All Forum Posts by: Paul Khazansky

We only look to invest in apartment complexes that were built starting 1980, to avoid potential asbestos liability.

Hey Matt,

1031exchange is a great idea, however time pressure may turn out to be an issue for you as someone here correctly pointed out that you only have 45 days to identify the property. However I know I wouldn't want to invest the entire $1.5 mil in the same property, so you'd likely want to spread the capital over 2-3 investments for diversification purposes. You could stick it all in one investment just make sure you have low leverage in that deal to decrease your risk. You'll l sacrifice some of the return, but will be in ok shape in case market takes a dive.

About expectations, 5% cash on cash annually sounds very doable. Competitive commercial real estate shops typically aim for 5-6% cash on cash and upper teens in IRR.

Also, I assume you don't want to be an active investor, but rather find an asset manager who will identify the property for you, take care of the acquisition, and subsequently deal with the property manager, correct? I think that's the way to go for you, unless you yourself have substantial experience in commercial real estate investment space yourself.

One other thing - as the local market starts to approach the top of the economic cycle, rent increases slowly, if at all, and the supply of new product increases faster than absorption of that space. So pay attention to the levels of rent increases and vacancy rates too.

@Account Closed so if you are trying to figure out at what stage of recovery is a given market, you can do a few things here: IRR (Integra Realty Resources) puts out an annual publication that talks about the recovery stage of a given market (http://www.irr.com/Publication-PublicationList/Index.htm), as does ULI (urban land institute) with their annual report (http://www.uli.org/wp-content/uploads/ULI-Documents/Emerging-Trends-in-Real-Estate-Americas-2014.pdf). Also, you can always use cap rates as a proxy for how heated a given market is, Austin or DC, as an example, trade at very compressed cap rates, so that's a clear sign that these markets are very expensive right now. Hope this helps.

Assuming you're correct and that she is in fact asking above market, have you considered putting together a list of similar properties in same neighborhood/condition and use that as a negotiating tool?

@Will Barnard undefined

So right now we're speaking apples to oranges. I clearly stated that it's the relative performance of apartment buildings that I believe was reasonably unscathed, not one judged on absolute basis. Now if you believe that office, industrial, single family, etc. other RE asset classes came out better from the great recession, again, please state your source for evidence.

Now regarding people who bought at the top of the market... You know, I can make the same point about purchasing U.S. treasuries, arguably world's safest investment, at a wrong time, and you'll walk away a loser holding world's safest (or at least among safest) income generating asset. Obviously there are some people who purchased apartment complexes at the peak of the market, over-leveraged, and are now screwed. One - the same can be said of any other real estate class out there. And two, I think those who purchased apartment complexes exercising prudent investing principles (right price, strong markets, low break-even occupancy ratios, high occupancy rates, etc.), walked out feeling not terrible out of the great recession - again, relative to other real estate asset classes.

@Will Barnard

Hey Will, regarding the phrase "Commercial, apartment buildings in particular, really took a big hit in the last bubble and have yet to recover. " -- what evidence supports this claim? I was under the impression that multifamily (i.e. Apartments) came out relatively unscathed from the great recession, especially relative to other asset classes, so would love to hear more about your perception here.

No publication will provide you a great estimate of apartment rates, since real estate is super local. On top of that, different asset classes command very different rental rates, so you are better off pulling actual comparables for a given asset class in a specific submarket. For that rent.com or hotpads.com is decent start.

@Rob Fegan so problem with tiny markets is two-fold (as I see it): (1) you have very limited pool of competent property managers who will manage the property for you, and (2) liquidity of the asset is further constrained given that it's a secondary (at best) market, with a very short list of buyers, should you decide to sell this thing at some point down the road.

I'd stay away ftom towns as small as 15k unless the town has been experiencing nice income and population growth.