All Forum Posts by: Giovanni Isaksen

Hello @Eddie Quispe do you belong to AANM? http://www.aanm.org/ They have a market report for Greater Albuquerque as other areas around the state. Hendricks Berkadia has a market review/forecast on their research site here: http://www.apartmentupdate.com registration is required but is free.

Good hunting-

Great post @Frank Chirkinian. There's an old saying that real estate has 10-year cycles, but real estate professionals only have five-year memories.;)

A little food for thought... Maybe the market is telling you the cycle is peaking and you need to find a different strategy or a different market. As value oriented bargain hunters when 'everybody' is buying we want to be sellers and when they're 'all' selling we want to be buyers. Real estate is one of the most cyclical businesses on earth and paying attention to where your market is in its cycle is critical for long term success.

Sometimes you have to wait patiently or develop a second strategy that works from peak to trough to compliment your main up cycle strategy. I'm sure everyone knows or has heard of builders who have gone broke three or four times because they only know to build, build, build.

Matthew Gardner over at Gardner Economics (http://gardnereconomics.com/) has a chart that illustrates the cyclicality of real estate markets. Notice that demand typically tops out before supply:

Where is your local rehab market in its cycle?

Good hunting-

@Jeffrey Charter It's true that given a fixed amount of NOI, the higher the cap rate the lower the price but from our perspective price does not equal value. This is because we are searching for mis-priced properties; specifically those whose price is less than their value.

I'm not sure if your question was specifically about price and value as much as the effect on price from different cap rates. In my forthcoming book "The Value Investors Guide to Apartment Buildings" I use this illustration to show the relationship between cap rate and price given a certain amount of NOI:

Good hunting-

@Michael Krassos It may or may not be a bad deal just because it is negatively leveraged. If you acquired all cash you would earn a higher return but if it's not possible to go in with no debt then the deal deserves extra scrutiny because your margin of safety would be thinner. Extra care should be given to the state of the neighborhood and it's future prospects as well as making sure the repairs and expenses are nailed down. I would especially want to understand any deferred maintenance and future capex needs.

Great list @Account Closed If you are confident in your analysis and buying all cash the appraisal/bpo isn't necessary but an appraisal may help you negotiate if it comes in low.

We like to have two or three mgt companies walk the property during due diligence and propose their mgt plan that includes a capex and/or repositioning budget.

If the subject property and all properties nearby are the only things ever built on the land there you may not need a phase 1 environmental but if it's a large property and/or you're bringing in outside capital (lenders or equity partners/investors) having one demonstrates your thoroughness and professionalism even if one is not required.

If there isn't a recent survey one it may be required but if one is not required getting a new one falls under the same considerations as above.

We have gone to always having an engineer do the inspection even though it can be 2x what a non-engineer inspector may charge. We get a much more thorough and detailed inspection from a professional whose license and credentials are on the line.

Whether you need more than one inspector depends on the building. Wood frame low rise or garden property, probably not but your engineer inspector will point out any specialty inspections that are outside of their scope. When you get to mid-rise or high-rise buildings you will definitely be getting specialty inspections of all the major systems in addition to the engineering inspection report.

Good hunting-

@Jeff Greenberg great point about checking with the police department. While we always do that as a part of a specific property's due diligence we will add that to our third level research.

I really like your idea of comparing maps with the different local pros, including the police.

@Randy Lance Great question, looking forward to the replies. We're just starting to look at options for a complex that we will be repositioning. One of the suggestions was a hotel style unit that is installed in the wall, typically below a window. Would love to learn about others experiences with these.

For us the first level is finding potential: Growing population in an area with growing jobs near convenient transportation, shopping, services and entertainment options. Search the US Census, Bureau of Labor Statistics, City Data.com, Local Chamber of Commerce, city and county economic development depts.

The second level is supply and demand: How many units exist, what is the trend of vacancy, what is the trend in concessions, how many are being built, how many are in the planning pipeline, how many new jobs does it take to absorb a new apartment unit, how available is land for new apartments, how difficult is it to entitle, permit and build in the jurisdiction. Search city and county building departments, multifamily broker's research departments (such as Marcus & Millichap), multifamily lender's research departments (such as Hendricks Berkadia) apartment data providers (such as alndata.com, MPF Research, Axiometrics, Real Data, etc.)

Third level is getting the perspective of the local folks in the trenches: Property managers, lenders and loan brokers, RE brokers who specialize in multifamily. Learning the good and bad neighborhoods and their boundaries comes from talking with local lenders and loan brokers about where they like to lend and where they avoid. Local prop managers will know what the tenant issues are in the neighborhoods. Good apartment brokers will know what's transacting as well as who the players are in the neighborhood and what the history is.

Fourth level is boots on the ground, yours. Drive the neighborhood in the day and during the night, what do you see, hear and sense? Go into the local stores and restaurants and talk to the people working there. How is business, who are their customers, where do they work. Is the neighborhood improving or declining? Where do you see it going in five,r ten or twenty years?

If that seems like a lot of work to do before you even look at one property, know that your top competitors are doing that every day. If you want to avoid getting stuck with the scraps they reject you'll have to know what they know. It's what we do and it's not complicated but it takes time. I suppose the 'simple' way is to believe what the listing broker says....

Good hunting-

@Joshua Dorkin thanks to you and @Brandon Turner for making it all happen. Ken McElroy is an outstanding example of an ordinary real estate investor who stayed with it through thick and thin to become successful and I'll listen to him as many times as you can get him to come on.

If you could corner him into doing an 'intensive' on any subject related to the apartment biz that would be great too-