All Forum Posts by: Giovanni Isaksen

In other words what @Nick B. is saying is that the market is so hot you have to pay a seller for the appreciation that you're hoping to create*. Now there is a lot of capital chasing deals and many people do the math on the best case and decide it's worth betting on the future appreciation or that the projected return is still better than other alternatives.

If you're a value investor like me maybe having to pay sellers for value they haven't created themselves (and may not materialize) is a sign that market prices have gotten ahead of intrinsic value and we're probably closer to the top of the cycle than the bottom.

From there it's a matter of deciding what your holding period will be. If you're syndicating the deal you've got about five years max before your passive investors start getting twitchy... no matter how long you told them their money would be tied up. If that's the case and you forecast that five years will mean selling in the down cycle maybe it's not a deal you want to do.

On the other hand if you are a long term investor (15, 20+ years) with your own money or permanent capital like Warren Buffett has then the market cycle and what you pay are not nearly as important as what you project the jobs, economy and population growth to be in the local market over your hold period. To illustrate let's hop in Giovanni's time machine and go back twenty years; what would you buy? Everything, right? Even knowing 2008 was going to happen. Now of course that's not true for every single market everywhere but if you're a long term investor you're focusing on markets that have good job, economic and population growth prospects into to 2040s.

To paraphrase the old saying then: "Begin with the exit in mind."

*And if it was so easy to create that value the seller would have done it already, right?

Hi Larry I would reach out to @Katherine Swanberg on here or through 

http://www.REAPSweb.com. She has rentals here and if she didn't have something available she'd know who to get in touch with.

Good hunting-

Hi Al, just back from vaca. ABCs of Real Estate Investing is readable for beginners but I read it to find out what McElroy did while he was building his apartment portfolio from the ground up. What I appreciated when I read the book many years ago was that it was written by someone who was actually building a private equity real estate business who started out like you and I, not a trust-funder with an Ivy league MBA (nothing wrong with that approach but that wasn't an option for me).

Good hunting-

You're welcome Pete, not sure what happened to their @links, but they're both BP members so you can find them by searching on here.

Thanks @Steve Vaughan for the mention. Hi @Pete Perez, these days I'm living up north but can recommend a couple resources to connect with. @Greg Gallagher is an agent who works with a lot of investors south of Seattle and he's also one of the leaders in REAPS, the largest REIA in the area which is a great place to network. Another investor agent who works Redmond north all the way to Bellingham is @Patrick Britton who also runs a meetup for RE investors. Both are great to connect with and will help you find good deals.

Good hunting-

@Bryan Hancock While my point a year ago was about making sure that the cash on cash return represented what actually ended up in your pocket (before taxes), and I never proposed only looking at cash on cash return, I'm sure you can relate to a situation where investors are promised a 7% preferred cash flow and that if the property in question doesn't proforma at least the pref itsa no good.

Happy holidays!

@Ben Lukes we're actually looking for an experienced rehabber to work with in the Tacoma area right now. We are working with several in greater Seattle area now but would like to have three or four more to keep our funds at work full time.

Good hunting-

Hi @Krisanne Heinze welcome to BP-

Happy to answer any multifamily questions or refer you to any of our apartment network people in Seattle.

Good hunting-

Sorry but what does your question have to do with laminate vs. vinyl plank (the title of the post)?

@Cameron Skinner I agree completely with your strategy for weathering downturns.

@Nick L. Happy to help. I don't have predictions (I'm writing a post about that now) but I do have a couple overarching themes that I use to guide my sector and market selection.

The first is that most people underestimate the effects of the Great Recession on Millennials and Gen Z. I think it will have a large influence on their housing choices similar to the way people who came of age in the Depression were affected. Most housing people seem to think 'it's just a phase but eventually they'll all want to own a sfr' but I'm not as convinced. Between seeing their parents and their friends' parents lose their homes or be trapped underwater in them, the amount of college debt they're graduating with and their need to be able to move to where the job opportunities crop up as well as a couple other factors makes it look like apartments and rental houses will do well for quite a while.

The second theme is that the country is being divided into haves and have nots based on the answer to this question: Got tech? Markets with tech clusters will do well. Seattle & the Bay Area being the poster children but also Austin, Denver & Boston plus a number of other places that might not come immediately to mind such as Pittsburgh. A lot of cities like Pittsburgh are trying to develop tech clusters that may or may not catch on but I have only half-jokingly suggested doing apartment market research the way Burger King used to market research; be across from McDonalds. Only in the case of apartments it's go to the markets where Google has an office. This will affect all the CRE sectors as well as single family rentals, but that's for another post.

Another theme is that because of the extraordinary measures the Fed has taken (and as of yesterday is still afraid to undo) there is a lot of capital looking for yield, desperate for yield that they normally would be getting it from bonds and other debt instruments. That has pushed a lot of capital into real estate markets compressing cap rates. Think about the large pension funds who are responsible for providing hundreds of thousands of about to be retired peoples' X% of final year's salary for the rest of their lives. Oh and these about to retire people will live about 10 years longer than we planned for 30 years ago. Try hitting those numbers with a fifty-fifty or sixty-forty portfolio of stocks and bonds. On top of that there's a lot of Asian money that would like to be owning US real estate and we have a recipe for cap rates staying lower longer than most people expect. For more on this theme see here, here and here.

Those are the major themes that along with a number of minor themes go into where we think different real estate sectors will do well going forward.

Good hunting-