All Forum Posts by: Shannon Robnett

@Bailey Keefer Again it comes down to personal preference and math.  I know people that bought cash flow in Oklahoma and while it has made them money 10 years later the purchase price has not changed very much.  Look at it from this angle if you can truly get $600 a month cash flow after debt service, how long would it be before you could buy another one?  And another one?  And another one?

Lets face it Idaho is a great market for people to invest in who have great incomes from other states for its relative affordability.  For example you can purchase a newer 3 bed 2 bath 2 car garage within 10 min of downtown for $280ish and rent it for $1650+ and since we are dealing with record low (less than 1 month supply of for sale product and 3% rental vacancy) inventories we are seeing near double digit rent growth.  SO it kind of checks 3 boxes  down payments are smaller at that price point.  It will be real close to break even or maybe cash flow a tiny bit the first year and it sin a highly appreciating market.  But don't take my word for it as a 40 year resident, come take a look at it and other great opportunities in Idaho.

Happy to help you on your journey when your ready.

First of all your line of thinking (to question everything to find real answers) is awesome and will help you so much in your future.  All you questions are valid and really warrant addressing before you jump into something huge like a RE decision.  I was your age once and am now have twice as many revolutions around the sun as you so I will simply give you my opinion with the hope it helps you make good informed decisions for your life and situation.

First of all in order to get from 24 years old and no units to 39 years old and 50 is a very reasonable goal, but it needs to be quantified properly.  And in order to grow you are going to need appreciation starting out more than cash flow.  And what I mean is that if you are buying cash flow in the not nicer areas, they do not tend to appreciate very well.  A market that is selling today at a Cap 8 will likely stay a Cap 8 for the "not nice" reasons you see currently.  They also tend to not have things like job growth, landlord freindly taxes and a few other things. 

Besides getting a 10% return with little or no upside can really make the path to 50 feel like a marathon.  If you are looking at the math buying a $100k house with 10% down will show a great cash on cash return but in 5 years with 1% appreciation will barely cover sales costs.  How ever a 7 Cap in a 4% annual appreciation market will return far greater returns in the same time period over all.  Plus you will likely feel substantially more financially stable in a market that is growing jobs, reducing taxes and fighting rising crime with your ability to get tenants.

I would say that your idea about staying in the 80's for age is a really good idea as they are less likely to have major issues and can just need cosmetic stuff to put them back in rental order.

That being said out of area stuff is hard to learn on because of the distance.  It will also be harder to be hands on and truly be a part of the learning curve.  So there is a ton of value in starting in your back yard and hooking up with fellow investors in your region that are facing similar trials and tribulation on the investor journey.  and with where interest rates are at sometimes in appreciating markets its hard to get things to cash flow so you will need to find that balance of cash flow and appreciation.

One answer that I do not see here is that we have been behind on new home construction since the great RE meltdown.  Home builders all but stopped building new homes for several years and yet our population did not stop expanding.  For the last 5 years we have continued to produce at a pace equal to 2005 but we have never been able to get caught up to pre 2008 inventories.  

Check the data and you will see it has been a trend that all of the above comments validate this process becoming worse but the root can be found in the lack of homes produced from 2009-2013 era.

Let me ask a simple but long question. 

Do you really not see the value that a trained live market experienced real estate professional will bring to the table in pinpoint accurate pricing, advertising to other buyers in his/her network, office and other agents and ultimately writing all your contracts that are covered with E&O insurance and backed by an experienced also live RE broker who both live, work and spend money in your community?

Hey Dan,

We are doing ground up development and syndication of multi family and industrial in Idaho.  With the factors you mention on blast here in the fastest growing state in the west (I think the whole country) your google search will blow up with all the great news that has been coming out of Idaho for the last 10 years.  But I digress...

We have found that not only is multi family more predictable both short and long term but it is also quite a bit more recession resistant, easier to rent and manage, and is typically producing better and more consistent cash flow.  Let me explain.

Lets take your typical value add purchase:

Seller has a cash flow producing beauty and she is a rare gem.  Built in 1973 as a hotel, this baby has been converted to apartments that are now now boasting 6 coats of paint and a pylon sign no one uses any more.  And he wants full retail for this cash cow.  So buyers line up to pay retail because they all dream of making this place shine.  Taking her from a class C to a B+, and in doing so create the forced appreciation that leads to additional value.  So buyers not only are forced to pay retail, but they also bring in the cap X needed to create these transformations and in the process have now paid more than retail for the product, but now they are the proud owner of a JOB!!!  And in markets of the past 5 years its been pretty easy to do just that and convert these into a sweet bit of upside. ANd in 10 years she will have been worth it all!

Right down the street a developer has decide to take the vacant land and build some brand new apartments.  So he sets about designing and planning, and soon he has a solid set of plans and specs that he can bid out and start talking to banks about.  Another huge bonus to this process is the developer is able to build a project that has all of the modern amenities and comforts tenants are currently looking for, but are not often available in older product.  Just think, in apartment laundry and energy efficient windows with 9' ceilings and modern layouts.   In the developers case he will need to get an experienced GC involved and secure financing as well as a property manager familiar with a new lease up, but the math looks quite a bit different for him. 

