All Forum Posts by: Will Barnard

I have a 14 unit in K Town (value add deal) currently in construction on the remodel. About to start the stucco lathe soon and then the interior finishes can begin after drywall. Investing in LA is not easy as the acquisition prices per unit are very high so you obviously need a lot of capital to take them down and your initial cash flow could very well be negative so your plan must be there too. As far as learning the market, speaking with brokers would be a good start as well as driving areas and looking at listed deals to get familiar with what is out there and at what price points. Learning your market conditions is also key. There are all kinds of data sources on the net as well as from brokers.

 Having a website in which you drive traffic through SEO (search engine optimization) is one of the best ways to have potential home sellers come to you rather than you contacting homeowners via spam/etc.

These types of questions posted to the board inevitably get many different opinions and that is exactly what they are, opinions. There is no set dollar figure that provides an answer to this question. @Zach Oehlman above gave a very good answer in that the specific investor's time, knowledge, relationships, and money come into play and all should be addressed. No matter what $ figure you come up with, it is almost always going to be less than what you need. The more money you have, the more money you will want.

 Great question and thanks for the kind words. Anything worthwhile is not going to be easy or everybody could/would do it. So with that, yes, there are challenges with finding a good syndicator but in my opinion, you have many more options and tools for that selection with greater ease than with trying out a strategy on your own. Those are: 1. Your CPA could be hired to crunch the financial data of syndicator's provided financials. 2. You have a multitude of locations to ask other investors who they have invested with and what were their results and thoughts (BP being one place, live meet ups another). This is just my opinion but this process is much easier (though not simple) than starting say a fix and flip team or buy and hold team as you need to learn the market, build your team, raise funds, build systems to get motivated home seller leads, etc. The process of starting in on a new strategy on your own is full of many hurdles. The selection process of a syndicator could be much easier with the help of some referrals, a professional financial advisor like a CPA, and the actual track records (verifiable) of the syndicator options you are reviewing.

#2 in @Scott Trench post - He is referring to the IRS tax code that allows you to get a $250k exemption (if single) or $500k exemption (if married and filing jointly) on your capital gain of the sale of your primary residence. To qualify, you must have lived in the home as your primary residence for 2 of the previous 5 years. THis is good if you intend to sell and buy a new primary.

That said, unless you run the numbers for each option and lay them out side by side, there is really no way (other than guessing) which option is better, sell primary, rent primary, cash out refi primary, etc. It would be best to run a financial analysis with your CPA on each option and then each option that delivers a bucket of cash to you, how do you invest that - there will be choices to make there as well which means more options to run financial projections for each and compare those side by side.

On the negative side, moving SUCKS most of the time so there is that. Your family (kids schools, friends, your friends, etc) should all come into play in your decision as well so if staying is "best for personal life for you and fam, then pick that and use your other options to see where and how to invest.

Here are a few options to consider along with what you have already named: Investing in a syndication with your savings, cash out refi, or any other liquid funds you have can be a goo place to earn double digit annual returns and get economies of scale with your investments. Managing singles, duplexes and small multi's can be a difficult job, especially if you do not have experience or know how which means you are subing that out to a property manager in which case you had better get a good one if you care anything about your money. Having large multi's provides better economies of scale with professional managers on site, systems in place, etc. This can all be learned by investing with and watching a professional syndiactor/sponsor along the way and then perhaps doing one yourself as the operator. Option 2 is investing capital with other partners with experience. A good partner can catapult your investments and a bad one can sink the ship so use caution here.

Pay close attention to probabilities of future rents for your primary if you choose that option and what the future appreciation growth could be (don't get crazy here, use conservative numbers). If renting the primary delivers you less cash flow but a much higher appreciation gain over time compared to selling for a higher cash flow position but lower appreciation gain, then you have to decide with your CPA which fits your needs better. Some need cash flow to live while others focus more the growth (appreciation). As an example, lots of people trash talk CA and say we have no cash flow. While that is not a true statement, it is fairly accurate as cash flows are minimal here, but appreciation kicks rear ends. If you compared 2 properties, 1 from CA and 1 from TX, the TX property over last 5 years will likely show positive cash flow and some appreciation (the best of both worlds scenario) and the CA property would likely show break even to cash flow loss, but hundreds of thousands in appreciation. At the end of the day after 5 years after adding up cash flows (or losses) with appreciation gains and liquidation costs, the CA property would win out each time by a landslide. Granted we are talking about the last 5 years which had unprecedented appreciation. Hopefully you get the picture from my long winded post here.

