All Forum Posts by: Chase McArthur

@Gregory Schwartz

Hey Greg, got the call. So I read over your post and I feel like there are quite a few options you can exercise. Being prior service myself, I feel your struggle. What in the hell does life have in store for me "after"?

First off, yes, get your license, its a great back pocket accessory that you may or may not use, but will be there if you need it. If commercial real estate is where you ultimately want to be, then jump right in it and associate with a commercial broker after you get your license. There's a common myth that says you have to start in residential and work into commercial...total BS. This will give you the inside track to the industry and will position you to start your empire. 

Take advantage of the VA loan. Find a quad, buy it, live in one of the units, rent out the other 3. This will be to your advantage in a number of ways. It will get your feet wet in property management, it will support a roof over your head while you pay your dues as a commercial broker, and it will enable you to slowly begin scaling your operations.

If you haven't already, start looking for quad properties in New Braunfels. You have reserves put aside which is excellent, the VA is no money down, and the income produced by the other 3 units will give you supplemental income while you establish yourself.

I sent you a connection request. If you have any other questions or want me to expound on things, feel free to message me. I can also give you my cell if you would like to chat. 

New Braunfels? You wouldn't happen to be a fellow "whiskey" would you? I was stationed at Sam Houston back in 09'-10' and have some awesome memories from Schlitterbahn and Gruene Hall!!

I recently read a post regarding asset pricing that got me thinking about the dynamics of investment property valuation. Having read a multitude of posts on BP, it has become apparent that the majority of first time investors as well as a surprisingly significant number of smaller seasoned investors have a narrow view in regards to how a commercial property is priced these days. By no means is this an insult but rather an observed misconception.

When it comes to investment property valuation, often times it is the income approach that is utilized as a starting point in the development of an overall "guess-timation" on the market value of an asset. Obviously, this is the most important metric for valuation but not the deciding factor. The proper valuation ultimately relies on the market cap rates for the surrounding area, which of course is set by the recent comps. But how is the market cap rate determined? In my experience, the market cap rate is directly correlated to the migration of outside capital into the local markets. Take a look at the market cap rates for your AO, have you noticed that over the last few years the rates have compressed, in certain areas to a significant degree? This compression is being driven by demand which of course is illustrated by the amount of capital being invested into a particular market. This compression of cap rates is a direct effect of the migration of capital from outside investors. When non-local capital is introduced into a dynamic system, such as commercial real estate, the effects are felt mostly by local investors who are looking to enter into their market. This, of course, creates a high barrier to entry for those that are deciding to invest for the first time. However, for those who currently own, this increase in valuation is enabling those investors unprecedented opportunities to take advantage of either expanding their portfolios by tapping into the new equity of their existing investments, or selling at a significant profit and 1031 into a larger asset, hence capitalizing on economies of scale.

That being the case and all things being equal, how should the asset valuation be determined? This is where the understanding of capital migration and its dynamic effect on asset valuation is critical. Why is this important? Because as an investor it is your job to determine what asset price best suits your overall goals, which ultimately determines the strategy you will utilize to reach those goals. Often times less seasoned investors will begin with the asking price of a particular asset then run their numbers to determine whether or not the current asking price will support their investment goals; if it doesn't work they move on. Contrarily, a seasoned investor will run a reversion analysis to determine the actual price in which they can pay in order for the asset to perform according to their goals and base their bid on their results. This is why most all seasoned investors have a range of required returns rather than a set number in which all assets must perform. A seasoned investor also understands that unlike residential real estate, investment properties are intra-national. Capital has no borders. Therefore what may appear to be a ridiculous cap rate to you, may ultimately be a gold mine for a non-local investor. Local assets compete for outside capital along side local capital.This is why an astonishingly high number of transactions take place with non-local investors. Understanding this concept is critical in determining how your asset is priced, should you be the fortunate investor who is holding a property in a low cap rate market. If you are a local investor inside of that same market looking to buy, perhaps you should consider sending your capital across the border into other emerging markets. Broaden your horizon and don't let a property that is 2, 3, 400 miles away scare you from investing; if the numbers work, they work. Before you know it you may find yourself holding a property in a 3 cap market.

I would love to hear the thoughts of other investors and brokers...

@Jingwen Dunford

As a commercial broker, my job is to ensure that my client recieves deliverable offers. The highest offer isn't necessarily the best offer. The terms themselves are typically non-negotiable within a listing. If they want to renegotiate the terms they better show up with a cashiers check. Also, if the asset is priced right there is always wiggle room, otherwise your not acting in the best interest of your client. The best priced assets are priced aggressive but not too aggressive. It's all in the type of investors that you are trying to attract as well as where the capital is migrating from.

@Jingwen Dunford

If the broker states the price is firm he's not doing his job very well.

@Sonny Sach

You might find more success cold calling them, and its a lot less money if any at all. Plus, if your a smooth talker there will be a higher close rate.

A great deal of mailers end up in the shredder, sad to say. Unless you hit them at just the right time (when they have already decided to sell) who's to say they will even bother calling you instead of listing with a broker? Perhaps they won't want to break a piece off for a broker, hard to say really. Lets say he doesn't mind paying a few points because he knows the right broker will be able to field numerous offers creating a competitive dynamic which would result in a higher sale price, perhaps more than you were willing to pay from the outset.

The best time to solicit an owner is before they know they want to sell. It's hard to get that ball rolling with an indirect passive offering printed on a post card.

Food for thought.

@Ben Gabin

Is the property being sold "as-is"?

@Ben Gabin

I 2nd all that has been said but with one question...Why is the seller being uncooperative?

@Vlad Denisov

No matter what stage of the cycle you're in a properly executed investment strategy will make you money.

Consider all those that bought when no one else was. They are the ones capitalizing on the markets in this cycle.

@Vlad Denisov

As some have previously stated, the valuation of a property isn't directly tied to its NOI, but rather the cap rate for the market.

NOI has no direct effect on property valuation, as it were. As cap rates compress the value of the property increase. This compression is directly correlated with several extrinsic variables such as interest rates, demand, inventory, economic expansion etc.

Even if rents were to, theoretically, stay the same, it would be the extrinsic variables that would ultimately cause the valuation of your property to increase or decrease.

In the end, cap rates are simply a starting point in valuing a property because the true value of your property is set by the amount of money that someone is willing to of for it.

@William Kyle Walker

In the brokerage world I'm finding that the expectations from investors really depends on the size of the deal.

The larger properties range from, as you said, capital preservation to tax deferment. With smaller properties I'm finding that the number 1 reason is cash flow.

This is also dependent on the particular investment strategies they are utilizing. Typically Core assets are used for solid relatively risk free capital growth, value add and opportunistic assets essentially utilize stabilization strategies to generate optimal terminal value at disposition.

At the end of the day its all about risk/reward. The bolder the move the better the return.