All Forum Posts by: Craig Haskell

Hi Jeremy:

Don't buy in jungles you have no experience or knowledge in. You might get hurt.

Knowing your local market, the players, the product and the properties has huge value. Sharp investors know their market better than anyone else and thus can find great hidden value opportunities that other don't see.

Having done a number of Joint Venture partnerships with institutional investors, i know that my very experienced partners are looking to partner up with investors who have local market knowledge. Why? Risk. They have learned over the years when you don't know your market, the investment outcome is jeopardized.

Every time I tried to go to another market that I didn't know, they would turn me down. If you watch what the pros are doing and why, you'll see that they recommend staying in your own backyard until you have a proven strategy and track record to support moving to an other market.

Finally, think about this. Why do smart investors look for out-of-state property owners?

Good luck,

Craig Haskell

Hi Oskar:

Yes, you should have an understanding of the commercial real estate investment space. You should understand the transaction side and the operational side. In commercial real estate, you are buying a business that has income, bills to pay, tenants to manage, maintenance repairs/construction to manage, space to lease, debt service to pay and accounting to manage.

Just like any business you buy, you need an understanding of the business. If you don't have that understand, go get it or partner with someone who does.

Commercial real estate is a business, the more net income you produce , the more value you create. Most real estate investors/syndicators run their properties like an investment, which usually leads to trouble. The better you run your property like a business, the more success you'll have.

Hope I gave you some ideas to chew on.

Craig haskell

Hi Charles:

Contact local real estate agent/brokers who know the PM players in the market and get referrals. 

Also, contact you local apartment association. They are good referrals for PM co.'s.

Take you time to find the right PM company. Good companies are hard to find.

Good luck,

Craig Haskell

No. You are buying a REIT stock which trades on the stock exchange and is therefore influenced by the stock market. You have NO control. You're playing the stock market.

If you buy a property, you have control over your destiny because you own the asset not a piece of paper.

With that said, if you don't have experience you have a many options;

1. Get the training to invest on your own using an experienced property management company.

2. Partner with someone who has the experience

3. Find a reputable syndicator who have an investment strategy that you like and become a limited partner.

4. Become an equity provider where you give money to an experienced investor.

5. Become a debt provider where you give an experienced investor a loan.

There are many ways to structure equity and debt partnerships where you get some preferred cash flow as well as upside profit participation.

There are other options, but chew on these options first.

Best of luck to you Nathan,

Craig Haskell

Hi Todd:

You would pool investors using a syndication. The best way to do that is to create a business plan on how you are going to make money for your investors. The core of your plan would be your investment strategy that solves a big problem in a big market.

For example, one of my niches is buying underperforming multifamily properties that can be repositioned to properties that offer a Hispanic community lifestyle. When I look for properties, I need the space to add a soccer field, whether land or a tennis court to convert, area for a park theme, space to conduct English speaking classes and after kids programs. If a potential property doesn't have this, I pass. When I can find these properties, my rents are 25% higher than my competition creating the opportunity to make money. The Hispanic demographic is one the fastest growing demographics going forward. My business plan supports my solution to this big problem in a big market.

After you have your business plan, you'll create a list of likely potential investors that you know and go meet with them. When discussing your business plan with investors, tell them you've found a big problem (you've uncovered) and how your investment strategy (mentioned in your business plan) will solve that problem, creating a huge opportunity to make money.

Keep meeting lots of new potential investors until you've found 10-15 people who like your strategy. Then, go find a deal that matches that strategy; there's no rush. Find a great deal.

Once you find that great deal, you're going to put it under contract. Create your syndication documents and take these documents to the interested investors in your database and tell them, "remember that the business plan we talked about on how we are going solve this big problem in the marketplace with our investment strategy? Well, I found the perfect deal."

Most people think they need find a deal first before starting the money raising process. With a short contingency period it's tough to get the money lined up, unless you have a wealthy uncle. The safe way is to get investor lined up BEFORE you find a deal.

There's a lot I left out, but wanted to give you the big picture.

Reach for the stars,

Craig

Hi Shital:

If you are a PRICE buyer, then cap rate is your measurement stick. If you are a VALUE buyer, like myself, then IRR is your measuring stick.

You should be looking for markets that have inefficient pricing where VALUE (in today's dollars) is greater than PRICE. For example, if you look on the NSYE, you will find the PRICE of stocks. Those stock prices are what trades in the marketplace where buyer and seller meet.

