All Forum Posts by: Kent Ritter

@Eyad Isa One of my first investments was through a crowdfunding site. I didn’t vet the sponsor and trusted the site did. It was a small toe in the water and a great lesson learned. The syndicator ended up defaulting because he was way over leveraged.

You live and you learn and you do it better next time.

@Ivan Sarabia You’ve received some great advice so far. I don’t have much more to pile on.

My two cents is that in the economic environment right now you want to make an investment in a property and market with the following:

1. tenant redundancy - (aka a lot of tenants) so you aren’t holding the mortgage bag if your 1 tenant moves out or defaults

2. Low rent burden - measured as the percent of a tenants gross income that goes to rent.

3. A high debt service coverage ration - Other way of saying this is how much can occupancy drop and you still pay the mortgage.

Syndication is a great way to get into a deal out of state that will have the size to meet requirement 1 and if your sponsor is good they will setup the deal to meet 2 and 3.

For example, we know that occupancy across our portfolio can drop 25% and we can still pay our mortgages.

If you want to hear more about what we do send me a private message.

Best of luck!

@Bjorn Ahlblad very true.  It's always very important to bring that grain of salt.

@Caleb Brown Thanks for the feedback!

I got this question through a DM, but after I went off on my tangent, I felt like others could hopefully benefit from the info too.

Are asset classes graded somewhere or just people's estimates?

There is no hard and fast rule for assigning an asset class. 

There are general rules I've learned by comparing a lot of properties. None are bad in their own right. Each fits for certain investors and their strategy. 

I personally stay away from the outliers A+ and D. Not enough current cashflow or too much of a headache to manage in reality.

Classes

A+: hearing more about this as developers try to differentiate from the competion. This is the top 1% in any market. Brand new with best amenities - smart apartments, pet amenities, etc. Also, intangible amenities like location (i.e., right in the best restaurant area). Lowest cash flow, but the highest organic appreciation potential in a bull market. Typically $90K+ MHI

A: built in the past 10 years, great locations, usual in downtowns, top amenities and a lot of them, nicest finishes (think stainless and granite, highest rents - low cash flow, but high organic appreciation potential. Typically $90K+ MHI

B: Built 10-30 years ago, typically more suburban, many more standard amenities like pools and fitness centers. The best balance of cash flow and appreciation. Typically tenants with $60k-90K MHI. Entry-level white-collar tenants. Better insulated from work disruptions for hourly tenants as many are salaried.My person sweet spot

C: Built 30-60+ years ago, Can be suburban or urban, many run-of-the-mill garden apartments. Limited amenities. Common laundry rooms. Typically tenants with $30K-60K MHI. Lower per-unit costs mean better value (cashflow), but lower organic appreciation potential. Need to watch for deferred maintenance especially plumbing issues due to age.

D: This is a C/C- in a bad neighborhood. Typically urban. High risk of delinquency and turnover. These look great on paper, but owners have issues hitting proformas due to the reality of the tenant base and the age and deferred maintenance on these buildings. Cash on cash return can be great if managed aggressively. This requires a unique skill set and a local presence. Limited organic appreciation. 

My last piece of advice is there are property managers that specialize in each of these asset types. Just like people, certain property managers are good at different things. if you try to bring in a B Class property manager who is used to deal with white-collar accountant tenants and want them to manage a D class, they are going to struggle to collect rent and maintain order.

@Scott Goulet Ohio is a good place to invest for cash flow, so is Indiana, because the ongoing yields are strong.

I would choose Cincinnati or Columbus before Dayton though. The job and population trends in those cities are better. Especially Columbus.

@Kyle Mitchell still focusing on buying. Not panicking and staying active now will produce something good opportunities.

Investors should be considering asset class. Class C properties will be hit the hardest as hourly workers cope with reduced hours and struggle to make rent. Class A and B with more salaried tenants will fare better.

Check out Kelly Thomas. He is in Knoxville, TN. He is knowledgable in multifamily and has been very helpful.

It won't let me share his contact info, so here is his website. TISins.com.  If you want his contact I'm happy to send it directly.

@Daniel Lozowy. Here is my advice.

1) start with the market - should you be in that market. Is their population growth, job growth, and job diversity.  Is it pro tenant or landlord? How are taxes?  Is there investment in the city?

2)look at the submarket - how are schools, crime, and proximity to highways and major employment centers

You should be able to rule out 70% of the deals just based on the factors above

3)Finally, look at the deal - is rent below the competition and by how much?  Are their examples in the market of renovated apartments getting rent premiums? These case studies are your best indicator.

You asked for a quick way.  That is it.  If you can't get a rent premium on a value-add deal then it isn't worth it.  You aren't going to make the returns you should want just by cutting expenses.

Hi Vincent, what types of deals are you looking at?  I invest in multifamily in Indianapolis and midwest.