While he will take some time to build his project, the appraisal will have given him a great snapshot of the market on provable rents and will show him where his true appreciation lies.  There is no drinking the Kool Aid on this one because appraisers tends to do a very in depth job on a commercial appraisal to understand, not only the produce but the surrounding market as well.  But when he is done he will have pretty significant upside from the cost of the project to the value at stabilization and it will all be his.  He will not be paying retail or buying someone else's appreciation and in most cases will see 18-25% appreciation in this time period.  All of this with NO forced appreciation!  That's right, in fact these numbers will be built on rents from before the project started.

Once stabilized he will continue to tune up the rents until this new development is running at peak cash flow.  It will be easy to predict expenses as well, because everything will be brand new so break downs will be rare.  Sidewalks will not be being pushed up by over grown roots and air conditioners will still have plenty of life left in them to get several decades down the road.  Carpets and appliances will all fall into the same category and at the end of the day expenses will be significantly less than older properties.

But there has to be a catch right?  Yes of course there is always a catch.  The catch is banks have a bit higher lending standard for developers as far as track record, so team member selection is going to be important.  And there is typically a bit more cash needed in the game on the construction loan side too, but that is easily refinanced out on completion.  Lastly since there is not any existing cash flow the banks will want interest reserves set aside to pay the loan during construction, but now even value add's are going to require that.  All done the rewards are oh so sweet when you have a new asset with that new tenant smell still permeating the club house and your maintenance man is soundly asleep in the corner with the Maytag man!

But take a look at this from the perspective of risk for a moment.  Anyone that bought a value add project in the last half of 2019 and was in the process of renovating and forcing appreciation is likely struggling to keep rents on an upward trend.  In fact he may have abandoned the remodel all together.  So here he sits with most of the cap X spent and the rents stagnant.  He is in a painful spot with his cash flow and likely his bank.  That's hoping he didn't find any undisclosed deferred maintenance that cost an arm and a leg.

And all the while one would argue that this is Covid related, and this would have been a home run if it wasn't for that.  But I think we can look back over the last 40 years and see quite a few times when situations just like this have happened in the rental markets and overnight things changed. 

Now honestly you tell me where the real risk lies.

Sorry Zaid To answer your question we have been over 95% rent collection !

@Zaid Bender

Here in Idaho we are experiencing the  second largest influx of former west coasters only surpassed by Texas.  We are seeing a ton of telecommuters and satellite contract employees moving into our market place for our cost of living differential and great way of life.  This has created a growing economy where the ancillary jobs are robust but we are not always seeing the office building match the employee count, if that makes sense.  We are seeing our rents and housing cost driven up by the better paying remote workers coming to our area.

It is definitely creating a supply and demand imbalance which has greatly effected rents and housing costs which is in turn driving more development.  We are seeing 12%+ growth for the 3rd year in a row and do not see this trend stopping.  We are getting national recognition for out growth and that brings national players.

Interesting times for sure.  Good thing I have a pipeline of equity and syndication deals for the new players coming to our market.

@Frankie Paterno Great job saving up that nest egg. I hear a lot of people advising you to jump into other markets and while I agree with them I would maybe ask what do you know about these markets and do you really want to manage from a distance?  That seems like a total pain to me, I mena you are going to fly out on a weekend decide if you like the market cram in finding a realtor, a property manager and then look for a neighbor hood you would want to live in, while watching the clock because you gotta be back to work on Monday?  Man that sounds like a goat rope and a half. 

Here is a thought. Get involved with a syndication. Do your research and bet on a pro for your deal. You are going to have a lot less control but instead of having your every waking moment tied up with your SFH you could be working at your job and saving for the next deal. Jumping in with a syndication is not risk free but you are, with the right amount of due diligence still looking at great IRR's and a bit of freedom that someone who is mainlining a house hack wont get.

Some may not agree because they can DIY their way to a better return in KC or elsewhere by being in the market, wholesaling a deal and then renovating, but all those things take time, money and effort.  And what a lot of people do not recognize in these calculations is that they have to work in the deal for free to get the return.  Because time is money.  Making money is great but you can't buy more time with it!

Investment Info:

Large multi-family (5+ units) commercial investment investment.

Purchase price: $3,500,000
Cash invested: $37,500,000

Breaking ground on another 191 unit project that has a mix of 3 story garden style walk up and townhome units on a beautifully landscaped amenity laden grounds across the street from a 55 acre city park! This is a home run in a great market.

What made you interested in investing in this type of deal?

Another ground up opportunity that will bring brand new product to our booming marketplace.

How did you find this deal and how did you negotiate it?

Off market land acquisition coupled with an annexation and rezone brought this beautiful project to life.

How did you finance this deal?

Non Recourse bank loan and equity

How did you add value to the deal?

Developing the whole project and bringing value to every phase is a bit of our secret.