All Forum Posts by: Ellie Perlman

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This is a 1 hour educational session, followed by a mingle.

The most common way to invest in real estate in to write a check and buy a property with or without partners. But there are many more CREATIVE and UNIQUE ways to own real estate! During my career as a real estate investor, I came across multiple great ways to own real estate, that are mostly known to seasoned real estate investors, and I'd like to share them with you!

Whether you are a seasoned passive investor or considering becoming one, this session will bring you a lot of value. The information you will get can open up new investing techniques and strategies that you haven't been exposed to yet. I'll share them with you...

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@ Roger Roth - here are the five main factors that I take into consideration when evaluating a market:

1.Population growth – A solid market is one that has population growth. Markets that have flat or negative population growth can indicate a problem, while markets that continuously have people moving into them is a sign that there will be more demand for apartments. One of the markets with the highest population growth is Dallas, TX, while the Providence, RI market has shown no significant population growth at all.

Where to find information?

Simply google it! For example, search “Jacksonville population” and you’ll see the trend. Focus on the last 5-10 years.

2.Job Growth – Population usually follows jobs, and a great market is one that adds many new jobs each year. I usually look for markets with an unemployment rate that is lower than the national average (4.1%). In addition to evaluating the city job growth, you need to pay attention to any major industry or employer that may be responsible for more than 25% of the market, because if the dominant industry or employer is in trouble so is your property (due to layoffs). A solid market is one that has steady job growth and a diverse economy.

Where to find information?

www.city-data.com and www.census.gov.

3.Rent Growth – A strong multifamily market is a market that has increasing rents. If rents are in a downward trend, then your property might suffer from declining rents as well. This is also a rule of thumb, and each investment is unique, but general speaking I try to stay away from markets that have a declining rent trend.

Where to find information?

www.census.gov has information on the average rent in the past several years in major cities.

4.Appreciation Potential – The lion share of the profits is made when you sell the property. This is why appreciation is key. I look at markets that have strong appreciation potential, and if property values are increasing, it is more likely that I’d be able to sell my investment at a significantly higher price than when I bought it. This is why I believe that you make money when you sell a property, not when you buy it. A word of caution, though: real estate is a cyclical business, and even markets with strong appreciation can suffer when the economy turns. A market with increasing prices is not a guarantee that you’ll make profit when you exit, but it’s a safer market to be in when you buy.

Where to find information?

Many large brokerage firms offer free reports that show rents and real estate prices. You can find the reports from reputable companies such as CBRE, Marcus and Millichap, Yardi Metrix, etc.

5.Landlord Friendly State – Landlord-friendly markets have a direct impact on real estate and the return of the investments. Some states, such as California, are very tenant-friendly, which means that it can take up to 9 and even 11 months to evict an unpaying tenant while, in the meantime, you pay for the mortgage and the expenses. Other states, such as Texas and Florida, are landlord-friendly and provide owners with a quick eviction process.

Where to find information?

Simply Google: “How long does it take to evict an unpaying tenant in …”

Good luck!

Not sure about hotels. I believe they have higher cap rates than MF, but bear a higher risk (especially at this point in the cycle)

I agree with John Warren. I also think that apartment buildings is the least risky investment. HOWEVER, it depends WHAT TYPE OF APARTMENT BUILDING. A luxury high rise/ class A building can be a riskier investment, since if there will be an economic shift, renters tend to move to less expensive apartments, and the owners have to lower rents to compete in the market. It's also the asset class with the highest vacancy rate (among apartment buildings).   

Mario Broughton - You'll need a DSCR of min 1.25. The lender will evaluate it by looking at the OM, RR and T12 (provided by the broker). To sign on the loan, you'll need to have a net worth equal to the loan amount + liquidity equal to 1 year of loan payment. You can always find someone who can be your KP (key principle) and give them some equity for singing on the loan. GOOD LUCK!

Most properties are 5%-5.5% (class C). CoC depends on your business plan (turn key, light or heavy value add). In addition to the btoker, look at market reports (yardi has free reports, as well as cbre)

@Sanjoy V. - timing a market is always 20/20...Remember that in a recession, some properties are traded for a higher cap rate, but it's harder to raise rents - and in a value add deal is the main source for your profit. Dallas is a strong market. As long as your underwriting is conservative and you are still profitable even in your worse case scenario, you should be fine.

I look at income and compare rents to comps. I also look at expenses and see if the property is mismanaged and I can operate it in a more efficient way (through a 3rd company) - you'll see it on the T12 and RR (rent roll). Another thing I'm looking at is vacancy, concessions, etc - and compare that to the competition.

Cap rate is only part of the picture; the potential is also important - I look at how much I can increase rents (with and without renovating the property) and additional income (valet trash, car ports, add washers/dryers in units, etc). 

The key is to know the comps in your area and the cap rates, for a marketed deal as well as an off-market one. There are market reports such as the CBRE one, though it tell you the general cap rate in the market (vs the sub market), but it's a good place to start. https://www.cbre.us/research-and-reports/North-Ame...

You can also ask the broker for a sale comps, but you must do your own due diligence - trust but verified. I use CoStar to provide me with that info, but even that tool is not perfect. After a while, you will know the area cap rate, and that will help you to at least vet the deals initially. 

@ Wiley Strahan - you are right on the money (or actually not...). SoCal is a rare place for cash flow buyers. Most of my friends who invest here either break even or lose some $$$ each year. They are banking on appreciation... Same goes for NY, SF, etc. I live in Santa Monica and this is EXACTLY why I buy multifamily properties in Texas and Florida... 15%-18% IRR and 8% CoC...