All Forum Posts by: Matthew Ryan

@Scott Passman - You're striking the right chords (minus tax incentives for development); Unfortunately, I believe those days are over. IMO, reform in zoning laws should be sufficient. My suggestions would be to align yourself with organizations that are helping fight the legislative push towards more destructive housing policies. I can't speak to those in the RE industry specifically (hopefully someone else can), but I can point you to the YIMBY organization, which, I believe, is now national. @Jaysen Medhurst summarized it well with various deep rabbit holes you can go down, all different based on the local and state policies enacted. We have produced a perfect storm here in CA, which a state Senator once told me "will take years" to reverse. I do, however, believe we're at an inflection point politically. It's vital as an industry for us to organize and talk about what the solutions are versus what the problems are or else while we're debating the latter, the politicians are making decisions on our behalf typically tilted towards the complaints of their constituents. Which, mind you, is what they're hired to do. It's not going to be an easy job, but the industry must remain capable of actually solving these issues. I once heard a former Republican South Carolina Congressman make a compelling case for carbon taxation in a way that is truly "free market." It was one of the most simple and yet persuasive arguments I've heard in my ten years of following the emergence of clean energy technology, energy efficiency, and the fight for environmental issues while balancing regulation. I only bring this up to remind you that at the time of his speaking engagement he was a "former" South Carolina Congressman ;) 

I won't refute this argument though I disagree with it. What I will say is learn to run an IRR calculation and let the numbers do the talking. I would be waiting a long time if I chose to wait and find deals to syndicate that had the same IRR of my first three big deals. Can a fully integrated (Property Management, Construction Management, Brokerage) small-time investor hit the same IRR's buying distressed 10 units and under properties as someone doing a hotel development? Absolutely. I've never seen anything to disprove this. I've hit 25% IRRs on all my personal properties across three asset classes in three different markets. High IRR can be achieved anywhere, under any product at any size and scale. But kudos to you @Michael Ealy for rousing up the debate on BP in addition to finding what works for you. 

@Jared Friedman - I'd recommend that you also look at Opportunity Zones Funds: more flexibility than 1031 and you can completely avoid capital gains on any new appreciation. 

@Nav Madhwan - I always think it's a good time to sell: when you have a decent amount of equity. Return on equity should be the metric you're looking at. Along with how much more passive income you can/will generate by recognizing that gain and investing it (hopefully tax-free) into other investments. That said, MF deals are hard to find. There may be other asset classes worth looking at but it's all based on what you want your income to be and your current return on equity. 

@Kimmy G. - You would (A) had to invest capital gains into a (B) Qualified Opportunity Zone Fund within 180 days of the capital even that then went out and acquired the apartment building with the intent of substantially improving it (increasing basis by 100%) in order to qualify for OZ benefits. Simples way I could say it. How'd I do?

@Justin R. - I only have the details you've posted so forgive me if I'm missing something here: From my perspective, you've got some serious digging to do. I applaud your ability to see a problem and want to adopt a solution. That's very entrepreneurial of you. But with that being said, here are some serious things you've omitted in your evaluation process that could drastically affect your budget:

(1) As others have mentioned: ZONING. This takes Legal (land use attorney) + depth of Architectural experience. It doesn't matter what your budget is if you can't even get the building approved for it's the new, intended use. Some zoning laws are antiquated and you may have zoning regulations that are unfavorable to this type of housing. If you haven't spoken to someone at the planning office, that's the best place to start. 

(2) It will be hard to estimate costs for construction until you understand what the change of use will trigger; here in Oakland/CA it triggers structural upgrades, fire upgrades, electrical, etc. Understanding this can be the make-or-break on a project.

(3) You need a GC/architect who have worked together before and have a good working relationship. They need experience in this space (adaptive re-use or work with commercial interiors) This can also come in the form of an integrated design/build firm. This will save you time and essentially, holding costs. 

(4) I'm not sure if you've considered this but any time spent on entitlements, zoning approvals, etc. just to start construction will have no only soft costs associated with it, but also holding costs from your lender. You need to factor this in as it can have a very negative affect on the returns of your project. If you're bringing in outside investment, this will also put you at a disadvantage to other investments that pay right out of the gate. So there has to be significant upside on the back-end through a sale or refinance. 

Sorry if you've considered all the above and this was repetitive. Hope this helps. Last thing I'll mention is operating a co-living property is very different than living in one. Property Management is HARD. Being an operator and a PM is MORE difficult, IMO. I would seriously consider finding an experienced operator to help you out of the gate. It's a lot of heavy lifting for just one person or even a team of 2-3 to handle. 

$800/month = $9,600 annually or a 13% Cash on cash return for your $75k. Seems reasonable for a RE investment. If you were to live in the space you could get a more solid return on your cash invested but it obviously comes with baggage. I would attend a few local RE meet-ups and find an experienced broker/PM and maybe a local investor/wholesaler to team up with. Sounds like you have the time to really navigate some key relationships which have the best ROI of any investment. The reason I say spend the time to do this is a deal may look great on the surface but there's often an undercurrent of unforeseen that could topple your cash flow in one fatal swoop for a property the size of what you're looking to invest. I've been successful in RE investing. I was a horrible swing trader. Skills are not always transferable and the reason I'm a good RE investor is that I've been doing it for ten years and I know enough about construction, being an ex-trade, plus having good analytical skills, which gives me a distinct advantage on underwriting. You're getting in at an incredibly difficult time. Deals are hard to come by, everyone is swearing by markets that no one would touch 4-5 years ago and we've seen asset prices outgrow rents and rents outgrow incomes. All fueled by cheap money. Anyone getting in at this stage needs to proceed carefully.

@David Dumas - Depends on the rate of the loan. But keep in mind that you only have $9k in the eyes of the bank. I would say consider your monthly cash flow on any investment plus the annual interest expense on the student loan before you consider doing anything. That interest expense is cash out of your pocket that could either be saved or put towards an investment that pays you each month, not costs you. Keep building your cash or find a way to sweat equity into a RE deal. 

Lastly, if you were the first to make it to college in your family, you won't screw up. It's great that you feel that obligation but you can't let it be a psychological burden. Have confidence that you made it this far and that you'll continue to succeed because you've been successful already. Let the accomplishment and the obligation you feel you have to your family humble you, not scare you. Find people who you trust who are looking for someone young and driven to do their heavy lifting for them on RE deals so you can learn the "game". You've got goals, you know where to go and how to ask the right questions and you seem eager to build a career for yourself that gives you autonomy. You're doing all the right things, IMO and you're far ahead of myself at that age. God speed. 

We're doing co-living projects here in the Bay Area but not any pod-sharing. The fact that there is even a market for this speaks volume to the imbalance between job creation and housing production. Yikes. 

@Lois S. - I used to be scared of this too. One must consider the amount of demand +, the amount of supply entering the market +, the fact that rent control severely restricts inventory turnover of existing stock +,  drives away developers who do not want to be in California due to rent control. Being a landlord is risky and you must pick your asset carefully but once you're in, the appreciation is astronomical due to factors I mentioned.