to 45% of income. Here’s how this would impact our financials:

By making small improvements each year, we have added $25,000 to our Net Operating Income. What is our value now?

Our new NOI is $79,000, so our value now is about $790,000 ! That is an increase of $250,000 in three years! Isn’t that incredible?

But that’s not all.

You also had between $2,600 and $4,700 in monthly income from this building over those three years.

That’s still not all. You (em, I mean your tenants), paid down $21,500 of your mortgage balance during that time, too.

Here’s what you get if you add everything together:

Your down payment was $160,000, and your total profit if you sold this building in 3 years is $284,000. This means you nearly doubled your investment!

In the meantime you enjoyed an average of $3,500 per month in cash flow.

Maybe you need more than that each month to quit your job. No problem. Buy a bigger building. Or get a second or third one. Three of these buildings will give you $10,000 per month in income and almost a $1M of profit in 3-5 years.

Retirement Possible In 5 Years After Investing In Aparments?

Would it be a lot of work? Absolutely. Do you work pretty hard right now? Probably.

Imagine working just as hard for the next 5 years and being able to retire. Imagine. 5 years.

And then you can do whatever you want. Keep working. Keep finding new deals (why stop?). Travel. Family. Give back. Whatever.

You don’t have all the answers, and you probably feel overwhelmed. That’s to be expected. The point I’m trying to make is, make sure that whatever you’re working hard at gets you to where you want to go.

I always say, “where there’s a will, there’s a way. And where there isn’t a will, there is NO way”. So ask yourself first, how badly do you want it? If you want it badly enough, you will choose to commit to the journey.

Use REIClub.com as a resource to get started – there are tons of articles, blog posts, and videos! I’ll try to do my part to write articles (and maybe publish a few videos) on the subject of investing in apartment buildings with a particular focus on raising money from private individuals (called “syndication”).

For me, and many others, apartment buildings are the single best way to retire early. It might be a good wall to consider climbing. Why not get started today!

Michael Blank’s passion is being an entrepreneur and helping others become (better) entrepreneurs. His focus in real estate investing is buying apartment buildings by raising money from private individuals.

Michael has been investing in residential and multifamily real estate since 2005 and began syndicating deals in 2010. He is the author of the Syndicated Deal Analyzer and the free eBook “The Secret to Raising Money to Buy Your First Apartment Building”.

www.TheMichaelBlank.com

Real Estate Trends | Real Estate Crowdfunding: An Easier Way to Raise Money for Companies

Written by Landlord Property Management Magazine on . Posted in Blog

RealEstate CrowdingOne of the biggest problems facing today’s entrepreneurs is the lack of access to financing. In fact, 98% of the businesses that are able to secure an appointment with a venture capital firm fail to secure financing often as a result of a single element in their business plans.

The Small Business Administration reports that, regardless of the level of legitimacy of the business’s need, banks in the United States are lending less often. In 2011, banks had over $607B worth of outstanding American business loans, all of which were for $1M or less. In comparison to the same period of time in 2008, that’s a reduction of about $100B.

As discussed earlier in the week, crowdfunding, is the practice by which informed investors pool their money together into a single deal. For real estate investors, that would be to acquire property. In return, the investors earn a share of the profits once the deal is complete. Aside from the smaller risk, the “crowdfund” investor is able to benefit from having other informed investors involved in ensuring their deals’ success.

It’s clear that the advancements in technology have revolutionized the ways in which we access and gather information. Researching an investment was once more of a cumbersome process that took not only time and money, but know-how and access to previously publicized resources.

These days you can research everything from property profile data and lean information with nothing more than an address or parcel number. Once you’re invested, there is technology available that allows you to track and manage all the deals in your portfolio without missing a beat.

Now, thanks to the JOBS Act that President Obama passed in spring of 2012, the general public is now allowed to obtain actual company equity in exchange for funding a company’s efforts.

And the timing for such an act couldn’t be better. With all the communities that have been hit by the housing crisis and unemployment trends, crowdfunding has the potential to become one of the primary means for boosting the overall economy.

Through these types of investment opportunities, we can see a new surge of investing for our nation’s small businesses. After all, in the past two decades, small businesses have been responsible for creating 65% of the new jobs in the country.

As far as the public’s acceptance of the crowdfunding platform, statistics gathered by Massolution Research show that the funds collected on the current platforms have grown by a whopping 524% to fund over a million new projects with the $1.5B they raised.