In summary, get with your CPA and forget about the rest of our opinions, use data and facts to compare each option side by side, then apply your family situation into the decision process and your decision will be much more clear!

Mike, that is quite the difference from a new construction single family rental. That said, I fully agree based on data I am seeing that rental rates will continue to climb as more and more potential homeowners are priced out of the owner occupant market due to the interest rate hikes and inflationary period we are in. I think many existing homeowners will think twice about moving from their current place to a new as their current mortgages are likely in the 2's, 3's and 4's and they are likely not willing to sell and buy new so that they can pay in the high 5's to 6's for interest rates. This will likely keep inventory levels at bay and not flood the market. So we appear to have both sides tugging at prices for homes. What remains to be seen is which tugs harder and drives the price in which direction. My bet is that prices will flatten and then lower, especially in the entry level markets. The luxury markets will likely not be affected as much.

For commercial, owning apartments will be a great place to be as demand continues to rise for rental units and rental ices continue to rise to cover the owner's inflationary costs.

That is correct, however, you do need to pay attention to some things. Fire damaged lumber must be removed as simply treating it will likely not do the trick down the road when the fire/ash smell starts penetrating into the home. Make sure you pull out all fire damaged lumber and replace like for like.

 The "best way" is to start with your own money. Well sure, but the best way is not always possible for all, so in the many cases where the new investor does not have funds of their own, they must borrow. My first flips, I had no money to invest in them, so I borrowed. That said, I had some experience in buy and hold (landlording) as well as spec building so I was not green. I think the key is to make sure you have the right team and the right preliminary education to help guide you through your first few deals, then the experience comes into play later (along with the track record). Once you have the track record, it becomes very easy to raise funds.

Ultimately, when borrowing private money, you are selling yourself so you must have confidence and that confidence must not be fake, it must be backed by good research, showing you have the team to complete the task, and that you are organized to complete it efficiently. Show a friend or family member that along with a deal with numbers that make esne and protect their capital and you should have no problem getting a bite.

 If it wasn't, NONE of us flippers would be in business. This is precisely how we make money. Buy a fixer at a good price (purchase price is SOOOO important), fix it and then sell for a profit. It does not always work out profitable (if you do enough over a long enough period of time you likely will have a few losers mixed in) but in most cases when done correctly, it works out great.

Now, that is a professional opinion and for someone without rehab experience or knowledge of construction, you may have more odds stacked against you. So to other's point of "MAYBE" being the answer, that is absolutely correct too!

These questions always get the inevitable difference of opinions, many of which lack foundation and are just guesses. To know if new construction housing will go up or down, you simply need to look at the public data. Across the entire US, housing starts (permits for new construction single family homes only) dropped from April 2022 to May 2022 by 5.5% and May 2022 dropped from previous year (May 2021) by 7.9%. Housing starts dramatically slowed at the start of the pandemic and then rapidly recovered. THe situation now (mostly due to the high inflation and governments attempt to curb it through interest rate hikes) is much different and will likely continue to drop before the "recovery" happens.

So, is new construction going into the tank? Probably not but it is certainly being hit right now and that is a fact! I am certainly not taking on any development deals (for SFR) in this environment and I am sure many others feel the same as we would have a large exposure to potential depreciation while in plan check and then the building process. WIth interest rates continuing to climb and inflation out of control adding to labor and material costs, it makes it very difficult to pencil out (there are always outliers but generally speaking). I think @Scott Trench comments above are correct based on the facts I have in hand - data from US census. The midwest and the west have the largest drops in SFR new construction starts according to the data.