What if you found a REIT stock that was priced at $25/share trading at a higher P/E (lower cap rate). This is the market PRICE, right? What if you did some research and found the combined value of all the REIT assets broke down to $50/share? Wouldn't you be buying VALUE? Sure you would. You would buy the REIT stock that has a real value (intrinsic value) of $50/share for only $25/share.

You can do the same thing in real estate by finding markets where you can find mispriced assets that have intrinsic value. The difference between PRICE and VALUE is called the value gap. That's where you make money, safe money.

Let me give you another example. I have various partners who are buying multifamily deals in South Florida in a VERY hot market with tons of buyers. They are buying deals on 3.5-4% cap rates. Sounds like these deals are priced too high, right? Wrong. They are buying deals from tired and overwhelmed property owners who have owned these properties for 15-25 years. These owners don't like the headaches of management so they rarely raise rents and infrequently make repairs to the interior and exterior of there properties....mismanaged and underperforming properties.

My partners are executing an investment strategy where they are buying these mismanaged and underperforming properties where they bring in new management and new capital to reposition the assets to lifestyle communities where they are getting, on average, $250/month rent increases. After the properties are stabilized, the cap rates are north of 9% with IRR's above 20%.

So the answer to your question in this post is to look for markets where you can find inefficient pricing that offers good value. And you know what, this could very well be in your backyard.

I will refer you to a great story that relates to your question. You may have heard of it but it's called "ACRES OF DIAMONDS."

Here's a link to the story.

http://www.nightingale.com/articles/acres-of-diamonds/

Hope I have given you some things to think about.

Reach for the stars,

Craig E. Boy

Hey there Brian:

You can use syndication for almost anything. Most business are some sort of syndication. Look up and down most city streets and you will see shopping centers, office building, apartment buildings and so forth; 80% are partnership / syndications. Most of the businesses - tenants of the retails or office space - are some sort of partnership, whether it's a family business or a sponsor managed business.

If you find a good deal that has solid value, you can bring investors into a syndication whereby you would create a partnership entity where they would own are part of. You would manage the process as the syndicator or sponsor.

And for the sponsors effort, a sponsor can get various types of fees for performing certain work assignments to buy, fix, operate, finance and sell the business.

In addition, you can get a backend profit - a performance profit - for generating profits for the partnership.

When you create your partnership, you will set the profits splits and fees. Typically you'll see in the marketplace a 2-5% acquisition fee (depends on property size), a partnership management fee of 1-2 of the asset value, a construction management oversight fee of 5-8% of construction dollars, a property management fee of 3-8% of property monthly revenues (depends on property size) and a few more. I would not recommend doing the property management yourself if you have never done it before.

On the backend, you can get a piece of the backend profits. Typically, if you have a good deal and put no money into the deal, you can expect 20-25% of the backend. If you find a home run with BIG profit potential and/or you put money into the deal, you can get more backend; somewhere between 25% to 70%. Again, it depends on the deal and the size.

Profit splits are based on all the cash collected over the life of the investment including cash flow and equity upon sale. When the property sells, net sale proceeds and money remaining in your partnership bank account are disbursed. The first money back is investor capital contributions. Next is any balance of a preferred return not fully paid, if offered. Next, is payment to the sponsor for any fees not taken during the investment hold period. Finally, the money leftover is split based on your predetermined agreement with your investors. There are a few other issues, but just trying to keep it simple.

Syndicators who have been in business for awhile live off the fees and use the backend profits to build their wealth. When you just getting started, I recommend that you will continue to work at your job while putting together syndications. After you get a few properties done, you can begin to think about doing this full time.

I hope you can find some ideas within my comments.

Take care,

Craig

Buying in an area you know nothing about is like going into the African jungle without a guide. You need a guide so that you don't get hurt.

I've always found learning the local market dynamics for my own knowledge is important to my success. Do lots of research before making any acquisitions to find where jobs are growing, where new businesses are moving to, where new development is taking place, where there is good supply/demand dynamics and so forth. As you go through this process you will start to meet some of the market players (top brokers, top managers, top contractors, community leaders and the like). These experienced professionals will help guide you around your local market jungle.

Best way to find out about what's really going on at a property that you are considering on buying (or during your DD) is to visit the property as a prospective resident looking for a place to rent. Walk around and ask some of the existing tenants if they like living there, what things you should be concerned about with the management company or interior repairs, and why they like living at the property. You will find out a wealth of information during this visit that will better help you improve the property and better understand your tenants likes, wants and needs so that you can improve their quality of life. 

Also, find out the local grocery store these tenants shop at. Going to the grocery store will help give you prospective on the types of people you will be renting to.

Ask yourself, are you buying a problem or an opportunity?