All Forum Posts by: Enrique Huerta

That is a great question. It is too early to tell but there will certainly be some changes.

1. I agree. People may choose more suburban or less dense locations. Also, BTR communities may be more in-demand given their lower density but similar amenity packages to a traditional garden-style apartment product. The flip side of the coin is many people will still want to be in walkable areas...especially the younger demographics and up-and-coming professionals. Too early to tell.

2. I'm in the camp that rent growth will soften. We've already looked at Yardi, CoStar, Greenstreet, Witten, etc. and have a general agreement with some of the data they've provided. Value-add will be difficult to execute in a flat rent environment. HOWEVER, the caveat is that not every industry or market is going to be impacted equally. Some areas will continue to see rental appreciation if their job market is less impacted. Again, too early to tell.

3. I do think larger floorplans might become more popular. Co-working and co-living may be impacted as people prefer to spread out a bit more. 2 Bed & 3 Bed floorplans should certainly be more attractive for folks looking to add a home office. I love how you're thinking about it.

I've actually seen A class collections remain very strong. You would have to assume that white-collar, work-from-home workers would be less impacted but that is not necessarily the case. Again, I think it is too early to tell which class will benefit most. In general, A seems to be holding up a bit better. We'll have to see some turnover to see if people downgrade their living quarters, etc. to see how the impacts play out. This also ignores the supply issue, concessions, higher marketing costs, or class A so it's not a cut and dry answer.

Lastly, consider the potential distress in office, retail, and hospitality assets and that PE funds and developers are foaming at the mouth to get a piece of the pie. I do think some slices of that market will be re-developed and re-purposed for housing. This may be another impact to supply in some markets...

Just some thoughts but a great topic and i look forward to hearing what others see on the horizon.

I hate to burst your bubble, but if you're making a direct investment into real estate of any size, don't expect it to be 100% passive. You will still need to coach your management staff, review financials, visit the site, and step in when the manager is not performing to your expectations. With that said, the only passive investment is where you invest as an LP with an experienced investment manager.

There is levels of passivity and I believe that the best way to be truly passive is to be an LP. The next best thing is larger communities for all the reasons that @Erik W. pointed out. He makes a valid point. If you buy smaller assets or take a hybrid approach like Erik is considering, it will be slightly more passive but you still have to work!

The smaller the asset, the more involved you will have to be UNLESS you give up more income. As an example, a property manager for a house typically charges 7%-10% of the income. This applies up to about 15 units. Beyond that it might go to 5%-6% up to 50 units. Beyond 50U it might go to 4% and then over 100 it is typically 3% or less...There are general fees and only account for the management, not for the payroll and other expenses mentioned. 

Only true 150+ unit assets can support a full staff and being as passive as possible...

This is my answer given your objective: "Assuming the aim is to not self-manage as an owner and have third party management in place and be as "passive" as possible, how realistic is it to be in the 20, 30, 40, 50ish unit range without investing yourself into a job or a headache? It would be ludicrous to think that it is impossible to do well in the space of smaller-unit-count apartments, but does it require significantly more hassle than if you simply went "big" from the get-go?"

@Brian W., this is the challenge with real estate. Delinquency happens. If it is in California, let them off the hook and negotiate a payment plan (if they are able to pay anything). There's no use in being 100% physically occupied and 0% economically occupied. That's if you don't expect to get anything from them soon but you think you can lease it quickly.

As for an alternative approach, have they applied for unemployment insurance? Can they borrow funds from family or friends? That will allow them to bring the rent current. You've got to get creative and HELP your residents rather than focusing on collecting rents. Offer to help them apply for UEI, new jobs, etc. If you do make a payment plan, get a lawyer to review it and make it bulletproof. This is unprecedented and they are potentially acting in good faith. If so, you've got to reciprocate and understand their situation. 

Tough decisions will have to be made but they offered to make a 12M payment plan. That's pretty transparent in my opinion. So take what you can get upfront, fix up the place, and lease it if there's a market. We haven't seen leasing traffic decline by much...March was dead but things are normalizing as far as leasing traffic goes.

Best of luck!

@Stefanny Gonzalez, Congrats on your success with the SFR to date.

I will comment that your requirement seems realistic. It is often fairly easy to find deals that break even or deliver a low return (2%-3% Cash on Cash). And of course, California should remain a solid long-term market. One thing to be aware of is the potential for tighter rent control regulations over time. There is also the difficulty with evictions and other new legislation being passed (balcony maintenance, etc.). So be aware of that as you enter the multifamily space...

With that said, it is hard to advise on a "strategy, or good place to start" if you don't have an investment return requirement. How can you make an investment if you don't know how much of a return you are looking for and how much risk you are willing to take to get that return? I would encourage you to marinate on that question and then I'm happy to help further if I can.

I saw you suggest that you're looking to get properties for 80% of market value. Getting a lower basis is always a good thing, but what if home prices decline? Is the 20% margin still there? It's good to get a sense of your cash return and have a Plan B for your investment if something doesn't go as planned.

It is very difficult to make BRRRR projects pencil in Core SoCal. I'm not a SFR investor but I find it difficult to make multifamily housing investments pencil in CA, period. But, the question is, what returns are you looking for? That will dictate your strategy, not some arbitrary "golden rules."

That depends. What areas in Arizona are you targeting? What price point? The question: "Is this a good time right now?" is extremely hard to answer. COVID-19 has created a lot of uncertainty. Knowing what price point, location, and strategy you are targeting will help me elaborate. If $30k is your total funding for a deal, I'd wait and stack up more cash to invest later...unless you have a partner. Even if you manage to find a good deal now with the $30k, you'll want to be prepared for an extended downturn (should one occur).

@Austin Bright, what city, county, and state are you referring to? As @David M. said, it depends. Please advise.

@Steven Eastman, like others said, this is an OK deal. The underwriting can use some fine-tuning but if this was the current cash on cash return, I wouldn't be super gung-ho about it. I will say it's not a bad downside scenario but if this is your base case, I'd pass.

As for your question on how heavily COC is weighted...HIGHLY! You can't eat IRR but COC is money in your pocket. Higher is better assuming your underwriting and analysis is sound.

-Yes, I have an account where I set aside funds for future investments, acquisitions, etc. This is separate from my personal checking accounts and generic savings account (emergency fund). 

-Yes, each property has a separate account in the entity's name. Keep everything separate!

-We typically have CapX & Reserves with the lender, and we keep an operating account for the maintenance and other operating expenses. If there was NOT a lender-mandated CapX/Reserve fund, I would still create a separate account to keep that money in. Other investors will lump all the funds together and just account for it with accounting entries.

-Bonus: Yes, each properties has its own LLC.

Cheers from LA! I love Denver!