All Forum Posts by: David Thompson

Thoughts on part-time syndication and earning equity stakes in deals (passive essentially).  Check this out.  Totally different perspective here but that's why its a forum.  Get different ideas not the old ones that make you fall asleep.  Are you excited about 8-10% ?  I'm not.   Think bigger !

https://www.biggerpockets.com/blogs/9145/61278-wor...

Hi Garrett,

I'd still stay in the big cities and southern belt.  I know its tempting to chase higher yields in the secondary and tertiary markets but we like the job growth, industry breadth and especially cities w/unique logistics / supply chain epicenters like Dallas and Atlanta.

My top markets would be:

1) DFW and Atlanta - uniquely positioned for the Amazonization of the supply chain across industries.

2) San Antonio  - highest population growth rate in the U.S. for size MSA last year.  Often overlooked to more hot plays like Dalla and Austin.  Growing tech and bio tech.  #1 for college grads.

https://therivardreport.com/census-data-san-antoni...

3) Houston - emerging; tail winds of reconstruction spending / oil firming up.  

4) Albuquerque - defensive.  No apartment more than 50 units was delinquent in their mortgage during the last downturn.  

5) Phoenix - my home town, much more diverse, don't be fooled by what happened in 2009, that was not Phoenix but a result of dumb lending practices fueling speculation.  Sun Belt state continue to attract jobs and retirees.

For my take on why the trend to big city investing not only trumps smaller city investing and will continue to accelerate check out this blog.

https://www.biggerpockets.com/blogs/9145/66626-why...

You may also want to look at several sponsors in several niches to determine right fit for you.  Here's some ideas on vetting them and some areas we like including MF, self storage and manufactured home parks.  We specifically like recession resistant niches at this stage market.

https://www.biggerpockets.com/blogs/9145/53959-vet...

Karen,

Couple more thoughts on this niche. It's absolutely one of my favorite niches for investing in. I don't think there is a niche I cover that has as much things going for it. From an investor standpoint, prefer to play it through syndications as larger operators can gain economies of scale by owning several parks and lower costs to operate. The lack of new product (cities don't like them, low tax base) and the increasing demand for affordable housing as many boomers retire on social security only will drive lot pricing and park values higher. I see offerings in the 8-10% CoC and prefs up to 10% with high teens to 20% IRR projections on pretty simple business plans. The occupant typically owns their own MH so that reduces costs and management responsibilities.

https://www.biggerpockets.com/blogs/9145/62927-6-r...

Karen,

Couple more thoughts on this niche. It's absolutely one of my favorite niches for investing in. I don't think there is a niche I cover that has as much things going for it. From an investor standpoint, prefer to play it through syndications as larger operators can gain economies of scale by owning several parks and lower costs to operate. The lack of new product (cities don't like them, low tax base) and the increasing demand for affordable housing as many boomers retire on social security only will drive lot pricing and park values higher. I see offerings in the 8-10% CoC and prefs up to 10% with high teens to 20% IRR projections on pretty simple business plans. The occupant typically owns their own MH so that reduces costs and management responsibilities.

https://www.biggerpockets.com/blogs/9145/62927-6-r...

Hi Jeremy,

For a good data point, during the 2009 crash which was pretty severe as crashes / downturns go, MF apartments nationwide held up very well.  Freddie Mac reported MF mortgage delinquency was less than .5% nationwide while single family was about 4% nationwide.  I use this a lot when I talk risk with investors.  If you avoid speculative markets (back then it would have been Vegas, Phoenix, Miami as examples as speculative) and focused on value add apartments the research would suggest almost nil in apartment owners being delinquent.  Call it scale, needing a place to live, etc, they just hold up, 

New construction, class A is a different story so avoiding them if you are conservative is a good idea.  You have build, cost, delay risk, lease up time risk, etc.  While value add if you buy properties that have good occupancy in solid, growth markets should limit your risk. 

You want to focus on the market (growing pop/jobs > natl avg); deal (conservative underwriting, simple value add plan) and experienced teams. So, we certainly feel comfortable w/this approach w/safe leverage > 1.3 DSCR - Debt Service Coverage Ratio; 1.0 is B/E; 1.2 is min for bank loan; higher the better). . Couple articles for further education.

https://www.biggerpockets.com/blogs/9145/53820-why...

https://www.biggerpockets.com/blogs/9145/53959-vet...

Hi Jeremy,

For a good data point, during the 2009 crash which was pretty severe as crashes / downturns go, MF apartments nationwide held up very well.  Freddie Mac reported MF mortgage delinquency was less than .5% nationwide while single family was about 4% nationwide.  I use this a lot when I talk risk with investors.  If you avoid speculative markets (back then it would have been Vegas, Phoenix, Miami as examples as speculative) and focused on value add apartments the research would suggest almost nil in apartment owners being delinquent.  Call it scale, needing a place to live, etc, they just hold up, 

New construction, class A is a different story so avoiding them if you are conservative is a good idea.  You have build, cost, delay risk, lease up time risk, etc.  While value add if you buy properties that have good occupancy in solid, growth markets should limit your risk. 

You want to focus on the market (growing pop/jobs > natl avg); deal (conservative underwriting, simple value add plan) and experienced teams. So, we certainly feel comfortable w/this approach w/safe leverage > 1.3 DSCR - Debt Service Coverage Ratio; 1.0 is B/E; 1.2 is min for bank loan; higher the better). . Couple articles for further education.

https://www.biggerpockets.com/blogs/9145/53820-why...

https://www.biggerpockets.com/blogs/9145/53959-vet...

Hi Mayer,

If you want to be active, take time to get educated.  With this amount, you can afford to hire some of the best coaches in the space to show you how to analyze markets, underwrite deals and manage the asset for profitability.  It's a highly competitive market and especially where we are in the cycle, its important to be educated and would also suggest team up with experts who have the knowledge you lack and be the money partner.  This way you can add value right away while learning from others on the team that have the skills / knowledge you need to have.

If you don't have the time, knowledge or interest to be active (think of this as another job really to actively operate your own apartment community), but like apartments you can invest passively with good apartment operators who already have the solid model of success that you want and with intention, learn from them while you are earning.  If you bring over $500K to a deal, some operators depending on the size of the project may offer even better terms as a passive investor.

Mi'esha,

Focusing on the operator, their background and experiences will be important as is the minimums and whether you need to be accredited investor, etc.  Syndications offer a lot of interesting opportunities for investors especially the ability to work w/various sponsors (that are experts in their area), different niches (like apts, self storage, mobile home parks) and geographies.  Size / economies of scale and commercial real estate valuation models create advantages over smaller projects. so you are headed in the right direction.

https://www.biggerpockets.com/blogs/9145-thompson-...

Thanks Kris, agree.  It's a top 3 commercial real estate asset class from a historical returns perspective and holds up well surprisingly during downturns.  I've reviewed the sector for the past year or so and have investors in these deals for a reason.  Couple additional thoughts on why I like it and will continue to invest in it.

https://www.biggerpockets.com/blogs/9145/70861-top...

https://www.biggerpockets.com/blogs/9145/54155-sel...

I'm playing it a couple ways through single asset plays in markets I really like (i.e Atlanta / SE) and in investment pools that own several across the country in high growth markets for more instant diversification.  Some of my investors are concerned about over supply but one of the beautiful things about the business is the objective 1,3 and 5 mile D/S metrics that can help you understand quickly if you are at market equilibrium, or how much over / under supplied the market is.  Many of these plays will likely exit in 2-3 years and like you said, sell to REITs who want the slow and study return.  

Value add w/the right operators is key especially given the fragmentation opportunities available for companies w/experience and scale.