All Forum Posts by: Neil Henderson

It all depends on the business plan that the investor went in with. 

If you purchased a large multifamily property as part of a syndication, you more than likely have investors who are going to want their capital back at some point. A straight refi might get them their original capital all back but that would take a home run value add play in my opinion. Most syndicators are looking to refi after they've executed the value add portion of their plan and return a portion of their investor's capital, but a smart syndicator (conservative) wouldn't promise their investors that would happen, it's an unexpected bonus. The cash flow from a large multifamily property, while significant, will usually pale in comparison to the gains that can be realized by selling at a new value added NOI/exit cap rate.

If you have investors who are content to give you their money and sit and collect cash flow, then a refi and hold forever strategy might work. It's just not typical in my experience.

Short term rentals are so variable it's a really tough question to answer without more specific information. 

We do a modern version of house hacking here in Las Vegas; we rent the casita at the front of house out. We have averaged about 65% occupancy for the last four years without really trying very hard. Our gross is about $1,600 a month and that basically covers our mortgage. We have it pretty well automated now and it requires very little work from us, mostly laundry. 

As a first level examination of a market, I would start with examining the population growth over the past five years, then unemployment, then the population demographics (by age), then job diversity, top 10 employers, then finally supply and demand (vacancy rates and 5+ unit building permits). That should give you a high level overview of the market.

@William Murden

If there is a broker involved they might have looked at the supply index but I've rarely seen brokers do that and even then I'd do my own due diligence on it.

I recommend picking up a copy of the Self Storage Almanac from Mini Storage Messenger.

https://www.ministoragemessenger.com/product/2018-self-storage-almanac/

As far as doing your own research on the supply index, @Mark Byrge is correct. It's mostly just using Google Earth to estimate the square footage of the competition in the area and then finding out what the population is in the 1, 3, and 5 mile radius markets. You can order a Demographic and Income Profile based on the facility address from ESRI. That will give you data on the population in the area, their median household income, employment growth, population growth etc. They cost money, but they offer a free trial and I've been able to generate a "sample" report on properties I've been looking at in the past.

@Kris Benson is correct. 7 square feet per person is considered the industry standard for market equilibrium, less than that, the market is considered under supplied (good), more than that, the market is considered over supplied (bad).

As far as Self Storage goes, the best piece of advice I can give is ask the bank what their appetite for self storage is, and when they answer, "We love self storage" ask them how many self storage deals they've closed on in the last year. Not all banks are created equal when it comes to a particular asset class. Bank A may promises better rates and terms, but if they haven't been able to close on a single self storage deal in the past year, that raises red flags for me.

@Scott Meyers is a good place to start when looking for advice on Self Storage.

130 units is pretty small but if you can automate as much of the operations as possible it might be doable. Beware the owner who says their expense ratio is only 20%.

This DaVinci overlock system should help a lot of owner/managers lessen some of the work load (if it works as advertised).

https://www.prnewswire.com/news-releases/10-federal-announces-the-official-release-of-the-davinci-overlock-system-for-the-self-storage-industry-300624272.html

 You can always ask but this is definitely one of those cases where I'd recommend asking for permission, not for forgiveness after the fact.

As other's have stated, typically a large apartment community deal is going to be value add. It's the BRRRR method on a large scale.

We prefer buying stabilized, cash flowing assets that have a value add opportunity to them. We are looking to renovate the interiors and exteriors and raise rents during a 5-7 year hold period. The asset is already cash flowing, if we spend $5,000 per unit rehabbing the property and that nets us an extra $100 a month in rent per unit, that's an additional $1,200 a year, which is a 24% return on that investment in year one. That doesn't factor in the multiplying effect of the cap rate on the value.

Cash flow is nice. In fact, in my opinion, it's your foundation and your safety net that allows you to wait out any market shifts. If that happens, we just stop the renovations and sit and cash flow.

If you buy a 200 unit apartment community for $20 million with a Net Operating Income of $1.1 million a year, it's cap rate is 5.5% (NOI $1.1 million divided by purchase price of $20 million equals 5.5% cap rate).

If you are able to increase the NOI by $100 a month per unit, that's an additional $240,000 in Net Operation Income. Add that to the existing NOI and you get a total NOI of $1.34 million. Divide that by the cap rate of 5.5% and the new value of the apartment community is a little over $24.6 million. You've created an additional $4.6 million in value by spending $1 million in renovations.

Once you've achieved that added value, you can take that to a bank and do a cash out refi which will return a substantial portion of your investor's capital.

It's the value add leveraged by the power of the cap rate that really makes you your money.

Welcome to the buffet table @Joe M.. Sample all that BP has to offer but beware the shiny object syndrome. There are a million and one ways to make money in real estate. There are also a million and one ways to lose money in real estate.

Buy and hold, house flipping, wholesaling, small multi-family, lease options, land contracts, large multi-family, assisted living facilities, vacation rentals, corporate rentals, self storage, notes, mobile home parks, medical office buildings, turn key rentals, etc.

Is your head spinning yet?

In my opinion, it's important to first begin with the end in mind. What does success look like? How much time is your chosen strategy going to take once it's achieved your financial goal? How location dependent is it going to be?

Is it self-managing your own portfolio of cash flowing single family homes making $80,000 a year in rental income?

Is it earning $150,000 a year flipping houses?

Is it owning your own self storage facility and managing the on-site manager?

Is it owning part of a real estate syndication earning a passive return on your money while an experienced operator handles all the day to day operations?

Is it owning a portfolio of single family turn key rentals, paying a management company and collecting the cash flow?

Start with what your financial goal. Then look at what your time horizon is (how quickly would you like to get there?). Finally, ask yourself how passive you want it to be once it's successful and how location depend it is.

As I said, there are a million and one ways to make money in real estate, but not every strategy is going to work for your specific financial goals or the lifestyle you are trying to build.

I hope that helps.

Personally, I would invest in a diversified portfolio of real estate syndications, spread out across four asset classes (Large multi-family, self storage, mobile home parks and assisted living facilities). Diversify across asset class, geography and asset manager. $250,000 into each asset class, each $250k bucket spread out between a variety of experienced asset managers, in a decent variety of geographic locations.