“Yesterday, it was a big deal if you could get Intel to invest in your company. Tomorrow, you will seek funding from 500 Intel employees, who are all better qualified to vet your technology startup than 90% of the people in Intel’s investment arm,” says Fred Trotter from O’Reilly’s Radar. “These crowdfunders are also willing to make a decision to invest in six hours rather than six months.”


JustinAlanis Justin Alanis | Company Website | LinkedIn Connect |

Justin Alanis is the Co-Founder and CEO of Rentlytics Inc.  Rentlytics is based in San Francisco, CA providing deep analytics for apartment property owners and managers. View and analyze property operational and financial metrics more effectively and identify issues.

 

Finding Money for Real Estate Deals

Written by Landlord Property Management Magazine on . Posted in Blog

by Jeff Adams

Stacks of One Hundred Dollar Bills with Small House.

In today’s economy, we cannot waste time and or money in our real estate investing efforts. We all want a better future and higher profits, so we can enjoy our family and life style we always dreamed of. Continue educating yourself with new and better strategies that will make you excel in this ever-changing real estate market. Right now it is a smart move to take advantage of lower home prices and closing costs. So you need money, right?

Finding Money For Real Estate Deals

However, it is important to know where you can find the capital when needed. Read this very important article below and pay attention to these strategies that will help you come up with the money to fund your deals! As you know, many of us real estate investors choose to borrow the funds rather than risk our own savings. Others prefer having more control and use their own money as much as possible. The funds you use depends on the partners you share the investment with.

Self Funding
Use the money you have available through your own resources. This could be from a savings account, 401K account, and IRAs. Before you draw from these sources, educate yourself on how to use your own funds to invest in real estate. Know what tax ramifications there are if you take funds from these accounts too early.

Family & Friends Borrowing
Borrow money from family and friends. You can pay them interest on the loan or pay interest and principal until the loan is paid off. Or you can make them a partner in your investment and pay them when the property sells. If you choose this option, be sure to have all your contractual agreements in order prior to making the purchase.

Bank Lines Of Credit
Establish a line of credit at your bank. The amount you can access will depend on your bank’s policies and your financial situation. By setting up a line of credit, you can access the account and be charged fees only on the amounts you use. The remainder will not be charged until you withdraw the funds.

Private Lender
Join a REI Club in your area. Members include real estate owners as well as people with investment funds. Meet them and learn how they access their funds. Find out what the criteria is to make them comfortable in lending you money. This type of lender will typically loan money at a high interest rate, but can fund the loan quicker than a bank. They don’t have as strict guidelines for their money as a bank, so they do charge more for using it.

Seller Financing
Ask the seller of the property to contribute. Some sellers are open to carrying a portion of the down payment. This type of transaction requires knowledge of secondary loans. Consult an investment real estate professional for ways to pursue seller participation.

As you can see, there are many ways you can come up with money to fund your deals. Use any of the 5 ways to fund your real estate deals exclusively or in combination. Be cautious and smart about your decision. There are also grants you can get from the government — some of these are free.


logo_aaoa American Apartment Owners Association | Company Website Rental property management can be very demanding. Our job is to make this day-to-day property management process smoother. AAOA provides a host of services ranging from tenant screening to landlord rental application forms and contractor directory to apartment financing. 

What’s The Most You Can Pay For An Apartment Building?

Written by Landlord Property Management Magazine on . Posted in Blog

by: Michael Blank

Apartment-BuildingsA deal comes in for a 12-unit apartment building from one of your brokers. He faxes you a rent roll and a list of expenses. The asking price is $575,000, and he’s asking for what you want to do. It’s relatively easy to answer the question “is this a deal?” (the answer is usually “no”), the harder question to answer is “what is the most I would pay for this deal and why?”

When I first got started with analyzing apartment building investment deals, it took me about 4 hours to answer this question. This is extremely time consuming, and when you’re looking at a lot of deals, it can be overwhelming.

The trouble is, if it takes you too long to get back to the broker with feedback (or if you don’t get back to him at all), he will stop sending you deals. The same is true if you always respond with “that price is too high, it needs to be X”. Without usable feedback, the broker won’t know what you’re looking for and/or won’t be able to articulate to the seller why his asking price won’t work for you.

In this article I’d like to describe how to answer the question “what is the most I would pay for this deal and why”, and to answer it promptly.

