All Forum Posts by: Ben Leybovich

 Haha Brave man. This was $330k per unit. Today prices are higher for this level of product, though.

 I am waiting for someone to ask the price per unit. Just for some shock value :)

 Well, I agree there. If all you are getting is 30% rent bump in the next 5 years, you are not getting much of anything. All of it could get wiped out with cap rate reversion. However, if I can gain 2% on the cap rate upon my basis in the span of 24 months, then I feel pretty well insulated. I could give all of it up to cap rate reversion and still break even, right? 

Now, to accomplish this, income has to basically double in this time - not a mere 30% in 5 years. 

To give you an example of what we do, we purchased a community 4 months ago. The 2x2 unit depicted in these pics had been rented for $1,250. After renovations, in August, it had rented for $1,935. Today, this layout rents for $2,225. The NOI at purchase was $1.35M - in 3 years when fully stabilized the NOI will be $2.6M. We paid $45M for this asset, which was exactly 3% capitalization of the in-place NOI. In Y3, at 5% cap it'll be worth $52M - and if the cap rates in Phoenix stay at 3%, as I suspect that they will, this community will be worth $85M.

Now, my company, WhiteHaven, is a fairly large, vertically integrated company with construction in-house, so arguably we can do things that most cannot. This may be fair. That said, I do not believe cap rates on Class A institutional assets in Phoenix, the fastest growth market in the country, will be heading above 5% any time soon, and we are well-positioned to sustain that and wait it out. 

 Lol I'd imagine that's what CCIM teaches. I am not sure I concur, though. I find it more useful to think of Cap Rate as a measure of market appetite. The more folks are willing to pay for the income, the lower the cap rate, obviously. The question becomes - is a low cap rate environment representative of higher or lower risk?

Short answer- yes. If you think about it, all of the money is made in the Delta. This is nothing new and this is same in all markets. When you buy stocks, for example, it's because you either think they are underpriced relative to the intrinsic value of the company (you are buying the Delta to the upside) or because you think they are overpriced (you are shorting the Delta to the downside). In both cases, the money is in the Delta. 

Real estate has always been the same. The cap rate describes the market. We buy the Delta. The more Delta there is, the more we pay for the asset, which in turn drives the cap rate down. And, the truth of this is that in the current cycle cash flow is the enemy of value in that if you are able to purchase healthy CF on day 1, which means you are purchasing at a fairly high cap rate, this necessarily means that there isn't much Delta because if there were the cap rates in the market would be lower and you'd never be able to buy at such high cap rate so as to see healthy CF. It's a ying and yang.

Makes sense?

I don't post very much anymore. I don't even log on much anymore. But, when I do, I seem to immediately be exposed to your posts, and I have yet to figure out whether you are a rather dumb person with a big mouth, or a smart person who'd like to learn how the big boys play, what makes us tick, and what we see differently :)

If you do, in fact, want to know what it takes to be an investor in this environment, then comment on this post with 1 very specific question and I'll be happy to be direct with my answer.

I'll kick us off by saying that cap rates have exactly nothing to do with the value of an investment to me. So, any post leaning on the low cap rate as an indication that the investment is over-priced is automatically misguided and misses the point 100%, as fr as I am concerned.

Your turn...

Feel free to ask questions :)

Well, this is an age-old conundrum and there are only two options - you change the market or you change yourself as it relates to what you by and how. Both options are not easy, unfortunately, but this is a process that will be reassuring throughout your career as an investor.

It's an end of an era - most certainly. The spirit and intent of BiggerPackets as a platform is encapsulated in the podcast through Brandon. David is fabulously intelligent and I am sure the show will do amazing going forward. 

I remember the early days. Like @Brian Burke I had no idea what a podcast was. But, I had been watching Brandon turn everything he touched on this site into gold, so when the guys asked me to come on in 2013, I was so excited. That was the first of 4 appearances.

Folks, my feelings for BP are a mixed bag, and nowadays I discuss them with Scott more so than anyone else. The reality, however, is that there is a written and audio-visual record of my development as a real estate operator on this website. This is really quite amazing. My every step and every developmental stage is curated here. It's almost like this community saw things in me that I didn't even see in myself, for which I m grateful. 

It's truly surreal what has been accomplished here, and Brandon was such an integral part of it all. Those are some big shoes to fill, but I am pulling for David!

Both are important as it relates to an appraisal for debt. But, neither says very much about the worth of the investment. All this says is that relative to the in-place revenue you are paying a fairly high price per unit. But, that, in and of itself, doesn't mean the investment is good or bad. More context is needed.