All Forum Posts by: Brian Robbins

@Sean Pan, @David Morgan, @Will Graebert, I am pretty much a newbie to BP but we just closed a 125 door townhouse deal in Lexington and Knoxville is on our acquisition approved list (my parents live there).  You guys obviously have your ear to the ground there and if you come across anything that is too large for you to take down personally we are always looking for off-market deals!  We will consider 100-250 door garden style B & C assets located in B & A sub-markets. We will bring a deal finder into the GP and share a percentage of proceeds. Great way to jump up to larger assets and gain experience and some $$. Can shadow us thru the entire process as well.  

@James Canoy I can remember the first game I pitched in college.  I wanted to throw-up right before I took the mound.  Needless to say I didn't have the best first outing... I realized if I wanted to keep my scholarship I had to get it under control. I had been on the mound a thousand times before but it came down to the fact that I was really just afraid of failure.  Our pitching coach pointed out that even all-stars lose fairly regularly and to use the fear of failure to fuel my preparation/training habits. As I bought in my game prep habits got much more focused than ever. The better prepared I was, the less performance anxiety I had, the better I pitched. 

So, first of all realize that you are going to make some mistakes.  We have all made mistakes and we will all continue to makes mistakes here and there.  Show me someone who says they have never made a mistake in real estate and I will show you a liar.  The key is to minimize the damage from mistakes.  Preparation and education is the key. Read everything you can. Listen to podcasts. Find mentors.  

You mentioned medical school. I assume you are a physician. In my book I wrote about Physicians White Coat Syndrome, a condition I recognized, that affects Physician's investment decisions.  Contact me and I will send you a complimentary digital copy of my book or snag it on Amazon. 

You may also want to consider initially partnering in a multifamily deal with a syndicator. Syndicators have the experience you currently lack and if you work with the right one, they will let you shadow them as they walk thru the entire process from market and submarket evaluation, Shopping comps, Underwrite, LOI, PSA, Due Diligence, Financing, Final walk thru, Closing, and Operations.

Also as a physician you may enjoy the passive nature of working with a syndicator.  Does your schedule allow time for 1 am leaking toilet calls?  What about the water heater that blows or the garbage disposal that jams.  there are lots of ways to make money in real estate....decide the lifestyle you want before jumping in to the deep end.  

@Kevin Yi, 

I agree with @Brian Burke in that the cap rate should not be your focus as much as the return and the levels of risk in the asset class you choose.  The Sharpe ratio, which is a measurement of risk adjusted return, was devised by Nobel laureate William F. Sharpe a professor of finance, emeritus at Stanford University.  In short, the ratio measures the levels of return relative to units of risk.  Since the goal of most investors is to limit risk while maximizing return, a prudent investor will seek asset classes with the highest Sharpe ratio. As mentioned in my book, core commercial real estate has by far the best risk-adjusted returns of all the major asset classes.  How much better?  The Sharpe ratio for commercial multifamily exceeds stocks by 400%.

As a multifamily syndicator I am partial, but the asset class has many upsides. The benefits of these assets are derived from four distinct components:

C= Cash Return  (you may see this called Cash-on-Cash return)

A= Appreciation (in linear real estate markets there is slow steady growth of asset value)

P=Principal paydown (tenants rent checks pay down the mortgage monthly)

T= Tax Benefits  (if your syndicator uses a cost seg study and an accelerated depreciation schedule your returns may be completely offset by K-1 depreciation you will receive for the first 7-8 years...tax free money)

Every commercial MF asset is different. We were in best and final on 3 assets in the past 8 months and the projected returns were different on each. We closed on a 125 unit townhome deal in Lexington KY recently and the project came in at just under a 6 cap for a B- asset in a A neighborhood. That cap rate seems a bit compressed for a B- Lexington asset until you realize it was being under-managed, had significant utility problems, and was charging less than market rents. When we fix the utility issue, get the asset producing like neighboring properties, and add efficient management practices the projections show a mid to upper teen return on investment in a tax favored environment.  

1031- We considered allowing a 1031 into our last deal but realized the hassle was too great for a smallish investment ($50k). The previous authors were correct the 1031 will require a TIC style vehicle and many syndicators will not consider it. If you 1031 into a TIC realize you will be required (if using Freddie or Fannie debt) to qualify for the debt yourself and most likely have to sign on the debt. Realize that if it is a commercial MF asset the debt will be non-recourse however the requirement of your signature is likely. Our company would certainly work with a $1 million dollar 1031 investor but remember you are on a tight time window after the sale of your other asset and would do well to work with a syndicator prior to the clock starting.

Feel free to contact me if you have other questions,

Cheers!

Dr. Brian Robbins

Checkout the post by @JonathanWigan just before your post. He has a small MF property in Columbus for sale.

Welcome @Alison Dickens, 

I am kinda new to BP as well but not new to real estate. I think one of the first things you have to decide how much hassle and how much risk you want in your life.  There are lots of ways to make money in real estate and lots of ways to lose it as well.  You just have to choose which way you want to roll.  Your location in a high cost market perfectly positions you to take advantage of geographic arbitrage.  You are able to earn a higher wage where you live and then invest in areas that have lower cost of entry. Like @John Warren said you really have to focus on how you are going to manage the properties you invest in.  It is somewhat difficult unless you find great property management  partners.

I would be careful about investing in a market just because you have family there.  Does your family want to be involved in real estate? Is the market going to provide any organic rent growth? Do they want to have 1 am leaking toilet calls? Do you have the time to spend commuting to work on a single family flip?

I am a MF syndicator that helps folks place investments in some of the hottest markets without the hassle.  We help individuals access the benefits of owning large MF properties without having to qualify for the large properties themselves. Syndicators evaluate markets and submarkets, locate the properties, perform due dilligence, negotiate prices, pay the attorneys, line up and qualify for the debt, interview and hire property managers, supervise staff,  manage the asset, work with CPA's to issue K1s, and when its time to sell they manage the entire sales and disposition process.  It's not unusual for investors to realize returns in the mid to high teens and many times the depreciation they share in completely offsets their tax burden on the profits. 

Investing with syndicators is another idea you may want to consider that preserves your lifestyle and minimizes risk for new real estate investors. Good Luck!

Joseph, you are finding what every other multifamily investor in America is finding. The commercial MF market is overheated and good luck finding one that is distressed.  Our firm was in best and final and eventually ended up the brides maid on 3 large deals in the past year because we hit the ceiling on what we believed was a reasonable price based on the numbers.  We could not sleep at night if we overpaid using our investors $$.  

One thing you can do, and you may have already thought about this, is focus on properties that have either significant management, value-add, or utility opportunities. We recently acquired a 125 unit townhome complex in Lexington, KY and did so because the prior owners were upside down on utility costs by $80k per year. We are in the process of individually metering the entire complex and will switch to tenants shouldering that burden upon renewals. When fully implemented the utility costs added back to our bottom line creates $1.33 million in "added" value ($80k/6 CAP) . We also found other inefficiencies and missed opportunities which will add to the bottom line.

We bought our asset in the upper 5 CAP range, which is low compared to other properties in that market, but it will work out to a mid 6 CAP or better range, once the inefficiencies are fully corrected. I talk about the price buffering effect of value-add and management inefficiencies in my book. I agree with James, dont get caught up with the dumb money guys and overbid on properties. Stick to your model and be willing to look under every rock for a gem!