How to Quickly Analyze an Apartment Building Deal using the 50% Rule

Step # 1: Determine your Investment Criteria

Before you can seriously answer this question, you need to decide what your investment criteria are. If you plan to syndicate the deal, you need to answer the same question for your investors.

What is the minimum cash on cash return and average annual return that you and your investors will be happy with?

For example, you might decide that you won’t touch anything with less than a 10% cash on cash return and an overall average annual return of 20%.

If you’re syndicating the deal, you need to decide what returns you want for your investors. What minimum returns will you need to show to attract capital?

Before you can analyze a deal, you need to determine your investment criteria. Otherwise, how will you know if you have a deal?

Step # 2: Determine Fair Market Value Using the Cap Rate

I’m not going to explain the “cap rate here (Bob Diamond does that in his REIClub article here), but I do want to give you some tips for determining what cap rate you should use in your analysis. The BEST way to determine what similar properties have sold at is to ask you brokers. Hopefully you’re working with a handful of good brokers who are feeding you deals. If they’re worth anything, they’ll tell you what the prevailing cap rates are in the area and will send you comps for the area you’re looking in. From that, you can create valuable information about the cap rate and price per unit.

Let’s assume that the prevailing cap rate for your market is 8% for similar buildings. That just means you have a way to assess “fair market value”, but who’s happy with that? You may decide that you don’t want to get into a building with anything less than a 10 cap, and that is a fine investment criterion.

Knowing the market cap rate is important for estimating the re-sale value and your financial projections later on. Also, it may be unrealistic to look for 10 cap deals in an area where everything else is selling at an 6-cap, make sense?

Step # 3: Assess the Value of the Building Using the 50% Rule

Now you can quickly assess what you want to pay for any deal that comes in. Assume the seller is reporting gross scheduled income of $100,000. In our income projections, we will use an occupancy rate of 90% unless the seller provides a lower number. If the reported expenses are less than 50% of income, then ignore what’s reported and use 50% to calculate the Net Operating Income (NOI).

Apply your desired cap rate to get the current valuation of the building:

If the asking price is above $450,000, you can now quickly get back to the broker and say that the fundamentals aren’t right. You can say that the expenses are clearly under-reported, or the vacancy rate, etc. You might say, “The expenses are way low. Assuming 50% of expenses, and using the reported rental income, in order to get at my desired cap rate, I could spend no more than $425,000” and see how flexible the buyer is.

Using the 50% rule makes it easy to quickly answer the question “what is the most I could pay for this apartment building investment deal and why?”. It will save you tons of timing in phase 1 of the analysis and makes you more responsive when a deal first comes in.


Michael BlankMichael Blank’s passion is being an entrepreneur and helping others become (better) entrepreneurs. His focus in real estate investing is buying apartment buildings by raising money from private individuals.

Michael has been investing in residential and multifamily real estate since 2005 and began syndicating deals in 2010. He is the author of the Syndicated Deal Analyzer and the free eBook “The Secret to Raising Money to Buy Your First Apartment Building”.

This post provided by REIClub.com for creative real estate investors. Copyright 2002-2011 All Rights Reserved. Published with Permission of Author. No part of this publication may be copied or reprinted without the express written permission of the Author and/or REIClub.com

 

Plan to Limit Mortgage Interest Deduction Draws Criticism

Written by Landlord Property Management Magazine on . Posted in Blog

NAR_LogoThe National Association of Realtors® expressed “extreme disappointment” over several of the provisions contained in U.S. House Ways and Means Chairman Dave Camp’s tax reform draft released yesterday, namely proposed limits on the mortgage interest deduction and capital gains, and the repeal of deductions for state and local property taxes.

The NAR says these proposed changes to the taxation of real estate will impact every single American, either directly or indirectly.

“NAR supports reforms that promote economic growth, but we strongly oppose severely altering the rules that govern ownership and investment in real estate. Real estate powers almost one-fifth of the U.S. economy, employs more than 17 million Americans, and contributes a quarter of all federal and state tax revenue and as much as 70 percent of local taxes,” says NAR President Steve Brown.

The group will carefully analyze the details of the Chairman’s plan to determine the best way to educate Congress and the public about how this plan would impact the owners, consumers, and producers of both residential and commercial real estate.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1 million members involved in all aspects of the residential and commercial real estate industries.

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